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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| K3 Business Technology Group Plc | LSE:KBT | London | Ordinary Share | GB00B00P6061 | ORD 25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 103.50 | 102.00 | 105.00 | 103.50 | 103.50 | 103.50 | 600 | 08:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Fabricated Rubber Pds, Nec | 47.48M | -3.98M | -0.0902 | -11.47 | 45.63M |
From Apr 2019 to Apr 2024
TIDMKBT
RNS Number : 9891I
K3 Business Technology Group PLC
27 March 2018
AIM: KBT
27 March 2018
This announcement is inside information for the purposes of Article 7 of Regulation 596/2014.
K3 BUSINESS TECHNOLOGY GROUP PLC
("K3" or "the Group" or "the Company")
Provider of mission-critical software (owned and third party), cloud solutions and managed services to the retail, manufacturing and distribution sectors
Final results for the 17 months to 30 November 2017
REPOSITIONED FOR PROFITABLE GROWTH
Hot Features
Premium
Summary
-- A period of significant change - Group's structure simplified
to create more integrated and streamlined operations, cost
base reduced, and IP strategy refocused
-- K3 is now significantly better positioned for long-term
revenue growth, higher quality earnings and improved cash
generation
-- Accounting reference date and year end changed to 30 November
(from 30 June)
Operational Highlights
-- Enterprise-related activities suffered from high value contract
tenders not closing; encouraging upturn in contract closures
towards the period end and in Q1 through strategic alliance
with System Integrators
-- Core SME-related activities performed well across supply
chain markets
-- Global Accounts continued to benefit from expansion of the
IKEA franchisee network
-- Good progress with own IP product, 'Imagine' (previously
'NextGen'), K3's cloud-native, system-agnostic offering
-- Cost base significantly reduced - savings of GBP5.0m p.a.
Financial Highlights
-- Revenue for the 17 months of GBP118.2m (12 months to 30 June
2016: GBP89.2m):
- recurring revenue at 48.7% of total (2016: 46.7%)
- own IP revenue at 19.8% of total (2016: 13.9%)
-- Gross margin of 51.6% (2016: 54.4%)
-- Exceptional costs of GBP8.9m (net) (2016: GBP1.0m) - GBP4.5m
of which is non-cash. Exceptional costs principally reflected
organisational and management changes across the Group and
an impairment of development costs (non-cash)
-- Adj. loss from operations(*1) of GBP1.6m (2016: adj profit(*1)
of GBP9.5m) / Reported loss from operations of GBP14.8m (2016:
profit of GBP5.2m)
-- Adj loss before tax(*1) of GBP3.0m (2016: adj profit before
tax(*1) of GBP8.8m)/ Reported loss before tax of GBP16.1m
(2016: profit of GBP4.5m)
-- Adj loss per share(*2) of 7.7p (2016: adj earnings per share(*2)
23.5p)/ Reported loss per share of 35.3p (2016: earnings
per share of 12.6p
-- Fund raising in July 2017 secured GBP7.75m net. Net debt
reduced to GBP4.3m at 30 November 2017 (30 June 2017: GBP15.6m
and 30 June 2016: GBP8.9m)
-- Proposed final (and total) dividend for the period of 1.4p
per share
Prospects
-- Current trading is encouraging, especially with own IP product
sales
-- Board expects financial and operational progress to continue
over FY2018
All comparative figures for 2016 refer to the 12 months to 30 June 2016
Adalsteinn Valdimarsson, Chief Executive Officer of K3, said:
"We have implemented significant changes at K3 over the last 18 months, aimed at placing the Group on a better footing for long-term revenue and profit growth and improved cash generation. The Group's operations are now more streamlined and integrated, and we have refocused our IP development roadmap. While the process has involved cultural change and substantial one-off costs, we are seeing the benefits come through.
"We have strong offerings in our chosen markets across the supply chain, including our new cloud-native IP. Since the period end, trading has been encouraging, especially for own IP sales. While there is still work to be done, we remain confident about prospects for continuing progress."
Enquiries:
K3 Business Technology Adalsteinn Valdimarsson T: 020 3178 6378 (today)
Group plc (CEO)
www.k3btg.com Robert Price (CFO) Thereafter 0161 876
4498
finnCap Limited Julian Blunt/ James Thompson T: 020 7220 0500
(NOMAD)
KTZ Communications Katie Tzouliadis/ Emma T: 020 3178 6378
Pearson
Notes:
Note Calculated before amortisation of acquired intangibles
1 of GBP3.93m (2016: GBP2.73m), exceptional reorganisation
costs of GBP4.73m (2016: GBP1.05m), exceptional impairment
of development costs of GBP4.54m (2016: GBPnil), acquisition
costs of GBP0.31m (2016: GBP0.49m) and release of contingent
consideration of GBP0.39m (2016: GBPnil).
Note Calculated before amortisation of acquired intangibles
2 (net of tax) of GBP3.04m (2016: GBP2.19m), exceptional
reorganisation costs (net of tax) of GBP3.83m (2016:
GBP0.84m), exceptional impairment of development costs
GBP3.68m (2016: GBPnil), acquisition costs (net of tax)
of GBP0.31m (2016: GBP0.49m) and release of contingent
consideration (net of tax) of GBP0.39m (2016: GBPnil).
