Proactis Holdings Plc (LON:PHD) Chief Financial Officer Tim Sykes caught up with DirectorsTalk for an exclusive interview to discuss revenue, acquisition performances, future acquisitions, the Screwfix supplier networking project and similar projects in the future
Q1: New deals and order intake are looking very positive at the moment but why has it not converted into an equivalent growth in reported revenue?
A1: You’re right to say new deals and order intake are really positive, we’re delighted with the 23 new names that we’ve signed against 20 in the previous year and the order intake of £3.7 million against £2.6 million last year in the same period is really really good given the environment that we’re all trading in. The reason why that order intake doesn’t necessarily immediately go into revenue growth is just about revenue recognition so the orders that we have signed this year have been shifted towards SaaS based contracts which you recognise over the term of the contract rather than immediately upfront as you might do with a perpetual licence let’s say. That’s great news for us because the lifetime value of the client is much much more under a SaaS based business model and so we’re delighted to have signed those SaaS based models but it does mean that in the short-term revenues are a bit slower to come through into the P&L account or income statement but over the period of the contract are much greater and more secure and visible.
Q2: So they will start to flow, just at a slow rate?
A2: Yes, absolutely. In 2010 we offered the SaaS based business model for the first time and the group took 2-3 years to convert itself into that blend of model that we offer today. So we’re used to this profile and we’re very positive about it and the market is positive about it in the same way.
Q3: Have there been any highlights or lowlights in the different elements, geographies and sectors serviced by Proactis Holdings?
A3: We’re really lucky in one sense although we’d say it was by design. Our software is usable in the indirect spend area so goods not for resale, that kind of area, non-manufacturing type product, and so our software is applicable to all sectors because all companies spend those kinds of or make that kind of expenditure and need our solutions and because we’re multi multi multi it’s available to anybody in the world anytime. So we don’t have huge highlights or shifts between sector or geography because we’re applicable all of the time to everybody so we’ve enjoyed a good period of trading for this last 6 months across all of those areas.
Q4: Now, whilst Due North hasn’t contributed to the reported performance for this period, are the three previous acquisitions performing to your expectations?
A4: We’ve done four acquisitions in the past 2 years so M&A is a key theme for us and Due North is just the latest one as you say, it completed on the 2nd February so just out of the 6 month period so it will contribute in the second half but not the first half. The three previous ones have been with us now for at least 18 months and so are well embedded into the group and yes, they’re trading really really well. Our second acquisition, a managed service offering in the States, didn’t perform particularly well, it was fine but not really well trading in the previous financial year but we’ve put some management changes into that business towards the end of the second half of last year and in the first half of this year, it’s really really performed well. It’s signed 4 new names against 2 for the entire year in the previous year and really importantly it’s re-signed the group’s single biggest contract with its client Meijer so a really positive performance in that respect. The other acquisitions are performing at our expectations and doing well.
Q5: Following the completion of the Due North acquisition and your stated M&A strategy, how does the pipeline of future acquisitions look?
A5: We’re working really hard in that area, it is an implicit and intrinsic part of our group strategy. We have a lot of targets to evaluate and so working very hard in that area and we have a short pipeline that’s looking very promising. Clearly these things are very sensitive and very difficult to get over the line in the end but we’re very positive about that in the short and medium term.
Q6: How is the Screwfix supplier networking project progressing and when do you expect to see revenues from that contract?
A6: That’s a difficult one, the project is ‘in project’ you might say now so our Proactis project team is working on a detailed day to day basis with Screwfix to implement the technology into the Screwfix environment. As you’ll appreciate Screwfix is a fantastic supply chain manager and is very sophisticated in its mechanisms and we’re helping them to improve those even further and these things take time because clearly they’re a very large organisation as well as being sophisticated. So these are complex projects and they do take time but we do however expect to see revenues or at least a go live of the technology in that environment during the early part of summer, so maybe as early as June, so we might start to see embryonic revenues from that in this financial year which would be just ahead of our expectations.
Q7: When do you think other similar networking projects might be signed?
A7: We’re working hard with a small pipeline of opportunities to do an equivalent thing as we’ve done with Screwfix and also possibly to introduce our accelerated payment facility with those accounts. We don’t want to extend the population of that pipeline too heavily to start with so we’re working closely with a handful of other potential earlier adopters and we would expect to see a few more of those come through to contract in the next few months.
Q8: So all in all, you’re in a great position both long term and short term?
A8: We feel like we have a great chance, that we have a lot of opportunities as you say to deliver a lot of enhanced value to our clients which hopefully will come through to the income statement and ultimately into the share price.
