Final Results

Proactis Holdings PLC

Final Results

Proactis Holdings PLC, the business spend management solution provider, today announces its audited results for the financial year ended 31 July 2020.

Financial highlights:

Post period end highlights:

Tim Sykes, CEO commented:

"Despite the challenging macro-economic environment, we have executed our strategy well as we drive the Group toward a return to growth in FY21 and beyond. Our strategy is to replicate the go-to-market strategy of the UK and Netherlands in each of the US, France and Germany and we have made substantial headway with first sales of our mid-market single platform solution in Germany and France.

Although we are encouraged by the progress that we have made, we are also mindful of the impact of COVID-19 which is slowing the rate of commercial progress - whilst our pipeline is strong, demand continues to be marginally subdued through this period and sales processes are more challenging because of competing priorities. Despite these challenging market conditions, we are prudently managing our costs such that the Board continues to expect to meet our earnings forecast for FY21.

Notwithstanding this, the Group's new business performance is encouraging and combined with our return to organic growth in underlying ARR are material indicators of our progress. Our business has proved to be robust through this extraordinary period and our pipeline and forward revenue visibility positions us well for the future. We're in an exciting growth market and are poised to accelerate our growth, earnings and cash flow over the coming years."

An interview with CEO Tim Sykes covering the results is available here: http://bit.ly/PHD_FY20_CEO_overview

This announcement contains inside information for the purposes of article 7 of Regulation 596/2014

For further information, please contact:

Notes to Editors:

Proactis creates, sells and maintains software and services which enable organisations to streamline, control and monitor all indirect expenditure. Its solutions are used in approximately 1,100 buying organisations around the world from the commercial, public and not-for-profit sectors.

Strategic report

Notwithstanding the impact of the COVID-19 global pandemic ("COVID-19"), the transformation of the business is firmly on track and is progressing as the Board had hoped and expected. The work that the Group undertook in the prior year to set the business up for a return to growth is coming into fruition and the early indicators are positive, with the transition to replicate the go-to-market strategy of the UK and Netherlands in each of the US, France and Germany territories, and the associated changes made to team structures, now starting to gain traction.

Demonstrating the effectiveness of its strategy, the resilience of the business model and the ability of the Group's teams to deliver despite a change in working practices, the business has delivered a record year in Total Contract Value ("TCV") wins with increases secured in virtually all markets.

Whilst the pipeline is strong and the Group's performance has been very encouraging, there is no doubt that COVID-19 has had an impact on sales processes - without this the Board is confident that pipeline conversion would have been even stronger. The Group is well-positioned to continue to capitalise on the opportunities available to it and expects to make further progress in growing the rate of new business intake.

Strategic overview

The Group's long-term strategy is to build an international business focused on delivering best value to its customers through the digital transformation of their procurement systems and processes with the application of the Group's software technology and provision of its expert services. The Group's strategy can be illustrated as follows:

· Maximise customer and technology opportunity

· Accelerate new business spend management momentum

· Roll out bePayd

· Drive adoption of existing supplier paid products

· Extend supplier paid product portfolio

This strategy is designed to deliver a strong financial proposition of profitable, cash generative organic growth with a high level of visibility illustrated by its annual recurring revenue ("ARR") across both buyer and supplier paid products, as defined in the additional information at the end of this document.

The Group aims to drive organic growth into its business spend management solutions by retaining existing and winning new customers through continually improving its best in class procurement solutions with high service levels and excellent user support as well as a focused approach to the up-selling of the Group's extensive range of solutions, creating even broader and deeper customer relationships.

In addition, the Group has a substantial opportunity to provide complementary products which leverage the business spend management solutions with transactional services, tender services and the Group's accelerated payment facility, bePayd.

Strategic performance

Progress against the Group's new strategy has been encouraging with performance in line with Board and market expectations for the year despite the emergence of COVID-19 during the period, demonstrating the resilience of the Group's business model.

TCV of new business signed was strong increasing to £14.6m (2019: £11.3m) - a record high - reflecting the Group's investment in its marketing, sales and account management capabilities and its new go-to-market strategy. Whilst new business deal intake was very pleasing, the performance was undoubtedly impacted by the outbreak of COVID-19 on customer buying and implementation decisions.