Note Net debt is gross debt net of cash and cash equivalents.
3
The comparatives are for the year ended 30 June 2016.
CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT
Overview
K3 has undergone significant change over the last 18 months. We have reshaped the Group including the leadership team, creating a simpler, more integrated and streamlined structure, and have removed substantial costs. We have also redefined our growth strategy, IP development roadmap, and are improving our customer delivery capability. In addition, we completed a share placing and open offer to qualifying shareholders. While these initiatives have involved substantial one-off costs, as well as internal cultural change, we are encouraged by the progress made to date and the opportunities ahead.
We see scope for further operational improvements but believe that K3 is now substantially better positioned for long-term revenue growth, higher quality earnings and improved cash generation.
Market Positioning
K3 is a leading provider of mission-critical Enterprise Resource Planning ("ERP") and other business solutions to customers across the supply chain, including retailers, manufacturers and distributors. We support c.3,700 customers predominantly based in the UK, but also in Europe, the Far East and the USA. We deploy our business solutions, which are mainly built on Microsoft, Sage and SYSPRO solutions, both directly to customers and through channel partners. Once installed, our solutions generate high levels of recurring revenues through annual software maintenance renewals, support contracts and hosting.
Strategic Refocusing and Organisational Changes
Building upon these foundations, during the period under review, we began to implement significant organisational changes to the business, and strategically refocused K3's growth plans.
A core element of our growth strategy is to increase revenues from own intellectual property ("IP"). Our IP is embedded within specific third party ERP solutions, including Microsoft and SYSPRO's, to provide sector specific functionality. It differentiates our solutions, underpins stronger customer relationships, and generates higher margins and recurring revenues. While we will continue to build on this model, an important part of extending our software roadmap is the growth of our own stand-alone 'point' solutions, and in particular, our cloud-native delivery platform, 'Imagine', and our cloud-native applications, which have been specifically developed to perform in the cloud.
As we previously reported, 'Imagine' is an exciting 'next generation' delivery platform, which enables us to embrace fully the opportunities that the increasing shift to the cloud brings, and places us at the forefront of cloud-native development. What is especially relevant is that it is system agnostic, capable of swift integration with any IT infrastructure a customer may already have. Customers therefore do not need to replace core systems, unlike traditional models. We have developed a cloud-native suite of solutions that is built for our platform and provides highly advanced functionality. The whole offering therefore enables customers to adopt innovative solutions and applications rapidly and flexibly. It also offers them a faster return-on-investment and extends the life of their previous IT investments. We intend to develop additional applications for Imagine in order to broaden the scope and target market of our existing solutions set, and view its growth potential very positively.
In reviewing our market approach for our Enterprise-related software offering, ax l is fashion, (a K3 own IP add-on to a Microsoft core ERP product), we are renewing our focus on building strategic relationships with System Integrators ("SI"). These relationships enable us to capture more efficiently the sales potential of this market-leading product. SI's will provide implementation and support services while we retain IP-related income streams and provide industry specific expertise. Helped by this increased focus on SIs, we are pleased to report that we saw significantly improved sales momentum for ax I is fashion towards the end of the reporting period and an encouraging number of contracts have closed since then.
As previously reported, we undertook a review of the Group's resources as part of our process of simplifying and integrating the Group's operations. This review was completed in December 2017, and we have subsequently combined our Microsoft Dynamics businesses (AX, NAV and CRM) into a single practice. This should also enhance our customer service capability.
Other changes that resulted from our review included the integration of all software development and own IP management functions into a single Group-level IP unit. We also created a single team to support sales of our Software-as-a-Service ("SaaS") offering, as well as a single support team for SaaS.
We are confident that these initiatives will improve both the sales process and operational efficiencies.
We have materially reduced our cost base over the period, delivering savings in excess of GBP5.0m on an annualised basis. Over 2018, we plan to add resource selectively to support sales demand.
Financial Results
These results cover the 17-month trading period to 30 November 2017. This extended period reflects the transition to the new accounting reference date of 30 November from 30 June. As we previously reported, given K3's key selling periods of December and June, the change of date will enable the Board to provide shareholders with a more informed view of the Company's trading outlook when reporting full year and half year results.
K3's results for the period are an adjusted loss from operations(*1) of GBP1.67m (2016: adjusted profit from operations(*1) of GBP9.50m). We incurred significant charges in the period, which related to our comprehensive review and reorganisation programme, and they included: GBP4.73m of exceptional reorganisation costs (2016: GBP1.05m), GBP4.54m of exceptional impairment of development costs (2016: GBPnil), and GBP3.93m of amortisation of acquired intangibles (2016: GBP2.73m). After these and other charges, the loss from operations was GBP14.78m (2016: profit from operations of GBP5.23m). The exceptional reorganisation costs will deliver savings of GBP5.0m on an annualised basis and the impairment of development costs was taken against products that are no longer core to the Group's strategy. The adjusted loss per share(*2) was 7.7p (2016: adjusted earnings per share(*2) of 23.5p), and the basic loss per share was 35.3p (2016: earnings per share of 12.6p).
