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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
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  1.00 0.56% 178.50 172.00 185.00 178.50 177.50 177.50 0.00 13:42:49
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Software & Computer Services 48.8 -20.9 -49.3 - 57

K3 Business Technology Group PLC Final Results

30/03/2021 7:00am

UK Regulatory (RNS & others)


K3 Business Technology (LSE:KBT)
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TIDMKBT

RNS Number : 8838T

K3 Business Technology Group PLC

30 March 2021

AIM: KBT

30 March 2021

K3 BUSINESS TECHNOLOGY GROUP PLC

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

Provider of mission-critical software (owned and third party) and cloud solutions to the supply chain sector.

Final results for the 12 months to 30 November 2020

Key Points

Financial

 
                                                12 months        12 months 
                                                to 30 November   to 30 November 
                                                 2020             2019 
 Revenue                                        GBP48.8m         GBP50.1m 
 Recurring or predictable revenue(2)            76.2%            73.2% 
 Own IP revenue (Note 2)                        GBP16.1m         GBP17.9m 
 Own IP revenue as percentage of total 
  revenue(3)                                    33.0%            35.7% 
 Own IP gross profit (Note 2)                   GBP12.2m         GBP12.6m 
 Own IP gross profit as a percentage 
  of total gross profit(4)                      42.6%            44.0% 
 Gross margin                                   58.8%            57.4% 
 Adjusted EBITDA(1)                             GBP4.0m          GBP7.1m 
 Loss before tax from continuing operations,    GBP(20.9)m       GBP(0.7)m 
  including exceptional impairments(*) 
 Net cash from operating activities             GBP8.2m          GBP5.9m 
 Net Debt(*5)                                   GBP(1.9)m        GBP(2.4)m 
 Reported loss per share                        (49.3)p          (36.0)p 
 Adjusted earnings per share                    (4.8)p           2.6p 
 Loss from discontinued activities**            GBP(0.2)m        GBP(14.3)m 
 

See Note 10 for details of the alternative performance measures

*exceptional impairments (all non-cash items) totalling GBP16.9m, which related to legacy products, the third-party Sage business and historic capitalised development costs.

*** Discontinued activities relate to UK Dynamics and Starcom Technologies Limited (see note 6 for further details)

Operational

 
         --   Own-IP revenue (including K3|fashion and K3|imagine) totalled 
               GBP16.1m (2019: GBP17.9m), with gross profit of GBP12.2m 
               (2019: GBP12.6m) - coronavirus crisis impacted retail solution 
               sales 
         --   Global Accounts revenue increased to GBP17.3m (2019: GBP15.7m); 
               with gross profit up by 20.5% to GBP7.4m (2019: GBP6.2m) 
               - reflected ongoing expansion of the IKEA franchisee network 
         --   Third-party product revenue decreased to GBP15.4m (2019: 
               GBP16.4), with gross profit at GBP9.0m (2019: GBP10.0m) - 
               SYSPRO software and maintenance contracts renewals remained 
               high at 97% 
         --   Loss-making UK Dynamics business placed into administration 
               in April 2020, leaving Group focused on profitable core units 
 

Post-period events and Outlook

 
         --   Successful sale of managed service unit, Starcom Technologies 
               Ltd, in February 2021 for GBP14.7m in cash, significantly 
               strengthening the balance sheet and simplifying the Group. 
         --   Re-evaluating target markets for K3|imagine ensuring optimal 
               return on investment 
         --   Trading so far in new financial year is in line with last 
               financial year 
         --   On 26 March 2021 we successfully agreed an extension to our 
               Revolving Credit Facility with Barclays, with a facility 
               of GBP3.5m, to March 2022 
         --   Appointment of Marco Vergani as Chief Executive Officer - 
               see separate announcement 
 

Tom Crawford, Chairman of K3, said:

"In the face of unprecedented challenges created by the coronavirus pandemic, I am pleased with the resilience K3 has demonstrated. Our high level of predictable and recurring revenues, as well as our large and diverse customer base, led to robust results at a trading level.

"Implementing our strategy to focus on Own IP and Global Accounts and to cease investing in legacy POS products, we took a number of important strategic decisions in line with our growth strategy. These included placing the loss-making UK Dynamics unit into administration, raising additional funding and, in late February 2021, selling Starcom, our managed services unit, for GBP14.7m. The Group is now in a significantly stronger financial position and is better placed to drive our Own-IP strategy.

"Following Starcom's sale, Adalsteinn Valdimarsson stepped down as Chief Executive Officer, and I am pleased to welcome Marco Vergani as his successor. He brings significant sector experience and a strong record of driving sales.

"Marco will be leading a re-evaluation of our target markets for K3|imagine, which continues to offer exciting growth potential. We have a strong product offering and look forward to a return to more normal trading conditions as the coronavirus vaccine programme continues and lockdown restrictions are eased."

Enquiries:

 
 K3 Business Technology   Marco Vergani (CEO)             T: 020 3178 6378 
  Group plc                                                (today) 
 www.k3btg.com            Robert Price (CFO)              Thereafter 0161 
                                                           876 4498 
 finnCap Limited          Julian Blunt/ James Thompson    T: 020 7220 0500 
  (NOMAD & Broker)         (Corporate Finance) 
                           Richard Chambers, Sunila 
                           De (Corporate Broking) 
 
 KTZ Communications       Katie Tzouliadis/ Dan Maloney   T: 020 3178 6378 
 

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the company's obligations under Article 17 of MAR.

CHAIRMAN'S STATEMENT

Overview

This is my first Statement as Chairman, having joined the Group and the Board at the end of October 2020. It has been a challenging year for K3. Nonetheless, some important strategic decisions and actions were taken, and the Group's performance has shown a significant degree of resilience despite the impact of the coronavirus pandemic on a number of areas of operation. Revenue from continuing operations over the financial year decreased by 2.5% to GBP48.8m (2019: GBP50.1m), and gross profit decreased slightly to GBP28.7m (2019: GBP28.8m). These robust results at a trading level were supported by our high level of predictable revenues and the geographically diverse customer base. However, the Group's reported losses, before discontinued operations, increased to GBP20.9m (2019: GBP1.1m) after non-cash impairment and reorganisation charges.

Throughout the pandemic, the safety and welfare of our staff, customers, partners, and suppliers have been priorities. Our staff made a tremendous effort in responding to the challenges we faced, and I am extremely grateful to everyone for the sacrifices they have made and for their hard work and loyalty to the Group.

The transition to working from home, virtual global collaboration and remote customer delivery went smoothly, although trading was affected by the impact of coronavirus-related restrictions on some customers and sub-sectors. We implemented cost saving measures to conserve cash and used government support where appropriate. This included furlough schemes in the UK and Denmark and tax deferral in the UK, amounting to GBP2.0m of tax, which will unwind in 2021.

As previously reported, in April 2020, having explored other options, the difficult decision was taken to place the loss-making UK Dynamics business into administration. The decision has left the Group focused on its core profitable business units, and the sales route for our K3|fashion and K3|pebblestone products in the UK is now through channel partners - as it is in Europe and international markets.

On 31 March 2020, we raised GBP6.0m in funding, through a shareholder loan of GBP3.0m and a GBP3.0m increase in banking facilities with Barclays. In the first quarter of the new financial year, in late February 2021, we agreed the sale of Starcom Technologies Limited ("Starcom"), our managed services unit, for GBP14.7m in cash. The sale generated over GBP10 million of profit on disposal. On 26 March 2021 we successfully agreed an extension to our Revolving Credit Facility with Barclays to March 2022. In addition, we are in advanced discussions with shareholders to convert the GBP3.0m of shareholder loans to equity in the near future. These actions have placed the Group on a more solid financial footing. These transactions are part of our strategic focus to develop our own IP products, and in particular our K3|imagine platform.

With the sale of Starcom successfully concluded and the Group's balance sheet strengthened, Adalsteinn Valdimarsson stepped down as Chief Executive Officer in early March. We are pleased to announce the appointment of Marco Vergani as his successor. Marco brings significant relevant commercial and industry experience and a strong track record in driving sales growth.

K3 has a good platform on which to move forward, and our growth strategy is focused on developing our own IP products and revenue streams, in particular SaaS revenue from our K3|imagine suite and revenue from our Global Accounts segment. Given the opportunity this presents, and with a new Chief Executive assuming control of the Group in a global environment changed by the pandemic, we are going to re-evaluate market strategy to ensure that we are investing in market segments with attractive, long-term growth opportunities.

Financial Results

Results from continuing activities

Revenue from continuing operations over the financial year totalled GBP48.8m (2019: GBP50.1m) with recurring or predictable revenue(2) accounting for 76.2% of the total revenue (2019: 73.2%). The Own IP business segment generated GBP16.1m of revenue (2019: GBP17.9m) which is 33.1% of total revenue (2019: 35.7%). Global Accounts (our business supporting Inter IKEA Systems B.V. (the owner and franchisor of the IKEA concept) and the Inter IKEA Concept franchisees) generated GBP17.3m of revenue (2019: GBP15.7m), an increase of 9.7%, which is 35.4% of total revenue (2019: 31.4%).

Group gross profit for the financial year was GBP28.7m (2019: GBP28.8m), with own IP contributing GBP12.2m (2019: GBP12.6m) or 42.6% of the total gross profit (2019: 44.0%). Gross margin increased to 58.8% (2019: 57.4%), driven by our Own IP and Global Accounts businesses.

Underlying support/admin expenses(7) increased by 14.5% to GBP24.7m (2019: GBP21.6m) as a result of investment in commercial and product development resource. Adjusted EBITDA(1) from continuing activities decreased to GBP4.0m (2019: GBP7.1m). This largely reflects the investment in increased commercial and product resource, lower fashion software sales and the adverse effects of the coronavirus outbreak.

Following impairment and reorganisation costs the loss before tax from continuing activities was GBP20.9m (2019: GBP1.1m) as administrative expenses increased to GBP48.5m (2019: GBP28.7m). In line with our strategic decision to cease developing legacy products and focus development of our own IP products, we recognised exceptional impairments (all non-cash items) totalling GBP16.9m, which comprises a GBP14.3m impairment of goodwill in the third-party Sage business (GBP4.9m), and legacy products within Own IP (relating to legacy products in the DdD, RSG and Unisoft CGUs) (GBP9.4m) and an impairment of historic capitalised development costs within our Own IP segment (GBP2.6m) (2019: GBPnil). After these items, the resultant loss before tax from continuing activities was GBP20.9m (2019: GBP0.2m profit).

Whilst our customer base is resilient and well-diversified, both geographically and by market vertical, the challenges of the pandemic, including lockdown restrictions, created certain impediments to sales and the adoption of new, and developing, K3|imagine solutions.