The Group's reported revenues decreased to £49.6m (2019: £54.1m). This reduction in revenue is primarily due to:

· net customer losses in the prior year (net £4.7m churn in the year ended 31 July 2019), which, as a consequence of the SaaS based subscription model that the business operates, flows through to the current year income statement; and

· the impact from COVID-19 on the Group's implementation services revenues and volume-based subscription contracts, which the Board expects to normalise following the end of the pandemic.

The reduced level of travel and expense and deferred investment in further marketing and sales capacity enabled the Group to maintain its margins and report Group Adjusted EBITDA (See additional information at the end of this document) of £11.8m (2019: £15.1m), in line with market expectations and demonstrating the robustness of the Group's business model and the agility of its decision-making. Further, the Group Adjusted Free Cash Flow was £0.9m (2019: £6.9m). The Board considers this financial performance to be in line with expectations and positions the Group well to continue to capitalise on the opportunities available to it.

Reported EBITDA of £9.0m and Loss Before Tax of £19.3m is shown further within the Financial Review.

Goodwill impairment testing resulted in the need to impair goodwill in the US, France and Germany Cash Generating Units ("CGU") by the amount of £14.8m. The impairment in France and Germany partly resulted from a change in CGU reporting / measurement aligned to better report on the business. All three CGUs were also impacted from COVID-19 which delayed pipeline conversion and slowed volume related businesses during the period under review. All other CGUs showed headroom in these calculations. This is further analysed in the Financial Review.

Analysis of the non-core net expenditure and the definition of Group Adjusted EBITDA and Group Adjusted Free Cash Flow and other alternative performance measures are included within the Financial Review and Additional information - Reconciliation of alternative performance measures.

The Board considers that the primary value of the Group is driven by the value and momentum of its Annual Recurring Revenue ("ARR") and the Group's strategy is designed to achieve strong organic growth in that metric. This metric is a function of the following key performance indicators, which are reviewed in detail below:

· The rate and value of new deal intake and up-sell activity; and

· The value of customer churn.

Total Contact Value

The Group secured an aggregate TCV of £14.6m (2019: £11.3m), being a 29.2% increase from the previous financial year, and a record year for the Group.

TCV was delivered from 61 new name customers (2019: 60) of which 43 (2019: 55) were subscription deals and aggregate TCV was £9.0m (2019: £6.4m). The number of up-sell deals sold to existing customers remained at the strong levels experienced in the prior year, remaining at 127 (2019: 127) with TCV increasing to £5.6m (2019: £4.9m).

* The Tenders Direct business shows net wins

Note: The definition of segment is described in detail in the Financial Review

* The Tenders Direct business shows net wins

Note: The definition of segment is described in detail in the Financial Review

During the year the way information was internally reported changed to reflect a clearer presentation of how the Group is operated between Business Spend Management (buyer led) customers and supplier led customers. Comparative information has been re-presented to align to the updated analysis.

The transition to replicate the go-to-market strategy of the UK and Netherlands in each of the US, France and Germany territories, and the associated changes made to team structures is starting to gain momentum as can be seen with the delivery of a record year in TCV wins with increases secured in virtually all markets.

The Board is satisfied with the level of new names and up-sell deals won and the growth in pipeline during the year and is confident that the Group is now well positioned to further accelerate this win rate in the coming financial years.

Customer Churn

As reported previously, the Group has experienced heavy customer churn over the last two financial years in specific customers with non-authored product deployment and, as at 31 July 2019, the Group defined these as Heightened Risk Accounts ("HRA").

The detail below shows the progression that the Group has made during the year against those HRAs.

The remaining HRAs are largely due for renewal in the following financial year.

The level of retention and conversion into multi-year deals in these accounts has been above the Board's initial expectations and demonstrates the Group's renewed ability to offer alternative solutions to existing customers.

Total churn in the reported year including HRAs was £4.4m (2019: £7.3m).

ARR

During the year COVID-19 has impacted the group in various ways, including delays in new business, deferral of project implementation service revenues through project deferrals and reduction in volume-based contracts.

The following table analyses the Group's ARR into three categories:

Non-volume based ARR

Volume based ARR

HRAs

The Board is encouraged by the underlying performance of the Group's non-volume-based business with an 8% increase in ARR from the previous reporting period.

