Proactis in India? Interesting developments behind steady financial results

Proactis, the Yorkshire-based procurement software firm, and one of the few UK publicly quoted software firms in our market,  announced their results for the six months ended 31 January 2013 recently. The highlights included:

·         Reported revenue increased by 7% to £3.9m compared to the equivalent period in 2011/12.

·         But the underlying operating profit of £143,000 was down on the equivalent of £196,000 the previous year.

·         The firm says they have a “strong balance sheet with cash balances of £2.0m” but there was a net cash outflow in the period due to dividends and investment (see below).

·         It looks like growth in terms of new business is just ahead of whatever inevitable attrition there must be – so, for instance, “Total Initial Contract Value signed on new deals was £1.5m”, when last year’s was £1.8m. And “annualised contracted revenue maintained at £5.1m”.

·         Deal activity is “buoyant” with 15 new name deals and “continued strong customer loyalty with 29 upgrades in the period”.

So the financials are steady, if unexciting – nothing, we suspect, to make the main shareholder more enthusiastic than they were a few months back when we reported on the spat between them and the Proactis management. Indeed, the share price has recently fallen (in a rising market). It jumped on the announcement of the Indian JV (see below) but has now dipped from around 28p to 22p over the last month or so, although to be fair it is such a thinly traded share that this might mean literally one shareholder selling a few thousand shares.

However, behind the scenes, there are some more interesting developments going on. In particular, Proactis announced last month that they have entered the Indian market through a new JV in India “through the establishment of a unique procurement software and services operation, which will trade as PROACTIS Total Procure. The new Indian-based company has been established in collaboration with two major Indian companies: Khwantum Capital Private Limited and Avan Projects Private Limited”.

This comes hot on the heels of the January announcement that the Indian outsourcing and consulting giant Tata Consultancy Services "has selected PROACTIS' integrated suite of procurement software solutions to power its Procurement BPO Platform”.

The Proactis Chairman says, "I am excited about the progress of the Group's operation in India, albeit at this early stage. The proposition of providing procurement services using the Group's software as a platform is significant, and the signing of an early pilot client that was delivered by our Joint Venture partners through their network is very encouraging.  I look forward to reporting on the development of this business”.

Now there are risks around this sort of strategy, and indeed Proactis mentions more of their business going through third parties as one reason for slightly reduced margins. But the potential in India must be huge of course, so we’ll watch that with interest. And we’ll have a more detailed review of the Proactis results and recent announcements on our PRO subscription site shortly.

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