Reported results including discontinued activities

Discontinued activities relate to the UK Dynamics subsidiary and Starcom Technologies Limited ("Starcom"). UK Dynamics was put into administration on 21 April 2020, and the loss after tax from discontinued activities was GBP1.0m (2019: GBP15.2m).

Starcom was held for sale at 30 November 2020. The profit after tax from discontinued activities was GBP0.8m (2019: GBP0.9m).

Dividend and AGM

Given the financial position of the Group and ongoing investment in the Own IP strategy, the Board believes it is prudent to maintain the suspension of dividends for the foreseeable future.

K3's Annual General Meeting will be held on Wednesday 19 May 2021 at Baltimore House, 50 Kansas Avenue, Manchester M50 2GL. The meeting will be conducted in line with Government guidance at this time.

Growth Strategy

The Group strategy remains focused on growing own-IP sales, and on developing the commercial opportunity presented by the K3|imagine platform and applications. This strategy has the scope to generate high quality, SaaS revenue and higher margins. To this end, with a new Chief Executive now in place and the global environment changed by the pandemic, we are going to re-evaluate market strategy to ensure that we invest in attractive market segments with long-term growth themes and potential.

The K3|imagine suite is relevant for existing as well as new customers. Its platform and applications, such as self-serve kiosks, enable customers to adopt powerful technology rapidly and easily, and offer attractive returns on investment. The suite provides an upgrade path for existing customers using legacy technology as well as an opportunity to cross-sell into Global Accounts and other customers. Consequently, we made the decision in October 2020 to cease marketing some of our legacy products and start an initiative to promote the phased adoption of the K3|imagine retail suite by point-of-sale customers.

K3|fashion remains an important product for us and Microsoft's global endorsement of it for the fashion and apparel sectors enhances its market appeal. We now sell the product via channel partners across all markets, which include Europe and the US, with partners responsible for implementations. Sales are typically with larger companies and comprise upfront software licence income together with ongoing maintenance income. They tend to be high value although often with longer and more complex sales cycles.

Global Accounts, which is a significant business segment, includes our Inter IKEA Systems B.V. (the owner and franchisor of the IKEA concept) and the Inter IKEA Concept franchisees, is growing well. This reflects the strong relationships we have established, our high service levels, and the ongoing expansion of the IKEA franchisees networks. We have increased investment in resource in the Kuala Lumpur office to support growth, and are in the process of standardising service implementation, which should protect services gross margin. We expect to see this area of operation continue to grow, including within the newer geographies.

In line with our growth strategy, UK Dynamics was put into administration on 21 April 2020 and Starcom Technologies Limited was held for sale at 30 November 2020. As a result, third Party solutions now principally comprises our SYSPRO and Sage products, which we sell in the UK. SYSPRO's core markets are manufacturing, and distribution and our large installed customer base generates significant earnings and cash flows from annual software licence, support, and maintenance renewals. Sage and SYSPRO suffered from sluggish new business impacted by Brexit and the coronavirus pandemic. As the impact of Brexit decreases and we begin to move out of the significant disruption caused by the coronavirus pandemic, the prospects and situation for the SYSPRO business is also beginning to improve.

Board Changes

We are very pleased to welcome Marco Vergani to the Board as Chief Executive Officer. Marco has over 30 years' experience in technology, principally in commercial sales, including in the UK, Europe, the Far East, and USA. He has wide sector experience, which includes retail, consumer, and e-commerce. A major part of his career was spent at IBM, the multi-national technology company, where he ran the Retail Store Solutions Division in Europe, Middle East, and Africa prior to joining the IBM Business Process Outsourcing division where he was promoted to Vice President of Sales for Europe. In 2014, he joined Digital River, the US-based global e-commerce, payments and marketing services company becoming its Senior Vice President, Global Sales and Account Management. More recently, he was Chief Operating Officer at Qubit, the venture capitalist-backed personalisation technology company.

Marco replaces Adalsteinn Valdimarrson who stepped down from the Board and Company in early March 2021. We would like to thank Adalsteinn for his significant contribution to the Group. He successfully led a fundamental restructuring of the Group and refocused its strategic direction. We wish him every success in his new ventures.

Over the year under review, a number of other changes were made to the Board. Oliver Scott joined as Non-Executive Director in February 2020. Oliver is a partner of Kestrel Partners LLP, the independent investment manager, which he co-founded in 2009, having previously spent 20 years advising smaller quoted and unquoted companies, latterly as a director of KBC Peel Hunt Corporate Finance. He is also a non-executive director of ULS Technology PLC. Kestrel is K3's largest shareholder, with a current holding representing 24.3% of the Company's share capital.

In May 2020 Non-Executive Directors Stuart Darling and Paul Morland retired from the Board and at the end of October 2020, I was pleased to join the Group, taking over the role of Chairman from Jonathan Manley (interim Chair). I temporarily assumed the role of Interim Chief Executive Officer in March 2021 ahead of Marco joining the Board. My career to date has been in the global software industry, both in the UK and internationally, including Europe and North America. I also have significant experience in growing and developing product-based software businesses, and was, until January 2020, Chief Executive Officer of Aptitude Software Group Plc, the global financial management software company.

Staff

On behalf of the Board, we extend our thanks to all our staff for their hard work in this unprecedented year. Our teams have shown significant dedication and commitment during this time, and their response to adapting to the new conditions created by the pandemic was outstanding.

Outlook

Trading so far in the new financial year has been in line with the same period last year. In the first quarter of the new financial year ending 30 November 2021, term contracts with a total contract value of GBP1.5m have been closed in K3|fashion with GBP0.5m of new contracts signed for K3|imagine. Global Accounts is maintaining momentum and initiatives to promote the migration of key customers on legacy POS solutions to our K3|imagine retail suite are in planning and development. We are re-examining the wider market opportunities for K3|imagine and remain excited about its growth potential.

The Board remains confident in the plans for the future of the Group and the repositioning strategy to focus on own-IP lead growth and SaaS in attractive markets. We look forward to more normal trading conditions as the coronavirus vaccine programme rolls out and pandemic restrictions are eased.

Operational and financial Review

The Directors consider the key performance indicators by which they measure the performance of the Group to be turnover, gross profit, gross margin, recurring or predictable revenue(2) and Own IP gross profit as a percentage of total gross profit(4) . The Group's results for the year end to 30 November 2020, together with comparatives for the same period in 2019, are summarised in the tables below. 2019 comparatives have been restated following the classification of UK Dynamics as a discontinued activity (after its administration in April 2020) and Starcom as an asset held for sale as at 30 November 2020.

During the year we have realigned our segmental reporting in line with our growth strategy. With the continuing growth in Global Accounts, we now recognise it as a separate segment and include revenue and costs relating to the Inter IKEA Systems B.V. (the owner and franchisor of the IKEA concept) and the Inter IKEA Concept franchisees. Our segmental analysis provides further information on the Group's performance across key areas of activity; Own IP, Global Accounts and Third-party products (including SYSPRO and Sage).

 
 (GBPm)                    Revenue                Gross profit             Gross margin 
                    2020   2019 (restated)   2020   2019 (restated)   2020    2019 (restated) 
 Own IP             16.1              17.9   12.2              12.6   75.8%             70.7% 
 Global Accounts    17.3              15.7    7.4               6.2   43.0%             39.1% 
 Third-party 
  products          15.4              16.5    9.1              10.0   58.8%             60.4% 
-----------------  -----  ----------------  -----  ----------------  ------  ---------------- 
 Total              48.8              50.1   28.7              28.8   58.8%             57.4% 
-----------------  -----  ----------------  -----  ----------------  ------  ---------------- 
 

Continuing Activities

 
                                         2020    2019 
-------------------------------------  ------  ------ 
 Recurring or predictable revenue(2)    76.2%   73.2% 
 Own IP gross profit as a percentage 
  of total gross profit(4)              42.6%   44.0% 
-------------------------------------  ------  ------ 
 

Own IP

K3's own-IP includes;

-- IP embedded within third-party solutions to add extra functionality and produce a richer overall solution for K3's target markets. These solutions include K3|fashion and K3|pebblestone;

-- K3|imagine, our cloud-native platform, solutions, and apps, with our integration engine, K3|dataswitch; and

-- other stand-alone point solutions and apps including our legacy point of sale ("POS") products.

Own-IP revenue decreased by 9.7% to GBP16.1m (2019: GBP17.9m) gross profit fell to GBP12.2m (2019: GBP12.6m), reflecting a product mix that included a greater contribution from K3|fashion sales and lower contribution from POS products. In line with this, gross margin increased to 75.8% (2019: 70.7%).

Despite the challenges that the lockdown restrictions created for the retail sector, GBP1.4m of contracts were closed for K3|fashion over the financial year (2019: GBP2.4m). In the first quarter of the new financial year ending 30 November 2021, GBP1.5m of contracts have been closed with both European and US retailers in line with our sales strategy for this product.

We remain confident about prospects for K3|fashion and its endorsement by Microsoft as its recommended 'add-on' solution for the fashion and apparel sector globally that has given our product additional profile in the market.

Our K3|imagine platform and its applications are provided on a Platform-as-a-Service ("PaaS") and Software-as-a-Solution ("SaaS") basis. Customers bought from across the suite of applications, including self-serve kiosks, point of sale, companion apps, and make tax digital. However, the retail solution sales have been impacted by coronavirus restrictions and poor trading conditions throughout 2020, and this trend has continued into 2021. In total GBP1.0m of contracts were closed over the year (2019: GBP0.3m).

As a result of the focus on our K3|imagine platform and its suite of applications we have recognised an impairment of GBP12.0m within Own IP. This is comprised of an impairment to Goodwill and Other Intangibles of GBP9.4m relating to the legacy POS products and a GBP2.6m impairment of legacy development costs.

Global Accounts

Revenue from Global Accounts continued to grow, increasing by 10.1% to GBP17.3m (2019: GBP15.7m). Gross profit increased by 19.4% to GBP7.4m (2019: GBP6.2m) with gross margin increasing to 43.1% (2019: 39.1%).

This strong performance reflected our ability to support the ongoing expansion of the IKEA franchisee network into new geographies such as South and Central America. The increased activity mainly contributed to services income. The Far East has generally proven to be more resilient to the impact of coronavirus than the West, with Far Eastern customers being impacted for less time. We anticipate continued growth in Global Accounts and have further expanded resource at our Kuala Lumpur office to support this.

