TIDMKBT
RNS Number : 8647E
K3 Business Technology Group PLC
09 July 2019
AIM: KBT
9 July 2019
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 supply chain
sector
Interim results
for the six months to 31 May 2019
KEY POINTS
Summary
-- Continuing encouraging progress with the transformation programme
and own IP focus
-- H1 results affected by delayed contract completions, most
of which have now been signed
-- Balance sheet strengthened with net debt(1) down 33% to GBP5.7m
(31 May 2018: GBP8.5m)
-- Seasonal weighting towards H2 in earnings and cash flows will
be more pronounced than usual, as already highlighted
-- Confidence in achievement of full year expectations well underpinned
by:
- early H2 order momentum
- encouraging and high quality near term pipeline
- H2 software licence and maintenance renewals
Financial
-- Total revenue was GBP38.2m (2018: GBP41.4m)
- recurring income contributed 50.0% of the total at GBP19.2m
(2018: GBP18.7m)
-- Gross profit decreased to GBP19.5m (2018: GBP21.6m), reflecting
the delayed contracts, which impacted services activity and
consequently services gross margin
-- Adjusted profit from operations(2) was GBP0.8m (2018: GBP1.7m)
-- Adjusted PBT(2) was GBP0.4m (2018: GBP1.2m)/ Reported LBT
of GBP1.0m (2018: loss of GBP0.5m)
-- Adjusted EPS(3) was 0.0p (2018: 1.4p)/ Basic loss per share
was 3.7p (2018: loss of 2.8p)
-- Net cash position expected by year end, supported by inflows
from annual contract renewals
Operational
-- Major focus is on increasing sales of K3 Intellectual Property
("IP")
-- H1 investment in sales resource to support this initiative
-- New, cutting-edge solution set, 'K3 I imagine', has received
an encouraging response following its launch in Q4 2018
- expect a meaningful contribution to revenue in FY19
- has significant potential across the customer base
- will drive margin and recurring revenue growth
-- 'K3 I fashion' added three new customers although signings
were in late Q2
- follow-on software licences orders are expected in H2
- enhanced relationship with Microsoft
- channel partner route-to-market opened in the UK
-- Global Accounts continued to progress well, with strong demand
in the Far East
-- SME-related activities performed steadily
-- Scope to extend Managed Services activities across the customer
base
-- Significant software licence and maintenance renewals to come
in H2; renewals typically at c. 98%
Adalsteinn Valdimarsson, Chief Executive Officer of K3,
commented:
"K3's transformation programme continues to make good progress,
and while first half results are below the same period last year,
the Group remains on track to meet market expectations for the full
year and to show good year-on-year earnings progression.
"Delays to certain contract signings affected first half
results, however we have now largely caught up on the outstanding
delays, and the second half includes significant licence and
maintenance contract renewals where renewal rates are very high -
around 98%. The near-term pipeline also remains encouraging.
"Our growth strategy - based on selling more of our own IP - has
the potential to drive earnings and recurring income significantly.
'K3 I imagine', our new, cutting-edge product, is especially
exciting, and is relevant for both new and existing customers. We
remain very positive about prospects."
Enquiries:
K3 Business Technology Adalsteinn Valdimarsson T: 020 3178 6378 (today)
Group plc (CEO)
www.k3btg.com Robert Price (CFO) Thereafter: 0161 876
4498
finnCap Limited Julian Blunt / James T: 020 7220 0500
Thompson
(Nominated Adviser and Camille Gochez (Corporate
Broker) broking)
KTZ Communications Katie Tzouliadis / Dan T: 020 3178 6378
Mahoney
Notes:
Note Net debt is gross debt net of cash and cash equivalents.
1
Note Calculated before amortisation of acquired intangibles of GBP1.2m
2 (2018: GBP1.3m), exceptional reorganisation costs of GBP0.3m
(2018: GBP0.7m), and share-based payment charge of GBP0.3m
(2018: GBP0.2m).
Note Calculated before amortisation of acquired intangibles (net
3 of tax) of GBP1.0m (2018: GBP1.0m), exceptional reorganisation
costs (net of tax) of GBP0.2m (2018: GBP0.6m), and share-based
payment charge (net of tax) of GBP0.3m (2018: GBP0.2m).
JOINT REPORT OF THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Introduction
K3 continues to make encouraging progress with its
transformation programme, and while first half results are below
the same period last year, the Group remains on track to meet
current market expectations for the year and to show good
year-on-year earnings progression. This view takes into account the
closure of three major new contracts and commitments at the end of
the period, additional orders that have come through since then, as
well as an encouraging near-term new business pipeline. It should
also be noted that the Group's earnings are in any case seasonally
weighted towards the second half, with a large number of annual
software licence and maintenance contracts falling due in the
period; renewals rates are very high.
