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RNS

Final Results (17 months)

Released 07:00 27-Mar-2018

RNS Number : 9891I
K3 Business Technology Group PLC
27 March 2018
 



AIM: KBT

27 March 2018

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

K3 BUSINESS TECHNOLOGY GROUP PLC

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

 

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

 

Final results for the 17 months to 30 November 2017

 

REPOSITIONED FOR PROFITABLE GROWTH

Summary

A period of significant change - Group's structure simplified to create more integrated and streamlined operations, cost base reduced, and IP strategy refocused

K3 is now significantly better positioned for long-term revenue growth, higher quality earnings and improved cash generation  

Accounting reference date and year end changed to 30 November (from 30 June)

 

 

Operational Highlights

Enterprise-related activities suffered from high value contract tenders not closing; encouraging upturn in contract closures towards the period end and in Q1 through strategic alliance with System Integrators    

Core SME-related activities performed well across supply chain markets

Global Accounts continued to benefit from expansion of the IKEA franchisee network

Good progress with own IP product, 'Imagine' (previously 'NextGen'), K3's cloud-native, system-agnostic offering

Cost base significantly reduced - savings of £5.0m p.a.

 

 

Financial Highlights

Revenue for the 17 months of £118.2m (12 months to 30 June 2016: £89.2m):

-

recurring revenue at 48.7% of total (2016: 46.7%)

-

own IP revenue at 19.8% of total (2016: 13.9%)

Gross margin of 51.6% (2016: 54.4%)

Exceptional costs of £8.9m (net) (2016: £1.0m) - £4.5m of which is non-cash.  Exceptional costs principally reflected organisational and management changes across the Group and an impairment of development costs (non-cash)

Adj. loss from operations*1 of £1.6m (2016: adj profit*1 of £9.5m) / Reported loss from operations of £14.8m (2016: profit of £5.2m)

Adj loss before tax*1 of £3.0m (2016: adj profit before tax*1 of £8.8m)/ Reported loss before tax of £16.1m (2016: profit of £4.5m)

Adj loss per share*2 of 7.7p (2016: adj earnings per share*2 23.5p)/ Reported loss per share of 35.3p (2016: earnings per share of 12.6p

Fund raising in July 2017 secured £7.75m net.  Net debt reduced to £4.3m at 30 November 2017 (30 June 2017: £15.6m and 30 June 2016: £8.9m) 

Proposed final (and total) dividend for the period of 1.4p per share

 

 

Prospects

Current trading is encouraging, especially with own IP product sales

Board expects financial and operational progress to continue over FY2018

 

 

All comparative figures for 2016 refer to the 12 months to 30 June 2016

 

Adalsteinn Valdimarsson, Chief Executive Officer of K3, said:

 

"We have implemented significant changes at K3 over the last 18 months, aimed at placing the Group on a better footing for long-term revenue and profit growth and improved cash generation.  The Group's operations are now more streamlined and integrated, and we have refocused our IP development roadmap. While the process has involved cultural change and substantial one-off costs, we are seeing the benefits come through. 

 

"We have strong offerings in our chosen markets across the supply chain, including our new cloud-native IP.  Since the period end, trading has been encouraging, especially for own IP sales.  While there is still work to be done, we remain confident about prospects for continuing progress."

 

 

 

 

Enquiries:

 

K3 Business Technology Group plc

Adalsteinn  Valdimarsson (CEO)

T: 020 3178 6378 (today)

www.k3btg.com

Robert Price (CFO)

Thereafter 0161 876 4498

 

finnCap Limited

Julian Blunt/ James Thompson

T: 020 7220 0500

(NOMAD)






KTZ Communications

Katie Tzouliadis/ Emma Pearson

T: 020 3178 6378

 

Notes:

Note 1

Calculated before amortisation of acquired intangibles of £3.93m (2016: £2.73m), exceptional reorganisation costs of £4.73m (2016: £1.05m), exceptional impairment of development costs of £4.54m (2016: £nil), acquisition costs of £0.31m (2016: £0.49m) and release of contingent consideration of £0.39m (2016: £nil).

 

Note 2

Calculated before amortisation of acquired intangibles (net of tax) of £3.04m (2016: £2.19m), exceptional reorganisation costs (net of tax) of £3.83m (2016: £0.84m), exceptional impairment of development costs £3.68m (2016: £nil), acquisition costs (net of tax) of £0.31m (2016: £0.49m) and release of contingent consideration (net of tax) of £0.39m (2016: £nil).