Third-party products

Third-party products include our SYSPRO and Sage products, which we resell in the UK. This area of activity was the most badly affected by the coronavirus crisis and Brexit uncertainty as customers in distribution and manufacturing held back from supply chain investments and services projects. We implemented mitigating actions to reduce the impact, including furlough. Revenue decreased by 6.7% to GBP15.4m (2019: GBP16.5m) and gross profit reduced by 9.0% to GBP9.1m (2019: GBP10.0m). Gross margin was 58.8% (2019: 60.4%).

Our manufacturing customer base, which largely comprises SYSPRO customers, was more resilient to coronavirus although SYSPRO services income was impacted by some customer sites being closed. Encouragingly SYSPRO new business discussions continued throughout the period.

Our retail and distribution customer base, which is more biased to Sage, was more disrupted by coronavirus-related restrictions, and new business opportunities and pipeline remain soft. We do not expect substantial new sales in the future from our Sage business and as a result have recognised a GBP4.9m impairment of goodwill relating to the Sage business unit.

The second half of the financial year benefited from the high level of software licence and maintenance and support contract renewals from the SYSPRO customer base in this period. This was reflected in the typically strong weighting in earnings and cash generation to the fourth quarter.

Administrative expenses

Underlying Support/Administration costs(7) have increased to GBP24.7m (2019: GBP21.6m) reflecting investment in the commercial and product development teams. Total administrative expenses increased to GBP48.5m (2019: GBP28.7m). This includes exceptional impairments (all non-cash items) totalling GBP16.9m, which relate to a GBP14.3m impairment of goodwill in the third-party Sage business (GBP4.9m), and legacy products within Own IP (GBP9.4m) and an impairment of historic capitalised development costs within our Own IP segment (GBP2.6m) (2019: GBPnil).

Coronavirus Pandemic and Brexit

The Group responded swiftly to the coronavirus pandemic with employees moving to remote working and offices that remained operational implementing protective measures, in line with government guidance.

Coronavirus lockdown restrictions created challenges for the Group more prominently within the retail and hospitality sectors resulting in reduced contract wins for K3|imagine retail suite and visitor attractions solutions. Our third-party products segment was also impacted as customers in distribution and manufacturing delayed investments in supply chain investments and services projects. In response to these challenges the Group utilised furlough schemes in the UK and Denmark, which reflected specific verticals that were impacted, and staff volunteered temporary salary reductions. The Group also made use of Government tax deferral schemes, with a total of GBP2.0m of tax deferred at the financial year end.

Additional funding totalling GBP6.0m was secured in April 2020, when we extended our loan facility with Barclays by GBP3.0m and raised GBP3.0m via a shareholder loan.

Brexit impacted our UK operations, especially for third party product sales. However, these units recovered somewhat in the final quarter of the financial year, helped by sales opportunities cultivated during the lockdown in the manufacturing vertical coming through and by the investment in sales resources.

Discontinued Activities - UK Dynamics

On 21 April 2020, the UK Dynamics subsidiary was put into administration. The subsidiary's reported results show a loss before tax of GBP1.3m (2019: loss of GBP14.8m). The UK Dynamics business had, despite several restructurings, continued to be cash consumptive, with long deal cycles and high operating costs. Following its administration, we have maintained relationships with UK Dynamics customers using K3 Own IP and now use channel partners as the route to market in the UK for K3|fashion and K3|pebblestone, as we do in non-UK territories.

Discontinued Activities - Starcom Technologies Limited

In September 2020, the Board embarked on a programme to explore options to sell Starcom Technologies Limited ("Starcom"), our managed services unit, since managed services was not seen as a strategic growth area. Starcom was therefore classified as an 'available for sale' asset as at 30 November 2020 and it has been accounted for in discontinued activities.

Starcom's total external revenue for the year ended 30 November 2020 was GBP9.5m (2019: GBP9.3m) and the unit generated profit before taxation of GBP0.8m (2019: GBP1.0m). In February 2021, the unit was sold for GBP14.7m including GBP0.5m of cash on the balance sheet. The management team and staff of Starcom have transferred with the sale of the business together with its 280 customers. Under the terms of a services agreement Starcom will continue to provide K3 and its customers with managed services for at least three years.

Earnings per Share and Dividends

Adjusted loss per share(6) was 4.8p (2019: adjusted profit per share(6) 2.6p). Loss per share was 49.3p (2019: 36.0p).

No dividend will be declared for the year ended 30 November 2020 (2019: nil).

Taxation

There was a tax benefit for the financial year of GBP0.3m (2019: GBP0.9m charge) comprising a charge of GBP0.3m (2019: GBP0.6m) for current taxation and a benefit of GBP0.6m (2019: GBP0.3m charge) for deferred taxation, of which GBP0.2m (2019: GBP0.3m) related to the amortisation of intangible assets.

The loss before taxation was driven by the large impairment charge which is non-tax deductible. The Group's tax rate is sensitive to the geographical mix of its profits and losses and with the growth of the non-UK business, overseas tax is increasing. The effective tax rate for the year is 1.3% (2019: (6.4%). The effective tax rate is determined as the tax expense/(credit) divided by the accounting profit/(loss) before tax.

Balance Sheet

As a result of the Group's strategic focus moving away from older POS products and towards the new own IP products, particularly the K3|imagine platform, as well as reduced expectations for future sales in mature business components, an impairment charge of GBP16.9m was recognised in the year. This consisted of a GBP12.8m impairment of Goodwill and a GBP1.5m impairment of IP and Customer Relationships, relating to older POS products and the Sage unit, and a GBP2.6m impairment of historical development costs.

The assets, and associated liabilities, for Starcom have been classified as held for sale as at 30 November 2020 with a net asset value of GBP3.3m.

Additions to development costs were GBP4.5m compared to GBP4.1m in 2019, driven by the focus on development of K3|imagine. Amortisation of development costs was GBP2.5m (2019: GBP2.9m). An impairment loss of GBP2.6m was recognised against the development costs of older products. The amortisation charge on acquired intangible assets was GBP1.8m (2019: GBP2.5m).

Trade and other receivables were GBP12.2m (2019: GBP20.7m). Included within the 2019 balance was GBP5.9m for UK Dynamics, and GBP1.7m for Starcom. The remaining GBP0.9m reduction compared to 2019 is due to better credit control management. Trade and other payables were GBP19.1m (2019: GBP25.0m). Included within the 2019 balance was GBP5.1m for UK Dynamics and GBP3.0m for Starcom, so underlying trade payables have increased by GBP2.2m, of which HMRC coronavirus deferrals were GBP2.0m.

The net debt(5) position at 30 November 2020 was GBP1.9m and comprised GBP0.8m of bank net cash and a shareholder loan of GBP2.7m. GBP0.3m of the total shareholder loan value of GBP3.0m is recognised in equity as a fair value adjustment for the associated warrants, which were issued alongside the loan, at 30 November 2020. This will be amortised as a finance expense in 2021. Net debt at the same point in 2019 amounted to GBP2.4m and was entirely bank net debt.

Cash Flow

The net cash from continuing operating activities was GBP8.2m (2019: GBP5.8m). The net change in working capital from trade and other receivables and trade and other payables was GBP4.1m inflow (2019: GBP0.3m outflow). The main drivers for these movements were the release of balances related to UK Dynamics along with better credit control and invoicing procedures.

Investing activities increased to GBP5.2m (2019: GBP4.7m) with the focus on the development of the K3|imagine platform. The purchase of property, plant and equipment also included IT equipment to run managed services and IFRS 16 right to use asset additions.

Consolidated income statement

for the year ended 30 November 2020

 
                                         Notes       Year ended          Year ended 
                                                    30 November         30 November 
                                                           2020    2019 (restated^) 
                                                        GBP'000             GBP'000 
 
 Revenue                                                 48,819              50,094 
 Cost of sales                                         (20,110)            (21,341) 
--------------------------------------  -------  --------------  ------------------ 
 Gross profit                                            28,709              28,753 
 
 Administrative expenses                               (48,402)            (28,799) 
 Impairment (losses)/gains 
  on financial assets                                     (122)                 115 
 
 Adjusted EBITDA(1)                                       3,965               7,149 
 Depreciation and amortisation                          (4,500)             (4,260) 
 Amortisation of acquired intangibles                   (1,471)             (2,161) 
 Exceptional Impairment                    7           (16,855)                   - 
 Exceptional reorganisation 
  costs                                                   (934)               (362) 
 Exceptional customer settlement 
  provision                                                   -               (400) 
 Share-based payment (charge)/credit                       (20)                 103 
 
 
 (Loss)/profit from operations                         (19,815)                  69 
 
 Finance expense                                        (1,124)               (776) 
--------------------------------------  -------  --------------  ------------------ 
 (Loss)/profit before taxation 
  from continuing operations                           (20,939)               (707) 
--------------------------------------  -------  --------------  ------------------ 
 Tax expense                               3                (7)               (424) 
--------------------------------------  -------  --------------  ------------------ 
 Loss after taxation from continuing 
  operations                                           (20,946)             (1,131) 
 
 Loss after taxation from discontinued 
  operations                                              (184)            (14,316) 
 
 Loss for the year                                     (21,130)            (15,447) 
-----------------------------------------------  --------------  ------------------ 
 
 

^ The 2019 results have been restated to present UK Dynamics and Starcom Technologies Limited as discontinued operations. See Note 6 for further details.

All the loss for the year is attributable to equity shareholders of the parent.

 
 (Loss) per share    Note     Year ended     Year ended 
                             30 November    30 November 
                                    2020           2019 
 Basic                4          (49.3)p        (36.0)p 
 Diluted              4          (49.3)p        (36.0)p 
 

Consolidated statement of comprehensive income

for the year ended 30 November 2020

 
                                          Year ended         Year ended 
                                         30 November        30 November 
                                                2020    2019 (restated) 
                                             GBP'000            GBP'000 
 Loss for the year                          (21,130)           (15,447) 
-------------------------------------  -------------  ----------------- 
 Other comprehensive income 
 Exchange differences on translation 
  of foreign operations                        1,065              (928) 
 Other comprehensive income                 (20,065)           (16,375) 
 Total comprehensive expense for 
  the year                                  (20,065)           (16,375) 
-------------------------------------  -------------  ----------------- 
 

All the total comprehensive expense is attributable to equity holders of the parent. All the other comprehensive income will be reclassified subsequently to profit or loss when specific conditions are met. None of the items within other comprehensive income/(expense) had a tax impact.