As previously reported, the first half performance was affected
by delays in certain contract signings, some of which related to
Brexit. This meant that these large contracts closed later than
expected, thereby reducing services utilisation and income.
However, we have now largely caught up on the outstanding major
Supply Chain contract closures and expect further software licence
orders to come through from the new customer signings. Aside from
these delays, all units performed in line with or above management
expectations in the period.
A major focus this year is on developing sales of our new,
cutting-edge, cloud-native product, 'K3 I imagine', which was
launched at the end of the last financial year. 'K3 I imagine' and
its platform and suite of applications form the cornerstone of our
growth plans. The product has great potential across K3's existing
extensive customer base as well for new customers, and we expect it
to make a meaningful contribution to the Group's revenue in the
second half, benefiting margin expansion and recurring income. We
have strengthened our sales resource accordingly.
Financial Results
Revenue for the six months to 31 May 2019 decreased by 7.0% to
GBP38.2m (2018: GBP41.4m). Recurring income, which comprises
software maintenance renewals, support contracts, SaaS, and hosting
& managed services, increased 2.6%, to GBP19.2m (2018:
GBP18.7m) or 50.0% of total revenue in the period (2018:
45.2%).
Gross profit was 9.7% lower than the same period last year at
GBP19.5m (2018: GBP21.6m). This principally reflected delayed
contract signings, which severely impacted services activity and
consequently utilisation and services gross margin. Services gross
profit decreased by GBP1.4m to GBP2.7m in the period (2018:
GBP4.1m) and gross margin reduced by 7.1 percentage points to 21.8%
(2018: 27.9%). Similarly, software licence gross profit reduced by
GBP0.5m to GBP3.4m (2018: GBP3.9m) and gross margin was 68.7%
(2018: 71.7%).
Gross profit derived from our Intellectual Property ("IP") is a
key metric for us since it generates the Group's highest margins,
and own IP licence sales are at the core of our growth strategy.
Our own IP contributed GBP6.3m or 32.5% to total gross profit
(2018: GBP6.8m or 31.5%) in the period.
Administrative expenses reduced by 7.1% to GBP20.5m (2018:
GBP22.1m) as a result of a continuing process of improving
efficiencies and cost-saving initiatives.
Adjusted profit from operations was GBP0.8m (2018: GBP1.7m),
mostly the result of reduced services gross margins.
After taking into account GBP0.3m of exceptional costs (2018:
GBP0.7m), which related to the reorganisation programme, an
amortisation charge of GBP1.2m for acquired intangibles (2018:
GBP1.3m) and a share-based payment charge of GBP0.3m (2018: 0.2m),
the loss from operations was GBP1.0m (2018: loss of GBP0.5m).
Finance expenses were GBP0.4m (2018: GBP0.5m), resulting in an
adjusted profit before tax(*2) for the period of GBP0.4m (2018:
adjusted profit before tax(*2) of GBP1.2m). The reported loss
before tax for the period was GBP1.5m (2018: loss of GBP1.0m).
Adjusted earnings per share(*3) was 0.0p (2018: adjusted
earnings per share(*3) of 1.4p). Basic loss per share was 3.0p
(2018: basic loss per share 2.8p).
Balance sheet and cash flows
Net debt at 31 May 2019 stood at GBP5.7m (31 May 2018: GBP8.5m),
a 33% reduction. We continue to focus on improving cash generation
and this is being supported by better internal processes, improved
deal and resource allocation evaluation, as well as
incentivisation.
K3's cash flow is now following normal seasonality and, as
previously indicated, the second half of the financial year will
benefit from annual software licence and support renewals, which
are heavily weighted towards this period, with SYSPRO renewal rates
typically around 98%.
Capitalised development expenditure for the six months was
GBP1.7m (2018: GBP1.0m), in line with the Group's refocused IP
development roadmap, and 50% of expenditure was on the 'K3 I
imagine' product.
Cash utilised in operating activities amounted to GBP3.0m (2018:
GBP2.9m), and reflects a more normal annual seasonality to cash
generation.
Depreciation was similar to the prior six months at GBP0.4m
(2018: GBP0.5m) and amortisation GBP2.6m (2018: GBP2.4m).
The Group's current banking facilities are due for renewal in
October 2019. This process is at an advanced stage and we expect
the renewal to be successfully concluded in the second half, with
terms agreed through to March 2021.
Dividend
As in prior years, the Board expects to propose only a final
(and total) dividend for the financial year. This is anticipated to
show a year-on year uplift in line with the Board's confidence in
K3's future prospects.