The major factors influencing the outcome for the period are discussed in the Operational Review and include market disruption, caused by the industry's shift away from 'on-premise' technology to cloud-based delivery, and a softening in end-markets. Gross margins were adversely impacted by both the significant reduction in software licence sales, which are typically higher margin, and excess resource capacity in services and implementation.
Balance Sheet and Focus on Cash Generation
Cash generation is a major focus and we are making good progress in improving working capital, primarily by reducing debtor days and accrued income. Reflecting our initiatives to improve cash generation, as well as the July 2017 fund raising, net debt has been significantly reduced and stood at GBP4.3m at 30 November 2017. This compared to net debt of GBP15.6m at 30 June 2017 (30 June 2016: GBP8.9m).
Our placing and open offer to qualifying shareholders, completed in July 2017, raised a total of GBP7.75m net, with an additional GBP0.66m invested in K3 through an exercise of warrants and a debt-to-equity conversion of GBP0.64m.
Dividend
The Board is pleased to propose a final (and total) dividend for the financial period of 1.4p per share. This dividend will become payable, subject to shareholder approval, on the 15 June 2018 to shareholders on the register on 18 May 2018.
K3's Annual General Meeting will be held on 30 May 2018 at 10.30am at the Group's offices at Baltimore House, 50 Kansas Avenue, Manchester, M50 2GL.
Board Changes
There have been a number of Board over the 17 months to 30 November 2017. In October 2016, Adalsteinn Valdimarsson assumed the role of Chief Executive Officer, having joined K3 as a Non-Executive Director in July 2016. Robert Price, who joined K3 as Chief Financial Officer in October 2016 (in a non-Board capacity), was appointed to the Board as Finance Director in July 2017. David Bolton, previously Chairman, and Lars-Olof Norell, previously Non-Executive Director, both retired from the Company. I was appointed to the Board in April 2017 and became interim Chairman in July 2017, becoming permanent Chairman in December 2017.
Staff
On behalf of the Board, I would like to thank all K3's employees for their hard work and commitment during this period of change. It has been tremendous and our skilled teams remain the foundation on which the Company will continue to develop and grow.
Outlook
K3 has undergone significant change and is focused on continuing to improve its performance. While there is still work to be done in implementing our growth initiatives, we believe that the Group is now better positioned to drive own IP sales and recurring income, which currently stands at nearly half the Group's total revenues.
The Group's revenue profile is changing as the move away from 'on-premise' solutions accelerates and customers increasingly adopt consumption-based models. In the short term, this will decrease the Group's rate of revenue growth but the long term effect is highly beneficial, with revenue flows becoming more predictable and the customer relationship expected to deepen and broaden.
Trading since the period end has been encouraging, especially with our own IP product sales. In particular, three ax I is deals were signed in the first quarter of the new financial year compared to seven in the 17 months to November 2017, and our cloud-native Imagine offering is seeing encouraging traction. More widely, we view prospects for our solutions offerings positively, underpinned by the steps we have taken to improve the Group's operational performance.
We remain confident about prospects for continuing progress over the year ahead. We also highlight the bias in the Group's earnings, which is now weighted to the second half of the financial year. This corresponds to the timing of annual software licence and support renewals in our SYSPRO operations.
S Darling
Chairman
26 March 2018
Notes:
(*1) Group adjusted loss from operations is calculated before
amortisation of acquired intangibles of GBP3.93m (2016:
GBP2.73m), exceptional reorganisation costs of GBP4.73m
(2016: GBP1.05m), exceptional impairment of development
costs of GBP4.54m (2016: GBPnil), acquisition costs of GBP0.31m
(2016: GBP0.49m) and release of contingent consideration
of GBP0.39m (2016: GBPnil).
(*2) Group adjusted loss per share is calculated before amortisation
of acquired intangibles (net of tax) of GBP3.04m (2016:
GBP2.19m), exceptional reorganisation costs (net of tax)
of GBP3.83m (2016: GBP0.84m), exceptional impairment of
development costs GBP3.68m (2016: GBPnil), acquisition costs
(net of tax) of GBP0.31m (2016: GBP0.49m) and release of
contingent consideration (net of tax) of GBP0.39m (2016:
GBPnil).
Note: The comparatives for 2016 are for the year ended 30
June 2016.
Operational Review
Reflecting our decision to create a simpler, more integrated approach to sales and support, as well as our objective to drive own IP sales, K3's operational results are now presented under the following two segments:
Revenue Gross profit Adjusted Profit
2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm
Own IP*(*3) 23.4 12.4 15.0 8.4 0.2 2.7
Supply chain solutions
& managed services(*4) 94.8 76.8 46.0 40.2 (0.1) 7.6
HQ (1.7) (0.8)
------------------------- ------ ------ ------- ------ -------- --------
Total 118.2 89.2 61.0 48.6 (1.6) 9.5
2017 2016
Gross margin 51.6% 54.4%
Recurring revenue:
as a percentage
of total revenue 48.7% 46.7%
Own IP revenues:
as a percentage
of total revenue 19.8% 13.9%
Own IP gross margin:
as a percentage
of total gross
profit 24.6% 17.2%
*Own IP revenues includes initial and annual software licences and those additional revenues which flow directly from K3 IP.