The COVID-19 global pandemic has impacted performance adversely where customers have volume-based contracts; principally in the Group's Business Process Outsourcing ("BPO"), Managed Service Auctions and Invoice Capture businesses. Further minor impacts have been experienced in the Group's Tendering Services business where supplier subscriptions can be viewed as discretionary marketing expenditure.

ARR movement can be analysed further as follows:

ARR as at 31 July 2020 is in line with the Board's expectations. The NL Business Spend Management territory continued to perform across deal wins but did suffer from a small level of expected churn. The UK Business Spend Management territory performed better in the second half of the year but suffered larger churn overall. The US, France and Germany Business Spend Management territories suffered from both normal churn and churn arising from HRAs but now have teams in place and pipeline that continues to build.

Solutions and markets performance review

Business Spend Management (Buyer) solutions

The Group provides business spend management solutions to customers that enable those customers to reduce the cost of goods or services purchased through enhanced sourcing activities, access efficiencies through the automation of manual processes using technology and also to provide an enhanced level of corporate governance and compliance through work flows designed into the technology.

Buyer revenues for the year were £41.1m (2019: £45.0m). The decrease in the year was anticipated following the customer churn in the previous two financial years as well as impacts from COVID-19 on the Group's implementation services revenues and in its volume-based contracts.

Supplier solutions

The Group provides access to technology that enables suppliers to transact digitally with their customers. This technology, being driven by a buyer decision to make a supplier pay, is often referred to as networking technology and the technology can allow multiple documents in any format to be passed between suppliers and their customers and it can also allow greater collaboration between suppliers and their customers through the provision of other trading information, In addition, the Group uses its technology to deliver tailored new business opportunities to suppliers through its search and selection of a vast number of new business opportunities, tenders, from a number of international sources.

Revenues for the year were £8.5m (2019: £9.1m). The Tenders Direct business in the UK was broadly in line with the previous year with revenue of £4.1m (2019: £4.2m). Revenue from the Global Transactions business segment was £4.4m, £0.5m lower than the prior year (2019: £4.9m) as COVID-19 impacted this business segment with a lower number of transactions being generated by suppliers with their customers. The Board is aware of the variability in volume related areas of the Group's business and will continued to monitor performance closely.

Financial solutions

The Group has recently brought its new early settlement solution, bePayd, to market. The solution allows suppliers to accelerate the payment of a customer approved invoice in return for a small discount and is primarily aimed at the long tail of small suppliers in the supply chain, a population that is underserved.  At launch, the solution is market leading in its simplicity, speed and convenience without any detriment to security or risk. The solution is entirely flexible down to single invoice level with extremely low values because of the end to end automation of the process. Funding of the early settlement can be provided by either the customer or Proactis (through a dedicated facility with HSBC) or a blended model.

Early adopters have been identified and the Group looks forward to implementation and working with these customers to roll out the solution with a view to testing and optimising take-up within their supply chains.

Markets

The Group offers true multi-company, multi-currency and multi-language capabilities and this remains an essential differentiator as the Group increases its presence across more sectors worldwide. The Group continues to sell its solutions to customers operating across several continents and many different sectors.

The Group competes on various levels; local vendors, Enterprise Resource Planning ("ERP") vendors and international procurement vendors and this mix makes for an extremely competitive environment. The "end-to-end" message and tight integration techniques mitigate this and positions the Group as a value-led solution against both big ticket, consultancy led ERP vendors, international procurement vendors' solutions and potential multi-vendor software led solutions. This value proposition is particularly compelling for mid-sized commercial and public sector organisations, both of which the Group is focused on across all of its business segments.

The Group's go-to-market strategy is based on a targeted and efficient deployment of its marketing and sales resource within each market segment it operates in. Within those segments, the Group seeks to maximise its return by selecting verticals where its solutions fit well and are referenceable and, with thorough research and with experiential grounding, can attain a leading position as the default provider. This strategy is at varying levels of maturity within the Group's business segments and the Board looks forward to the potential accelerated growth rates that could result.

Operational Review

Following the operational review in 2019, the Group changed strategy to focus on the review's resultant action areas, being:

· Target market segment and customer profile definition

· Alignment of product portfolio

· Bolstering new business capabilities

· Focusing on retention

· Driving growth within the existing customer base

· Active management and leadership

· Financial position

An update on the progress against each of these areas is given below:

Vision, mission and positioning

During the year, and as part of the Group's growth strategy a new vision, mission and positioning statement was developed. These are shown below and have become the principles of the Group.