Note 3

Net debt is gross debt net of cash and cash equivalents.




The comparatives are for the year ended 30 June 2016.

 



 

CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT

 

Overview

 

K3 has undergone significant change over the last 18 months. We have reshaped the Group including the leadership team, creating a simpler, more integrated and streamlined structure, and have removed substantial costs. We have also redefined our growth strategy, IP development roadmap, and are improving our customer delivery capability. In addition, we completed a share placing and open offer to qualifying shareholders. While these initiatives have involved substantial one-off costs, as well as internal cultural change, we are encouraged by the progress made to date and the opportunities ahead.

 

We see scope for further operational improvements but believe that K3 is now substantially better positioned for long-term revenue growth, higher quality earnings and improved cash generation.    

 

Market Positioning

 

K3 is a leading provider of mission-critical Enterprise Resource Planning ("ERP") and other business solutions to customers across the supply chain, including retailers, manufacturers and distributors. We support c.3,700 customers predominantly based in the UK, but also in Europe, the Far East and the USA. We deploy our business solutions, which are mainly built on Microsoft, Sage and SYSPRO solutions, both directly to customers and through channel partners. Once installed, our solutions generate high levels of recurring revenues through annual software maintenance renewals, support contracts and hosting.

 

Strategic Refocusing and Organisational Changes

 

Building upon these foundations, during the period under review, we began to implement significant organisational changes to the business, and strategically refocused K3's growth plans. 

 

A core element of our growth strategy is to increase revenues from own intellectual property ("IP").  Our IP is embedded within specific third party ERP solutions, including Microsoft and SYSPRO's, to provide sector specific functionality. It differentiates our solutions, underpins stronger customer relationships, and generates higher margins and recurring revenues. While we will continue to build on this model, an important part of extending our software roadmap is the growth of our own stand-alone 'point' solutions, and in particular,  our cloud-native delivery platform, 'Imagine', and our cloud-native applications, which have been specifically developed to perform in the cloud. 

 

As we previously reported, 'Imagine' is an exciting 'next generation' delivery platform, which enables us to embrace fully the opportunities that the increasing shift to the cloud brings, and places us at the forefront of cloud-native development.  What is especially relevant is that it is system agnostic, capable of swift integration with any IT infrastructure a customer may already have.  Customers therefore do not need to replace core systems, unlike traditional models. We have developed a cloud-native suite of solutions that is built for our platform and provides highly advanced functionality. The whole offering therefore enables customers to adopt innovative solutions and applications rapidly and flexibly. It also offers them a faster return-on-investment and extends the life of their previous IT investments. We intend to develop additional applications for Imagine in order to broaden the scope and target market of our existing solutions set, and view its growth potential very positively.

 

In reviewing our market approach for our Enterprise-related software offering, ax l is fashion, (a K3 own IP add-on to a Microsoft core ERP product), we are renewing our focus on building strategic relationships with System Integrators ("SI"). These relationships enable us to capture more efficiently the sales potential of this market-leading product. SI's will provide implementation and support services while we retain IP-related income streams and provide industry specific expertise. Helped by this increased focus on SIs, we are pleased to report that we saw significantly improved sales momentum for ax I is fashion towards the end of the reporting period and an encouraging number of contracts have closed since then.

 

As previously reported, we undertook a review of the Group's resources as part of our process of simplifying and integrating the Group's operations. This review was completed in December 2017, and we have subsequently combined our Microsoft Dynamics businesses (AX, NAV and CRM) into a single practice. This should also enhance our customer service capability.

 

Other changes that resulted from our review included the integration of all software development and own IP management functions into a single Group-level IP unit.  We also created a single team to support sales of our Software-as-a-Service ("SaaS") offering, as well as a single support team for SaaS.    

 

We are confident that these initiatives will improve both the sales process and operational efficiencies.

 

We have materially reduced our cost base over the period, delivering savings in excess of £5.0m on an annualised basis. Over 2018, we plan to add resource selectively to support sales demand. 

 

Financial Results

These results cover the 17-month trading period to 30 November 2017. This extended period reflects the transition to the new accounting reference date of 30 November from 30 June. As we previously reported, given K3's key selling periods of December and June, the change of date will enable the Board to provide shareholders with a more informed view of the Company's trading outlook when reporting full year and half year results.