Recurring revenue comprises software maintenance renewals, support contracts, and hosting & managed services.
Recurring revenue as a percentage of the Group's total revenues over the 17 months to 30 November 2017 increased to 48.7% (2016: 46.7%). Encouragingly, revenue from our own IP accounted for 19.8% of K3's total revenues and rose sharply from 13.9% in 2016. Own IP gross margin accounted for 24.6% of the Group's total gross margin, up by 7.4 percentage points from 17.2% in 2016.
Supply Chain Solutions & Managed Services
K3's business solutions and managed services are tailored to the requirement of the supply chain industry, including retailers, manufacturers and distributors. The Group's core offering is based on Microsoft, SYSPRO and Sage solutions.
Revenue (GBPm) Gross profit Gross margin
(GBPm)
2017 2016 2017 2016 2017 2016
Software licences 10.4 13.3 5.6 8.3 54.0% 62.2%
Services 34.7 23.1 8.8 7.2 25.3% 31.0%
Recurring * 45.4 35.9 30.5 23.6 67.0% 65.8%
Hardware and
other 4.3 4.5 1.1 1.1 26.7% 24.7%
------------------- ------- -------- --- ------ ------- --- ------ --------------
Total 94.8 76.8 46.0 40.2 48.4% 52.3%
------------------- ------- -------- --- ------ ------- --- ------ --------------
*Recurring revenue comprises software maintenance renewals,
support contracts, and hosting & managed services.
2017 2016
Adjusted (loss)/profit from
operations(*4) (GBPm) (0.1) 7.6
Recurring revenue as % of total
revenues 47.9% 46.7%
Customer adds (like-for-like) 87 160
K3's financial performance over the period was adversely affected by a number of high value contract tenders in the Enterprise space not closing as expected. Part of the reason for this was the disruption caused by the gear-shift in how technology is being delivered, with the model changing from 'on-premise' technology to cloud-based delivery. Alongside this is the associated move to the consumption/subscription model, away from large up-front software licence payments. This disruption caused a significant lengthening in customers' decision-making processes for large deals. However, we also experienced a general softening in end-markets. The sharp drop in software licence revenues reflects the unexpected shortfall in sales. Gross margins were doubly hit, not only by the effect of a lower proportion of higher margin software licence sales in the mix, but also excess resource capacity in services and implementation. Recurring revenue was adversely impacted by the shortfall in sales. However, recurring revenues as a proportion of total revenues, which provides core stability to the business, improved.
Our Global Accounts business, which includes our relationship with Inter IKEA Systems B.V. (the owner and franchisor of the IKEA concept) and the Inter IKEA Concept franchisees, performed well. With the continuing expansion of the IKEA franchisee network, we anticipate a high level of activity here.
The SYSPRO business generates strong cash flows and delivered good results. Customer renewals of software licences continued to be high, at 98% (2016: 98%). Sage X3 continued to grow and we are now recruiting talent from abroad, given the shortage in the UK for delivery resource. As we previously reported, we restructured Business Solutions to focus on the Microsoft Dynamics/Navision SME space and that unit is now seeing an improvement in its profitability, which will be accelerated with the creation of a single Microsoft Dynamics practice.
We previously highlighted that the move towards cloud-based consumption licensing has positive long-term implications for the Group. This is because the lifetime value of customer relationships under this new model has the potential to be significantly higher, compared to the traditional model of perpetual software licences (typically paid upfront, at the commencement of a relationship). However, this shift will affect the Group's rate of reported revenue growth since income from cloud/consumption-based contracts is recognised over longer periods. The pace of uptake of consumption-based contracts has increased over the period, especially in the Microsoft Dynamics space where we are now seeing the majority of new contracts signed on this basis.
Own IP
K3 has developed in-house, or acquired the IP rights to, software products, which the Company sells on a standalone basis or as part of its integrated suite of solutions. In addition K3's core ERP solutions are typically enhanced and enriched by our own IP for specific industry segments. This gives us our solutions a competitive advantage and differentiation.
Revenue (GBPm) Gross profit Gross margin
(GBPm)
2017 2016 2017 2016 2017 2016
Software licences 2.9 2.9 2.6 2.7 88.4% 92.9%
Services 3.4 2.6 1.3 1.0 38.2% 36.4%
Recurring * 12.1 5.8 9.2 4.4 76.0% 76.9%
Hardware and
other 5.0 1.1 1.9 0.3 38.4% 25.2%
------------------- ------- -------- --- ------ ------- --- ------ --------------
Total 23.4 12.4 15.0 8.4 64.1% 67.7%
------------------- ------- -------- --- ------ ------- --- ------ --------------
*Recurring revenue comprises software maintenance renewals,
support contracts, and hosting & managed services.