Our values

The Group has created the following values which will help manage our relationships with the Group's stakeholders and communities:

· Our customers - we will share ownership of our customers' success and their return on investment

· Our people - we will support our people to be successful by providing enriching experiences within a mutually respectful relationship

· Our planet - we will make decisions and policies that protect our planet

· Our quality - we will deliver quality in every aspect of what we do

· Our Concept of One - we believe in simplicity, scalability and efficiency through singularity

M&A strategy and activity

The Group's M&A strategy continues to be to acquire businesses that fit strict selection criteria based around the following principles:

· Consolidation of complementary customer bases and solutions - the procurement space is sufficiently fragmented to offer significant scope for this;

· Businesses with long-term customer relationships, ideally contracted and with a proven track record of retention and renewal;

· Technology led solutions and service offerings that are complementary to the Group's existing offering; and

· Technology that is compatible with the Group's existing technology.

The Board is mindful that, despite the obvious potential accelerated growth that can be delivered, further M&A activity at this point could be too punitive from an equity dilution perspective and the Board is reluctant to increase gearing further at this time.

COVID-19

The Board and Executive Leadership Team ("ELT") continue to closely monitor the impacts of COVID-19 on the Group's businesses. Revenue impacts referenced earlier within this report have largely been offset by natural cost savings as a consequence of changes to operational and commercial management throughout the pandemic, where travel costs and marketing expenditure have been changed to support virtual working practices and previously anticipated investment in further growth has been deferred.

Directors

Following the end of the financial year, both Sean McDonough and Sophie Tomkins resigned from the Board. Sean resigned on 30 September but will stay an employee of the Group until his notice period ends on 20 September 2021; and Sophie resigned on 5 October 2020 with immediate effect.

The Board remains committed to strong corporate governance and in line with its earlier commitment to strengthen the independence of its non-executive directors, the Board is already undertaking a formal search process, with a number of candidates identified. This search includes the process of appointing Sophie's replacement.

Corporate Update

As reported previously, at the end of the previous financial year the Group commenced a formal sales process (as defined under the Takeover Code) to enable the Board to explore a number of approaches and expressions of interest which the Board considered had the potential to provide benefit to the Group's stakeholders. A comprehensive process was run to assess the credibility of interested parties and their ability to deliver an offer or strategic outcome that could be recommended to shareholders however, it did not lead to any firm proposals being received and the process was terminated. The Board is confident this was the right result for the business, as the Group has made significant headway in delivering against the revised strategy and the Board considers that superior shareholder value will be achieved by focusing the Group's efforts on delivery of this strategy.

Brexit

The Board's assessment of the impact on Brexit remains in line with the previous financial year. The Group has significant operations with staff and customers based within the member states of the European Union ("EU"), United Kingdom and United States. The Board acknowledges the continued uncertainty around Brexit and it considers that the Group is unlikely to be impacted significantly because the Group is not a large importer or exporter goods or services across EU borders. The Board continues to monitor the situation.

Section 172 (1) statement

The Board of Directors of Proactis Holdings plc consider both individually and together, that they have acted in the way they consider, in good faith, would be most likely to promote success of the company for the benefit of its members as a whole (having regard to the stakeholders and matter set out in s172(1)(a)-(f) of the Companies Act 2006) in the decisions taken during the year ended 31 July 2020. Specific matter with regards to s172(1)(a)-(f) are discussed further in the Directors' Report on page.

Outlook

Proactis is a profitable, SaaS based software company delivering compelling solutions to an exciting growth market. Our strategy is well founded and is starting to deliver the outcomes we had planned for with an improvement in both new business and churn performance enabling the Group to return to underlying ARR growth.

Accordingly, the Board is optimistic about the future prospects of the Group with an anticipation of a return to growth in the short-term and an acceleration of that in the longer term as its go-to-market strategy matures in France, Germany and the United States. The Board is also confident that bePayd will progress commercially along a similar timeframe.

The Board is, however, cognisant of the difficult external factors that are introducing an additional layer of risk into sales processes and, whilst current pipeline is strong and supportive of the Group's short-term objectives, it is therefore prudently managing operating margin and discretionary investment in order to ensure that the Group underpins its growth expectation with advances in earnings and cash flow in the current and future years. Furthermore, the Board expects the Group to meet its earnings forecast for FY21.