K3's results for the period are an adjusted loss from operations*1 of £1.67m (2016: adjusted profit from operations*1 of £9.50m).  We incurred significant charges in the period, which related to our comprehensive review and reorganisation programme, and they included: £4.73m of exceptional reorganisation costs (2016: £1.05m), £4.54m of exceptional impairment of development costs (2016: £nil), and £3.93m of amortisation of acquired intangibles (2016: £2.73m). After these and other charges, the loss from operations was £14.78m (2016: profit from operations of £5.23m). The exceptional reorganisation costs will deliver savings of £5.0m on an annualised basis and the impairment of development costs was taken against products that are no longer core to the Group's strategy.  The adjusted loss per share*2 was 7.7p (2016: adjusted earnings per share*2 of 23.5p), and the basic loss per share was 35.3p (2016: earnings per share of 12.6p).

The major factors influencing the outcome for the period are discussed in the Operational Review and include market disruption, caused by the industry's shift away from 'on-premise' technology to cloud-based delivery, and a softening in end-markets. Gross margins were adversely impacted by both the significant reduction in software licence sales, which are typically higher margin, and excess resource capacity in services and implementation.  

 

Balance Sheet and Focus on Cash Generation

 

Cash generation is a major focus and we are making good progress in improving working capital, primarily by reducing debtor days and accrued income.  Reflecting our initiatives to improve cash generation, as well as the July 2017 fund raising, net debt has been significantly reduced and stood at £4.3m at 30 November 2017. This compared to net debt of £15.6m at 30 June 2017 (30 June 2016: £8.9m). 

 

Our placing and open offer to qualifying shareholders, completed in July 2017, raised a total of £7.75m net, with an additional £0.66m invested in K3 through an exercise of warrants and a debt-to-equity conversion of £0.64m.

 

Dividend

 

The Board is pleased to propose a final (and total) dividend for the financial period of 1.4p per share. This dividend will become payable, subject to shareholder approval, on the 15 June 2018 to shareholders on the register on 18 May 2018.

 

K3's Annual General Meeting will be held on 30 May 2018 at 10.30am at the Group's offices at Baltimore House, 50 Kansas Avenue, Manchester, M50 2GL.

 

Board Changes

 

There have been a number of Board over the 17 months to 30 November 2017. In October 2016, Adalsteinn Valdimarsson assumed the role of Chief Executive Officer, having joined K3 as a Non-Executive Director in July 2016. Robert Price, who joined K3 as Chief Financial Officer in October 2016 (in a non-Board capacity), was appointed to the Board as Finance Director in July 2017.  David Bolton, previously Chairman, and Lars-Olof Norell, previously Non-Executive Director, both retired from the Company. I was appointed to the Board in April 2017 and became interim Chairman in July 2017, becoming permanent Chairman in December 2017. 

 

Staff

 

On behalf of the Board, I would like to thank all K3's employees for their hard work and commitment during this period of change.  It has been tremendous and our skilled teams remain the foundation on which the Company will continue to develop and grow.

 

Outlook

 

K3 has undergone significant change and is focused on continuing to improve its performance. While there is still work to be done in implementing our growth initiatives, we believe that the Group is now better positioned to drive own IP sales and recurring income, which currently stands at nearly half the Group's total revenues. 

 

The Group's revenue profile is changing as the move away from 'on-premise' solutions accelerates and customers increasingly adopt consumption-based models. In the short term, this will decrease the Group's rate of revenue growth but the long term effect is highly beneficial, with revenue flows becoming more predictable and the customer relationship expected to deepen and broaden.

 

Trading since the period end has been encouraging, especially with our own IP product sales. In particular, three ax I is deals were signed in the first quarter of the new financial year compared to seven in the 17 months to November 2017, and our cloud-native Imagine offering is seeing encouraging traction. More widely, we view prospects for our solutions offerings positively, underpinned by the steps we have taken to improve the Group's operational performance.

 

We remain confident about prospects for continuing progress over the year ahead. We also highlight the bias in the Group's earnings, which is now weighted to the second half of the financial year. This corresponds to the timing of annual software licence and support renewals in our SYSPRO operations.    

 

S Darling

Chairman

 

26 March 2018

 

Notes:

 

*1

 Group adjusted loss from operations is calculated before amortisation of acquired intangibles of £3.93m (2016: £2.73m), exceptional reorganisation costs of £4.73m (2016: £1.05m), exceptional impairment of development costs of £4.54m (2016: £nil), acquisition costs of £0.31m (2016: £0.49m) and release of contingent consideration of £0.39m (2016: £nil).