2017 2016
Adjusted profit from operations(*3)
(GBPm) 0.2 2.7
Recurring revenue as % of total
revenues 52.0% 46.2%
Customer adds (like-for-like) 340 38
Total revenue from own IP over the 17 month period amounted to GBP23.4m (2016: GBP12.4m), with the period also benefiting from contributions from two acquisitions, Merac, acquired in July 2016 and DdD Retail, which was added in April 2016. These acquisitions contributed a combined GBP10.1m to own IP revenues over this period, including GBP5.2m of recurring revenues. As well as bringing additional valuable, wholly-owned IP, both acquisitions have added new customer bases. Recurring revenues from own IP as a proportion of total revenues increased by 5.7%. Gross margins for own IP were slightly lower than last year due to the lower proportion of revenue coming from software sales on which the gross margin is highest.
Sales of Pebblestone, our leading business software for the mid-market fashion industry, which we also sell through channel partners, were particularly strong. As previously highlighted, sales of ax l is fashion, which are typically large contracts, suffered from the softness in the Enterprise space and customers taking longer to deliberate between cloud or 'on-premise' technology. However ax I is fashion deal closure improved significantly towards the end of the reporting period and a number of large contracts were secured including with Jack Wolfskin, Lifestyle Sports and Eton Shirts. Two of these contracts were delivered through our channel partners. We have continued to see good deal closure since the period end, with three ax|is contracts signed, including SanMar in the USA, and the pipeline for ax I is remains encouraging.
The development of Imagine, our cloud-native, ERP agnostic platform has been an important step for us. The platform enables us to integrate leading-edge 'module' solutions into customers' existing infrastructure swiftly and cost-effectively. In this way, we can bring product innovation and the full power of the cloud to customers in a commercially and operationally attractive way. Our first suite of modules for Imagine are based around our retail offerings and we intend to develop further functionally-rich modules to broaden the scope of our offering. We expect the Imagine platform to become a cornerstone of our IP strategy and, in total, we now have circa 13 customers live on Imagine.
Central Costs
Central costs include directors' costs, human resources, accounting and legal personnel, and the costs associated with running a PLC, including financing. Costs are stated net of recovery of elements recharged to operating units. Central costs(*5) for the 17 month period amounted to GBP1.7m (2016: GBP0.8m), with the significant rise reflecting our centralisation programme.
Outlook
We remain focused on improving the Group's performance and in particular driving own IP revenues and are confident of continuing progress. We are encouraged by the progress made by own IP business units and the recent deals closed in ax I is fashion. We are now seeing stronger migration by customers to cloud-based solutions from 'on-premise' systems, and, while this represents an adjustment for the business in the near term, it will enhance our customer relationships and contribute high quality revenue streams.
Adalsteinn Valdimarsson
Chief Executive Officer
Notes
(*3) Own IP adjusted profit from operations is calculated before
amortisation of acquired intangibles of GBP1.83m (2016:
GBP0.44m), exceptional reorganisation costs of GBP0.25m
(2016: GBP0.02m), exceptional impairment of development
costs of GBP1.59m (2016: GBPnil), acquisition costs of GBPnil
(2016: GBP0.29m), and release of contingent consideration
of GBP0.39m (2016: GBPnil).
(*4) Supply Chain Solutions & Managed Services adjusted loss
from operations is calculated before amortisation of acquired
intangibles of GBP2.10m (2016: GBP2.30m), exceptional reorganisation
costs of GBP2.93m (2016: GBP0.92m), and exceptional impairment
of development costs of GBP2.95m (2016: GBPnil).
(*5) Head office costs are calculated before exceptional reorganisation
costs of GBP1.56m (2016: GBP0.11m) and acquisition costs
of GBP0.31m (2016: GBP0.20m)
Note: The comparatives for 2016 are for the year ended 30
June 2016.
CONSOLIDATED INCOME STATEMENT
For the period ended 30 November 2017
Notes 17 months Year ended
ended 30 November 30 June
2017 2016
GBP'000 GBP'000
Revenue 118,176 89,175
Cost of sales (57,197) (40,636)
---------------------------------------- ------ ------------------- -----------
Gross profit 60,979 48,539
Administrative expenses (75,762) (43,310)
Adjusted (loss)/profit from operations (1,666) 9,501
Amortisation of acquired intangibles (3,930) (2,734)
Acquisition costs 1 (308) (492)
Exceptional reorganisation costs 1 (4,731) (1,046)
Exceptional impairment charge 1 (4,541) -
Release of contingent consideration 1 393 -
(Loss)/profit from operations (14,783) 5,229
Finance expense (1,360) (701)
---------------------------------------- ------ ------------------- -----------
(Loss)/profit before taxation (16,143) 4,528
Tax credit/(expense) 2 2,773 (425)
(Loss)/profit for the period (13,370) 4,103
---------------------------------------- ------ ------------------- -----------
All of the profit for the period is attributable to equity shareholders
of the parent.
