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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 | 0.00 | 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 : 5391A
K3 Business Technology Group PLC
27 March 2017
27 March 2017
AIM: KBT
K3 BUSINESS TECHNOLOGY GROUP PLC
("K3" or "the Group" or "the Company")
Provider of industry specific mission-critical software (owned and third party), hosted solutions and managed services to the retail, manufacturing and distribution sectors
Interim results for the six months to 31 December 2016
KEY POINTS
Financial
-- Significant operational progress made but results impacted by deal slippage and overhead investment
-- Revenues of GBP42.97m (2015: GBP42.29m) - software licence sales of GBP4.41m (2015: GBP6.88m)
- recurring revenue of GBP21.22m (2015: GBP19.72m) with margins at 70.7% (2015: 70.0%) - accounted for c.49.4% of total revenue (2015: 46.6%)
- services revenue of GBP14.01m (2015: GBP13.19m)
-- Gross margin generated by K3 intellectual property ("IP") increased by 21.7% to GBP7.58m (2015: GBP6.26m)
-- Adjusted PBT(1) of GBP0.03m (2015: GBP4.72m) - mainly reflected reduced software licence sales/ Reported PBT of GBP(4.24)m (2015: GBP2.28m)
-- Adjusted EPS(2) of (0.4)p (2015: 12.0p) / Reported EPS of (9.6)p (2015: 5.9p) -- Net debt of GBP12.51m (2015: GBP10.45m)
Operational
-- Major reorganisation programme implemented: - streamlined management structure will promote better cross-selling of products and services - non-recurring cost of GBP2.74m but annualised benefits are expected to exceed this cost
-- Continuing focus on driving sales of products with significant own intellectual property, and cloud hosting and managed services offering
-- Post period - major new order won with British Heart Foundation worth over GBP2.00m -- Pipeline of potential new deals remains strong at GBP82.0m (2015: GBP56.5m)
-- Board remains confident in Group's growth prospects, with delayed deals now starting to come through, and is focused on driving cash generation and further efficiencies
David Bolton, Chairman, said:
"K3's trading performance in the first half is in line with revised management expectations but not as strong as originally expected. Profitability was impacted by sales slippage in the key December selling period, as well as by overhead investment. However we are pleased to report that we are now seeing deals we had expected to close come through, including a major contract with the British Heart Foundation.
"We made strategically important changes to the Group's operating structure in the period. These have created a more streamlined platform for ongoing growth and will enable us to better capitalise on opportunities, including greater cross-selling.
We believe that prospects remain very promising, with the pipeline standing at a record level. We expect to make good progress with our growth plans and look forward to providing a further update in due course."
Enquiries:
Hot Features
Premium
K3 Business Technology Adalsteinn Valdimarsson T: 020 3178 6378
Group plc (CEO) (today)
www.k3btg.com Robert Price (CFO) Thereafter 0161
876 4498
finnCap Limited Julian Blunt, James T: 020 7220 0500
Thompson
(NOMAD) Emily Morris (Corporate
Broking)
KTZ Communications Katie Tzouliadis, T: 020 3178 6378
Emma Pearson
Notes:
Note Calculated before amortisation of acquired
1 intangibles of GBP1.49m (2015: GBP1.60m),
exceptional reorganisation costs of GBP2.74m
(2015: GBP0.85m) and acquisition costs of
GBP0.04m (2015: nil).
Note Calculated before amortisation of acquired
2 intangibles (net of tax) of GBP1.06m (2015:
GBP1.28m), exceptional reorganisation costs
(net of tax) of GBP2.19m (2015: GBP0.68m)
and acquisition costs (net of tax) of GBP0.04m
(2015: nil).
CHAIRMAN'S STATEMENT
OVERVIEW
K3's trading performance in the first half is in line with revised management expectations but, as previously reported, it is not as strong as originally expected. The anticipated sales in December which, together with June, is typically a key selling period, did not come through, with order slippage across both our Retail and Manufacturing & Distribution activities. We believe the lengthening sales cycle that we have seen in major orders reflected industry-wide pressures. In particular, the shift towards cloud delivery, away from on-premise technology, is lengthening the decision-making process by customers. While this transition to cloud-based consumption licensing benefits us in the long term, particularly with customer 'stickiness' and life-time values, it also creates near term challenges.
The shortfall in expected software deals, as well as overhead investment, largely accounted for the reduction in adjusted profit from operations(*1) to GBP0.45m (2015: GBP5.11m) on revenues of GBP42.97m (2015: GBP42.29m). Services margins also reduced as we used external resource to implement the strong level of orders closed in June 2016.
While we did not sign the expected level of new contracts in the period, we are pleased to report that the pipeline of order prospects nonetheless remains strong at GBP82.0m (2015: GBP56.0m). Very encouragingly, we are also seeing deals we had expected to close in the period, now coming through. These include a major deal with the British Heart Foundation, secured through our retail sales team, initially worth over GBP2.0m.
The evolution of the Group towards a new model of higher 'own IP' sales is progressing well. It is encouraging that gross margins generated by K3's own IP increased by 21.7% in the period to GBP7.58m. We are also continuing to invest in widening our sales channels for our own IP through global channel partner relationships.
We are pleased with the increase in recurring revenues, which rose by 7.6% to GBP21.22m (2015: GBP19.72m), helped by both inorganic and organic growth. These sales continue to account for approximately half the Group's overall income and are derived from annual software licence renewals, support contracts and hosting. Our margin on recurring revenue also increased to 70.7% from 70.0%.
The new management team, led by CEO, Adalsteinn Valdimarsson, who assumed his role in October, made strategically important changes to the Group's operational structure in the period. As previously announced, these changes have been implemented to create a more streamlined platform for ongoing growth and to enable us to better capitalise on opportunities. These include more effective cross-selling of our products across our 3,700 strong customer base. The key changes in this reorganisation programme are now largely complete and have resulted in a one-off cost of approximately GBP2.7m, which has been recognised in this period. However the synergy benefits are expected to exceed this cost on an annualised basis.
The tighter focus on cross-selling and simplified organisational structure has resulted in our largest ever combined AX delivery and hosted customer, Fortnum & Mason. We are also seeing our Global Accounts (IKEA franchisees) take up additional K3 solutions and services. We have developed a 'Next Generation' platform, combining IP from the DdD acquisition with our existing integration platform, which will support our entire product offering. We are currently piloting it with a major European fashion retailer.
Our combined hosting and managed services operation, Starcom, is performing well and contributed sales of GBP5.11m (2015: GBP5.41m) and adjusted profit from operations(*2) of GBP0.30m (2015: GBP0.49m). This is after the loss of MyLocal, which went into administration last year, and despite the impact of deal slippage. We are focusing on driving Starcom sales especially though cross-selling. The Fortnum & Mason contract was the second largest order for our cloud hosting and managed services business and there are further contracts being implemented in the coming months with both new and existing customers.
While the slippage in orders in the first half has been disappointing, we believe that prospects for the Group remain very promising. We have a clear vision for ongoing product development and have invested in the business to better capture opportunities. The closing of the major contract with the British Heart Foundation, as well as a good level of smaller wins with SMEs since the period end, is especially encouraging and helps to underpin prospects for the second half.
FINANCIAL RESULTS
Revenue Gross Margin Gross Margin
(GBPm) (GBPm) (%)
2016 2015 2016 2015 2016 2015
Software licences 4.41 6.88 2.77 4.54 62.8% 66.0%
Services 14.01 13.19 3.61 4.55 25.8% 34.5%
Recurring
* 21.22 19.72 14.99 13.81 70.7% 70.0%
Hardware and
other 3.33 2.50 1.11 0.62 33.2% 24.8%
------------------- ------ ------ ------- ------ ------- ------
Total 42.97 42.29 22.48 23.52 52.3% 55.6%
------------------- ------ ------ ------- ------ ------- ------
2016 2015 % change
Adjusted profit from
operations(*1) (GBPm) 0.45 5.11 -91%
Recurring revenue*
as % of total revenues 49.4% 46.6% 6%
*Recurring revenue: software maintenance renewals, support contracts, and hosting & managed services
K3 Intellectual Property
We highlight the revenue generated by K3's own IP below, which is included in the revenues above.
Revenue (GBPm)
2016 2015
K3 Product Licence(i) 3.88 4.89
K3 Product Related(ii) 8.62 4.67
------------------------ -------- -------
Total K3 Product 12.50 9.56
------------------------ -------- -------
Gross margin GBPm 7.58 6.26
Gross margin % 60.6% 65.5%
(i) K3 Product Licence revenue includes initial and annual software licences.
(ii) K3 Product Related revenue represents the additional identifiable revenues which flow directly from our K3 Product sales.
For the six months to 31 December 2016, revenues totalled GBP42.97m (2015: GBP42.29m). Recurring revenues, from software maintenance renewals, support contracts, hosting and managed services, accounted for almost half this income at 49.4% (2015: 46.6%) and increased by 7.6% to GBP21.22m (2015: GBP19.72m), boosted by the acquisition of DdD in April 2016. Services revenue was up 6.2% to GBP14.01m (2015: GBP13.19m), reflecting strong activity levels after the excellent close to the last financial year although gross margin was lower. Software licence sales reduced to GBP4.41m (2015: GBP6.88m), against softer trading conditions.
Reflecting lower software licence sales and reduced service margins, gross margin decreased by 4.4% to GBP22.48m (2015: GBP23.52m) and the gross percentage margin was 52.3% (2015: 55.6%). Services margins were affected by the requirement to resource externally for implementations. However, the gross margin on recurring income rose by 8.5% to GBP14.99m, benefiting from the higher margin on our hosting and managed services businesses. Overhead costs(*3) increased in the short term to GBP22.0m (2015: GBP18.4m), as we invested in the DdD and Merac acquisitions and in our channel partner strategy. We expect overhead costs to reduce materially as the impact of previous and new initiatives feed through.
The operational reorganisation, announced in the autumn of 2016, resulted in a non-recurring cost of approximately GBP2.74m (2015: GBP0.85m). As previously reported, the annualised benefits are likely to exceed this cost. While the major elements of the restructuring were completed in the first half, we will continue to look for cost efficiencies.
Adjusted profit from operations(*1) was GBP0.45m (2015: GBP5.11m), which mainly reflected deal slippage and overhead investment. Adjusted profit before tax(*4) decreased to GBP0.03m (2015: GBP4.72m) and adjusted loss per share(*5) was (0.4)p (2015: earnings of 12.0p).
Reported loss before tax was GBP4.24m (2015: profit before tax of GBP2.28m) and the basic loss per share was 9.6p (2015: earnings of 5.9p). There was a net tax credit for the period of GBP0.81m (2015: charge of GBP0.41m) after the benefit of a GBP0.21m deferred tax credit (2015: GBP0.14m).
Cash flow and banking
During October 2016 the Group completed a refinancing programme to take advantage of favourable interest rates. Cash flow from operations was GBP1.21m (2015: GBP4.97m) reflecting lower adjusted profit from operations(*1) and the operational reorganisation. Working capital inflows were solid at GBP1.54m (2015: outflow GBP0.95m) reflecting management focus on working capital and cash creation. Our focus on cash conversion has had renewed vigour with the working capital movements in the cash flow GBP2.5m favourable to H1 last year. Net debt at 31 December 2016 stood at GBP12.51m (2015: GBP10.45m).
The expenditure on capitalised development increased to GBP2.68m (2015: GBP2.17m) as we continued to execute our strategy of building our own product IP. Expenditure on fixed assets was lower at GBP0.29m (2015: GBP0.57m) and consideration on acquisitions amounted to GBP1.21m (2015: GBP0.03m).
The net cash outflow for finance expenses increased to GBP0.70m (2015: GBP0.39m) as a result of charges associated with the re-financing.
DIVID
In line with the Group's dividend policy, no interim dividend will be declared but the Directors intend to propose a progressive final dividend.
BOARD CHANGES
As previously announced, we were pleased to welcome Adalsteinn Valdimarsson as Chief Executive Officer on 1 October 2016. Adalsteinn joined K3 in July 2016 as a Non-executive Director and has over 20 years' experience in the software sector. He has founded and led the expansion of a number of product-based software companies and also has significant experience in retail software and of the Microsoft Dynamics platform. We also made a number of senior management team changes, including the appointment of Robert Price as Chief Financial Officer in October 2016. Robert replaced Brian Davis whom we take this opportunity to thank for his dedicated contribution over the last nine years.
As Adalsteinn assumed his new role, I became Chairman and Lars-Olof Norell, previously Chairman, become a Non-executive Director. Lars-Olof will be retiring from the Board on 31 May and, ahead of this, we would like to thank him for his contribution to K3. We would also like to welcome Stuart Darling to the Board as a Non-executive Director from 3 April. Stuart has extensive senior level financial and commercial experience in the technology sector and with growing companies.
CHANGE OF FINANCIAL YEAR
Given the Company's strong seasonal trading patterns, with December and June representing key selling months, the Board is considering changing the Company's financial year end in order to provide shareholders with greater visibility on year end results. An announcement will be made in due course about this decision.
OUTLOOK
While the trading environment in the first half resulted in contract slippages and therefore a shortfall in the Group's trading performance, the pipelines across the Group continue to build and we are now starting to see major deals close. We continue to invest in product and have also completed important strategic changes that will better position K3 to capitalise on its opportunities. We expect to make good progress with our growth plans despite the soft first half.
As we have previously reported, we are evolving K3 so that an increasing proportion of the Group's sales will comprise higher margin own IP product and will be cloud-delivered. We also continue to view channel partners as an important route to market. All these initiatives will drive the quality of the Group's earnings.
While the market shift towards cloud-based subscription models, away from the traditional on-premise model, is causing some disruption to the sales cycle, the lifetime value of such contracts has the potential to be significantly higher and K3 is well placed to benefit as a result.
Overall, we are confident of K3's growth opportunities and will remain focused on cost efficiencies and cash generation, and on driving cross-Group synergies and capitalising on our own IP.
David Bolton
Chairman
27 March 2017
(*1) Group adjusted profit from operations is calculated
before amortisation of acquired intangibles of
GBP1.49m (2015: GBP1.60m), exceptional reorganisation
costs of GBP2.74m (2015: GBP0.85m) and acquisition
costs of GBP0.04m (2015: nil).
(*2) Starcom adjusted profit from operations is calculated
before amortisation of acquired intangibles of
GBP0.16m (2015: GBP0.16m).
(*3) Overhead costs are calculated before amortisation
of acquired intangibles of GBP1.49m (2015: GBP1.60m),
exceptional reorganisation costs of GBP2.74m (2015:
GBP0.85m) and acquisition costs of GBP0.04m (2015:
nil).
(*4) Group adjusted profit before tax is calculated
before amortisation of acquired intangibles of
GBP1.49m (2015: GBP1.60m), exceptional reorganisation
costs of GBP2.74m (2015: GBP0.85m) and acquisition
costs of GBP0.04m (2015: nil).
(*5) Group adjusted earnings per share is calculated
before amortisation of acquired intangibles (net
of tax) of GBP1.06m (2015: GBP1.28m), exceptional
reorganisation costs (net of tax) of GBP2.19m (2015:
GBP0.68m) and acquisition costs (net of tax) of
GBP0.04m (2015: nil).
Operational Review
RESULTS OVERVIEW BY INDUSTRY SECTOR
The operational results for the Group are summarised by industry sector as follows:
Revenue Revenue Adj profit Adj
profit
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
Retail(*6) 20.94 19.72 (0.79) 2.51
Manufacturing
& Distribution(*7) 22.03 22.57 1.88 2.99
Head office - - (0.64) (0.39)
--------------------- -------- -------- ----------- --------
Total 42.97 42.29 0.45 5.11
--------------------- -------- -------- ----------- --------
RETAIL ACTIVITIES
Results Overview
Revenue Revenue Gross margin Gross margin
(GBPm) (%)
2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm % %
Software licences 2.51 4.50 1.87 3.13 74.6% 69.6%
Services 8.12 7.68 1.94 2.34 23.9% 30.5%
Recurring* 7.66 6.20 5.67 4.39 73.9% 70.8%
Hardware and
other 2.65 1.34 1.00 0.40 37.9% 29.9%
------------------- -------- -------- ------- ------ ------- ------
Total 20.94 19.72 10.48 10.26 50.0% 52.0%
------------------- -------- -------- ------- ------ ------- ------
2016 2015 % change
Adjusted profit from operations(*6)
(GBPm) (0.79) 2.51 (131)%
Recurring revenue* as
% of total revenues 36.6% 31.4% 17%
*Recurring revenue: from software maintenance renewals, support contracts, and hosting and managed services.
Intellectual Property
K3 Retail's own IP, which is included in the revenues above, is:
Revenue (GBPm)
2016 2015
K3 Product
Licence(i) 2.33 3.13
K3 Product
Related(ii) 8.49 4.49
--------------------------- ------------ ------------
Total K3
Product 10.82 7.62
--------------------------- ------------ ------------
Gross margin 6.01 4.47
Gross margin
% 55.5% 58.7%
(i) K3 Product Licence revenue includes initial
and annual software licences.
(ii) K3 Product Related revenue represents
the additional identifiable revenues which
flow directly from our K3 Product sales.
Retail Performance
Our Retail operations generated increased sales of GBP20.94m (2015: GBP19.72m). This was below expected levels, with high margin software licence sales significantly reduced at GBP2.51m (2015: GBP4.50m). This also largely accounted for the adjusted loss from operations(*6) of GBP0.79m (2015: profit of GBP2.51m). While customer demand remained very healthy, the general shift in the marketplace towards the consumption/subscription model (illustrated by Microsoft releasing the latest version of AX initially only via the cloud) has slowed customer decision-making and the expected level of major contract agreements in the key selling period to December 2016 did not materialise. However, major deals remain in the pipeline, which is up by 80% year-on-year to GBP47m (2015: GBP26m and we are seeing encouraging signs of deals coming through including the major new contract with the British Heart Foundation, worth initially in excess of GBP2,0m, which covers over 700 retail outlets.
Services sales were higher year-on-year at GBP8.12m (2015: GBP7.68m) following very successful sales in June 2016, which included major contracts with Selco, Fortnum & Mason and Ann Summers. However, gross margin decreased to 23.9% (2015: 30.5%), with this mainly resulting from the need to use external contracting resource for implementations.
Recurring revenues increased to GBP7.66m (2015: GBP6.20m), partly reflecting the benefits of the acquisitions of Merac (in July 2016) and of DdD (in April 2016), both of which are performing well.
A key focus remains on our own IP and delivering the full potential of our "ax l is fashion" and "Pebblestone fashion" products. Revenue attributable to our own IP increased by 42.0% to GBP10.82m year-on-year (2015: GBP7.62m). Our own IP content also drove the increase in gross margins on software licence sales. These rose to 74.6% from 69.6%. We are continuing to invest in our channel partner strategy.
In the second quarter we signed our largest hosting contract on the back of a previous AX software sale. This re-enforces our belief that there are significant synergies to capitalise on across the Group as we sell our solution suites to customers.
Our business with IKEA continued to be strong in the period, with a good mix of software licence sales, support and services revenues from Inter IKEA and the concept franchisees. We are also exploring opportunities to leverage our relationship with these Global Accounts and are encouraged to see them adopt some of our wider K3 solutions and services.
Our SME-focused businesses are performing well and in line with management expectations. Sales included the first point-of-sale solution in Antarctica with the British Antarctic Survey in September. The DdD and Merac acquisitions are performing well, and we are investing in DdD's 'born in the cloud' IP to use it as a core part of our 'Next Generation' of solutions.
We have been focusing on business efficiency improvements across the Retail division and the benefits are beginning to bear fruit.
Retail Prospects
We remain very positive about the global sales potential of our "ax l is fashion" offering, our other own IP products and our elevated status as a member of the Microsoft Dynamics Inner Circle. We are continuing to focus on driving sales both directly and indirectly through an international network of channel partners. Our pipeline for the second half of the financial year at GBP47m (2015: GBP26m) has increased significantly and includes potential deals across the range of our product portfolio.
MANUFACTURING AND DISTRIBUTION ACTIVITIES
Results Overview
Revenue Gross Margin Gross Margin
(GBPm) (GBPm) (%)
2016 2015 2016 2015 2016 2015
Software licences 1.90 2.39 0.90 1.41 47.2% 59.0%
Services 5.89 5.50 1.67 2.21 28.4% 40.2%
Recurring
* 13.55 13.52 9.33 9.42 68.8% 69.7%
Hardware and
other 0.69 1.16 0.10 0.22 15.0% 19.0%
------------------- ------ ------ ------- ------ ------- ------
Total 22.03 22.57 12.00 13.26 54.5% 58.8%
------------------- ------ ------ ------- ------ ------- ------
2016 2015 % change
Adjusted profit from operations(*7)
(GBPm) 1.88 2.99 (37)%
Recurring revenue* as
% of total revenues 61.5% 59.9% 3%
*Recurring revenue from software maintenance renewals, support contracts, and hosting and managed services
Intellectual Property
Manufacturing and Distribution's own IP which is included in the revenues above, is:
Revenue (GBPm)
2016 2015
K3 Product
Licence(i) 1.55 1.76
K3 Product
Related(ii) 0.13 0.18
Total K3 Product 1.68 1.94
----------------------------- ----------- -----------
Gross margin 1.57 1.80
Gross margin
% 93.1% 92.8%
(i) K3 Product Licence revenue includes initial
and annual software licences.
(ii) K3 Product Related revenue represents the
additional identifiable revenues which flow
directly from our K3 Product sales.
Manufacturing and Distribution Performance
Our Manufacturing and Distribution activities generated total revenues of GBP22.03m (2015: GBP22.57m). The adjusted profit from operations(*7) of GBP1.88m (2015: GBP2.99m) was impacted by order slippage in some units as well as reduced gross margin in services revenues. While expected deals slipped, the pipeline at the end of the first half remained strong, standing at c. GBP35m (2015: GBP30m).
Recurring revenues continue to comprise the dominant income stream and accounted for 61.5% of this segment's revenue (2015: 59.9%). This high margin revenue also accounts for approximately 63.9% of the Group's total recurring income and it generates significant cash flows for the investment activities for the whole Group.
Recurring revenue was slightly higher than last year at GBP13.55m (2015: GBP13.52m), with SYSPRO maintenance and support renewals continuing to account for the major part. SYSPRO renewal rates remained high at 98% (2015: 98%) and, as annual renewals are billed in October, revenues and cash flows from this segment are significantly weighted to the first half of the financial year.
Services revenues rose 7.1% to GBP5.89m (2015: GBP5.50m) reflecting the ongoing delivery of contracts across all product lines.
Our SYSPRO business performed steadily and we have recently enlarged the sales team with the expectation of increased new business. We expect sales of our own IP products (Dataswitch, APS and Orchard Warehouse Management) which have historically only been linked to SYSPRO sales, to grow strongly as in March 2017 we have included them in our Independent Software Vendor ("ISV") offering and have started to sell them through our global channel partners.
The movement to the cloud-based consumption model generated our first sale of 'Dynamics 365 for Operations', formerly AX7. K3 Business Solutions has won Business Industry Today's "Company of the year award". The Sage business has maintained its Sage 'Platinum' accreditation and its pipeline looks promising for the second half of the year. We are also now seeing Sage deals start to close. The CRM business continued to perform well with international projects, and our focus on cross-selling is generating opportunities for this business across the Group.
Our combined hosting and managed services operation, Starcom, is performing well and, contributed sales of GBP5.11m (2015: GBP5.41m) and adjusted profit from operations(*8) of GBP0.30m (2015: GBP0.49m). Hosting and managed services contributed GBP3.95m of recurring revenues in the period (2015: GBP3.79m). The range of cloud hosting activities that we offer across a variety of products and price points is proving attractive to customers and we remain very optimistic about continuing growth prospects. We anticipate that Starcom hosting and managed services will be one of the major beneficiaries from the new cross-selling programme.
Manufacturing and Distribution Prospects
Our Manufacturing and Distribution activities generate predictable recurring revenues and cash flows. Prospects for the second half look encouraging with a strong pipeline of opportunities worth c. GBP35m (2015: GBP30m). In addition, we continue to focus on growing our cloud hosting and managed services business.
CENTRAL COSTS
Head office
Head office costs(*9) for the period were GBP0.64m (2015: GBP0.39m) with costs stated net of recovery of elements recharged to the operating units.
Reflecting the importance of our IP and channel partner strategy, during the period, we established a central R&D and technology team. This team is focused on developing our 'Next Generation' of products, combining our industry expertise and best practice with the latest technology.
OUTLOOK
We are optimistic about prospects for the business. The transition to focusing on selling solutions with more of our own higher margin IP embedded in the overall offering will help to drive both profitability and recurring revenues. The operational reorganisation that we have now largely completed will support our growth strategy. Designed to create a more unified and cohesive approach to the way we sell our IT solutions, the reorganisation will boost cross-selling, particularly for the cloud opportunity, and also drive efficiencies.
We will continue to focus on working capital improvement and on cash conversion by improving the working capital flows. With the recent deal closures and the encouraging size of the pipeline, we look forward to providing a further update on trading in due course.
Adalsteinn Valdimarsson
Chief Executive Officer
(*6) Retail adjusted (loss)/profit from operations
is calculated before amortisation of acquired
intangibles of GBP0.83m (2015: GBP0.31m) and
exceptional reorganisation costs of GBP1.09m
(2015: GBP0.65m).
(*7) Manufacturing and Distribution adjusted profit
from operations is calculated before amortisation
of acquired intangibles of GBP0.66m (2015: GBP1.29m)
and exceptional reorganisation costs of GBP0.53m
(2015: GBP0.20m).
(*8) Starcom adjusted profit from operations is calculated
before amortisation of acquired intangibles of
GBP0.16m (2015: GBP0.16m).
(*9) Head office costs are calculated before exceptional
reorganisation costs of GBP1.12m (2015: nil)
and acquisition costs of GBP0.04m (2015: nil).
K3 BUSINESS TECHNOLOGY GROUP PLC CONSOLIDATED INCOME
STATEMENT For the six months ended 31 December 2016
Unaudited Unaudited Audited
Six months Six months Year to
to 31 Dec to 31 Dec to 30
2016 2015 June 2016
Notes
GBP'000 GBP'000 GBP'000
Revenue 42,974 42,291 89,175
---------------------------- ------- ------------ ------------ -----------
Adjusted profit from
operations 446 5,107 9,501
Amortisation of acquired
intangibles (1,486) (1,595) (2,734)
Acquisition costs (42) - (492)
Exceptional reorganisation
costs 2 (2,743) (847) (1,046)
---------------------------- ------- ------------ ------------ -----------
(Loss)/profit from
operations (3,825) 2,665 5,229
Finance income 2 18 4
Finance expense (419) (405) (705)
(Loss)/profit before
taxation (4,242) 2,278 4,528
Tax expense 3 813 (406) (425)
(Loss)/profit for
the period (3,429) 1,872 4,103
---------------------------- ------- ------------ ------------ -----------
All of the (loss)/profit for the period is attributable
to equity holders of the parent.
Earnings per share 4
Basic (9.6)p 5.9p 12.6p
Diluted (9.4)p 5.8p 12.3p
K3 BUSINESS TECHNOLOGY GROUP PLC CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME For the six months ended 31 December
2016 Notes
Unaudited Unaudited Audited
Six months Six months Year
to 31 to 31 to
Dec Dec 30 June
2016 2015 2016
GBP'000 GBP'000 GBP'000
(Loss)/profit for the
period (3,429) 1,872 4,103
----------------------------------------------- ------------ ------------ ---------
Other comprehensive income
Exchange differences on
translation of foreign
operations 475 703 3,073
Other comprehensive income,
net of tax 475 703 3,073
Total comprehensive (expense)/income
for the period (2,954) 2,575 7,176
----------------------------------------------- ------------ ------------ ---------
All of the total comprehensive (expense)/income for the
period is attributable to equity holders of the parent.
All of the other comprehensive (expense)/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.
K3 BUSINESS TECHNOLOGY GROUP PLC CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
As at 31 December 2016 Notes Unaudited Unaudited Audited
As at As at As at
31 December 31 December 30 June
2016 2015 2016
GBP'000 GBP'000 GBP'000
ASSETS
Non-current assets
Property, plant and equipment 2,274 2,414 2,389
Goodwill 49,970 43,808 48,793
Other intangible assets 27,212 20,483 26,369
Deferred tax assets 572 636 423
Available-for-sale investments 98 98 98
Total non-current assets 80,126 67,439 78,072
-------------------------------- ------ ------------- ------------- ---------
Current assets
Trade and other receivables 39,313 32,522 40,923
Cash and cash equivalents 4,462 2,118 2,772
Total current assets 43,775 34,640 43,695
-------------------------------- ------ ------------- ------------- ---------
Total assets 123,901 102,079 121,767
-------------------------------- ------ ------------- ------------- ---------
LIABILITIES
Non-current liabilities
Long-term borrowings 5 16,282 9,131 8,272
Other non-current liabilities 6 - 494 -
Deferred tax liabilities 3,684 2,964 3,753
Total non-current liabilities 19,966 12,589 12,025
-------------------------------- ------ ------------- ------------- ---------
Current liabilities
Trade and other payables 7 32,773 29,531 32,824
Current tax liabilities - 354 132
Short-term borrowings 5 691 3,440 3,376
-------------------------------- ------ ------------- ------------- ---------
Total current liabilities 33,464 33,325 36,332
-------------------------------- ------ ------------- ------------- ---------
Total liabilities 53,430 45,914 48,357
-------------------------------- ------ ------------- ------------- ---------
EQUITY
Share capital 9,000 7,965 9,000
Share premium account 21,586 9,524 21,586
Other reserves 10,448 10,448 10,448
Translation reserve 1,551 (1,294) 1,076
Retained earnings 27,886 29,522 31,300
-------------------------------- ------ ------------- ------------- ---------
Total equity attributable
to equity holders of the
parent 70,471 56,165 73,410
-------------------------------- ------ ------------- ------------- ---------
Total equity and liabilities 123,901 102,079 121,767
-------------------------------- ------ ------------- ------------- ---------
K3 BUSINESS TECHNOLOGY GROUP PLC CONSOLIDATED STATEMENT
OF CASH FLOWS
For the six months ended 31 December 2016
Unaudited Unaudited Audited
Six months Six months Year
to 31 to 31 to
Dec Dec 30 June
Notes 2016 2015 2016
GBP'000 GBP'000 GBP'000
Cash flows from operating
activities
(Loss)/profit for the
period (3,429) 1,872 4,103
Adjustments for:
Share based payments charge 23 4 28
Depreciation of property,
plant and equipment 519 493 971
Amortisation of intangible
assets and development
expenditure 2,948 2,763 5,077
Loss on sale of property,
plant and equipment - - 4
Finance income (2) (18) (4)
Finance expense 419 405 705
Tax expense (813) 406 425
Decrease (increase) in
trade and other receivables 2,707 (531) (5,977)
(Decrease) increase in
trade and other payables (1,163) (421) 170
------------------------------------ ------- ------------ ------------ ---------
Cash generated from operations 8 1,209 4,973 5,502
Finance expense paid (701) (392) (789)
Income taxes received/(paid) 96 (212) (688)
------------------------------------ ------- ------------ ------------ ---------
Net cash generated from
operating activities 604 4,369 4,025
------------------------------------ ------- ------------ ------------ ---------
Cash flows from investing
activities
Acquisition of subsidiaries,
net of cash acquired 8 (1,207) (25) (7,401)
Development expenditure
capitalised (2,681) (2,169) (4,642)
Purchase of property,
plant and equipment (286) (573) (931)
Proceeds from sale of
property, plant and equipment - - 15
Finance income received 2 - 6
------------------------------------ ------- ------------ ------------ ---------
Net cash absorbed by investing
activities (4,172) (2,767) (12,953)
------------------------------------ ------- ------------ ------------ ---------
Cash flows from financing
activities
Net proceeds from issue of
share capital - 78 13,175
Proceeds from long-term borrowings 16,133 - -
Payment of long-term borrowings (10,885) (1,464) (2,928)
Payment of finance lease
liabilities (25) (4) (12)
Dividends paid - - (477)
------------------------------------ ------- ------------ ------------ ---------
Net cash generated from/(absorbed
by) financing activities 5,223 (1,390) 9,758
------------------------------------ ------- ------------ ------------ ---------
Net change in cash and cash
equivalents 1,655 212 830
Cash and cash equivalents
at start of period 2,772 1,895 1,895
Exchange gains on cash and
cash equivalents 35 11 47
------------------------------------ ------- ------------ ------------ ---------
Cash and cash equivalents
at end of period 4,462 2,118 2,772
------------------------------------ ------- ------------ ------------ ---------
K3 BUSINESS TECHNOLOGY GROUP PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six
months ended 31 December 2016
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 1 July 2015 7,949 9,462 10,448 (1,997) 27,633 53,495
------------------- --------- --------- --------- ------------ ---------- --------
Changes in equity
for six months
ended 31 December
2015
Profit for the
period - - - - 1,872 1,872
Other
comprehensive
income for the
period - - - 703 - 703
------------------- --------- --------- --------- ------------ ---------- --------
Total
comprehensive
income - - - 703 1,872 2,575
Share-based
payment
credit - - - - 4 4
Options exercised 16 62 - - - 78
Movement in own
shares held - - - - 13 13
------------------- --------- --------- --------- ------------ ---------- --------
At 31 December
2015 7,965 9,524 10,448 (1,294) 29,522 56,165
------------------- --------- --------- --------- ------------ ---------- --------
Changes in equity
for six months
ended 30 June
2016
Profit for the
period - - - - 2,231 2,231
Other
comprehensive
income for the
period - - - 2,370 - 2,370
------------------- --------- --------- --------- ------------ ---------- --------
Total
comprehensive
income - - - 2,370 2,231 4,601
Share-based
payment
credit - - - - 24 24
Options exercised 12 45 - - - 57
Issue of new
shares 1,023 12,017 - - - 13,040
Movement in own - - - - - -
shares held
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 six months
ended 31 December
2016
Loss for the
period - - - - (3,429) (3,429)
Other
comprehensive
income for the
period - - - 475 - 475
------------------- --------- --------- --------- ------------ ---------- --------
Total
comprehensive
income - - - 475 (3,429) (2,954)
Share-based
payment
credit - - - - 23 23
Movement in own
shares held - - - - (8) (8)
At 31 December
2016 9,000 21,586 10,448 1,551 27,886 70,471
------------------- --------- --------- --------- ------------ ---------- --------
K3 BUSINESS TECHNOLOGY GROUP PLC
NOTES TO THE UNAUDITED INTERIM STATEMENT
1. Basis of preparation
The consolidated interim financial information has been
prepared in accordance with the accounting policies that
are expected to be adopted in the Group's full financial
statements for the year ending 30 June 2017 which are
not expected to be significantly different to those set
out in Note 1 of the Group's audited financial statements
for the year ended 30 June 2016. These are based on the
recognition and measurement principles of IFRS in issue
as adopted by the European Union (EU) and are effective
at 30 June 2017 or are expected to be adopted and effective
at 30 June 2017. The financial information has not been
prepared (and is not required to be prepared) in accordance
with IAS 34. The accounting policies have been applied
consistently throughout the Group for the purposes of
preparation of this financial information.
The financial information in this statement relating
to the six months ended 31 December 2016 and the six
months ended 31 December 2015 has neither been audited
nor reviewed pursuant to guidance issued by the Auditing
Practices Board. The financial information for the year
ended 30 June 2016 does not constitute the full statutory
accounts for that period. 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.
2. Profit from operations
During the period, reorganisation costs have been incurred
which relate to a major reorganisation to streamline
the management structure to promote ongoing growth through
better cross-selling of products and services. This was
at a cost of GBP2.74m (2015: GBP0.85m).
3. Tax expense
Unaudited Unaudited Audited
Six months Six months Year to
to 31 to 31 30 June
Dec 2016 Dec 2015 2016
GBP'000 GBP'000 GBP'000
Current tax expense
UK corporation tax and
income tax of overseas
operations on profits
for the period (607) 542 866
Adjustment in respect
of prior periods - - (25)
--------------------------- ------------ ------------ ---------
Total current tax expense (607) 542 841
--------------------------- ------------ ------------ ---------
Deferred tax income
Origination and reversal
of temporary differences (77) (136) (94)
Effect of change in
rate of deferred tax (129) - (322)
--------------------------- ------------ ------------ ---------
Total deferred tax income (206) (136) (416)
--------------------------- ------------ ------------ ---------
Total tax expense (813) 406 425
--------------------------- ------------ ------------ ---------
4. Earnings per share
The calculations of earnings per share are based on the
profit for the financial period and the following numbers
of shares:
Unaudited Unaudited Audited
Six months Six months Year to
to 31 to 31 30 June
Dec 2016 Dec 2015 2016
Number Number Number
of of of
Shares Shares Shares
Weighted average number
of shares:
For basic earnings per
share 35,901,357 31,683,967 32,439,624
Effects of employee
share options and warrants 479,288 508,458 798,049
----------------------------- ------------ ------------ -----------
For diluted earnings
per share 36,380,645 32,192,425 33,237,673
----------------------------- ------------ ------------ -----------
Adjusted 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
profits and the above number of shares:
Unaudited six Unaudited six Audited Year
months months to 30 June
to 31 Dec 2016 to 31 Dec 2015 2016
Earnings Per Per Earnings Per Per Earnings Per Per
share share share share share share
amount amount amount amount amount amount
Basic Diluted Basic Diluted Basic Diluted
GBP'000 p p GBP'000 p p GBP'000 P p
Earnings
per share
(eps) (3,429) (9.6) (9.4) 1,872 5.9 5.8 4,103 12.6 12.3
Amortisation
of acquired
intangibles
(net of
tax) 1,061 3.0 2.9 1,275 4.0 4.0 2,190 6.8 6.6
Acquisition
costs (net
of tax) 42 0.1 0.1 - - - 492 1.5 1.5
Exceptional
reorganisation
costs (net
of tax) 2,194 6.1 6.0 678 2.1 2.1 837 2.6 2.5
---------------- --------- ------- --------- --------- ------- --------- --------- ------- --------
Adjusted
eps (131) (0.4) (0.4) 3,825 12.0 11.9 7,622 23.5 22.9
---------------- --------- ------- --------- --------- ------- --------- --------- ------- --------
5. Loans and borrowings Unaudited Unaudited Audited
As at As at As at
31 Dec 31 Dec 30 June
2016 2015 2016
GBP'000 GBP'000 GBP'000
Non-current
Bank loans (secured) 16,203 9,127 8,234
Finance lease creditors 79 4 38
16,282 9,131 8,272
---------------------------- ---------- ---------- ---------
Current
Bank loans (secured) - 2,796 2,718
Finance lease creditors 51 4 18
Loans from related parties 640 640 640
---------------------------- ---------- ---------- ---------
691 3,440 3,376
---------------------------- ---------- ---------- ---------
Total borrowings 16,973 12,571 11,648
---------------------------- ---------- ---------- ---------
6. Other non-current liabilities Unaudited Unaudited Audited
As at As at As at
31 Dec 31 Dec 30 June
2016 2015 2016
GBP'000 GBP'000 GBP'000
Accruals - 494 -
--------- ---------- ---------- ---------
- 494 -
--------- ---------- ---------- ---------
7. Trade and other payables Unaudited Unaudited Audited
As at As at As at
31 Dec 31 Dec 30 June
2016 2015 2016
GBP'000 GBP'000 GBP'000
Trade payables 5,420 5,887 8,192
Other payables 412 292 713
Accruals 10,552 8,302 9,548
---------------------------------- ---------- ---------- ---------
Total financial liabilities,
excluding loans and borrowings,
classified as financial
liabilities measured at
amortised cost 16,384 14,481 18,453
Contingent consideration 938 56 912
Deferred consideration 175 25 25
Other tax and social security
taxes 5,171 4,194 4,266
Deferred revenue 10,105 10,775 9,168
---------------------------------- ---------- ---------- ---------
32,773 29,531 32,824
---------------------------------- ---------- ---------- ---------
8. Notes to the cash flow statement
Cash generated from operations is stated after exceptional
reorganisation costs and acquisition costs. 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:
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 Dec 31 Dec 30 June
2016 2015 2016
GBP'000 GBP'000 GBP'000
Cash generated from operating
activities 1,209 4,973 5,502
Add:
Exceptional reorganisation
costs 2,391 847 1.046
Acquisition costs 42 - 300
Adjusted cash generated
from operations 3,642 5,820 6,848
------------ ------------ ---------
Acquisition of subsidiaries and other business units,
net of cash acquired comprises:
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 Dec 31 Dec 30 June
2016 2015 2016
GBP000 GBP000 GBP000
Initial consideration (1,506) - (6,802)
Cash balances acquired 324 - 345
Contingent consideration
paid into escrow - - (863)
Contingent and deferred
consideration paid (25) (25) (81)
------------ ------------ ---------
(1,207) (25) (7,401)
------------ ------------ ---------
9. The above information is being sent to the shareholders
and is available from the Company's website, www.k3btg.com,
and from its registered office: Baltimore House, 50 Kansas
Avenue, Manchester M50 2GL.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR LLFFTVDIRFID
(END) Dow Jones Newswires
March 27, 2017 02:01 ET (06:01 GMT)
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