Overview of Performance
A key area of focus for the Company is increasing sales from our
own IP. 'K3 I imagine', our class-leading platform and solution
sets have very exciting potential to drive own IP sales. This is in
addition to our more established add-on solutions for Microsoft
Dynamics, 'K3 I fashion' and 'K3 I pebblestone' and our ERP
agnostic integration platform 'K3 I dataswitch'. These products
have been sold to around 500 customers both direct and through our
global partner channel.
The 'K3Iimagine' platform and applications are provided on a
Platform-as-a-Service ("PaaS") and Software-as-a-Solution ("SaaS")
basis. The technology can be deployed agnostically via cloud or via
our 'K3 I Cloud' Infrastructure-as-a-Service unit ("IaaS"). We have
developed solutions for multiple business processes, including
inventory management, Point of Sale ("POS"), pricing &
promotion, tax compliance, and bespoke customer solutions, and
believe that the ease with which our technology can be integrated
and the innovation it supports makes our offering an attractive
option for businesses across the supply chain sector.
As well as selling to new customers, 'K3 I imagine' is relevant
to our existing installed base of approximately 3,700 customers. We
see opportunities to deepen our engagement with customers that use
our existing ERP and POS solutions. Almost half of the Group's
customer base deploys a K3 authored/supported POS solutions, with
many customers using legacy systems. In addition, well over 40% of
the total base are ERP customers using SYSPRO, Microsoft or Sage
products. The 'K3 I imagine' Retail Suite provides a ready upgrade
for POS customers, and over time, we intend to broaden the offering
to enhance our overall proposition across the broader customer
base.
We are also working on extending our Managed Services and IaaS
offerings, including 'K3 I Cloud', across the customer base.
During the first half, we significantly expanded the sales team
in order to support these and other initiatives. The early response
to the launch of 'K3 I imagine' has been encouraging, with a pilot
now in place with a major food and beverage group and our Mobile
Goods Flow solution in use in a number of Inter IKEA Concept
franchisee stores.
'K3 I fashion' added three more customers in the period, with
Brexit causing some disruption. We expect two of these newly-signed
customers to ramp-up software licence orders over the remainder of
2019.
In line with the market shift to subscription, customers are
tending to purchase software licences in line with their roll-out
plans on Microsoft Dynamics 365F&O subscription deployment, and
we are seeing a new pattern emerging whereby newly-contracted
customers initially purchase a small number of software licences,
subsequently stepping up licence order further down the project
timeline. This differs from previous large upfront purchases under
the traditional model.
Our relationship with Microsoft continues to be very strong,
especially in relation to 'K3 I fashion', which is increasingly
viewed as a market-leading product for the fashion industry. Our
close engagement with Microsoft helps both direct sales and
indirect sales through channel partners. In the period, we launched
a channel partner model in the UK for 'K3 I fashion', which has
extended our IP footprint. A high profile Microsoft Dynamics
365F&O implementation for Fortnum & Mason also went live in
the period.
The Global Accounts operation saw good growth and the new office
in Kuala Lumpur is working well, and will support continuing growth
in the Far East. We have commenced global resource pooling of
Dynamics resource especially to facilitate Global Accounts
growth.
The Group's SME-related activities performed steadily across all
of our supply chain verticals and we are especially pleased at
progress within Sage and Managed Services activities.
Outlook
We believe the initiatives put in place during the last two
years will continue to underpin K3's performance and growth
prospects. We will also look for additional opportunities to
increase operational efficiency.
The second half of the financial year has started well, with
three 'K3 I fashion' deals expected to close. We are encouraged by
customer reaction to 'K3 I imagine' and expect the offering to
contribute meaningfully to the Group's results during this
financial year. The wider new business pipeline, including for 'K3
I fashion' and Global Accounts remains strong and we expect
services utilisation to show a marked improvement in the second
half following recent deal closures.
K3's seasonal weighting of cash flows and profitability towards
the second half of the financial year will be more exaggerated this
year mainly due to anticipated growth in services gross margins.
More broadly, we believe that K3 is well-positioned to make further
progress with its transformation strategy and we view our growth
prospects with confidence.
Stuart Darling Adalsteinn Valdimarsson
Chairman Chief Executive Officer
9 July 2019
Operational Review
Overview
The Group's results for the six months to 31 May 2019, together
with comparatives for the same period in 2018, are summarised in
the table below.