(Loss)/earnings per share
Basic 3 (35.3)p 12.6p
Diluted 3 (35.3)p 12.3p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the period ended 30 November 2017
17 months Year ended
ended 30 30 June
November 2016
2017
GBP'000 GBP'000
(Loss)/profit for the period (13,370) 4,103
-------------------------------------- ---------- -----------
Other comprehensive income/(expense)
Exchange differences on translation
of foreign operations 1,110 3,073
--------------------------------------
Other comprehensive income/(expense) 1,110 3,073
--------------------------------------
Total comprehensive (expense)/income
for the period (12,260) 7,176
-------------------------------------- ---------- -----------
All of the total comprehensive (expense)/income is attributable
to equity holders of the parent. All of the other comprehensive
income will be reclassified subsequently to profit or loss when
specific conditions are met. None of the items within other comprehensive
(expense)/income had a tax impact.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 November 2017
Notes 30 November 30 June
2017 2016
GBP'000 GBP'000
ASSETS
Non-current assets
Property, plant and equipment 2,479 2,389
Goodwill 51,019 48,793
Other intangible assets 20,539 26,369
Deferred tax assets 1,281 423
Available-for-sale investments 98 98
Total non-current assets 75,416 78,072
------------------------------------- ------ ------------ --------
Current assets
Trade and other receivables 30,429 40,923
Cash and cash equivalents 1,941 2,772
Total current assets 32,370 43,695
------------------------------------- ------ ------------ --------
Total assets 107,786 121,767
------------------------------------- ------ ------------ --------
LIABILITIES
Non-current liabilities
Long-term borrowings 4 6,170 8,272
Deferred tax liabilities 2,524 3,753
------------------------------------- ------ ------------ --------
Total non-current liabilities 8,694 12,025
------------------------------------- ------ ------------ --------
Current liabilities
Trade and other payables 5 29,249 32,824
Current tax liabilities 127 132
Short-term borrowings 4 59 3,376
------------------------------------- ------ ------------ --------
Total current liabilities 29,435 36,332
------------------------------------- ------ ------------ --------
Total liabilities 38,129 48,357
EQUITY
Share capital 10,737 9,000
Share premium account 28,897 21,586
Other reserves 10,448 10,448
Translation reserve 2,186 1,076
Retained earnings 17,389 31,300
Total equity attributable to equity
holders of the parent 69,657 73,410
------------------------------------- ------ ------------ --------
Total equity and liabilities 107,786 121,767
------------------------------------- ------ ------------ --------
CONSOLIDATED STATEMENT OF CASHFLOWS
For the period ended 30 November 2017
Notes 17 months Year
ended ended
30 November 30 June
2017 2016
GBP'000 GBP'000
Cash flows from operating activities
(Loss)/profit for the period (13,370) 4,103
Adjustments for:
Share-based payments charge 67 28
Depreciation of property, plant and equipment 1,373 971
Amortisation and impairment of intangible
assets and development expenditure 13,481 5,077
Loss on sale of property, plant and equipment - 4
Finance expense 1,360 701
Tax (credit)/expense (2,773) 425
Decrease/(increase) in trade and other
receivables 10,022 (5,977)
(Decrease)/increase in trade and other
payables (4,206) 170
----------------------------------------------- ------- ------------- ---------
Cash from operations 7 5,954 5,502
Finance expense paid (1,237) (783)
Income taxes paid 356 (688)
----------------------------------------------- ------- ------------- ---------
Net cash generated from operating activities 5,073 4,031
----------------------------------------------- ------- ------------- ---------
Cash flows from investing activities
Acquisition of subsidiaries, net of cash
acquired (989) (7,401)
Development expenditure capitalised (6,158) (4,642)
Purchase of property, plant and equipment (1,307) (916)
Net cash used in investing activities (8,454) (12,959)
----------------------------------------------- ------- ------------- ---------
Cash flows from financing activities
Net proceeds from issue of share capital 8,408 13,175
Proceeds from long-term borrowings 5,715 -
Payment of long-term borrowings (10,885) (2,928)
Payment of finance lease liabilities (77) (12)
Dividends paid (630) (477)
----------------------------------------------- ------- ------------- ---------
Net cash from financing activities 2,531 9,758
----------------------------------------------- ------- ------------- ---------
Net change in cash and cash equivalents (850) 830
Cash and cash equivalents at start of
period 2,772 1,895
Exchange gains (losses) on cash and cash
equivalents 19 47
Cash and cash equivalents at end of period 1,941 2,772
----------------------------------------------- ------- ------------- ---------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period ended 30 November 2017
Share Share Other Translation Retained Total
capital premium reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 June
2015 7,949 9,462 10,448 (1,997) 27,633 53,495
--------------- --------- --------- ------------ ------------ ---------- ---------
Changes in
equity
for year ended
30 June 2016
Profit for the
year - - - - 4,103 4,103
Other
comprehensive
income for
the
year - - - 3,073 - 3,073
--------------- --------- --------- ------------ ------------ ---------- ---------
Total
comprehensive
income - - - 3,073 4,103 7,176
Share-based
payment
credit - - - - 28 28
Options
exercised 28 107 - - - 135
Issue of new