By order of the Board

Alan Aubrey

Chairman

Tim Sykes

Chief Executive Officer

Financial Review

Trading

The Group's reported revenues decreased by 8% to £49.6m (2019: £54.1m). Adjusted revenues were £49.2m after removing revenue relating to a non-core part of the business classified as held for sale at the year end.

The Group's business model, which is guided by the appropriate accounting standards and internal policies, means that revenue recognised in the income statement is largely a function of the deals (both new name and upsell) that were signed in the previous year, rather than the year in which those deals were actually signed. This timing difference can routinely be between 6 and 12 months before income statement recognition.

The Groups' strategy is to grow by a combination of organic, through provision of software and associated services, and inorganic means and therefore total reported revenue is a key performance indicator as the Group looks to continue to drive toward scale. Growth very recently has come through acquisition means and during the previous financial year the Group's operational review delivered strategic action points which if delivered correctly would return the levels of organic growth that the business has historically shown.

The Group's long-term revenue growth performance as represented by a three-year cumulative average growth rate was 25% (2019: 41%).

The Board monitors the Group's growth performance through a combination of several key performance indicators as follows:

* Includes impact of acquisitions

Revenue by territory segment

Reported revenue in the year is shown below split by Business Spend Management ("Buyer") and Supplier businesses. Revenue reductions in all areas other than the Netherlands business was driven by churn in the previous two financial years as a consequence of the Group's SaaS based subscription model, along with COVID-19 impacts in volumes related parts of the Group.

The Group's reported revenues by market segment were:

Revenue is in line with the Board's expectation when taking into account the impact of COVID-19 on various parts of the Group, along with the effect on the anticipated growth arising from the Group's operational strategy. Revenue performance in the year has been impacted both by COVID-19 and the net customer loss position in the prior year (net £4.7m churn in the year ended 31 July 2019). 

Revenue visibility

ARR is a key performance indicator giving the Board visibility of the Group's annualised run rate of contracted subscription, managed service, support and hosting revenues. It provides the Group's stakeholders with real indicators of:

· The amount of revenue from new business required to be won in order to hit expectations in future periods;

· The level of debt that the business can conservatively support and hence assist in the overall return to investors; and

· The overall strength of the Group.

The Group's ARR and can be analysed as follows:

Underlying ARR growth in the France and United State Business Spend Management markets is encouraging as these territories transition to the Group's growth strategy. Germany was stable. Pipeline is building in each of those locations as a result of the operational changes and target markets focus that have previously been disclosed. The Board expects ARR growth in all Business Spend Management markets in the forthcoming financial year.

Gross margin

The presentation of the Group's reported results does not include the sub-total of gross profit in order to better reflect the reality of the Group's operational performance. Gross margin is, however, a relevant measure of performance when considered as revenues less cost of third-party revenue share or products.

The Group's business partners and its own direct sales effort sold contracts under both the subscription and perpetual business models delivering a consistent gross margin from the previous year of 88%, defined as revenue less cost of sales.

Staff costs and other operating expenses

The aggregate of staff costs and other operating expenses (excluding depreciation of property, plant and equipment and amortisation of intangibles assets) increased during the year to £35.5m (2019: £34.1m).

This part of the Group's costs has included significant items of income or expenditure over recent years associated primarily with the Group's acquisition activity and the resultant integration or restructuring programmes (together, "non-core net expenditure"). The impact of this non-core net expenditure on the aggregate of staff costs and other operating expenses is as follows:

Non-core net expenditure (see additional information) can be analysed as follows:

Capitalised development costs and costs of software for own use were £8.5m (2019: £7.6m). The income statement includes a total charge for the amortisation of capitalised development costs and costs of software for own use of £7.2m (2019: £6.7m).

Depreciation of property, plant and equipment

The charge to depreciation of property, plant and equipment increased to £1.6m (2019: £0.6m). The current year charge includes a charge relating to IFRS 16 adoption from 1 August 2019 of £1.1m

Amortisation of intangible assets

The charge to amortisation of intangible assets increased to £10.6m (2019: £10.1m) due to the increase in development costs capitalised in the previous year following the Esize acquisition.