 
           Consolidated statement of financial position 
            as at 30 November 2020                         Notes        2020      2019 
                                                                     GBP'000   GBP'000 
 ASSETS 
 Non-current assets 
 Property, plant and equipment                                         1,866     2,107 
 Right-of-use assets                                                   2,719     4,058 
 Goodwill                                                             26,132    40,467 
 Other intangible assets                                              10,271    14,422 
 Deferred tax assets                                                     935       825 
 Total non-current assets                                             41,923    61,879 
                                                                   ---------  -------- 
 
 Current assets 
 Trade and other receivables                                          12,195    20,746 
 Cash and cash equivalents                                             9,306     8,226 
 Assets classified as held for sale                                    6,899         - 
                                                                   ---------  -------- 
 Total current assets                                                 28,400    28,972 
                                                                   ---------  -------- 
 
 Total assets                                                         70,323    90,851 
                                                                   ---------  -------- 
 
 LIABILITIES 
 Non-current liabilities 
 Lease liabilities                                                     1,735     2,507 
 Borrowings                                                                -     6,262 
 Provisions                                                              416       294 
 Deferred tax liabilities                                                889     1,115 
                                                                   ---------  -------- 
 Total non-current liabilities                                         3,040    10,178 
                                                                   ---------  -------- 
 
 Current liabilities 
 Trade and other payables                                             19,145    25,008 
 Current tax liabilities                                               1,274       493 
 Lease liabilities                                                       925     1,410 
 Borrowings                                                           12,443     4,385 
 Provisions                                                                9       120 
 Liabilities directly associated with assets                           3,572         - 
  classified as held for sale 
                                                                   ---------  -------- 
 Total current liabilities                                            37,368    31,416 
                                                                   ---------  -------- 
 
 Total liabilities                                                    40,408    41,594 
                                                                   ---------  -------- 
 EQUITY 
 Share capital                                                        10,737    10,737 
 Share premium account                                                28,897    28,897 
 Other reserves                                                       11,151    10,448 
 Translation reserve                                                   2,623     1,558 
 Retained earnings                                                  (23,493)   (2,383) 
                                                                   ---------  -------- 
 Total equity attributable to equity holders 
  of the parent                                                       29,915    49,257 
                                                                   ---------  -------- 
 
 Total equity and liabilities                                         70,323    90,851 
                                                                   ---------  -------- 
 
 

.

Consolidated Cash Flow Statement

for the year ended 30 November 2020

 
                                                                           Year ended    Year ended 
                                                                          30-Nov 2020   30-Nov 2019 
                                                                  Notes       GBP'000       GBP'000 
 Cash flows from operating activities 
 Loss for the period                                                         (21,130)      (15,447) 
 Adjustments for: 
 Finance expense                                                                1,137           856 
 Tax expense                                                                    (284)           931 
 Depreciation of property, plant and equipment                                    730           794 
 Impairment loss on property, plant and equipment                                   -            73 
 Depreciation of right-of-use assets                                            1,727         1,737 
 Amortisation of intangible assets and development expenditure                  4,247         5,377 
 Impairment of intangible assets                                               16,855        12,062 
 Impairment of investments                                                          -            98 
 Loss on sale of property, plant and equipment                                    254             - 
 Share-based payments credit/ (charge)                                             20         (103) 
 Loss on disposal of discontinued operations, net of tax                          957             - 
 Increase in provisions                                                            71           414 
 Decrease in trade and other receivables                                        6,680         3,629 
 Decrease in trade and other payables                                         (2,668)       (4,348) 
---------------------------------------------------------------  ------  ------------  ------------ 
 Cash generated from operations                                                 8,596         6,073 
 Income taxes                                                                   (364)         (191) 
---------------------------------------------------------------  ------  ------------  ------------ 
 Net cash from operating activities                                             8,232         5,882 
 Cash flows from investing activities 
 Development expenditure capitalised                                          (4,516)       (4,080) 
 Purchase of property, plant and equipment                                      (713)         (666) 
---------------------------------------------------------------  ------  ------------  ------------ 
 Net cash used in investing activities                                        (5,229)       (4,746) 
 Cash flows from financing activities 
 Proceeds from loans and borrowings                                             9,950         4,500 
 Repayment of loans and borrowings                                            (6,468)       (5,750) 
 Repayment of lease liabilities                                               (1,841)       (1,505) 
 Interest paid on lease liabilities                                             (308)         (347) 
 Finance expense paid                                                           (590)         (385) 
 Dividends paid                                                                     -         (661) 
---------------------------------------------------------------  ------  ------------  ------------ 
 Net cash from financing activities                                               743       (4,148) 
---------------------------------------------------------------  ------  ------------  ------------ 
 Net change in cash and cash equivalents                                        3,746       (3,012) 
---------------------------------------------------------------  ------  ------------  ------------ 
 Cash and cash equivalents at start of year                                     3,841         6,914 
 Exchange gains /(losses) on cash and cash equivalents                           (21)          (61) 
---------------------------------------------------------------  ------  ------------  ------------ 
 Cash and cash equivalents at end of year                           9           7,566         3,841 
 
 

Consolidated statement of Changes in Equity

for the year ended 30 November 2020

 
                                                                         Translation         Retained 
                      Share capital   Share premium   Other reserves         reserve         earnings   Total equity 
                            GBP'000         GBP'000          GBP'000         GBP'000          GBP'000        GBP'000 
 At 30 November 
  2018                       10,737          28,897           10,448           2,486           13,828         66,396 
-------------------  --------------  --------------  ---------------  --------------  ---------------  ------------- 
 Changes in equity 
 for year ended 30 
 November 2019 
 Loss for the year                -               -                -               -         (15,447)       (15,447) 
 Other 
  comprehensive 
  income for the 
  year                            -               -                -           (928)                -          (928) 
-------------------  --------------  --------------  ---------------  --------------  ---------------  ------------- 
 Total 
  comprehensive 
  income/(expense)                -               -                -           (928)         (15,447)       (16,375) 
 Share-based 
  payment reversal                -               -                -               -            (103)          (103) 
 Dividends to 
  equity holders                  -               -                -               -            (661)          (661) 
 At 30 November 
  2019                       10,737          28,897           10,448           1,558          (2,383)         49,257 
-------------------  --------------  --------------  ---------------  --------------  ---------------  ------------- 
 Changes in equity 
 for year ended 30 
 November 2020 
 Loss for the year                -               -                -               -         (21,130)       (21,130) 
 Other 
  comprehensive 
  income for the 
  year                            -               -                -           1,065                -          1,065 
-------------------  --------------  --------------  ---------------  --------------  ---------------  ------------- 
 Total 
  comprehensive 
  income/(expense)                -               -                -           1,065         (21,130)       (20,065) 
 Share-based 
  payment expense                 -               -                -               -               20             20 
 Issue of warrants                -               -              703               -                -            703 
 At 30 November 
  2020                       10,737          28,897           11,151           2,623         (23,493)         29,915 
-------------------  --------------  --------------  ---------------  --------------  ---------------  ------------- 
 
   1      Basis of preparation 

Statement of compliance

The Group's financial information has been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

The financial information has been prepared under the historical cost convention except for derivative financial instruments which are stated at their fair value.

Whilst the financial information included in this Preliminary Results Announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient information to comply with IFRS.

This statement of Final Results does not constitute the Company's statutory accounts for the years ended 30 November 2020 and 30 November 2019 within the meaning of Section 435 of the Companies Act 2006 but is derived from those statutory accounts.

The Group's statutory accounts for the year ended 30 November 2019 have been filed with the Registrar of Companies, and those for 2020 will be delivered following the Company's Annual General Meeting. The Auditor has reported on the statutory accounts for 2020 and 2019. Their report for 2020 was (i) unqualified, (ii) did not contain any material uncertainties and (iii) did not contain statements under Sections 498 (2) or 498 (3) of the Companies Act 2006 in relation to the financial statements.

Going Concern

The Group closely reviews its funding position throughout the year, including monitoring compliance with covenants and available facilities to ensure it has sufficient headroom to fund operations. The disruption arising from COVID-19 introduced additional uncertainty for the Group, but the Group was able to raise additional funding in the period, exceeded the forecast models with the Group generating a cash inflow of GBP3.7m in the year ending 30 November 2020. However, despite the positive cash generation, on 30 November 2020 the Group was in a net current liability position of GBP9.0m. This was a result of loan facilities of GBP6.8m due to expire on 31 March 2021 and a shareholder loan of GBP3.0m due for repayment by 30 June 2021.

The Group has prepared cashflow forecast for a period of at least 12 months from the date of approval of the financial statements which show that the Group will have reasonably significant headroom and be in compliance with covenants. The forecast has undergone sensitivity analysis and stress testing and the Directors have concluded that there is no reasonably worst-case scenario that is likely which would mean the group would run out of cash or breach covenants.

The forecast has been strengthened by key actions taken by the Board. On 26 February 2021, the Group agreed the sale of Starcom Technologies Limited ("Starcom"), our managed services unit, for GBP14.7m in cash. The sale generated over GBP10 million of profit on disposal and following the sale the Group moved into a net cash position. On 26 March 2021 we successfully agreed an extension to our Revolving Credit Facility with Barclays to March 2022 with an option to extend. In addition, we are in advanced discussions with shareholders to convert the GBP3.0m of shareholder loans to equity in the near future. These actions have put the Group in a net cash position as at 30 March 2021 and significantly reduced the Group's short-term liabilities.

The Directors therefore have a reasonable expectation that there are no material uncertainties that cast significant doubt about the Group's ability to continue in operation and meet its liabilities as they fall due for the foreseeable future, being a period of at least 12 months from the date of approval of the financial statements. For these reasons the financial statements have been prepared on a going concern basis.

Adoption of new and revised standards

New accounting standards adopted by the Group

The following IFRS have been adopted by the Group for the first time in these financial statements:

 
 Amendments to References       The Group has adopted the amendments included 
  to the Conceptual Framework    in Amendments to References to the Conceptual 
  in IFRS Standards              Framework in IFRS Standards for the first time 
                                 in the current year. The amendments include 
                                 consequential amendments to affected Standards 
                                 so that they refer to the new Framework. 
                                 Not all amendments, however, update those pronouncements 
                                 with regard to references to and quotes from 
                                 the Framework so that they refer to the revised 
                                 Conceptual Framework. Some pronouncements are 
                                 only updated to indicate which version of the 
                                 Framework they are referencing to (the IASC 
                                 Framework adopted by the IASB in 2001, the 
                                 IASB Framework of 2010, or the new revised 
                                 Framework of 2018) or to indicate that definitions 
                                 in the Standard have not been updated with 
                                 the new definitions developed in the revised 
                                 Conceptual Framework. 
                                 The Standards which are amended are IFRS 2, 
                                 IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS 
                                 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 
                                 20, IFRIC 22, and SIC-32. 
 Amendments to IFRS 3           The Group has adopted the amendments to IFRS 
  Definition of a business       3 for the first time in the current year. The 
                                 amendments clarify that while businesses usually 
                                 have outputs, outputs are not required for 
                                 an integrated set of activities and assets 
                                 to qualify as a business. To be considered 
                                 a business an acquired set of activities and 
                                 assets must include, at a minimum, an input 
                                 and a substantive process that together significantly 
                                 contribute to the ability to create outputs. 
                                 The amendments remove the assessment of whether 
                                 market participants are capable of replacing 
                                 any missing inputs or processes and continuing 
                                 to produce outputs. The amendments also introduce 
                                 additional guidance that helps to determine 
                                 whether a substantive process has been acquired. 
                                 The amendments introduce an optional concentration 
                                 test that permits a simplified assessment of 
                                 whether an acquired set of activities and assets 
                                 is not a business. Under the optional concentration 
                                 test, the acquired set of activities and assets 
                                 is not a business if substantially all of the 
                                 fair value of the gross assets acquired is 
                                 concentrated in a single identifiable asset 
                                 or group of similar assets. The amendments 
                                 are applied prospectively to all business combinations 
                                 and asset acquisitions for which the acquisition 
                                 date is on or after 1 January 2020. This has 
                                 had no impact for the Group for the year ending 
                                 30 November 2020. 
 
