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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| K3 Business Technology Group Plc | LSE:KBT | London | Ordinary Share | GB00B00P6061 | ORD 25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 103.50 | 102.00 | 105.00 | 103.50 | 103.50 | 103.50 | 0.00 | 08:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Fabricated Rubber Pds, Nec | 47.48M | -3.98M | -0.0902 | -11.47 | 45.63M |
From Apr 2019 to Apr 2024
TIDMKBT
RNS Number : 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
Hot Features
Premium
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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