shares 1,023 12,017 - - - 13,040
Movement in
own shares
held - - - - 13 13
Dividends to
equity
holders - - - - (477) (477)
--------------- --------- --------- ------------ ------------ ---------- ---------
At 30 June
2016 9,000 21,586 10,448 1,076 31,300 73,410
--------------- --------- --------- ------------ ------------ ---------- ---------
Changes in
equity
for period
ended
30 November
2017
Loss for the
period - - - - (13,370) (13,370)
Other
comprehensive
income for
the
period - - - 1,110 - 1,110
--------------- --------- --------- ------------ ------------ ---------- ---------
Total
comprehensive
income - - - 1,110 (13,370) (12,260)
Share-based
payment
credit - - - - 67 67
Warrants
exercised 175 488 - - - 663
Conversion of
shareholder
loan to
equity 114 526 - - - 640
Issue of new
shares 1,448 6,297 - - - 7,745
Movement in
own shares
held - - - - 22 22
Dividends to
equity
holders - - - (630) (630)
--------------- --------- --------- ------------ ------------ ---------- ---------
At 30 November
2017 10,737 28,897 10,448 2,186 17,389 69,657
--------------- --------- --------- ------------ ------------ ---------- ---------
NOTES
1. (Loss)/profit from operations and exceptional costs
As previously reported, K3 has implemented a programme to simplify
and more closely integrate the Group's operations. In order to
achieve this, significant changes were made which resulted in exceptional
reorganisation costs of GBP4.73m, of which the majority were redundancy
costs, but which will deliver cost savings of GBP5.0m on an annualised
basis. The reorganisation costs in the prior year of GBP1.05m related
to reorganisational and management changes particularly in the
retail division (now part of supply chain solutions and managed
services). Following a review of development costs, the costs relating
to certain products that are no longer core to the Group's strategy
have been written down to nil at a cost of GBP4.54m (year ended
30 June 2016: GBPnil). This impairment charge has no cash impact.
The Group incurred costs in relation to acquiring new businesses
of GBP0.31m (year ended 30 June 2016: GBP0.49m). Contingent consideration
not required to be paid of GBP0.39m (year ended 30 June 2016: GBPnil)
was released.
2. Tax expense 17 months Year
ended 30 ended
November 30 June
2017 2016
GBP'000 GBP'000
Current tax (credit)/expense
UK corporation tax and income tax of
overseas operations on profits for
the period (388) 866
Adjustment in respect of prior periods (176) (25)
---------------------------------------- ---------- ---------
Total current tax expense (564) 841
---------------------------------------- ---------- ---------
Deferred tax income
Origination and reversal of temporary
differences (2,046) (94)
Effect of change in rate of deferred
tax (163) (322)
---------------------------------------- ---------- ---------
Total deferred tax income (2,209) (416)
---------------------------------------- ---------- ---------
Total tax (credit)/expense in current
period (2,773) 425
---------------------------------------- ---------- ---------
3. (Loss)/earnings per share
The calculations of (loss)/earnings per share are based on the
(loss)/profit for the period and the following numbers of shares: 30 November 30 June
2017 2016
Number of Number
shares of shares
Denominator
Weighted average number of shares
used in basic EPS 37,893,951 32,439,624
Effects of:
Employee share options and warrants - 798,049
Weighted average number of shares
used in diluted EPS 37,893,951 33,237,673
------------ -----------
Certain employee options and warrants have not been included in
the calculation of diluted EPS because their exercise is contingent
on the satisfaction of certain criteria that had not been met at
the end of the period.
The alternative earnings per share calculations have been computed
because the directors consider that they are useful to shareholders
and investors. These are based on the following (losses)/profits
and the above number of shares.
17 months ended Year ended
30 November 2017 30 June 2016
Earnings Per share Per share Earnings Per share Per share
amount amount amount amount
Basic Diluted Basic Diluted
GBP000 p p GBP000 p p
Numerator
(Loss)/earnings
per share (13,370) (35.3) (35.3) 4,103 12.6 12.3
Add back:
Amortisation
of acquired
intangibles
(net of tax) 3,037 8.0 8.0 2,190 6.8 6.6
Acquisition costs
(net of tax) 308 0.8 0.8 492 1.5 1.5
Exceptional
reorganisation
costs (net of
tax) 3,832 10.1 10.1 837 2.6 2.5
Exceptional
impairment
charge (net of
tax) 3,678 9.7 9.7 - - -
Release of
contingent
consideration
(net of tax) (393) (1.0) (1.0) - - -
Adjusted EPS (2,908) (7.7) (7.7) 7,622 23.5 22.9
--------- ---------- ---------- --------- ---------- ----------
4. Loans and borrowings 30 November 30 June
2017 2016
GBP'000 GBP'000
Non-current
Bank loans (secured) 6,124 8,234
Finance lease creditors 46 38
6,170 8,272
------------ --------
Current
Bank loans (secured) - 2,718
Finance lease creditors 59 18
Loans from related parties - 640
------------ --------
59 3,376
------------ --------
Total borrowings 6,229 11,648
------------ --------
5. Trade and other payables - current 30 November 30 June
2017 2016
GBP'000 GBP'000
Trade payables 4,739 8,192
Other payables 594 713
Accruals 8,818 9,548
------------ --------
Total financial liabilities, excluding
loans and borrowings, classified
as financial liabilities measured
at amortised cost 14,151 18,453
Contingent consideration - 912
Deferred consideration - 25
Other tax and social security taxes 3,961 4,266
Deferred revenue 11,137 9,168
29,249 32,824
------------ --------
6. Acquisitions
Merac Limited.