 
 Amendments to IAS 1     The Group has adopted the amendments to IAS 
  and IAS 8 Definition    1 and IAS 8 for the first time in the current 
  of material             year. The amendments make the definition of 
                          material in IAS 1 easier to understand and 
                          are not intended to alter the underlying concept 
                          of materiality in IFRS Standards. The concept 
                          of 'obscuring' material information with immaterial 
                          information has been included as part of the 
                          new definition. The threshold for materiality 
                          influencing users has been changed from 'could 
                          influence' to 'could reasonably be expected 
                          to influence'. The definition of material in 
                          IAS 8 has been replaced by a reference to the 
                          definition of material in IAS 1. In addition, 
                          the IASB amended other Standards and the Conceptual 
                          Framework that contain a definition of 'material' 
                          or refer to the term 'material' to ensure consistency. 
 
   2          Segment information 

We have restated the 2019 segment information to remove the discontinued activities of UK Dynamics and Starcom Technologies Limited. In addition, we have restated 2019 in order to recognise the new segment, Global Accounts. During the past two financial years the group has moved to a more streamlined organisation with management resource and central services focused on working across the group in a more unified manner to increase the strategic focus on the level of our own IP sales. Reporting is based on product K3 own IP, Global Accounts and 3(rd) party products revenue and gross margin. Overheads and administrative expenses are included as a central cost given resource works across these three segments.

Transactions between operating segments are on an arms-length basis.

The CODM (Chief Operating Decision Maker, the Board) primarily assesses the performance of the operating segments based on product revenue, gross margin and group adjusted EBITDA(1) .

The segment results for the year ended 30 November 2020 and for the year ended 30 November 2019, reconciled to loss for the year.

Year ended 30 November 2020

 
 
                                       K3 Own IP     Global Accounts   3(rd) party products   Central Costs      Total 
                                         GBP'000             GBP'000                GBP'000         GBP'000    GBP'000 
 Total segment revenue                    20,100              19,479                 16,146             458     56,183 
 Less Inter-segment revenue              (3,951)             (2,220)                  (735)           (458)    (7,364) 
 Software licence revenue                  3,248                 718                   1798               -      5,764 
 Services revenue                          1,169              13,472                  3,180               -     17,821 
 Maintenance & support                    10,308               3,045                 10,362               -     23,715 
 Hardware and other revenue                1,424                  24                     71               -      1,519 
 External revenue                         16,149              17,259                 15,411               -     48,819 
 Cost of sales                           (3,909)             (9,845)                (6,356)               -   (20,110) 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 Gross profit                             12,240               7,414                  9,055               -     28,709 
 Gross margin                              75.8%               43.0%                  58.8%               -      58.8% 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 Underlying administrative 
  expenses(7)                                  -                   -                      -        (24,744)   (24,744) 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 Adjusted EBITDA(1) from continuing 
  operations                              12,240               7,414                  9,055        (24,744)      3,965 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 Depreciation and amortisation                 -                   -                      -         (4,500)    (4,500) 
 Amortisation of acquired 
  intangibles                                  -                   -                      -         (1,471)    (1,471) 
 Exceptional impairment                        -                   -                      -        (16,855)   (16,855) 
 Exceptional reorganisation costs              -                   -                      -           (934)      (934) 
 Exceptional customer settlement               -                   -                      -               -          - 
 provision 
 Share-based payment (charge)/credit           -                   -                      -            (20)       (20) 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 Loss from operations                     12,240               7,414                  9,055        (48,524)   (19,815) 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 Finance expense                               -                   -                      -         (1,124)    (1,124) 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 Loss before tax and discontinued 
  operations                              12,240               7,414                  9,055        (49,648)   (20,939) 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 Tax expense                                   -                   -                      -             (7)        (7) 
 Loss from discontinued operations             -                   -                      -           (184)      (184) 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 Loss for the year                        12,240               7,414                  9,055        (49,839)   (21,130) 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 
 

Year ended 30 November 2019 (restated)

 
 
                                       K3 Own IP     Global Accounts   3(rd) party products   Central Costs      Total 
                                         GBP'000             GBP'000                GBP'000         GBP'000    GBP'000 
 Total segment revenue                    22,335              17,765                 19,821               -     59,920 
 Less Inter-segment revenue              (4,459)             (2,037)                (3,331)               -    (9,827) 
 Software licence revenue                  3,024                 707                  2,171               -      5,902 
 Services revenue                          1,011              12,786                  4,699               -     18,508 
 Maintenance & support                    11,482               2,223                  9,496               -     23,201 
 Hardware and other revenue                2,359                   -                    124               -      2,483 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 External revenue                         17,876              15,728                 16,490               -     50,094 
 Cost of sales                           (5,233)             (9,574)                (6,534)               -   (21,341) 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 Gross profit                             12,643               6,154                  9,956               -     28,753 
 Gross margin                              70.7%               39.1%                  60.4%               -      57.4% 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 Underlying administrative 
  expenses(7)                                  -                   -                      -        (21,604)   (21,604) 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 Adjusted EBITDA(1) from continuing 
  operations                              12,643               6,154                  9,956        (21,604)      7,149 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 Depreciation and amortisation                 -                   -                      -         (4,260)    (4,260) 
 Amortisation of acquired 
  intangibles                                  -                   -                      -         (2,161)    (2,161) 
 Exceptional reorganisation costs              -                   -                      -           (362)      (362) 
 Exceptional customer settlement 
  provision                                    -                   -                      -           (400)      (400) 
 Share-based payment (charge)/credit           -                   -                      -             103        103 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 Loss from operations                     12,643               6,154                  9,956        (28,684)         69 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 Finance expense                               -                   -                      -           (776)      (776) 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 Loss before tax and discontinued 
  operations                              12,643               6,154                  9,956        (29,460)      (707) 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 Tax expense                                   -                   -                      -           (424)      (424) 
 Loss from discontinued operations             -                   -                      -        (14,316)   (14,316) 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 Loss for the year                        12,643               6,154                  9,956        (44,200)   (15,447) 
------------------------------------  ----------  ------------------  ---------------------  --------------  --------- 
 
 

The Group has one customer relationship which accounts for 32% (2019: 30%) of external Group revenue.

Analysis of the group's external revenues (by customer geography) and non-current assets by geographical location are detailed below:

External Revenue by end customer geography

 
                                     External revenue                  Non-current assets 
                          Year ended 
                         30 November                     Year ended 
                                2020    30 November 2019 (restated)        2020       2019 
                              GBP000                         GBP000      GBP000     GBP000 
 United Kingdom               18,980                         18,908      30,667     52,693 
 Netherlands                   9,153                          9,468         420        918 
 Ireland                       1,245                          1,737      10,861      8,243 
 Rest of Europe               10,110                         11,000       (318)       (48) 
 Middle East                   1,641                          3,076           -          - 
 Asia                          4,503                          3,936         274         52 
 USA                           1,017                          1,003          19         21 
 Rest of World                 2,170                            966           -          - 
                                                                     ----------  --------- 
                              48,819                         50,094      41,923     61,879 
---------------------  -------------  -----------------------------  ----------  --------- 
 % of non-UK revenue             61%                            62% 
 

External revenue by Business Unit Geography

 
             2020 
 External Revenue by Market 
                                                            UK      Non-UK      Total 
                                                       GBP'000     GBP'000    GBP'000 
 Software Licence Revenue                                2,430       3,334      5,764 
 Services Revenue                                        3,063      14,758     17,821 
 Maintenance & Support                                  12,781      10,934     23,715 
 Hardware and other Revenue                                541         978      1,519 
----------------------------------  -------------  -----------  ----------  --------- 
 Total                                                  18,815      30,004     48,819 
----------------------------------  -------------  -----------  ----------  --------- 
 
 
 
 External revenue by business unit 
  geography 
                                           Maintenance                      Total 
                     Software   Services     & support       Hardware & 
                    Licencing    Revenue       Revenue    Other Revenue 
                      GBP'000    GBP'000       GBP'000          GBP'000   GBP'000 
 United Kingdom         2,508      3,300        13,563              424    19,795 
 Netherlands            2,966     13,985         6,589              112    23,652 
 Ireland                   16        375           534               71       996 
 Rest of Europe           274        161         3,029              912     4,376 
                        5,764     17,821        23,515            1,519    48,819 
 

External Revenue by revenue recognition category

 
                                                 Maintenance 
                           Software   Services     & support           Hardware 
                          Licencing    Revenue       Revenue    & Other Revenue     Total 
                            GBP'000    GBP'000       GBP'000            GBP'000   GBP'000 
 Goods Transferred 
  at a point in 
  time                        5,764          -             -              1,519     7,283 
 Services transferred 
  at a point in 
  time                            -     17,821         7,881                  -    25,702 
 Services transferred 
  over time                       -          -        15,834                  -    15,834 
----------------------  -----------  ---------  ------------  -----------------  -------- 
 Total                        5,764     17,821        23,715              1,519    48,819 
----------------------  -----------  ---------  ------------  -----------------  -------- 
 

Revenue to be recognised in the future, related to agreed performance obligations that are unsatisfied or partially satisfied as at 30 November 2020, was as follows

 
                                   2021       2022      Later      Total 
                                GBP'000    GBP'000    GBP'000    GBP'000 
 Software Licence Revenue           226        226        324        776 
 Services Revenue                   321          -          -        321 
 Maintenance & Support            5,066          -          -      5,066 
 Hardware and other Revenue         333          -          -        333 
                              ---------  ---------  ---------  --------- 
                                  5,946        226        324      6,496 
                              ---------  ---------  ---------  --------- 
 
