K3 Business Technology Group PLC Loan Funding Secured and Update on Subsidiary (3219I)

TIDMKBT

RNS Number : 3219I

K3 Business Technology Group PLC

01 April 2020

AIM: KBT

K3 Business Technology Group plc

("K3" or "the Group")

Loan Funding Secured

and

Update on UK Dynamics Subsidiary

Further to the announcement released on 24 March 2020, K3 is pleased to announce that it has secured additional cash funding of GBP6.0m by way of loans from two major shareholders and Barclays Bank Plc ("Barclays"), and also provides an update on its UK Dynamics subsidiary.

As reported in the announcement of 24 March, the announcement of K3's preliminary results for the year ended 30 November 2019, has been delayed. A further announcement regarding the date will be made in due course.

Loan Funding

K3 has secured GBP6.0m of loans from Barclays and its two major shareholders, Kestrel Partners LLP ("Kestrel") and Johan Claesson, also a non-executive director. The cash funding will strengthen the Group's liquidity position during this period of unprecedented disruption caused by the Coronavirus pandemic.

Barclays is extending its existing loan facilities to K3 by GBP3.0m to a maximum of GBP13.0m in total. The terms of the loan facilities, including their duration, are similar to existing facilities, which expire on 31 March 2021.

Kestrel (which has appointed Oliver Scott to the Board as its non-executive director representative) and Johan Claesson (together "the Lenders") are providing an unsecured term loan of GBP3.0m until 30 June 2021 ("Shareholder Loan"). The Shareholder Loan is split equally between the two Lenders. Mr Claesson will provide his part of the loan via his associated company, CA Fastigheter AB and Kestrel's loan is provided via its discretionary clients.

The main terms of the Shareholder Loan are as follows:

   -     unsecured and subordinated to all indebtedness with Barclays; 
   -     8.0% annual coupon, with interest rolling up on a quarterly basis; and 

- 1 warrant issued for every GBP2.50 of Shareholder Loan. Warrants are over ordinary shares of 25p each ("Ordinary Shares"), are transferrable, have a 10 year duration and a strike price of 25p (the "Warrants").

In addition, K3 will pay the underlying clients of Kestrel an arrangement fee of 2.0% of the value of their portion of the Shareholder Loan, and will pay Kestrel the associated costs incurred by it, up to GBP30,000.

It is intended that other major institutional shareholders of K3 will be offered the opportunity to participate in further lending of up to GBP2.0m on substantially the same terms as the Shareholder Loan, including the issue of further Warrants ("Top-up Facility"). Participation will be at the absolute discretion of the Board. Shareholders so participating will be required to enter into a loan agreement with K3 and become a party to the inter-creditor agreement with the Lenders. The Shareholder Loan is also subject to a subordination agreement between the Lenders (and any other shareholders who elect to participate in the Top-up Facility) and Barclays.

The dilutive impact of the Warrants issued to the Lenders would be to increase K3's issued share capital by 1.2m new Ordinary Shares, representing 2.8% of K3's current issued share capital. This dilution would increase to a maximum of 2.0m new Ordinary Shares, representing 4.7% of the Group's current issued share capital, in the event that the Top-up Facility is subscribed in full.

The Directors believe that the potential dilution arising from the issue of the Warrants is significantly lower than the dilution that would have arisen had K3 attempted to secure this additional financing wholly via an issue of new equity.

Update on UK Dynamics Subsidiary

The Group's UK Dynamics subsidiary, K3 Business Technologies Limited, which is a reseller of Microsoft Dynamics, generated an operating loss of in excess of GBP3.0m on turnover of GBP21.0m for the 12 months to 30 November 2019. Given the current uncertainties created by the coronavirus crisis, this UK subsidiary is expected to generate further significant negative EBITDA and cash outflows in the year to 30 November 2020.

As a result, and following independent advice, the Board of the subsidiary has taken the very difficult decision that it will be filing a Notice of Intention for administration. At the same time, it will seek interest in the sale of the business and/or its assets.

It should be noted that this decision has no effect on the Group's Microsoft Dynamics practices outside the UK.

As previously reported on 24 March, the Board will focus on growing the Group's core profitable business units and accelerating the transition towards its own IP, in particular the new flagship Imagine product.

Related Party Transactions

The entering into of the Shareholder Loan by K3 (and the payment of the associated arrangement fee and costs) with Kestrel (and its underlying clients) and Mr Claesson constitutes a related party transaction under the AIM Rules, by virtue of Kestrel and Mr Claesson each being substantial shareholders in K3 (as defined in the AIM Rules) and Mr Claesson being a non-executive director of the Group.

The Independent Directors (being the K3 board, excluding Mr Claesson and Mr Scott) consider, having consulted with finnCap (as K3's nominated adviser), that the terms of the related party transaction are fair and reasonable insofar as K3's Shareholders are concerned. If and to the extent that any other related parties elect to participate in the Top-up Facility, the Independent Directors will further consult with finnCap, as appropriate. Further announcements will be made accordingly.

Further Terms of the Shareholder Loan

The Shareholder Loan is not subject to any financial covenants though each of the Lenders consent will be required in the event that K3 wishes to:

   --    issue further equity; or 
   --    make any acquisitions; or 
   --    enter into any additional loan facilities. 

In the event that K3 fails to repay the Shareholder Loans (including any accrued interest) by 30 June 2021, the principal amount of the Shareholder Loans then outstanding will increase by 20% and the annual coupon on all outstanding Shareholder Loan amounts from the date of such failure will increase from 8.0% to 16.0%.

Adalsteinn Valdimarsson, CEO of K3 Technology Group plc, commented:

"The securing of this additional finance from Barclays and our two major shareholders demonstrates their commitment to K3 and belief in our growth strategy and prospects. The additional liquidity puts us in a much stronger financial position and gives us the headroom to undertake any required restructuring as well as further investment to support our growth strategy."

This announcement contains inside information for the purposes of Article 7 of Regulation 596/2014.

Enquiries:

 
 K3 Business Technology     Adalsteinn Valdimarsson,  T: 0161 876 4498 
  Group plc                                      CEO 
                                      Rob Price, CFO 
finnCap Limited (NOMAD   Julian Blunt/James Thompson  T: 020 7220 0500 
 & Broker)                       (Corporate Finance) 
                           Camille Gochez (Corporate 
                                            Broking) 
KTZ Communications              Katie Tzouliadis/Dan  T: 020 3178 6378 
                                             Mahoney 
 
 
1.  Details of Persons Discharging Managerial Responsibilities 
     "PDMR" / person closely associated with them ('PCA') 
a)  Name                       Johan Claesson 
2.  Reason for notification 
b)  Position / status          Non-executive director 
c)  Initial notification       Initial Notification 
     / amendment 
3.  Details of the issuer, emission allowance market participant, 
     auction platform, auctioneer or auction monitor 
b)  Name                       K3 Business Technology Group plc 
c)  LEI                        213800QOJ9OF2AV81748 
4.  Details of the transaction(s): section to be repeated for 
     (i) each type of instrument; (ii) each type of transaction; 
     (iii) each date; and (iv) each place where transactions 
     have been conducted 
a)  Description of the         Warrants over ordinary shares of 25p each, exerciseable at nominal value 
     financial instrument       n/a 
     Identification code 
b)  Nature of the transaction  Grant of warrants in connection with loan funding arrangement 
c)  Price(s) and volume(s)      600,000 warrants 
d)  Aggregated information     n/a 
     Aggregated volume 
     Price 
e)  Date of the transaction    30 January 2020 
f)  Place of the transaction   Outside a trading venue 
 

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April 01, 2020 02:00 ET (06:00 GMT)