On 1 July 2016, the company acquired the entire share capital of
Merac Limited. The initial consideration was GBP1.70m satisfied
on completion in cash. Contingent consideration of GBP0.18m which
was dependent on profits generated in the year from 1 April 2016
was paid in full in April 2017.
The following table sets out the book values of the identifiable
assets and liabilities acquired and their values to the group.
These have been updated from the provisional fair values included
in events after the balance sheet date in the financial statements
at 30 June 2016 as, during the measurement period of twelve months
following the date of acquisition, the value of intangible assets
has been reassessed (an increase of GBP0.55m), together with the
consequent impact on the deferred tax liabilities (an increase
of GBP0.11m).
Fair
value
GBP'000
Assets
Property, plant and equipment 6
Other intangible assets 1,315
Trade receivables 133
Other current assets 25
Cash and cash equivalents 434
Liabilities
Trade and other payables (259)
Deferred tax liabilities (263)
------------------------------------------- --------
Net assets 1,391
------------------------------------------- --------
Consideration
Initial cash consideration 1,702
Contingent cash consideration 175
--------
1,877
--------
Goodwill 486
--------
Acquisition costs to be charged to
the income statement 41
Net cash outflow arising on acquisition
Cash consideration 1,702
Less cash and cash equivalent balances
acquired (434)
--------
1,268
--------
The intangible assets recognised in the adjustments relate to customer
relationships and IP. GBP0.26m of the deferred tax liability recognised
relates to these intangible assets. The goodwill is attributable
to those intangibles such as the workforce which are not recognised
separately.
7. Notes to the cash flow statement
Cash flows from operations include acquisition costs and exceptional
reorganisation costs arising as a result of acquisitions during
the period. The adjusted cash generated from operations has been
computed because the directors consider it more useful to shareholders
and investors in assessing the underlying operating cash flow of
the Group. The adjusted cash generated from operations is calculated
as follows: 17 months Year
ended 30 ended
November 30 June
2017 2016
GBP'000 GBP'000
Cash generated from operating activities 5,954 5,502
Add:
Exceptional reorganisation costs 4,731 1,046
Acquisition costs 308 300
Release of contingent consideration (393) -
Adjusted cash generated from operations 10,600 6,848
---------- ---------
Acquisition of subsidiaries and other business units, net of cash
acquired comprises:
17 months Year
ended 30 ended
November 30 June
2017 2016
GBP000 GBP000
Initial consideration (1,506) (6,802)
Cash balances acquired 324 345
Contingent consideration repaid
from/(paid into) escrow 393 (863)
Contingent and deferred consideration (200) (81)
---------- ---------
(989) (7,401)
---------- ---------
9. The Board recommends the payment of a dividend of 1.4p per share
(year ended 30 June 2016: 1.75p) payable on 15 June 2018 to shareholders
on the register on 18 May 2018.
10. The financial information set out above does not comprise the
Company's statutory accounts. The Annual Report and Financial Statements
for the year ended 30 June 2016 have been filed with the Registrar
of Companies. The Independent Auditors' Report on the Annual Report
and Financial Statement for the year ended 30 June 2016 was unqualified,
did not draw attention to any matters by way of emphasis, and did
not contain a statement under 498(2) or 498(3) of the Companies
Act 2006.
The Independent Auditors' Report on the Annual Report and Financial
Statement for the period ended 30 November 2017 was unqualified,
did not draw attention to any matters by way of emphasis, and did
not contain a statement under 498(2) or 498(3) of the Companies
Act 2006. These will be delivered to the Registrar of Companies
following the annual general meeting.
11. The Group's full statutory financial statements for 30 November
2017 have been prepared in accordance with International Financial
Reporting Standards (IFRSs and IFRIC interpretations) as endorsed
by the European Union ("endorsed IFRS") and with those parts of
the Companies Act 2006 applicable to companies preparing their
accounts under endorsed IFRS. The Group continues to work through
the IFRS 15 implications and will provide an update during the
coming year.
12. This preliminary announcement was approved by the Board of
directors on [26] March 2018.
13. The full financial statements will be posted to shareholders
on or around [26] April 2018. Further copies will also be available
on its website (www.k3btg.com) and from the Company's registered
office at Baltimore House, 50 Kansas Avenue, Manchester, M50 2GL
from that date.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LLFFRVFIRFIT
(END) Dow Jones Newswires
March 27, 2018 02:00 ET (06:00 GMT)
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