 
            2019 (restated) 
 External Revenue by 
  Market 
                                     UK    Non-UK     Total 
                                GBP'000   GBP'000   GBP'000 
 Software Licence Revenue         2,406     3,496     5,902 
 Services Revenue                 2,921    15,587    18,508 
 Maintenance & Support 
  Revenue                        11,063    12,138    23,201 
 Hardware and other 
  Revenue                           131     2,352     2,483 
----------------------------   --------  --------  -------- 
                                 16,521    33,573    50,094 
 

External Revenue by business unit geography

 
                                                             Maintenance & support          Hardware & Other 
                   Software Licencing   Services Revenue                   Revenue                   Revenue     Total 
                              GBP'000            GBP'000                   GBP'000                   GBP'000   GBP'000 
 United Kingdom                 2,648              2,931                    11,605                       128    17,312 
 Netherlands                    2,715             14,771                     8,057                       144    25,687 
 Ireland                          258                457                     1,044                         -     1,759 
 Rest of Europe                   281                349                     2,495                     2,211     5,336 
                  -------------------  -----------------  ------------------------  ------------------------  -------- 
                                5,902             18,508                    23,201                     2,483    50,094 
                  -------------------  -----------------  ------------------------  ------------------------  -------- 
 

External Revenue by revenue recognition category

 
                                                 Maintenance 
                           Software   Services     & support           Hardware 
                          Licencing    Revenue       Revenue    & Other Revenue     Total 
                            GBP'000    GBP'000       GBP'000            GBP'000   GBP'000 
 Goods Transferred 
  at a point in 
  time                        5,902          -             -              2,483     8,385 
 Services transferred 
  at a point in 
  time                            -     18,508         2,590                  -    21,098 
 Services transferred 
  over time                       -          -        20,611                  -    20,611 
----------------------  -----------  ---------  ------------  -----------------  -------- 
 Total                        5,902     18,508        23,201              2,483    50,094 
 

Revenue to be recognised in the future, related to agreed performance obligations that are unsatisfied or partially satisfied as at 30 November 2019, was as follows:

 
                                   2020       2021      Later      Total 
                                GBP'000    GBP'000    GBP'000    GBP'000 
 Software Licence Revenue 
 Services Revenue                   244          -          -        244 
 Maintenance & Support            8,928          -          -      8,928 
 Hardware and other Revenue         505          -          -        505 
----------------------------  ---------  ---------  ---------  --------- 
                                  9,677          -          -      9,677 
 

Revenue recognised and included within contract assets can be reconciled as follows:

 
                                                                                                     2020 
                                                                                                  GBP'000 
 At 1 December 2019                                                                                 3,956 
 Transfers in the period from contract assets to trade receivables                                (3,956) 
 Excess of revenue recognised over cash (or rights to cash) being recognised during the period      3,220 
 At 30 November 2020                                                                                3,220 
                                                                                                 -------- 
 

Revenue recognised and included within contract liabilities can be reconciled as follows:

 
                                                                                                 2020 
                                                                                              GBP'000 
 At 1 December 2019                                                                             9,677 
 Amounts included in contract liabilities that was recognised as revenue during the period    (9,677) 
 Cash received in advance of performance and not recognised as revenue during the period        7,815 
 Reclassified as held for sale                                                                (1,319) 
 At 30 November 2020                                                                            6,496 
                                                                                             -------- 
 
   3          Tax expense 
 
                                                                       2019 
                                                            2020     (restated) 
                                                          GBP'000       GBP'000 
 Current tax expense/(credit) 
 Income tax of overseas operations on profits/(losses) 
  for the period                                              397           532 
 Adjustment in respect of prior periods                      (59)            92 
                                                         --------  ------------ 
 Total current tax expense                                    338           624 
                                                         --------  ------------ 
 
 Deferred tax (credit)/expense 
 Origination and reversal of temporary differences          (622)           307 
                                                            (622)           307 
                                                         --------  ------------ 
 
 Total tax (credit)/expense in the current 
  year                                                      (284)           931 
                                                         --------  ------------ 
 
 Income tax expense attributable to continuing 
  operations                                                    7           424 
 Income tax (credit)/expense attributable 
  to discontinued operations                                (291)           507 
                                                         --------  ------------ 
                                                            (284)           931 
                                                         --------  ------------ 
 

The Finance Act 2016 had previously enacted provisions to reduce the main rate of UK corporation tax to 17% from 1 April 2020 and accordingly the deferred tax at 30 November 2019 had been calculated at this rate. However, in the March 2020 Budget it was announced that the reduction will not occur, and the Corporation Tax Rate will be held at 19%. The Provisional Collection of Taxes Act was used to substantively enact the revised 19% tax rate on 17 March 2020 and accordingly the deferred tax balances have been re-calculated to 19% at the year end.

The March 2021 Budget announced a further increase to the main rate of corporation tax to 25% from April 2023. This rate has not been substantively enacted at the balance sheet date, as a result deferred tax balances as at 30 November 2020 continue to be measured at 19%. If all the deferred tax was to reverse at the amended 25% rate the impact on the closing DT position would be to increase the net deferred tax asset by GBP57,000.

The reasons for the difference between the actual tax charge for the period and the standard rate of corporation tax in the UK applied to profits/(losses) for the year are as follows:

 
                                                   2020      %       2019       % 
                                                GBP'000           GBP'000 
 Loss before taxation from continuing 
  operations                                   (20,939)               202 
 Loss before taxation from discontinued 
  operations (note 6)                             (475)          (14,718) 
                                              ---------         --------- 
 (Loss)/profit before tax                      (21,414)          (14,516) 
                                              ---------         --------- 
 Expected tax charges based on the standard 
  rate of corporation tax                       (4,069)   19.0    (2,758)    19.0 
 
 Effects of: 
 Items not deductible for tax purposes            3,508             2,611 
 Adjustment to tax charge in respect 
  of prior periods                                (229)               103 
 Differences between overseas tax rates             111                88 
 Movements in temporary differences not 
  recognised                                        435               809 
 Effect of deferred tax rate difference            (40)                78 
                                              ---------         --------- 
 Total tax (credit)/expense in current 
  period                                          (284)    1.3        931   (6.4) 
                                              ---------         --------- 
 

Deferred tax recognised directly in equity was GBPnil (2019: GBP596,000 credit). Current tax recognised in equity was nil (2019: GBPnil). None of the items within other comprehensive income in the Consolidated Statement of Comprehensive Income have resulted in a tax expense or tax income.

   4      (Loss)/earnings per share 

The calculations of (loss)/earnings per share are based on the profit/(loss) for the year and the following numbers of shares:

 
                                                                                2020               2019 
                                                                    Number of shares   Number of shares 
 Denominator 
 
 Weighted average number of shares used in basic and diluted EPS          42,899,598         42,879,926 
 
 

Certain employee options and warrants have not been included in the calculation of diluted EPS because their exercise is contingent on the satisfaction of certain criteria that had not been met at the end of the year.

 
                                                      Basic and diluted 
                                                         2020       2019 
 Loss after tax from continuing operations           (20,946)    (1,131) 
 Loss after taxation from discontinued operations       (184)   (14,316) 
                                                    ---------  --------- 
 Loss attributable to ordinary equity holders 
  of the parent for basic and diluted earnings 
  per share                                          (21,130)   (15,447) 
                                                    ---------  --------- 
 

The alternative earnings per share calculations have been computed because the directors consider that they are useful to shareholders and investors. These are based on the following profits/(losses) and the above number of shares.

 
                                                     Basic and diluted before 
                                                            Other items 
                                                       2020   2019 (restated) 
                                                  ---------  ---------------- 
 Loss after tax from continuing operations         (20,946)           (1,131) 
                                                  ---------  ---------------- 
 Add back Other Items: 
 Amortisation of acquired intangibles                 1,471             2,161 
 Exceptional reorganisation costs                       934               362 
 Exceptional impairment costs                        16,855                 - 
 Exceptional settlement provision                         -               400 
 SBP charge                                              20             (103) 
 Tax charge related to Other Items                    (405)             (558) 
                                                  ---------  ---------------- 
 Loss/(profit) attributable to ordinary equity 
  holders of the parent for basic and diluted 
  earnings per share from continuing operations 
  before other items                                (2,071)             1,131 
                                                  ---------  ---------------- 
 
 
                                                     2020          2019 
                                                             (restated) 
------------------------------------------------  -------  ------------ 
 Profit/(loss) per share 
 Basic and diluted earnings/(loss) per share       (49.3)        (36.0) 
 Basic and diluted earnings/(loss) per share 
  from continuing operations                       (48.8)         (2.6) 
------------------------------------------------  -------  ------------ 
 Adjusted earnings per share 
 Basic and diluted earnings/(loss) per share 
  from continuing operations before other items     (4.8)           2.6 
------------------------------------------------  -------  ------------ 
 
   5      Dividends 
 
                                                             2020      2019 
                                                          GBP'000   GBP'000 
 
 
  Final dividend of 0p (2019: 1.54p) per ordinary 
   share proposed and paid during the period relating 
   to the previous period's results                             -       661 
                                                        ---------  -------- 
 

No dividend in respect of the year ended 30 November 2020 will be proposed.

   6          Discontinued operations 

On 21 April 2020, the UK Dynamics subsidiary was put into administration and has been classified as a discontinued operation as it represented a major line of business for the Group. No assets or liabilities relating to UK Dynamics were held by the Group at 30 November 2020.

The results of the UK Dynamics business for the year up to its administration are presented below.

 
                                            2020         2019 
                                         GBP'000      GBP'000 
 
 Revenue                                   3,789       18,974 
 Cost of sales                           (3,533)     (13,351) 
--------------------------------------  --------  ----------- 
 Gross profit                                256        5,623 
 
 Administrative expenses                 (1,375)      (7,238) 
 Impairment losses on financial 
  assets                                       -          (974) 
 Loss from operations                    (1,119)      (2,589) 
 
 Finance income/(expense)                     60         (63) 
--------------------------------------  --------  ----------- 
 Loss before taxation from 
  discontinued operations before 
  group costs                            (1,059)      (2,652) 
--------------------------------------  --------  ----------- 
 
 Impairment of UK Dynamics 
  goodwill and intangibles                     -     (12,188) 
 Cost incurred with the disposal           (229)            - 
  of UK Dynamics 
 
 Loss before taxation from 
  discontinued operations                (1,288)     (14,840) 
--------------------------------------  --------  ----------- 
 Tax credit/(expense)                        269        (381) 
--------------------------------------  --------  ----------- 
 Loss for the year from discontinued 
  operations                             (1,019)       (15,221) 
--------------------------------------  --------  ------------- 
 
 
                                          2020     2019 
 Basic and diluted loss per 
  share from discontinued operations     (2.4)   (35.5) 
 

The net cashflows incurred by UK Dynamics are as follows :

 
                                  2020       2019 
                               GBP'000    GBP'000 
 Operating                     (1,603)        452 
 Financing                        (15)        (5) 
                             ---------  --------- 
 Net cash (outflow)/inflow     (1,618)        447 
                             ---------  --------- 
 

On 26 February 2021 the Group announced that it had completed a sale of the Starcom business for consideration of GBP14.7m. At 30 November 2020 Starcom is classified as a disposal group held for sale and as a discontinued operation as it represented a major line of business of the Group. The carrying amount of the disposal group is lower than its fair value less costs to sell and therefore no impairment loss is recognised.