Goodwill is tested for impairment on an annual basis which resulted in the value in use calculations performed as at 31 July 2020 indicating the need to impair goodwill in the US, France and Germany Cash Generating Unit by the amount of £14.8m (2019: £27.0m impairment against the US CGU). The UK, Netherlands, Global Transactions, Tenders Direct and bePayd showed headroom in these calculations. The value in use calculations were sensitised for reasonably possible changes in key assumptions.

Interest

The Group incurred a net interest charge of £1.0m (2019: £1.4m) of which £1.3m (2019: £1.3m) was bank interest arising from the Group's banking facilities. The other elements relate to fair value, foreign exchange and interest impacts from convertible loan notes, and IFRS 16, Leases.

Taxation

The Group has reported a net charge in its income statement of £0.02m (2019: £0.7m) resulting primarily from the impact of changes in deferred tax balances.

The Group's charge to current year income tax was £0.4m which was an effective rate of 6% against chargeable profit before tax of £7.2m. This is below the weighted average income tax rate for the jurisdictions that the Group operates in because of the utilisation of tax losses and allowances within the Group which the Board considers will provide long-term benefit.

The Group recognises deferred tax assets related to tax losses of £0.8m (2019: £0.8m).

Reported profit and Group Adjusted profit performance

The Board considers that each of the two years ended 31 July 2020 have been significantly impacted by non-core net expenditure incurred primarily as part the Group's acquisition and restructuring activity. A summary of the various profit measures is set out below.

Note 1: See Additional Information - Reconciliation of alternative performance measures.

Cash flow

The Group reported net cash from operating activities of £8.0m (2019: £11.9m) which is higher than the reported operating loss of the Group of £18.4m (2019: £24.4m). Cash flows for the year ended 31 July 2020 were affected by £0.3m (2019: £0.6m) of costs that were charged in the income statement during the year ended 31 July 2019 and accrued at 31 July 2019 but paid during the year ended 31 July 2020. The cash flow for the year ended 31 July 2020 was also impacted by non-core net expenditure charged to the income statement during the current financial year related principally to the restructuring programme.

An analysis of the Group Adjusted Free Cash Flow is as follows:

The Group paid a cash dividend of £Nil (2019: £1.4m) to its equity investors.

Net bank debt

The Group reported net bank debt of £37.1m at 31 July 2020 (2019: £36.5m), comprising total cash balances of £5.5m (2019: £7.7m) and gross bank debt of £42.6m (2019: £44.2m) of which £0.9m is payable within one year.

The analysis of net bank debt above excludes the remaining $3.75m convertible loan notes issued as part of the Perfect acquisition as well as the €3.0m of convertible loan notes issued as part of the Esize acquisition.

Earnings per share

Basic loss per share was 19.9p (2019: 27.9p). The Group reports adjusted profit per share measure (see Note 5) of 2.9p per share (2019: 6.6p) to take account of non-core net expenditure (as shown in the additional information) and other factors.

Dividend policy

The Board announced in April 2019 that it had decided to suspend the payment of an annual dividend. Therefore, no final dividend is proposed (2019: nil).

Treasury

The Group manages its cash position in a manner designed to minimise interest payable on its structured finance facilities. Surplus cash funds are used to reduce debt.

Richard Hughes

Chief Financial Officer

28 October 2020

Consolidated Income Statement for the year ended 31 July 2020

The following notes form an integral part of these financial statements. 

Consolidated Statement of profit or loss and other comprehensive income for the year ended 31 July 2020

The following notes form an integral part of these financial statements

Consolidated Balance Sheet as at 31 July 2020

The following notes form an integral part of these financial statements.

Consolidated statement of changes in equity

As at 31 July 2020

Consolidated Cash Flow Statement for the year ended 31 July 2020

Notes

These audited results have been prepared on the basis of the accounting policies which are to be set out in Proactis Holdings PLC's annual report and financial statements for the year ended 31 July 2020.

The consolidated financial statements of the Group for the year ended 31 July 2020 were prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted for use in the EU ("adopted IFRSs") and applicable law.

The financial information set out above does not constitute the company's statutory financial statements for the years ended 31 July 2020 or 2019 but is derived from those financial statements.