 

*2

Group adjusted loss per share is calculated before amortisation of acquired intangibles (net of tax) of £3.04m (2016: £2.19m), exceptional reorganisation costs (net of tax) of £3.83m (2016: £0.84m), exceptional impairment of development costs £3.68m (2016: £nil), acquisition costs (net of tax) of £0.31m (2016: £0.49m) and release of contingent consideration (net of tax) of £0.39m (2016: £nil).

 

 

Note: The comparatives for 2016 are for the year ended 30 June 2016.

 

 


 

Operational Review

 

Reflecting our decision to create a simpler, more integrated approach to sales and support, as well as our objective to drive own IP sales, K3's operational results are now presented under the following two segments:

 

Revenue

Gross profit

Adjusted Profit

2017

2016

2017

2016

2017

2016

£m

£m

£m

£m

£m

£m

Own IP**3

23.4

12.4

15.0

8.4

0.2

2.7

Supply chain solutions & managed services*4

94.8

76.8

46.0

40.2

(0.1)

7.6

HQ

(1.7)

(0.8)

Total

118.2

89.2

61.0

48.6

(1.6)

9.5

2017

2016

Gross margin

51.6%

54.4%

Recurring revenue: as a percentage of total revenue

48.7%

46.7%

Own IP revenues: as a percentage of total revenue

19.8%

13.9%

Own IP gross margin: as a percentage of total gross profit

24.6%

17.2%

 

 

*Own IP revenues includes initial and annual software licences and those additional revenues which flow directly from K3 IP.

 

Recurring revenue comprises software maintenance renewals, support contracts, and hosting & managed services.

 

Recurring revenue as a percentage of the Group's total revenues over the 17 months to 30 November 2017 increased to 48.7% (2016: 46.7%).  Encouragingly, revenue from our own IP accounted for 19.8% of K3's total revenues and rose sharply from 13.9% in 2016. Own IP gross margin accounted for 24.6% of the Group's total gross margin, up by 7.4 percentage points from 17.2% in 2016.

 

Supply Chain Solutions & Managed Services 

 

K3's business solutions and managed services are tailored to the requirement of the supply chain industry, including retailers, manufacturers and distributors.  The Group's core offering is based on Microsoft, SYSPRO and Sage solutions.

 


Revenue (£m)


Gross profit (£m)


Gross margin


2017

2016


2017

2016


2017

2016










Software licences

10.4

13.3


5.6

8.3


54.0%

62.2%

Services

34.7

23.1


8.8

7.2


25.3%

31.0%

Recurring *  

45.4

35.9


30.5

23.6


67.0%

65.8%

Hardware and other

4.3

4.5


1.1

1.1


26.7%

24.7%

Total

94.8

76.8


46.0

40.2


48.4%

52.3%

 

*Recurring revenue comprises software maintenance renewals, support contracts, and hosting & managed services.

 

 


2017

2016

Adjusted (loss)/profit from operations*4 (£m)

(0.1)

7.6

Recurring revenue as % of total revenues

47.9%

46.7%

Customer adds (like-for-like)

87

160

 

 

K3's financial performance over the period was adversely affected by a number of high value contract tenders in the Enterprise space not closing as expected.  Part of the reason for this was the disruption caused by the gear-shift in how technology is being delivered, with the model changing from 'on-premise' technology to cloud-based delivery.  Alongside this is the associated move to the consumption/subscription model, away from large up-front software licence payments. This disruption caused a significant lengthening in customers' decision-making processes for large deals. However, we also experienced a general softening in end-markets. The sharp drop in software licence revenues reflects the unexpected shortfall in sales. Gross margins were doubly hit, not only by the effect of a lower proportion of higher margin software licence sales in the mix, but also excess resource capacity in services and implementation. Recurring revenue was adversely impacted by the shortfall in sales.   However, recurring revenues as a proportion of total revenues, which provides core stability to the business, improved.

 

Our Global Accounts business, which includes our relationship with Inter IKEA Systems B.V. (the owner and franchisor of the IKEA concept) and the Inter IKEA Concept franchisees, performed well. With the continuing expansion of the IKEA franchisee network, we anticipate a high level of activity here.    

 

The SYSPRO business generates strong cash flows and delivered good results. Customer renewals of software licences continued to be high, at 98% (2016: 98%). Sage X3 continued to grow and we are now recruiting talent from abroad, given the shortage in the UK for delivery resource.  As we previously reported, we restructured Business Solutions to focus on the Microsoft Dynamics/Navision SME space and that unit is now seeing an improvement in its profitability, which will be accelerated with the creation of a single Microsoft Dynamics practice.

 

We previously highlighted that the move towards cloud-based consumption licensing has positive long-term implications for the Group. This is because the lifetime value of customer relationships under this new model has the potential to be significantly higher, compared to the traditional model of perpetual software licences (typically paid upfront, at the commencement of a relationship). However, this shift will affect the Group's rate of reported revenue growth since income from cloud/consumption-based contracts is recognised over longer periods. The pace of uptake of consumption-based contracts has increased over the period, especially in the Microsoft Dynamics space where we are now seeing the majority of new contracts signed on this basis.

 

Own IP

 

K3 has developed in-house, or acquired the IP rights to, software products, which the Company sells on a standalone basis or as part of its integrated suite of solutions. In addition K3's core ERP solutions are typically enhanced and enriched by our own IP for specific industry segments. This gives us our solutions a competitive advantage and differentiation.  

 


Revenue (£m)


Gross profit (£m)


Gross margin


2017

2016


2017

2016


2017

2016










Software licences

2.9

2.9


2.6

2.7


88.4%

92.9%

Services

3.4

2.6


1.3

1.0


38.2%

36.4%

Recurring *  

12.1

5.8


9.2

4.4


76.0%

76.9%

Hardware and other

5.0

1.1


1.9

0.3


38.4%

25.2%

Total

23.4

12.4


15.0

8.4


64.1%

67.7%

 

*Recurring revenue comprises software maintenance renewals, support contracts, and hosting & managed services.

 

 


2017

2016

Adjusted profit from operations*3 (£m)

0.2

2.7

Recurring revenue as % of total revenues

52.0%

46.2%

Customer adds (like-for-like)

340

38

 

 

Total revenue from own IP over the 17 month period amounted to £23.4m (2016: £12.4m), with the period also benefiting from contributions from two acquisitions, Merac, acquired in July 2016 and DdD Retail, which was added in April 2016. These acquisitions contributed a combined £10.1m to own IP revenues over this period, including £5.2m of recurring revenues. As well as bringing additional valuable, wholly-owned IP, both acquisitions have added new customer bases. Recurring revenues from own IP as a proportion of total revenues increased by 5.7%.  Gross margins for own IP were slightly lower than last year due to the lower proportion of revenue coming from software sales on which the gross margin is highest.

 

Sales of Pebblestone, our leading business software for the mid-market fashion industry, which we also sell through channel partners, were particularly strong.  As previously highlighted, sales of ax l is fashion, which are typically large contracts, suffered from the softness in the Enterprise space and customers taking longer to deliberate between cloud or 'on-premise' technology. However ax I is fashion deal closure improved significantly towards the end of the reporting period and a number of large contracts were secured including with Jack Wolfskin, Lifestyle Sports and Eton Shirts. Two of these contracts were delivered through our channel partners.  We have continued to see good deal closure since the period end, with three ax|is contracts signed, including SanMar in the USA, and the pipeline for ax I is remains encouraging.

 

The development of Imagine, our cloud-native, ERP agnostic platform has been an important step for us. The platform enables us to integrate leading-edge 'module' solutions into customers' existing infrastructure swiftly and cost-effectively. In this way, we can bring product innovation and the full power of the cloud to customers in a commercially and operationally attractive way.  Our first suite of modules for Imagine are based around our retail offerings and we intend to develop further functionally-rich modules to broaden the scope of our offering.  We expect the Imagine platform to become a cornerstone of our IP strategy and, in total, we now have circa 13 customers live on Imagine.

 

 

Central Costs

 

Central costs include directors' costs, human resources, accounting and legal personnel, and the costs associated with running a PLC, including financing. Costs are stated net of recovery of elements recharged to operating units. Central costs*5 for the 17 month period amounted to £1.7m (2016: £0.8m), with the significant rise reflecting our centralisation programme.

 

 

Outlook

 

We remain focused on improving the Group's performance and in particular driving own IP revenues and are confident of continuing progress. We are encouraged by the progress made by own IP business units and the recent deals closed in ax I is fashion. We are now seeing stronger migration by customers to cloud-based solutions from 'on-premise' systems, and, while this represents an adjustment for the business in the near term, it will enhance our customer relationships and contribute high quality revenue streams.

 

 

Adalsteinn Valdimarsson

Chief Executive Officer

 

 

Notes

 


*3

Own IP adjusted profit from operations is calculated before amortisation of acquired intangibles of £1.83m (2016: £0.44m), exceptional reorganisation costs of £0.25m (2016: £0.02m), exceptional impairment of development costs of £1.59m (2016: £nil), acquisition costs of £nil (2016: £0.29m), and release of contingent consideration of £0.39m (2016: £nil).

 

 

*4

Supply Chain Solutions & Managed Services adjusted loss from operations is calculated before amortisation of acquired intangibles of £2.10m (2016: £2.30m), exceptional reorganisation costs of £2.93m (2016: £0.92m), and exceptional impairment of development costs of £2.95m (2016: £nil).

 

 

*5

Head office costs are calculated before exceptional reorganisation costs of £1.56m (2016: £0.11m) and acquisition costs of £0.31m (2016: £0.20m)

 

 

 

Note: The comparatives for 2016 are for the year ended 30 June 2016.

 

 



 

 

 

CONSOLIDATED INCOME STATEMENT

For the period ended 30 November 2017

 


Notes

17 months ended 30 November 2017

Year ended

30 June

2016



£'000

£'000





Revenue


118,176

89,175

Cost of sales


(57,197)

(40,636)

Gross profit

 


60,979

48,539

Administrative expenses


(75,762)

(43,310)





Adjusted (loss)/profit from operations


(1,666)

9,501

Amortisation of acquired intangibles


(3,930)

(2,734)

Acquisition costs

1

(308)

(492)

Exceptional reorganisation costs

1

(4,731)

(1,046)

Exceptional impairment charge

1

(4,541)

-

Release of contingent consideration

1

393

-





(Loss)/profit from operations


(14,783)

5,229

Finance expense


(1,360)

(701)

(Loss)/profit before taxation


(16,143)

4,528

Tax credit/(expense)

2

2,773

(425)

(Loss)/profit for the period


(13,370)

4,103

 

 

All of the profit for the period is attributable to equity shareholders of the parent.

 

(Loss)/earnings per share

 




Basic

3

(35.3)p

12.6p





Diluted

3

(35.3)p

12.3p

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period ended 30 November 2017

 


17 months ended 30 November 2017

Year ended

30 June

2016


£'000

£'000




(Loss)/profit for the period

(13,370)

4,103

Other comprehensive income/(expense)



Exchange differences on translation of foreign operations

1,110

3,073

Other comprehensive income/(expense)

1,110

3,073

Total comprehensive (expense)/income for the period

(12,260)

7,176

 

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

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 November 2017

 

 

Notes

30 November 2017

30 June

2016

 

 

£'000

£'000

ASSETS

 

 

 

Non-current assets

 

 

 

Property, plant and equipment

 

2,479

2,389

Goodwill

 

51,019

48,793

Other intangible assets

 

20,539

26,369

Deferred tax assets

 

1,281

423

Available-for-sale investments

 

98

98

Total non-current assets

 

75,416

78,072

Current assets

 

 

 

Trade and other receivables

 

30,429

40,923

Cash and cash equivalents

 

1,941

2,772

Total current assets

 

32,370

43,695

Total assets

 

107,786

121,767

 

LIABILITIES

 



Non-current liabilities




Long-term borrowings

4

6,170

8,272

Deferred tax liabilities

 

2,524

3,753

Total non-current liabilities

 

8,694

12,025

Current liabilities

 

 

 

Trade and other payables

5

29,249

32,824

Current tax liabilities

 

127

132

Short-term borrowings

4

59

3,376

Total current liabilities

 

29,435

36,332

Total liabilities

 

38,129

48,357

 

EQUITY




Share capital

 

10,737

9,000

Share premium account

 

28,897

21,586

Other reserves

 

10,448

10,448

Translation reserve

 

2,186

1,076

Retained earnings

 

17,389

31,300

Total equity attributable to equity holders of the parent

 

69,657

73,410

Total equity and liabilities

 

107,786

121,767

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF CASHFLOWS

For the period ended 30 November 2017

 

 

 

Notes

 

 

17 months ended 30 November 2017

 

 

Year

ended

30 June

2016


£'000

£'000





(13,370)

4,103





67

28


1,373

971


13,481

5,077


-

4


1,360

701


(2,773)

425


10,022

(5,977)

(Decrease)/increase in trade and other payables


(4,206)

170

Cash from operations

7

5,954

5,502


(1,237)

(783)

Income taxes paid


356

(688)

Net cash generated from operating activities


5,073

4,031

Cash flows from investing activities





(989)

(7,401)


(6,158)

(4,642)


(1,307)

(916)

Net cash used in investing activities


(8,454)

(12,959)

Cash flows from financing activities





8,408

13,175


5,715

-


(10,885)

(2,928)


(77)

(12)

Dividends paid


(630)

(477)

Net cash from financing activities


2,531

9,758

Net change in cash and cash equivalents


(850)

830


2,772

1,895


19

47

Cash and cash equivalents at end of period


1,941

2,772

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the period ended 30 November 2017

 


Share capital

Share premium

Other reserve

Translation reserve

Retained earnings

Total equity


£'000

£'000

£'000

£'000

£'000

£'000

At 30 June 2015

7,949

9,462

10,448

(1,997)

27,633

53,495

Changes in equity for year ended 30 June 2016







Profit for the year

-

-

-

-

4,103

4,103

Other comprehensive income for the year

-

-

-

3,073

-

3,073

Total comprehensive income

-

-

-

3,073

4,103

7,176

Share-based payment credit

-

-

-

-

28

28

Options exercised

28

107

-

-

-

135

Issue of new shares

1,023

12,017

-

-

-

13,040

Movement in own shares held

-

-

-

-

13

13

Dividends to equity holders

-

-

-

-

(477)

(477)

At 30 June 2016

9,000

21,586

10,448

1,076

31,300

73,410

Changes in equity for period ended 30 November 2017







Loss for the period

-

-

-

-

(13,370)

(13,370)

Other comprehensive income for the period

-

-

-

1,110

-

1,110

Total comprehensive income

-

-

-

1,110

(13,370)

(12,260)

Share-based payment credit

-

-

-

-

67

67

Warrants exercised

175

488

-

-

-

663

Conversion of shareholder loan to equity

114

526

-

-

-

640

Issue of new shares

1,448

6,297

-

-

-

7,745

Movement in own shares held

-

-

-

-

22

22

Dividends to equity holders

-

-

-


(630)

(630)

At 30 November 2017

10,737

28,897

10,448

2,186

17,389

69,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTES

 

1.             (Loss)/profit from operations and exceptional costs

 

As previously reported, K3 has implemented a programme to simplify and more closely integrate the Group's operations.  In order to achieve this, significant changes were made which resulted in exceptional reorganisation costs of £4.73m, of which the majority were redundancy costs, but which will deliver cost savings of £5.0m on an annualised basis. The reorganisation costs in the prior year of £1.05m related to reorganisational and management changes particularly in the retail division (now part of supply chain solutions and managed services).  Following a review of development costs, the costs relating to certain products that are no longer core to the Group's strategy have been written down to nil at a cost of £4.54m (year ended 30 June 2016: £nil).  This impairment charge has no cash impact.  The Group incurred costs in relation to acquiring new businesses of £0.31m (year ended 30 June 2016: £0.49m).   Contingent consideration not required to be paid of £0.39m (year ended 30 June 2016: £nil) was released.   

 

2.             Tax expense

 

3.             (Loss)/earnings per share

 

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

 


30 November

2017

30 June 2016


Number of
shares

Number of shares

Denominator






Weighted average number of shares used in basic EPS

37,893,951

32,439,624




Effects of:



Employee share options and warrants

-

798,049




Weighted average number of shares used in diluted EPS

37,893,951

33,237,673

 

 

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 period. 

 

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 (losses)/profits and the above number of shares.

 

 

 

 

 


17 months ended

30 November 2017

Year ended

30 June 2016


Earnings

Per share amount

Basic

Per share amount

Diluted

Earnings

Per share amount

Basic

Per share amount

Diluted


£000

p

p

£000

p

p

Numerator







(Loss)/earnings per share

(13,370)

(35.3)

(35.3)

4,103

12.6

12.3

Add back:







Amortisation of acquired intangibles (net of tax)

3,037

8.0

8.0

2,190

6.8

6.6

Acquisition costs (net of tax)

308

0.8

0.8

492

1.5

1.5

Exceptional reorganisation costs (net of tax)

3,832

10.1

10.1

837

2.6

2.5

Exceptional impairment charge (net of tax)

3,678

9.7

9.7

-

-

-

Release of contingent consideration (net of tax)

(393)

(1.0)

(1.0)

-

-

-








Adjusted EPS

(2,908)

(7.7)

(7.7)

7,622

23.5

22.9

 

 

4.             Loans and borrowings       


30 November 2017

30 June

2016


£'000

£'000

Non-current



Bank loans (secured)

6,124

8,234

Finance lease creditors

46

38


6,170

8,272

Current



Bank loans (secured)

-

2,718

Finance lease creditors

59

18

Loans from related parties

-

640


59

3,376

Total borrowings

6,229

11,648

 

 

5.             Trade and other payables - current


30 November 2017

30 June

2016


£'000

£'000

Trade payables

4,739

8,192

Other payables

594

713

Accruals

8,818

9,548

Total financial liabilities, excluding loans and borrowings, classified as financial liabilities measured at amortised cost

14,151

18,453

Contingent consideration

-

912

Deferred consideration

-

25

Other tax and social security taxes

3,961

4,266

Deferred revenue

11,137

9,168


29,249

32,824

 

6.             Acquisitions

 

Merac Limited.

 

On 1 July 2016, the company acquired the entire share capital of Merac Limited. The initial consideration was £1.70m satisfied on completion in cash. Contingent consideration of £0.18m which was dependent on profits generated in the year from 1 April 2016 was paid in full in April 2017.

 

The following table sets out the book values of the identifiable assets and liabilities acquired and their values to the group.  These have been updated from the provisional fair values included in events after the balance sheet date in the financial statements at 30 June 2016 as, during the measurement period of twelve months following the date of acquisition, the value of intangible assets has been reassessed (an increase of £0.55m), together with the consequent impact on the deferred tax liabilities (an increase of £0.11m). 

 




Fair value




£'000

Assets




Property, plant and equipment



6

Other intangible assets



1,315

Trade receivables



133

Other current assets



25

Cash and cash equivalents



434

Liabilities




Trade and other payables



(259)

Deferred tax liabilities



(263)

Net assets



1,391





Consideration




Initial cash consideration



1,702

Contingent cash consideration



175




1,877





Goodwill



486





Acquisition costs to be charged to the income statement

 

 



41





Net cash outflow arising on acquisition

 




Cash consideration

 



1,702

Less cash and cash equivalent balances acquired

 



(434)




1,268

 

The intangible assets recognised in the adjustments relate to customer relationships and IP.  £0.26m of the deferred tax liability recognised relates to these intangible assets.  The goodwill is attributable to those intangibles such as the workforce which are not recognised separately.

 

 

 

 

 

 

 

 

 

 

 

 

7.             Notes to the cash flow statement

 

Cash flows from operations include acquisition costs and exceptional reorganisation costs arising as a result of acquisitions during the period. 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:


17 months ended 30 November 2017

Year

ended

30 June

2016


£'000

£'000




Cash generated from operating activities

5,954

5,502

Add:



Exceptional reorganisation costs

4,731

1,046

Acquisition costs

308

300

Release of contingent consideration

(393)

-

Adjusted cash generated from operations

10,600

6,848

 

Acquisition of subsidiaries and other business units, net of cash acquired comprises:

 


17 months ended 30 November

2017

Year

ended

30 June

2016


£000

£000

Initial consideration

(1,506)

(6,802)

Cash balances acquired

324

345

Contingent consideration repaid from/(paid into) escrow

393

(863)

Contingent and deferred consideration

(200)

(81)


(989)

(7,401)

 

9.             The Board recommends the payment of a dividend of 1.4p per share (year ended 30 June 2016: 1.75p) payable on 15 June 2018 to shareholders on the register on 18 May 2018.

 

10.          The financial information set out above does not comprise the Company's statutory accounts. The Annual Report and Financial Statements for the year ended 30 June 2016 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statement for the year ended 30 June 2016 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

 

The Independent Auditors' Report on the Annual Report and Financial Statement for the period ended 30 November 2017 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.  These will be delivered to the Registrar of Companies following the annual general meeting.

 

11.          The Group's full statutory financial statements for 30 November 2017 have been prepared in accordance with International Financial Reporting Standards (IFRSs and IFRIC interpretations) as endorsed by the European Union ("endorsed IFRS") and with those parts of the Companies Act 2006 applicable to companies preparing their accounts under endorsed IFRS.  The Group continues to work through the IFRS 15 implications and will provide an update during the coming year.

 

12.          This preliminary announcement was approved by the Board of directors on [26] March 2018.

 

13.          The full financial statements will be posted to shareholders on or around [26] April 2018.  Further copies will also be available on its website (www.k3btg.com) and from the Company's registered office at Baltimore House, 50 Kansas Avenue, Manchester, M50 2GL from that date.

 


 


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