The results of the Starcom business for the year are presented below:

 
                                              2020      2019 
                                           GBP'000   GBP'000 
 
 Total Revenue                              10,229    10,025 
 Less inter-segment revenue                  (710)     (681) 
----------------------------------------  --------  -------- 
 External revenue                            9,519     9,344 
 Cost of sales                             (3,966)   (3,684) 
----------------------------------------  --------  -------- 
 Gross profit                                5,553     5,660 
 
 Administrative expenses                   (4,320)   (4,280) 
 Impairment losses on financial 
  assets                                      (25)        (12) 
 Amortisation of acquired intangibles        (322)       (322) 
 Profit from operations                        886     1,046 
 
 Finance expense                              (73)      (15) 
----------------------------------------  --------  -------- 
 
 Profit after taxation from 
  discontinued operations                      813     1,031 
----------------------------------------  --------  -------- 
 Tax expense                                    22     (126) 
----------------------------------------  --------  -------- 
 Profit for the year from discontinued 
  operations                                   835         905 
----------------------------------------  --------  ---------- 
 
 
                                         2020   2019 
 Basic and diluted profit per 
  share from discontinued operations      1.9    2.1 
 

The major classes of assets and liabilities of the Starcom business classified as held for sale as at 30 November 2020 are as follows:

 
                                                 2020 
                                                 GBP'000 
 Property, plant and equipment                       237 
 Right-of-use assets                                 332 
 Goodwill                                          2,373 
 Other intangible assets                             690 
 Deferred tax assets                                 136 
 Trade and other receivables                       1,871 
 Cash and cash equivalents                         1,260 
----------------------------------------------  -------- 
 Assets classified as held for sale                6,899 
----------------------------------------------  -------- 
 Trade and other payables                        (3,196) 
 Provisions                                         (60) 
 Lease liabilities                                 (316) 
----------------------------------------------  -------- 
 Liabilities directly associated with assets 
  classified as held for sale                    (3,572) 
----------------------------------------------  -------- 
 Net Assets directly associated with disposal 
  group                                            3,327 
----------------------------------------------  -------- 
 

The net cashflows incurred by Starcom are as follows:

 
                                  2020       2019 
                               GBP'000    GBP'000 
 Operating                       1,096       (53) 
 Investing                       (155)      (266) 
 Financing                       (133)      (214) 
                             ---------  --------- 
 Net cash inflow/(outflow)         808      (533) 
                             ---------  --------- 
 

The total loss per share from discontinued activities was:

 
                                          2020     2019 
 Basic and diluted loss per 
  share from discontinued operations     (0.5)   (33.4) 
 
   7          Goodwill and impairment 

Goodwill acquired in business combinations is allocated at acquisition to the cash generating units ("CGUs") that are expected to benefit from that business combination.

The carrying value of goodwill in respect of all CGUs is set out below. These are fully supported by either value in use calculations in the year or the fair value less cost to sell for CGUs held for sale.

 
                                          Goodwill carrying amount 
                                                2020          2019 
                                             GBP'000       GBP'000 
 DdD Retail                                        -         4,812 
 Global Accounts*                              9,729         9,247 
 Integrated Business Solutions (IBS)             771           770 
 IP                                                -           396 
 Retail Systems Group (RSG)                        -         1,707 
 Sage                                              -         4,556 
 SSL and Starcom**                               400         2,905 
 Syspro                                       13,677        13,680 
 Unisoft                                           -           839 
 Walton                                        1,555         1,555 
                                              26,132        40,467 
                                       -------------  ------------ 
 

*In 2019 this CGU was named Dynamics International but following the administration of UK Dynamics, and the strategic focus now on own IP this has been renamed as Global Accounts.

**In 2019 this CGU was named hosting and managed services but has been renames as SSL and Starcom in order to reflect the divestment away from this market.

The Group tests goodwill and the associated intangible assets and property, plant and equipment of CGUs annually for impairment, or more frequently if there are indications that an impairment may be required.

The movement within the SSL and Starcom CGU relates wholly to Starcom Technologies Limited. Starcom Technologies Limited is classified as held for sale at 30 November 2020. The carrying value of Goodwill of GBP2,505k is fully supported by the fair value less costs to sell based on agreed sales proceeds. The fair value measurement is based on agreed enterprise value for the business as per the completed sale on 26 February 2021.

The recoverable amounts of the remaining CGUs are determined from value in use calculations. The key assumptions for these calculations are; discount rates, sales growth, gross margin and admin expense growth rates. The assumptions for these calculations reflect the current economic environment. The discount rate represents the current market assessment of the risks specific to the Group, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporate in the cash flow estimates. The discount rate calculation is based on the specific circumstances of the Group and its operating segments and is derived from the weighted average cost of capital (WACC). Other assumptions used are based on external data and management's best estimates.

For all the CGUs where the recoverable amount is determined from value in use, the Group performs impairment reviews by forecasting cash flows based upon the Board 3-year plan starting in the following year, which anticipates sales, gross margin and admin cost growth based on management's best estimates. A projection of sales and cash flows based upon a blended inflation rate (1.5%) is then made for a further two years.

The pre-tax cash flow forecasts used the following key assumptions:

-- DdD Retail, RSG and Walton - these CGUs relate to older products and the forecasts for DdD Retail and RSG have a year-on-year attrition of revenue by 10% in FY22 and FY23 as the Group's decision to cease investing in these products with a plan to transitioning customers, wherever possible, to the K3|imagine platform. Walton has no revenue growth in FY22 and FY23. From FY24 we are assuming no revenue from these legacy products with a plan to migrate to the K3|imagine platform.

-- Sage, Syspro, IBS and Unisoft - no revenue growth with gross margin maintained at current rates.

-- Own IP - as this is where the Group's strategy is focused, strong growth rates of 124% to 57% over the next three years from a low base.

-- Global Accounts - revenue growing .by 43.8% over the 5-year forecast period with gross margin maintained at current performance.

The rate used to discount the forecast pre-tax cash flows is 12.1% (2019: 13.6%) and represents the Directors' current best estimates of the weighted average cost of capital ("WACC"). The Directors consider that there are no material differences in the WACC for different CGUs.

Having calculated the value in use, the following impairments have been recognised along with any remaining headroom:

 
                                                                               Impairment   Headroom 
                                  Goodwill   Other Intangibles   Development        Total 
                                                                       Costs 
                                   GBP'000             GBP'000       GBP'000      GBP'000    GBP'000 
 DdD Retail                          5,064               1,105             -      (6,169)          - 
 Global Accounts                         -                   -             -            -     43,494 
 Integrated Business Solutions 
  (IBS)                                  -                   -             -            -        225 
 IP                                    416                   -         2,585      (3,001)         90 
 Retail Systems Group 
  (RSG)                              1,707                 242             -      (1,949)          - 
 Sage                                4,690                 164             -      (4,854)          - 
 SSL and Starcom                         -                   -             -            -          - 
 Syspro                                  -                   -             -            -     12,938 
 Unisoft                               882                   -             -        (882)          - 
 Walton                                  -                   -             -            -         55 
                                 ---------  ------------------  ------------ 
                                    12,759               1,511         2,585     (16,855)     56,802 
                                 ---------  ------------------  ------------  -----------  --------- 
 

The impairments have been recognised in the reportable segments as follows:

 
                                              Impairment 
                         Goodwill   Other Intangibles   Development      Total 
                                                              Costs 
                          GBP'000             GBP'000       GBP'000    GBP'000 
 Own IP                     8,069               1,347         2,585   (12,001) 
 Global Accounts                -                   -             -          - 
 Third-party products       4,690                 164             -    (4,854) 
                           12,759               1,511         2,585   (16,855) 
                        ---------  ------------------  ------------  --------- 
 
   8          Events after the reporting date 

On 26 February 2021 K3 announced the sale of its managed services unit, Starcom Technologies Limited ("Starcom"), to Node4 Ltd, the UK -- based infrastructure and services company backed by private equity investment firm, Bowmark Capital. The total consideration for the disposal was GBP14.7 million, including GBP0.5m cash on the balance sheet, paid entirely in cash on completion. The transaction generated a significant profit on disposal, in excess of GBP10 million, which will be accounted for as an exceptional contribution to results in the current financial year to 30 November 2021.

On 26 March 2021 we successfully agreed an extension to our Revolving Credit Facility with Barclays, with a facility of GBP3.5m, to March 2022.

   9      Notes to the cash flow statement 

Cash and cash equivalents

 
                                                  2020      2019 
                                               GBP'000   GBP'000 
 Cash and bank balances available on demand      9,306     8,226 
 Bank overdrafts                               (3,000)   (4,385) 
 Cash at bank and on hand - Held for Sale        1,260         - 
                                              --------  -------- 
                                                 7,566     3,841 
                                              --------  -------- 
 

Cash and cash equivalents comprise cash and bank balances available on demand. The carrying amount of these assets is approximately equal to their fair value. Cash and cash equivalents at the end of the reporting period as shown in the consolidated statement of cash flows can be reconciled to the related items in the consolidated reporting position as shown above.

Non -cash transactions

Additions to buildings, motor vehicles and equipment during the year amounting to GBP900k were financed by new leases.

Adjusted cash generated from operations

Cash flows from operations include acquisition costs, exceptional costs and exceptional income. 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:

 
                                               Year ended     Year ended 
                                              30 November    30 November 
                                                     2020           2019 
                                                  GBP'000        GBP'000 
 Cash generated from operating activities           8,232          5,882 
 Add: 
 Exceptional reorganisation costs                     934            362 
                                            -------------  ------------- 
 Adjusted cash generated from operations            9,166          6,244 
                                            -------------  ------------- 
 
   10    Non-statutory information 

The Group uses a variety of alternative performance measures, which are non-IFRS, to assess the performance of its operations. The Group considers these performance measures to provide useful historical financial information to help investors evaluate the underlying performance of the business.

These measures, as described below, are used to improve the comparability of information between reporting periods and geographical units, to adjust for exceptional items or to adjust for businesses identified as discontinued to provide information on the ongoing activities of the Group. This also reflects how the business is managed and measured on a day-to-day basis.

1 Adjusted EBITDA - is the loss from continuing activities adjusted to exclude depreciation and amortisation of development costs GBP4.5m (2019: GBP4.3m), amortisation of acquired intangibles GBP1.5m (2019: GBP2.2m), exceptional impairment costs GBP16.9m (2019: GBPnil), exceptional reorganisation costs GBP0.9m (2019: GBP0.4m), exceptional customer settlement provisions GBPnil (2019: GBP0.4m) and share-based charges GBP0.1m (2019: GBP0.1m credit).

2 Recurring or predictable revenue - Contracted support, maintenance and services revenues with a frame agreement of 2 years or more, as % of total revenue

3 Own IP revenue as a percentage of total revenue - Own IP revenue (which includes initial and annual software licences), GBP16.1m (2019: GBP17.9m), as a percentage of total Group revenue, GBP48.8m (2019: GBP50.1m)

4 Own IP gross profit as a percentage of total gross profit - Own IP gross profit, GBP12.2m (2019: 12.6m), as a percentage of total Group gross profit, GBP28.7m (2019: GBP28.8m)

5 Net debt comprises Bank Loans, Shareholder Loans and Overdrafts less Cash and cash equivalents, including Cash and cash equivalents held for sale.

6 Adjusted loss/earnings per share - basic loss per share from continuing operations adjusted to exclude amortisation of acquired intangibles GBP1.5m (2019: GBP2.2m), exceptional impairment costs GBP16.9m (2019: GBPnil), exceptional reorganisation costs GBP0.9m (2019: GBP0.4m), exceptional customer settlement provisions GBPnil (2019: GBP0.4m) and share-based charges GBP0.1m (2019: GBP0.1m credit) net of the related tax charge GBP0.4m (2019: GBP0.6m).

7 Underlying support/admin costs - administrative expenses adjusted to exclude adjusted to exclude depreciation and amortisation of development costs GBP4.5m (2019: GBP4.3m), amortisation of acquired intangibles GBP1.5m (2019: GBP2.2m), exceptional impairment costs GBP16.9m (2019: GBPnil), exceptional reorganisation costs GBP0.9m (2019: GBP0.4m), exceptional customer settlement provisions GBPnil (2019: GBP0.4m) and share-based charges GBP0.1m (2019: GBP0.1m credit).

11 - Principal risks and uncertainties

K3 adopts the Quoted Companies Alliance's (QCA) Corporate Governance Code ("the Code") being, in the view of the Board, the most appropriate recognised corporate governance code having regard to the size and nature of the K3 Group.

The Board recognises its ultimate accountability for maintaining an effective system of internal control which is appropriate in relation to the scope, size, nature and risk within the Group's activities. The responsibility for managing risks on a day-to-day basis lies with the CEO and Senior Leadership Team.

The key elements which enable the Board to review the effectiveness of the system of internal controls are:

-- establishment of a formal management structure, including the specification of matters reserved for decision by the Board;

   --              setting and reviewing the strategic objectives of the Group; 
   --              Board involvement in the setting and review of the annual business plan; 
   --              the regular review of the Group's performance compared with plan and forecasts; 
   --              pre and post investment appraisal of K3 IP development investment; and 

-- group reporting instructions and procedures including delegation of authority and authorisation levels, segregation of duties and other control procedures, and standardised accounting policies.

The principal business risks and the actions to mitigate the risks are included below :

 
 Description                             Mitigation                                     Change 
 Coronavirus                             The Group's customer base is geographically    Down 
  Coronavirus has had an impact           and vertically diverse and generates 
  on the Group's customer base            a portfolio benefit with some verticals 
  and employees. Access to                and geographies performing well whilst 
  customers and prospect sites            others suffer. The Group has a high 
  has been restricted impacting           level of recurring and predictable 
  project implementation and              revenue which reduces revenue volatility. 
  lengthening deal cycles. 
  Trading results and cash                At the start of the coronavirus pandemic 
  generated were consequently             the Group transitioned seamlessly 
  impacted.                               to remote working, since employees 
                                          were already skilled in remote cross 
                                          geography team working. Large projects 
                                          continued to be deployed well across 
                                          the globe using remote teams. 
 
                                          Additional capital, to give financial 
                                          flexibility during the pandemic, was 
                                          raised in April 2020 from existing 
                                          Lenders and shareholders plus governmental 
                                          tax deferral schemes were taken advantage 
                                          of in several jurisdictions. 
                                        ---------------------------------------------  ------- 
 Liquidity and Banking Facilities        The Group ensures it has the funds             Down 
  The Group has a bank Facilities         to meet its obligations or commitments 
  Agreement that requires the             under the Facilities Agreement by 
  Group to meet certain covenants         monitoring cash flow as part of its 
  throughout the term of the              day-to-day control procedures and 
  loans and the Group's forecasts         that appropriate facilities are available 
  indicate that the Group will            to be drawn upon when the need arises. 
  remain within the set parameters. 
                                          The Group has been re-financed in 
                                          March 2021 with a final maturity date 
                                          of 31 March 2022 and at a lower level 
                                          of indebtedness following the disposal 
                                          of Starcom and associated cash proceeds. 
                                        ---------------------------------------------  ------- 
 Group strategies and product            The Group is re-evaluating market              Up 
  management                              strategy in 2021 and will ensure that 
  The Group has invested a                strategy, product, and business development 
  significant amount of funds             is market led and market informed 
  in the new K3|imagine platform          going forwards. The Group assesses 
  including its suite of applications     the investment needed for each product 
  and other own IP. The risk              at each point in its natural product 
  is that the Group is unable             lifecycle regarding ROI. Resourcing 
  to commercialise that investment        is regular reviewed compared to development 
  due to market product fit,              pipeline, deal closure and market 
  customer engagement, product            needs. Pricing for new products is 
  stability or pricing.                   regularly assessed against internal 
                                          and external benchmarks. 
  The Group has some legacy 
  products and there is a risk            The Group manages its legacy products 
  that customers may move away            with regard to replacement products, 
  from these.                             pricing and continuing support costs. 
                                        ---------------------------------------------  ------- 
 Supplier Relationships                  The key Group supplier and software            Flat 
  The Group benefits from                 partners relationships are secured 
  several close commercial                by commercial agreements and management 
  relationships with key suppliers        participate in regular product, service, 
  and software partners. Damage           and strategy reviews with key suppliers 
  to or loss of these relationships       and software partners . 
  could have a direct and detrimental 
  effect on the Group's results. 
                                        ---------------------------------------------  ------- 
 Employees                               The Group seeks to access global talent        Up 
  As a global software house,             and has expanded its talent catchment 
  the Group is committed to               with the opening of the Kuala Lumpur 
  attracting and retaining                office. Competitive renumeration is 
  talent across the globe without         offered together with the ability 
  which we would not be able              to participate in a global bonus scheme. 
  to operate effectively.                 Long-term incentive plans are in place 
                                          to retain key executive talent. 
                                        ---------------------------------------------  ------- 
 Credit risk                             The Group operates a centralised credit        Flat 
  The Group's credit risk is              management function and assesses credit 
  primarily attributable to               risk on an individual customer basis 
  its trade receivables and               and with standardised contract terms. 
  accrued income. The amounts             The shift to SaaS based products will 
  presented in the statement              structurally reduce the amounts on 
  of financial position are               the sales ledger as customers move 
  net of allowances for doubtful          to smaller more regular payments and 
  debts, estimated by the Group's         with the Group controlling the right 
  management based on prior               to access software. 
  experience and their assessment 
  of the current economic environment. 
  Coronavirus has only had 
  a minor impact on credit 
  risk so far. 
                                        ---------------------------------------------  ------- 
 Currency risk                           Where possible the risk is hedged 
  The Group's currency risk               by amounts payable in those currencies.         Flat 
  is primarily attributable 
  to its trade receivables                The Group's banking facilities allow 
  where certain customers are             for a blend in debt in EUR or GBP 
  billed in Euros, and other 
  currencies, where these are 
  not the functional currency 
  of the Group company. Most 
  employees are paid in EUR 
  or GBP. 
                                        ---------------------------------------------  ------- 
 Brexit                                  The Board has assessed the risk from 
  The Brexit deal agreed between          Brexit regulation and does not believe          Down 
  the UK and the EU in December           that Brexit will have a material impact 
  2020 has given clarity to               on the Group due to the in-country 
  the future trading arrangements.        nature of implementations and that 
  The previous uncertainty                software deployment does not have 
  in supply chain rules and               physical logistics challenges. 
  governance was impacting 
  customers' appetite to invest           The agreement of a Brexit deal is 
  in new supply chain solutions.          expected to give the customer base 
                                          clarity and is expected to open up 
  Furthermore, the Group GBP              deal opportunities for UK customers. 
  consolidated reported earnings 
  would be impacted by any                The Group is able to ensure travel 
  changes in revaluation of               visa compliance by monitoring Euroland 
  non-GBP earnings caused by              to UK travel, however with the increase 
  currency movements                      in remote working, the need for travel 
                                          has structurally reduced. 
                                        ---------------------------------------------  ------- 
 Customer relationships                  Although represented by a single ecosystem,    Flat 
  The Group has a single customer         the customer, projects, and franchisees 
  ecosystem (including franchisees)       are spread across numerous territories 
  which accounts for over 30%             and individual businesses around the 
  of revenue. Damage to this              world, mitigating the risk caused 
  customer relationship, or               by geopolitical issues. 
  loss of revenue, would have 
  a significant and detrimental           The systems supplied by K3 are mission 
  impact on the Group's financial         critical for the customer and franchisees. 
  performance.                            If the customer were to re-platform 
                                          this would be an extremely lengthy 
                                          and costly process for the ecosystem 
                                          which reduces the risk of this happening 
                                          in the short to medium term. 
 
                                          K3 has two year rolling contracts 
                                          with the lead customer providing K3 
                                          with revenue stability. The customer 
                                          and franchisees have shown themselves 
                                          to be extremely resilient in the face 
                                          of disruption caused by coronavirus, 
                                          with revenue increasing year on year. 
                                        ---------------------------------------------  ------- 
 Cyber security                          The Group has increased its cyber              Up 
  The cyber security landscape            security resourcing and has a programme 
  risk is increasing with attacks         of training and IT infrastructure 
  being led by increasingly               improvement projects. Security policies 
  sophisticated international             and incident response protocols are 
  organisations.                          available on the intranet. 
                                        ---------------------------------------------  ------- 
 

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END

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(END) Dow Jones Newswires

March 30, 2021 02:00 ET (06:00 GMT)

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