Statutory financial statements for 2019 have been delivered to the Registrar of Companies and distributed to shareholders, and those for 2020 will be distributed to shareholders on or before 13 November 2020. The auditors have reported on those financial statements and their reports were:

(i) unqualified;

(ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and

(iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006 in respect of the financial statements for 2018 or 2019.

1. Basis of preparation

The Group financial statements have been prepared and approved by the directors in accordance with adopted IFRSs.

The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

2. Change in significant accounting policies

IFRS 16 'leases' was adopted by the Group on the 1st August 2019. The new standard provides a single lease accounting model, specifying how leases are recognised, measured, presented and disclosed.

The Group has applied IFRS 16 using the modified retrospective transition approach. Therefore, the comparative information has not been restated and continues to be reported under IAS 17. Under IFRS 16, the Group distinguishes between leases and service contracts based on whether there is an identified asset controlled by the Group. Control exists if the lessee has the right to obtain substantially all of the economic benefit from the use of the asset (the cash flows generated by that asset) and the right to direct the use of that asset as if it were their own. Where control exists, the Group is required to recognise a right-of-use asset and an opposing discounted lease liability, rather than accounting for operating lease payments through the Consolidated Income Statement.

Lease liabilities were determined based on the value of the remaining lease payments, discounted by the appropriate incremental borrowing rates. The right-of-use (ROU) assets were measured based on the related lease liability as at the date of transition, adjusted for prepaid or accrued lease payments. The financial statement impact of IFRS 16 is shown within this note.

On initial adoption, the Group has elected to use the following practical expedients proposed by the standard:

· Lease payments for contracts with a duration of 12 months or less to be expensed to the income statement on a straight-line basis over the lease term.

· Lease payments for contracts for which the underlying asset is of a low value (defined by the Group as below £5,000) to be expensed to the income statement on a straight-line basis over the lease term.

· The application of a single discount rate to a portfolio of leases with reasonably similar characteristics, for example copiers with a similar lease term.

· The Group has not reassessed whether a contract is, or contains, a lease at the date of initial application.

Judgements made in applying IFRS 16 include assessing the lease term and identifying the discount rate to be used.

Under IFRS 16, the Group has capitalised the right of use of properties, cars and copiers previously held under operating leases. At the date of adoption 10 properties, 17 cars and 17 copiers were capitalised. The lease term corresponds to the duration of the contracts signed.

The Group has recognised a right of use asset representing its right to use the underlying asset and a corresponding lease liability representing its obligation to make lease payments. Operating lease expenses have been replaced by a depreciation expense on right of use assets recognised and an interest expense as the interest rate implicit in the Group's lease liabilities unwinds. When the interest rate implicit in the lease is not readily determined, the Group's incremental borrowing rate has been used.

Finance leases previously capitalised under IAS 17 'Leases' have been reclassified to the right of use asset category under IFRS 16.

The following table summarises the impacts of adopting IFRS 16 on the Group's consolidated statement of financial position as at 1 August 2019.

2. Change in significant accounting policies (continued)

The adoption of IFRS16 in the 12 months to 31 July 2020 resulted in an increase in depreciation of £1,111,000 and finance expenses of £128,000. Other operating expenses decreased by £1,154,000.

The Groups banking covenants have not been impacted by the adoption of IFRS16, they continue to be measured and monitored on a 'frozen GAAP' basis.

3. Operating segments

Operating segments have been identified based on the internal reporting information and management structures within the Group and take into consideration the relative size of the operation. The Board has determined there are two (2019: four) reportable segments being the business spend management ("buyer") and the supplier business, based on how the Group goes to market. The Board has determined that this is a more appropriate segmentation than the prior year approach of segments by geographical location and reflects the high level distinct divide between buyer and supplier customers. This reporting change reflects the internal organisations changes that have occurred during the year. As the Group continues to develop and expand, the number of reportable segments will be kept under review.

Each reportable segment derives its revenues from the sale of business software and associated services.

3. Operating segments (continued)

Reconciliations of information on reportable segments to IFRS measures

4. Taxation - Reconciliation of effective tax rate

Reconciliation of effective tax rate

5. Basic and diluted earnings per ordinary share

The calculation of earnings per ordinary share is based on the profit or loss for the period attributable to ordinary shareholders and the weighted average number of equity voting shares in issue as follows.

6. Intangible assets

6. Intangible assets (continued)

The Goodwill and other intangible assets are allocated to the Group's CGU's as follows: