Share Name Share Symbol Market Type Share ISIN Share Description
K3 Bus.Tech. 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
  +0.00p +0.00% 237.50p 235.00p 240.00p 237.50p 237.50p 237.50p 350 08:00:00
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Software & Computer Services 118.2 -16.1 -35.3 - 75.51

K3 Business Technology Group PLC Second Interim Results

27/09/2017 7:00am

UK Regulatory (RNS & others)


K3 Bus.Tech. (LSE:KBT)
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TIDMKBT

RNS Number : 8963R

K3 Business Technology Group PLC

27 September 2017

27 September 2017

AIM: KBT

K3 BUSINESS TECHNOLOGY GROUP PLC

("K3" or "the Group" or "the Company")

Provider of mission-critical software (owned and third party), hosted solutions and managed services to the retail, manufacturing and distribution sectors

Second interim results - 6 months to 30 June 2017

&

12 months to 30 June 2017

KEY POINTS

Summary

   --     Strong progress in reshaping K3 for a return to profitability and sustainable growth 
   -      focus is on SME marketplace, increasing sales of own IP, and driving recurring income 
   -      review of K3's resources is progressing well, with results expected before end of 2017 
   -      core SME business performing well 

- reorganisation programme continues - to create more unified, streamlined operations and reduced cost base

   -      annualised savings of c. GBP3.7m achieved to date 

-- Accounting reference date and year end changed to 30 November to reflect the Group's strong seasonal trading patterns

Financial

-- As previously reported, financial performance was significantly impacted by certain high value contract tenders in Enterprise activities not closing as expected

   --     Revenues of GBP84.6m for the 12 months to 30 June 2017 (2016: GBP89.2m) 
   -      recurring revenues remained high at GBP40.8m (2016: GBP41.6m) -  c.48.2% of total 

- K3 own IP and related revenues rose by 27% to GBP27.1m (2016: GBP21.3m) - 32.0% of total (2016: 23.8%)

-- Gross margin decreased to 50.4% (2016: 54.4%) - affected by weakness in Enterprise activities

   -      margin on recurring revenues increased to 69.0% (2016: 67.4%) 

-- Adjusted loss from operations(1) of GBP1.81m for the 12 months to 30 June 2017 (2016: adjusted profit from operations(1) of GBP9.50m) / Reported loss from operations of GBP9.75m (2016: profit of GBP5.23m)

-- Adjusted loss before tax(1) for the 12 months to 30 June 2017 of GBP2.63m (2016: adjusted profit before tax(1) of GBP8.80m) / Reported loss before tax of GBP10.56m (2016: profit before tax of GBP4.53m)

-- Adjusted loss per share(2) for the 12 months to 30 June 2017 of 7.4p (2016: adjusted earnings per share(2) of 23.5p). Basic loss per share of 24.5p (2016: basic earnings per share(*4) of 12.6p)

   --     Pro-forma net debt(3) of GBP6.6m at 30 June 2017 

- taking into account the equity placing and warrants exercised (yielding a total of GBP8.4m together), and debt-to-equity conversion (of GBP0.6m) completed on 5 July 2017

Operational

   --     Good level of contract wins from SME-related activities across all supply chain verticals 
   --     NextGen, the new, in-house developed multi-platform solution, seeing first successes 

- pilot project with major European retailer, Hunkemoller, has resulted in roll-out of NextGen across its stores

   -      a number of other customers are engaged in the pre-sales process for the solution 
   --     Global Accounts activities set to benefit from ongoing expansion of IKEA franchisee network 
   --     New business pipeline has been refined and is encouraging at GBP70.3m 
   --     Board views prospects positively 

Stuart Darling, Chairman, said:

"As previously reported, the Group's financial performance for the 12 months to 30 June 2017 was adversely affected by the difficulties experienced in the Group's Enterprise activities. In particular, a number of high value contract tenders did not close as expected. However, we have also made strong progress in reshaping the business over the last twelve months to create a more unified and streamlined Group, refocused on our core SME marketplace, which generates the majority of K3's recurring revenues.

"We are now reviewing the Group's resources - having completed our fund raising in July, and have the full flexibility to consider all strategic options. We have a core of profitable, cash generative businesses, and we look forward to providing a further update on our plans before the end of the year.

"Our business reorganisation programme, which has been a major focus, has already achieved GBP3.7m in sustainable annualised cost savings, and we are continuing to look for further efficiencies, and believe we can achieve additional material savings.

"In the SME marketplace, we signed a good level of new contracts in the six months to June across all our supply chain verticals. We have also been successful in growing revenues from our own IP products, with sales rising by 27% to GBP27.1m over the 12 months.

"Increasing own IP revenues remains a key part of our growth strategy and it is therefore especially pleasing to report that our NextGen platform is gaining traction. It readily integrates agnostically with existing IT architecture and simplifies the implementation of our software.

"As we look forward, we are encouraged by the substantial work completed to position the Group for a return to profitability and growth. Net debt has been significantly reduced and we expect underlying cash generation to benefit from our ongoing initiatives. The Group's new business pipeline is healthy and, while our review of K3's resources is still ongoing, we believe that the Group is now in better shape for recovery and remain confident of K3's prospects."

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 
 (Nominated Adviser and   Emily Morris (Corporate 
  Broker)                  broking) 
 
 KTZ Communications       Katie Tzouliadis, Irene        T: 020 3178 6378 
                           Bermont-Penn, Emma Pearson 
 

Notes:

 
 Note   Calculated before amortisation of acquired intangibles 
  1      of GBP2.93m (2016: GBP2.73m), exceptional reorganisation 
         costs and write-downs of GBP5.36m (2016: GBP1.05m), acquisition 
         costs of GBP0.05m (2016: GBP0.49m) and exceptional income 
         of GBP0.41m (2016: nil). 
 Note   Calculated before amortisation of acquired intangibles 
  2      (net of tax) of GBP2.23m (2016: GBP2.19m), exceptional 
         reorganisation costs (net of tax) of GBP4.29m (2016: 
         GBP0.84m), acquisition costs (net of tax) of GBP0.05m 
         (2016: GBP0.49m) and exceptional income (net of tax) 
         of GBP0.41m (2016: nil). 
 Note   Pro-forma net debt (which is gross debt net of cash and 
  3      cash equivalents) at 30 June 2017 calculated after Placing 
         and Warrants exercised of GBP8.4m and Debt to Equity 
         conversion of GBP0.6m both on 5 July 2017. 
 

JOINT REPORT OF THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER

Introduction

This is my first statement as Chairman since assuming the role in early July 2017, and we are pleased to report on the progress being made to reshape the Company and position it for sustainable growth and a return to profitability.

Background

As we have previously reported, K3's recent financial performance in Enterprise-related activities has been disappointing and, in mid-May, the new management team commenced a review of K3's resources, with the intention of refocusing the Group's growth strategy around the existing profitable, cash generative business units and our large SME customer base.

In early July, we completed an equity placing to support this process, and to enable us to operate with full flexibility as we make and implement strategic decisions to benefit the Company's future.

Resources Review and Refocused Operations

Our review of K3's resources is progressing well. Our objectives are to increase focus on the development and sale of the Group's own intellectual property, and develop multiple "niche" software solutions capable of deployment in an agnostic way across a wide range of Enterprise Resource Planning ("ERP") solutions. This will improve the quality of the Group's earnings and will help to drive contracted, recurring revenues. The industry's increasing shift towards the subscription/consumption-based model, and away from 'on-premise' solutions with large, upfront licence payments, will help to increase the visibility of the Group's revenues.

We expect our review process to be completed before the end of the year, and will provide a further update in due course.

Together with our initiatives to refocus the Group's activities, we commenced a programme to simplify and more closely integrate the Group's operations. This centralisation strategy will promote better cross-selling of products and improve operational efficiencies. Over the past 12 months, we have materially reduced our cost base, delivering cost savings of approximately GBP3.7m on an annualised basis. This programme is ongoing and we anticipate making further cost savings as we complete the streamlining of the Group's operations.

Focus on Cash Generation

We continue to focus on cash generation and are making good progress in improving working capital, primarily by reducing debtor days and accrued income.

Pro-forma net debt as at 30 June 2017 was GBP6.6m. This takes into account the equity placing and open offer of shares completed in early July 2017, which raised a net of GBP7.76m, as well as an exercise of warrants of GBP0.66m and debt-to-equity conversion of GBP0.64m. Excluding this, reported net debt at 30 June 2017 was GBP15.6m (30 June 2016: GBP8.9m; 31 December 2016: GBP12.51m).

Performance

As previously reported, financial results for both the six and 12 month periods were significantly impacted by a number of high value contract tenders not closing as expected. This deterioration in large contract wins in the Enterprise space was due to softening end-markets, particularly for large retailers, as well as lengthening decision-making process for large deals, driven by the shift towards cloud delivery and away from 'on-premise' solutions. As a result, there was a marked year-on-year reduction in software licence revenues, with gross margin also affected by excess resource capacity in services and implementation.

By contrast, the Group's SME-related activities performed well across all of our supply chain verticals, and we secured a continuing good level of contract wins in the six months to 30 June 2017. The SME-focused Retail business performed very strongly, with RSG, Merac and DdD all contributing to the growth.

In addition, we achieved very encouraging sales of our own IP, with new customers including Jack Wolfskin, the Royal Horticultural Society and F-Engel. Sales of Pebblestone in particular were strong. K3 Product and Product-related revenues represented approximately 32.0% of the Group's total in the 12 months to 30 June 2017 (2016: 23.8%) and 35.0% in the six months to 30 June 2017 (six months to 30 June 2016: 25.0%).

The development of NextGen, our 'next generation', multi-platform solution, has been an important step for us as we drive own IP sales. The platform will deploy a range of products, including our high value applications such as mobile Retail solutions. Importantly, it gives us the ability to easily integrate our solutions with a wide range of ERP systems. Our pilot project, for a mobile Retail solution with a large European fashion retailer, Hunkemoller, has progressed very well, and Hunkemoller is now committed to rolling out NextGen across its business over the coming months. A number of other potential customers are engaged in a pre-sales process for NextGen.

Our Global Accounts business, which includes our relationship with Inter IKEA Systems B.V. (the owner and franchisor of the IKEA concept, and the largest customer in the Group) and the Inter IKEA Concept franchisees, continued to perform well. We are supporting the ongoing expansion of the IKEA franchisee network and expect to see a substantial increase in their service delivery requirements.

The SYSPRO business also delivered good results and remains a strong contributor to the Group's cash flows. SYSPRO customer renewals continue to be high, at 98% for the 12 month period (2016: 98%). The Sage business gained traction in the higher end X3 product offering and won some notable deals. Business Solutions restructured its cost base to focus on the Microsoft Dynamics/Navision SME space and is now seeing an improvement in its profitability.

The performance of our hosting and managed services operation, Starcom, was affected by the softness in the Enterprise activities, as well as the loss of MyLocal in June 2016. Going forward, it will benefit from the Group's simplified organisational structure and tighter focus on driving cross-selling across its various products.

As we have previously reported, the move towards cloud-based consumption licensing will drive a change in the rate of reported revenue growth and have a beneficial long-term impact. Income from contracts will be recognised over longer periods, rather than upfront as with the traditional model of perpetual software licences. The lifetime value of customer relationships under this new model has the potential to be significantly higher than before. The pace of uptake of consumption-based ERP has increased this year, with K3 successfully completing first sales of Microsoft Dynamics and "ax I is Fashion" on this basis. As the rate of growth of consumption-based agreements increases, the Group will start to monitor and report on new KPI's to quantify their importance.

Dividend

The Board intends to maintain a progressive dividend policy and expects to propose a dividend for the 17 month period to 30 November 2017, subject to trading.

Board Changes

A number of Board changes took place in the twelve months to 30 June 2017. David Bolton, previously Chairman, and Lars-Olof Norell, previously Non-Executive Director, both retired from the Company.

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.

Outlook

We believe that the changes and initiatives from the new management team over the last year have put K3 on a sustainable track for improvement in the quality of its earnings and cash flow generation.

Our investment in the NextGen 'born-in-the-cloud' platform is an important step forward. It opens up further opportunities for the Group to sell its own IP as the platform readily integrates with a wide range of ERP systems. NextGen also makes us more flexible and fleet of foot in addressing customers' changing needs, and corresponds with customers' increasing interest in consumption-based products and services. This cloud-based approach promotes closer customer relationships and supports our objective of further increasing our large recurring income streams.

We have materially reduced the cost base of the business and created a more streamlined structure that supports cross-selling opportunities. We will be continuing with our cost efficiency programme and our strategic review should be substantially completed before the end of 2017, at which point we will provide a further update.

Looking ahead, we are encouraged by our new business pipeline. We have taken the opportunity to refine our reporting of new business prospects, and while this has meant removing certain prospects from the pipeline, it makes for an overall stronger picture of the potential order book. Currently, the pipeline stands at GBP70.3m.

We remain confident of K3's prospects.

 
 Stuart Darling   Adalsteinn Valdimarsson 
  Chairman         Chief Executive Officer 
 

27 September 2017

FINANCIAL RESULTS FOR THE 12 MONTHS TO 30 JUNE 2017

Change of Accounting Reference Date and Financial Year End

Following the Board's decision to change the Company's accounting reference date and financial year end to 30 November, from 30 June, this report covers both the six month period to 30 June 2017 and the twelve month period to the same date.

The change in the accounting reference date has been made, as previously highlighted, in order to place shareholders in a better position to assess the Company's trading prospects when full year and interim results are published, given the Company's strong seasonal trading patterns, with December and June both historically key selling months.

We have also taken the decision to change the way we report on the Group's activities to better reflect the operational structure of the business. We have therefore moved away from an analysis by industry vertical to reporting the financial performance of the Group as a whole. We will continue to highlight certain key performance indicators, including revenue generated by K3's own intellectual property.

Overview

 
                      Revenue (GBPm)     Adjusted Profit 
                                                  (GBPm) 
                       2017     2016      2017      2016 
 
 Sales Divisions      84.61    89.18    (0.56)     10.33 
 Head office              -        -    (1.25)    (0.83) 
                   --------  -------  --------  -------- 
 Total                84.61    89.18    (1.81)      9.50 
                   --------  -------  --------  -------- 
 
 
                        Revenue (GBPm)          Gross profit                 Gross margin 
                                                      (GBPm) 
                         2017     2016          2017    2016         2017            2016 
 
 Software licences      10.65    16.23          6.67   11.01        62.6%           67.8% 
 Services               26.08    25.74          5.55    8.12        21.3%           31.5% 
 Recurring *            40.76    41.62         28.11   28.04        69.0%           67.4% 
 Hardware and 
  other                  7.12     5.59          2.29    1.37        32.2%           24.5% 
                     --------  -------       -------  ------       ------  -------------- 
                                                                                      54. 
 Total                  84.61    89.18         42.62   48.54        50.4%              4% 
                     --------  -------       -------  ------       ------  -------------- 
 
   *Recurring revenues comprise software maintenance renewals, 
   support contracts, and hosting & managed services. 
 
 
 
                                          2017    2016 
 Adjusted profit from operations(*1) 
  (GBPm)                                (1.81)    9.50 
 Recurring revenue as % of total 
  revenues                               48.2%   46.7% 
 Customer adds (like-for-like)             339     198 
 

K3 Intellectual Property

We highlight the revenues generated by K3's own IP below. They are included in the figures above.

The percentage of K3 product-related revenues over the 12 months to 30 June 2017 has increased significantly to 32.0% (2016: 23.8%). This largely reflected the benefit of the acquisitions of DdD and Merac, in April and July 2016 respectively.

 
                                                       Revenue (GBPm) 
                                                       2017         2016 
 K3 Product Licence(1)                                 8.41        10.76 
 K3 Product Related(2)                                18.67        10.51 
                                               ------------  ----------- 
 Total K3 Product                                     27.08        21.27 
                                               ------------  ----------- 
 
   Gross profit (GBPm)                                16.26        14.08 
 Gross margin (%)                                     60.1%        66.2% 
 K3 product Revenue % of Total Revenue                32.0%        23.8% 
 
 

(1) K3 Product Licence includes initial and annual software licences.

(2) K3 Product Related represents the additional identifiable revenues which flow directly from our K3 Product sales.

Group revenues for the 12 months to 30 June 2017 totalled GBP84.6m (2016: GBP89.2m). The year-on-year decrease was mainly accounted for by reduced software licence sales in the Enterprise space. Software licence gross margins were also lower at 62.7% (2016: 67.8%), driven by lower "ax I is" sales in the Enterprise space.

We currently recognise revenues from all multi-year deals on a traditional licence basis, where the majority of revenues are recognised upfront. Going forward revenue will be recognised over the licence period as dictated by contracts and as deployment becomes mostly consumption. For illustrative purposes, the table below shows previously reported revenues and what those revenues would have been had the revenue been recognised on a consumption basis over the licence period rather than upfront.

 
                                               12 months to June 
                                                 2017       2016 
 Revenue - reported GBPm                         84.6       89.2 
 Revenue - restated excluding multi-year 
  deals GBPm                                     85.5       85.3 
 Recurring Revenue % - reported                 48.2%      46.7% 
 Recurring Revenue % - restated excluding 
  multi-year deals                              49.1%      47.0% 
 

Reported recurring revenues remain high as a proportion of the Group's total, comprising almost half of all income. Gross margins on recurring revenues increased to 69.0% (67.4%), reflecting the growth in income generated by K3 Product sales, including DdD and Merac.

Services revenues increased, helped by greater activity within Global Accounts. However, the gross margin percentage contracted significantly. This was due to margin pressures in the six months to December 2016, when we experienced an increase in the number of contractors needed to deliver the high level of contract wins from June 2016, followed by excess contractor capacity in the six months to June 2017 as a result of reduced deal flow, especially in the Enterprise space.

Revenues, gross profit and gross margin generated by Hardware and other activity all showed positive gains. This largely reflected buoyant sales of DdD's own point-of-sale hardware, sold alongside cloud-based software.

Adjusted loss from operations(*1) for the 12 months to 30 June 2017 was GBP1.8m (2016: adjusted profit from operations(*1) of GBP9.5m), with the adjusted loss from operations(*2) in the six months to 30 June 2017 being GBP2.2m (2016: adjusted profit from operations(*2) of GBP4.4m).

We incurred GBP5.4m (2016: GBP1.0m) of exceptional costs over the year. These related to our re-organisation programme and included a GBP2.0m non-cash write-off of capitalised development costs.

The amortisation charge for acquired intangibles was GBP2.93m (2016: GBP2.73m). Finance expenses were GBP0.82m (2016: GBP0.70m).

Adjusted loss before tax(*3) for the 12 months to 30 June 2017 was GBP2.63m (2016: adjusted profit before tax(*3) GBP8.80m) and reported loss before tax was GBP10.56m (2016: profit before tax GBP4.53m).

Adjusted loss per share(*4) was 7.4p (2016: adjusted earnings per share(*4) 23.5p). Basic loss per share was 24.5p (2016: adjusted earnings per share(*4) 12.6p). There was a net tax credit for the year of GBP1.77m (2016: net tax expense GBP0.43m), after the benefit of a GBP1.46m deferred tax credit (2016: GBP0.42m).

Cash flow and banking

Net debt at 30 June 2017 was GBP15.6m (30 June 2016: GBP8.9m; 31 December 2016: GBP12.51m) and, taking into account the equity placing, warrants exercised and debt-to-equity conversion completed on 5 July 2017, pro forma net debt on that date is calculated at GBP6.6m.

Cashflow from operating activities was GBP0.9m for the 12 months (2016: GBP4.0m), following exceptional restructuring costs of GBP3.4m (2016: GBP1.0m). There was a material inflow of GBP2.2m (2016: GBP5.8m outflow) into working capital, a reflection of a tighter approach to working capital management that we intend to build on in the future.

Depreciation was similar to the prior 12 months at GBP1.0m (2016: GBP1.0m) and amortisation increased to GBP8.2m (2016: GBP5.1m), following a GBP2.0m exceptional write-off of previously capitalised development costs.

Software development costs in the 12 months to 30 June 2017 increased marginally to GBP4.9m (2016: GBP4.6m) and capital expenditure reduced to GBP0.8m (2016: GBP0.9m). Over the 12 month period, we made one acquisition, purchasing Merac in July 2016, and received a refund of deferred consideration of GBP0.4m for DdD, which had been paid into escrow in April 2016, in the 6 months to 30 June 2017.

CENTRAL COSTS

Head office costs include directors' costs, human resources, accounting and legal personnel, and costs associated with the Plc. Costs are stated net of recovery of elements recharged to the operating units. Costs for the year*(5) increased to GBP1.25m (2016: GBP0.83m), which primarily reflected the centralisation of functions.

 
 (*1)   Group adjusted loss from operations for the 12 months to 30 June 
         2017 is calculated before amortisation of acquired intangibles 
         of GBP2.93m (2016: GBP2.73m), exceptional reorganisation costs 
         of GBP5.36m (2016: GBP1.05m), acquisition costs of GBP0.05m (2016: 
         GBP0.49m) and exceptional income of GBP0.41m (2016: nil). 
 (*2)   Group adjusted profit from operations for the 6 months to 30 June 
         2017 is calculated before amortisation of acquired intangibles 
         of GBP1.44m (2016: GBP1.14m), exceptional reorganisation costs 
         of GBP2.62m (2016: GBP0.20m), acquisition costs of GBP0.01m (2016: 
         GBP0.49m) and exceptional income of GBP0.41m (2016: nil). 
 (*3)   Group adjusted loss before tax is calculated before amortisation 
         of acquired intangibles of GBP2.93m (2016: GBP2.73m), exceptional 
         reorganisation costs of GBP5.36m (2016: GBP1.05m), acquisition 
         costs of GBP0.05m (2016: GBP0.49m) and exceptional income of GBP0.41m 
         (2016: nil). 
 (*4)   Group adjusted loss per share is calculated before amortisation 
         of acquired intangibles (net of tax) of GBP2.23m (2016: GBP2.19m), 
         exceptional reorganisation costs (net of tax) of GBP4.29m (2016: 
         GBP0.84m), acquisition costs (net of tax) of GBP0.05m (2016: GBP0.49m) 
         and exceptional income (net of tax) of GBP0.41m (2016: nil). 
 (*5)   Head office costs are calculated before exceptional reorganisation 
         costs of GBP1.19m (2016: GBP0.11m), and acquisition costs of GBP0.05m 
         (2016: GBP0.20m). 
 
 
            K3 BUSINESS TECHNOLOGY GROUP PLC CONSOLIDATED INCOME STATEMENT For the 
            six and twelve months ended 30 June 2017 
                                                  Unaudited     Unaudited    Unaudited       Audited 
                                                 Six months    Six months      Year to       Year to 
                                                      to 30    to 30 June      30 June    to 30 June 
                                        Notes          June          2016         2017          2016 
                                                       2017 
                                                    GBP'000       GBP'000      GBP'000       GBP'000 
 
             Revenue                                 41,634        46,884       84,608        89,175 
            ------------------------  -------  ------------  ------------  -----------  ------------ 
 
 
              Adjusted (loss)/profit 
              from operations                       (2,257)         4,394      (1,811)         9,501 
             Amortisation of 
              acquired 
              intangibles                           (1,440)       (1,139)      (2,926)       (2,734) 
             Acquisition costs                          (9)         (492)         (51)         (492) 
             Exceptional 
              reorganisation 
              costs                      2          (2,620)         (199)      (5,363)       (1,046) 
             Exceptional income          2              406             -          406             - 
            ------------------------  -------  ------------  ------------  -----------  ------------ 
 
             (Loss)/profit from 
              operations                            (5,920)         2,564      (9,745)         5,229 
             Finance expense                          (400)         (314)        (817)         (701) 
             (Loss)/profit before 
              taxation                              (6,320)         2,250     (10,562)         4,528 
             Tax expense                 3              954          (19)        1,767         (425) 
             (Loss)/profit for the 
              period                                (5,366)         2,231      (8,795)         4,103 
            ------------------------  -------  ------------  ------------  -----------  ------------ 
 
 
 
 
            All of the (loss)/profit for the period is attributable to equity holders 
            of the parent. 
 
             (Loss)/earnings per share    4 
             Basic                            (14.9)p   6.7p   (24.5)p   12.6p 
 
             Diluted                          (14.8)p   6.6p   (24.2)p   12.3p 
 
 
            K3 BUSINESS TECHNOLOGY GROUP PLC CONSOLIDATED STATEMENT OF COMPREHENSIVE 
            INCOME For the six and twelve months ended 30 June 2017 
                                                     Unaudited     Unaudited    Unaudited    Audited 
                                                    Six months    Six months      Year to    Year to 
                                                    to 30 June    to 30 June      30 June    30 June 
                                                          2017          2016         2017       2016 
                                                       GBP'000       GBP'000      GBP'000    GBP'000 
 
             (Loss)/profit for the period              (5,366)         2,231      (8,795)      4,103 
            ------------------------------------  ------------  ------------  -----------  --------- 
             Other comprehensive income 
             Exchange differences on translation 
              of foreign operations                        543         2,370        1,018      3,073 
 
              Other comprehensive income, 
              net of tax                                   543         2,370        1,018      3,073 
             Total comprehensive 
              (expense)/income 
              for the period                           (4,823)         4,601      (7,777)      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 30 June 2017                                                Notes    Unaudited      Audited 
                                                                      As at 30     As at 30 
                                                                     June 2017    June 2016 
                                                                       GBP'000      GBP'000 
             ASSETS 
             Non-current assets 
             Property, plant and equipment                               2,328        2,389 
             Goodwill                                                   51,018       48,793 
             Other intangible assets                                    24,302       26,369 
             Deferred tax assets                                         1,388          423 
             Available-for-sale investments                                 98           98 
             Total non-current assets                                   79,134       78,072 
            ---------------------------------------------  ------  -----------  ----------- 
             Current assets 
             Trade and other receivables                                34,433       40,923 
             Cash and cash equivalents                                   2,821        2,772 
             Total current assets                                       37,254       43,695 
            ---------------------------------------------  ------  -----------  ----------- 
             Total assets                                              116,388      121,767 
            ---------------------------------------------  ------  -----------  ----------- 
             LIABILITIES 
             Non-current liabilities 
             Long-term borrowings                               5       17,761        8,272 
             Deferred tax liabilities                                    3,267        3,753 
             Total non-current liabilities                             21, 028       12,025 
            ---------------------------------------------  ------  -----------  ----------- 
             Current liabilities 
             Trade and other payables                           6       29,615       32,824 
             Current tax liabilities                                         -          132 
             Short-term borrowings                              5          697        3,376 
            ---------------------------------------------  ------  -----------  ----------- 
             Total current liabilities                                  30,312       36,332 
            ---------------------------------------------  ------  -----------  ----------- 
             Total liabilities                                          51,340       48,357 
            ---------------------------------------------  ------  -----------  ----------- 
             EQUITY 
             Share capital                                               9,000        9,000 
             Share premium account                                      21,586       21,586 
             Other reserves                                             10,448       10,448 
             Translation reserve                                         2,094        1,076 
             Retained earnings                                          21,920       31,300 
            ---------------------------------------------  ------  -----------  ----------- 
             Total equity attributable to equity holders 
              of the parent                                             65,048       73,410 
            ---------------------------------------------  ------  -----------  ----------- 
             Total equity and liabilities                              116,388      121,767 
            ---------------------------------------------  ------  -----------  ----------- 
 
            K3 BUSINESS TECHNOLOGY GROUP PLC CONSOLIDATED STATEMENT OF CASH FLOWS 
            For the six and twelve months ended 30 June 2017 
                                                      Unaudited     Unaudited   Unaudited    Audited 
                                                     Six months    Six months     Year to    Year to 
                                                     to 30 June    to 30 June     30 June    30 June 
                                            Notes          2017          2016        2017       2016 
                                                        GBP'000       GBP'000     GBP'000    GBP'000 
             Cash flows from operating 
              activities 
             (Loss)/profit for the 
              period                                    (5,366)         2,231     (8,795)      4,103 
             Adjustments for: 
             Share based payments charge                     24            24          47         28 
             Depreciation of property, 
              plant and equipment                           482           478       1,001        971 
             Amortisation of intangible 
              assets and development 
              expenditure                                 5,240         2,314       8,188      5,077 
             Loss on sale of property, 
              plant and equipment                             -             4           -          4 
             Finance income                                   -            14         (2)        (4) 
             Finance expense                                400           300         819        705 
             Tax expense                                  (954)            19     (1,767)        425 
             Decrease (increase) in 
              trade and other 
              receivables                                 3,378       (5,446)       6,085    (5,977) 
             (Decrease) increase in 
              trade and other payables                  (2,688)           591     (3,851)        170 
            ----------------------------  -------  ------------  ------------  ----------  --------- 
             Cash generated from 
              operations                     7              517           529       1,726      5,502 
             Finance expense paid                         (243)         (397)       (944)      (789) 
             Income taxes 
              received/(paid)                                 6         (476)         102      (688) 
            ----------------------------  -------  ------------  ------------  ----------  --------- 
             Net cash generated 
              from/(utilised 
              in) operating activities                      280         (344)         884      4,025 
            ----------------------------  -------  ------------  ------------  ----------  --------- 
             Cash flows from investing 
              activities 
             Acquisition of 
              subsidiaries, 
              net of cash acquired           7              232       (7,376)       (975)    (7,401) 
             Development expenditure 
              capitalised                               (2,178)       (2,473)     (4,859)    (4,642) 
             Purchase of property, plant 
              and equipment                               (495)         (358)       (781)      (931) 
             Proceeds from sale of 
              property, 
              plant and equipment                             -            15           -         15 
             Finance income received                          -             6           2          6 
            ----------------------------  -------  ------------  ------------  ----------  --------- 
             Net cash absorbed by 
              investing 
              activities                                (2,441)      (10,186)     (6,613)   (12,953) 
            ----------------------------  -------  ------------  ------------  ----------  --------- 
             Cash flows from financing 
              activities 
             Net proceeds from issue 
              of share capital                                -        13,097           -     13,175 
             Proceeds from long-term 
              borrowings                                  1,182             -      17,315          - 
             Payment of long-term 
              borrowings                                      -       (1,464)    (10,885)    (2,928) 
             Payment of finance lease 
              liabilities                                  (26)           (8)        (51)       (12) 
             Dividends paid                               (630)         (477)       (630)      (477) 
            ----------------------------  -------  ------------  ------------  ----------  --------- 
             Net cash generated from 
              financing activities                          526        11,148       5,749      9,758 
            ----------------------------  -------  ------------  ------------  ----------  --------- 
             Net change in cash and 
              cash equivalents                          (1,635)           618          20        830 
             Cash and cash equivalents 
              at start of period                          4,462         2,118       2,772      1,895 
             Exchange gains on cash 
              and cash equivalents                          (6)            36          29         47 
            ----------------------------  -------  ------------  ------------  ----------  --------- 
             Cash and cash equivalents 
              at end of period                            2,821         2,772       2,821      2,772 
            ----------------------------  -------  ------------  ------------  ----------  --------- 
 
 
 
            K3 BUSINESS TECHNOLOGY GROUP PLC 
            CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six months ended 30 
            June 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 1 January 2016       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 
            -------------------  ---------  ---------  ---------  ------------  ----------  -------- 
             Changes in equity 
             for six months 
             ended 
             30 June 2017 
             Loss for the 
              period                     -          -          -             -     (5,366)   (5,366) 
             Other 
              comprehensive 
              income for the 
              period                     -          -          -           543           -       543 
            -------------------  ---------  ---------  ---------  ------------  ----------  -------- 
             Total 
              comprehensive 
              income                     -          -          -           543     (5,366)   (4,823) 
             Share-based 
              payment 
              credit                     -          -          -             -          24        24 
             Movement in own 
              shares 
              held                       -          -          -             -           6         6 
             Dividends to 
              equity 
              holders                    -          -          -             -       (630)     (630) 
            -------------------  ---------  ---------  ---------  ------------  ----------  -------- 
             At 30 June 2017         9,000     21,586     10,448         2,094      21,920    65,048 
            -------------------  ---------  ---------  ---------  ------------  ----------  -------- 
 
 
 
            K3 BUSINESS TECHNOLOGY GROUP PLC 
            NOTES TO THE UNAUDITED INTERIM STATEMENT 
            1. Basis of preparation 
 
            As announced in May 2017, the Company has changed of its accounting reference 
            date and financial year-end from 30 June to 30 November. 
 
            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 17 month period ending 30 November 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 November 2017 or are expected to be adopted and effective at 30 November 
            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 30 June 2017, the 12 months ended 30 June 2017 and the six months 
            ended 30 June 2016 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. 
 
            As mentioned previously, the Group will be adopting IFRS 15, 'Revenue from 
            contracts with customers' which replaces IAS 18 'Revenue' and IAS 11 'Construction 
            contracts' and related interpretations, with effect from 1 December 2017. 
            The standard establishes principles for reporting useful information to 
            users of financial statements about the nature, amount, timing and uncertainty 
            of revenue and cash flows arising from an entity's contracts with customers. 
            Revenue is recognised when a customer obtains control of a good or service 
            and thus has the ability to direct the use and obtain the benefits from 
            the good or service. The Group is currently undertaking a review of the 
            full impact of IFRS 15 and consider that there may be a significant impact 
            on the revenue recognition policies currently adopted by the Group. Detailed 
            quantitative analysis of the impact of adopting this new standard will 
            be provided in the financial statements for the period ending 30 November 
            2017. 
 
            Going concern 
 
            The consolidated interim financial information has been prepared on a going 
            concern basis. 
 
            The Directors have prepared cash flow forecasts for the Group, including 
            sensitivity analysis on key assumptions. These forecasts show that the 
            Group expects to meet its liabilities from cash resources, taking into 
            account all risks and uncertainties. At the period end the Group had cash 
            and cash equivalents of GBP2.8m. 
 
            In July 2017, the Company raised a net GBP7.76m from a placing and open 
            offer of 5,790,322 shares. In addition, Mr PJ Claesson, a Director of the 
            Company, exercised 700,000 warrants raising GBP0.66m and converted a loan 
            of GBP0.64m into 457,142 shares. 
 
            As a result, the Directors have a reasonable expectation that the Group 
            has adequate resources to continue in operational existence for the foreseeable 
            future. For this reason, the Directors consider that the adoption of the 
            going concern basis is appropriate. 
 
            2. Profit from operations 
 
            During the 12 month period to 30 June 2017, reorganisation costs have been 
            incurred relating to the reorganisation programme to create more unified, 
            streamlined operations and reduced cost base. This was at a cost of GBP5.4m 
            (2016: GBP1.0m) including a GBP2m non cash write off of capitalised development 
            costs. 
 
            During the six-month period to 30 June 2017, contingent consideration not 
            required to be paid of GBP0.4m was released and is included as exceptional 
            income (six months 30 June 2016 and year ended 30 June 2016: GBPnil). 
 
            3. Tax expense 
                                                Unaudited     Unaudited   Unaudited    Audited 
                                               Six months    Six months     Year to    Year to 
                                               to 30 June    to 30 June     30 June    30 June 
                                                     2017          2016        2017       2016 
                                                  GBP'000       GBP'000     GBP'000    GBP'000 
             Current tax expense/(income) 
             UK corporation tax and income 
              tax of overseas operations 
              on profits for the period               426           299       (181)        866 
             Adjustment in respect of 
              prior periods                         (125)             -       (125)       (25) 
            -------------------------------  ------------  ------------  ----------  --------- 
             Total current tax expense                301           299       (306)        841 
            -------------------------------  ------------  ------------  ----------  --------- 
             Deferred tax (income)/charge 
             Origination and reversal 
              of temporary differences            (1,126)         (280)     (1,332)       (94) 
             Effect of change in rate 
              of deferred tax                       (129)             -       (129)      (322) 
            -------------------------------  ------------  ------------  ----------  --------- 
             Total deferred tax income            (1,255)         (280)     (1,461)      (416) 
            -------------------------------  ------------  ------------  ----------  --------- 
             Total tax expense                      (954)            19     (1,767)        425 
            -------------------------------  ------------  ------------  ----------  --------- 
 
 
 
 
            4. (Loss)/earnings per share 
 
            The calculations of (loss)/earnings per share are based on the (loss)/profit 
            for the financial period and the following numbers of shares: 
                                               Unaudited     Unaudited    Unaudited      Audited 
                                              Six months    Six months      Year to      Year to 
                                              to 30 June    to 30 June      30 June      30 June 
                                                    2017          2016         2017         2016 
                                                  Number        Number       Number       Number 
                                                      of            of           of           of 
                                                  Shares        Shares       Shares       Shares 
             Weighted average number of 
              shares: 
             For basic earnings per share     35,905,881    33,211,866   35,905,881   32,439,624 
             Effects of employee share 
              options and warrants               361,371       500,188      424,148      798,049 
            ------------------------------  ------------  ------------  -----------  ----------- 
             For diluted earnings per 
              share                           36,267,252    33,712,054   36,330,029   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 months                    Unaudited six months 
                                          to 30 June 2017                    to 30 June 2016 
                                  Earnings   Per share   Per share   Earnings   Per share        Per 
                                                amount      amount                 amount      share 
                                                 Basic     Diluted                  Basic     amount 
                                                                                             Diluted 
                                   GBP'000           p           P    GBP'000           p          P 
             (Loss)/earnings 
              per 
              share (eps)          (5,366)      (14.9)      (14.8)      2,231         6.7        6.6 
             Amortisation of 
              intangibles 
              (net of tax)           1,169         3.3         3.2        915         2.8        2.7 
             Acquisition costs 
              (net 
              of tax)                    9           -           -        492         1.5        1.5 
             Exceptional 
              reorganisation 
              costs (net of 
              tax)                   2,122         5.9         5.9        161         0.5        0.5 
             Exceptional income 
              (net 
              of tax)                (406)       (1.1)       (1.1)          -           -          - 
            -------------------  ---------  ----------  ----------  ---------  ----------  --------- 
             Adjusted eps          (2,472)       (6.8)       (6.8)      3,799        11.5       11.3 
            -------------------  ---------  ----------  ----------  ---------  ----------  --------- 
 
                                           Unaudited year                             Unaudited year 
                                          to 30 June 2017                    to 30 June 2016 
                                  Earnings   Per share   Per share   Earnings   Per share        Per 
                                                amount      amount                 amount      share 
                                                 Basic     Diluted                  Basic     amount 
                                                                                             Diluted 
                                   GBP'000           p           P    GBP'000           p          P 
             Earnings per 
              shares 
              (eps)                (8,795)      (24.5)      (24.2)      4,103        12.6       12.3 
             Amortisation of 
              intangibles 
              (net of tax)           2,230         6.2         6.1      2,190         6.8        6.6 
             Acquisition costs 
              (net 
              of tax)                   51         0.1         0.1        492         1.5        1.5 
             Exceptional 
              reorganisation 
              costs (net of 
              tax)                   4,290        11.9        11.8        837         2.6        2.5 
             Exceptional income 
              (net 
              of tax)                (406)       (1.1)       (1.1)          -           -          - 
            -------------------  ---------  ----------  ----------  ---------  ----------  --------- 
             Adjusted eps          (2,630)       (7.4)       (7.3)      7,622        23.5       22.9 
            -------------------  ---------  ----------  ----------  ---------  ----------  --------- 
 
 
 
 
            5. Loans and borrowings                                Unaudited      Audited 
                                             As at 30     As at 30 
                                            June 2017    June 2016 
                                              GBP'000      GBP'000 
             Non-current 
             Bank loans (secured)              17,687        8,234 
             Finance lease creditors               74           38 
                                               17,761        8,272 
            ----------------------------  -----------  ----------- 
 
              Current 
             Bank loans (secured)                   -        2,718 
             Finance lease creditors               57           18 
             Loans from related parties           640          640 
            ----------------------------  -----------  ----------- 
                                                  697        3,376 
            ----------------------------  -----------  ----------- 
 
              Total borrowings                 18,458       11,648 
            ----------------------------  -----------  ----------- 
 
 
 
            6. Trade and other payables                                                    Unaudited      Audited 
                                                                 As at 30     As at 30 
                                                                June 2017    June 2016 
                                                                  GBP'000      GBP'000 
             Trade payables                                         6,749        8,192 
             Other payables                                           430          713 
             Accruals                                               9,060        9,548 
            ------------------------------------------------  -----------  ----------- 
             Total financial liabilities, excluding 
              loans and borrowings, classified as financial 
              liabilities measured at amortised cost               16,239       18,453 
             Contingent consideration                                   -          912 
             Deferred consideration                                     -           25 
             Other tax and social security taxes                    3,628        4,266 
             Deferred revenue                                       9,748        9,168 
            ------------------------------------------------  -----------  ----------- 
                                                                   29,615       32,824 
            ------------------------------------------------  -----------  ----------- 
 
 
 
            7. 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   Unaudited    Audited 
                                               Six months    Six months        Year       Year 
                                                    ended         ended       ended      ended 
                                                  30 June       30 June     30 June    30 June 
                                                     2017          2016        2017       2016 
                                                  GBP'000       GBP'000     GBP'000    GBP'000 
 
             Cash generated from operating 
              activities                              517           529       1,726      5,502 
             Add: 
             Exceptional reorganisation 
              costs                                   620           199       3,363      1,046 
             Acquisition costs                          9           300          51        300 
             Adjusted cash generated from 
              operations                            1,146         1,028       5,140      6,848 
                                             ------------  ------------  ----------  --------- 
 
 
 
            Acquisition of subsidiaries and other business units, net of cash acquired 
            comprises: 
                                                      Unaudited     Unaudited   Unaudited    Audited 
                                                     Six months    Six months        Year       Year 
                                                          ended         ended       ended      ended 
                                                        30 June       30 June     30 June    30 June 
                                                           2017          2016        2017       2016 
                                                         GBP000        GBP000      GBP000     GBP000 
 
             Initial consideration                            -       (6,802)     (1,506)    (6,802) 
             Cash balances acquired                           -           345         324        345 
             Contingent consideration 
              (paid into)/ repaid from 
              escrow                                        232         (863)         232      (863) 
             Contingent and deferred 
              consideration 
              paid                                            -          (56)        (25)       (81) 
                                                   ------------  ------------  ----------  --------- 
                                                            232       (7,376)       (975)    (7,401) 
                                                   ------------  ------------  ----------  --------- 
 
 
 
            8. Events after the reporting date 
 
            In July 2017, the Company raised a net GBP7.76m from a placing and open 
            offer of 5,790,322 shares. In addition, Mr PJ Claesson, a Director of the 
            Company, exercised 700,000 warrants raising GBP0.66m and converted a loan 
            of GBP0.64m into 457,142 shares. The Company now has issued 42,946,665 
            Ordinary shares. 
 
 
            9. The above information is being sent to 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 UNABRBNAKUAR

(END) Dow Jones Newswires

September 27, 2017 02:00 ET (06:00 GMT)

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