Six months to 31 Revenue (GBPm) Gross profit Gross margin Adj. profit
May (GBPm) (GBPm)
2019 2018 2019 2018 2019 2018 2019 2018
Supply chain solutions
& managed services(*4) 30.1 32.4 13.2 14.8 43.8% 45.7% 2.2 2.2
Own IP(*5) 8.1 9.0 6.3 6.8 78.0% 75.9% 1.9 2.5
Support costs - - - (3.3) (3.0)
------------------------- -------- ------- ------- ------ ------- ------ ------ ------
Total 38.2 41.4 19.5 21.6 51.1% 52.2% 0.8 1.7
------------------------- -------- ------- ------- ------ ------- ------ ------ ------
Own IP revenues includes initial and annual software licences
and those revenues which flow directly from K3 IP.
2019 2018
Gross margin 51.1% 52.2%
Recurring revenue GBP19.2m GBP18.7m
Recurring revenue as a percentage of total revenue 50.2% 45.2%
Own IP gross profit as a percentage of total gross
profit 32.2% 31.5%
Recurring revenue comprises software maintenance renewals,
support contracts, and hosting & managed services.
The increase in recurring revenues reflected growth in Managed
Services and 'K3 I imagine'. The increase in the revenue mix of
recurring revenue was driven by growth in recurring revenue and
decline in services activity. Own IP revenue was down to GBP8.1m
(2018: GBP9.0m).
Supply Chain Solutions & Managed Services
K3's business solutions and managed services are tailored to the
requirements of the supply chain industry, including retailers,
manufacturers and distributors. The Group's core offering is based
on the Microsoft Dynamics suite of software, SYSPRO, and Sage
solutions.
Six months to 31 May Revenue (GBPm) Gross profit Gross margin
(GBPm)
2019 2018 2019 2018 2019 2018
Software licences 3.2 3.1 1.8 1.7 56.0% 54.8%
Services 11.9 14.0 2.3 3.7 19.0% 26.7%
Recurring 14.1 14.1 8.8 9.1 62.3% 64.7%
Hardware and other 0.9 1.2 0.3 0.3 38.2% 20.6%
---------------------- -------- ------- ------- ------ ------- ------
Total 30.1 32.4 13.2 14.8 43.8% 45.7%
---------------------- -------- ------- ------- ------ ------- ------
Recurring revenue comprises software maintenance renewals,
support contracts, and hosting & managed services.
2019 2018
Adjusted profit/(loss) from operations(*4) (GBPm) 2.2 2.2
Recurring revenue as % of total revenues 46.8% 43.4%
Software licenses revenue grew slightly to GBP3.2m (2018: 3.1m)
and gross margin improved to 56.0% (2018: 54.8%). Services revenues
were down, the result of delays in the closure of new Microsoft
Dynamics deals, and this also resulted in lower services
utilisation, with services gross margin decreasing to 19.0% (2018:
26.7%). Several major contracts closed towards the end of H1,
including Regatta, the UK-based outdoor clothing supplier, and
CreditSafe, the credit agency. We had a notable success with the
'go live' of the Fortnum & Mason Microsoft Dynamics365F&O
project, which is a high profile implementation. We also opened up
the selling of 'K3 I fashion' in the UK to channel partners in
order to expand our IP footprint. We expect services gross margin
to increase in the second half as the deals signed at the end of
the first half flow into chargeable project work and as we support
new 'K3 I fashion' channel partners in the UK. Recurring revenues
remained stable on 2018. Gross profit was GBP13.2m (2018: GBP14.8m)
driven by the services chargeability. Gross margin on hardware
increased as a result of the start of a group sourcing
initiative.
Global Accounts, which includes our relationship with Inter IKEA
Systems B.V. (the owner and franchisor of the IKEA concept) and the
Inter IKEA Concept franchisees, continued to grow. This reflected
the ongoing expansion of the IKEA franchisee network into new
geographies and the increased activity mainly contributed to
services income. The Kuala Lumpur office opened in the second half
of 2018, and we have added further resource. Encouragingly, the
office generated earlier levels of chargeability than expected. Our
initiative to start to increase own IP sales in Global Accounts is
bearing fruit, with further sales of 'K3 I dataswitch' and first
sales of 'K3 I imagine' warehouse solutions. There is also still
more opportunity to deepen relationships within the IKEA
ecosystem.
Own IP
K3's IP portfolio comprises two parts, first, K3-authored
software that enriches our established third party offerings,
specifically Microsoft, SYSPRO and Sage technology. For example,
our 'K3 l fashion' and 'K3 I Pebblestone' products are both based
on Microsoft Dynamics's Enterprise Resource Planning ("ERP")
solutions, and are enriched by K3 IP to suit the needs of specific
industry segments. Secondly, we provide solely-authored,
stand-alone solutions. These include DdD Point of Sales,
Dataswitch, and 'K3 I imagine'. These products can be sold with our
other solutions or individually.
Revenue (GBPm) Gross profit Gross margin
(GBPm)
2019 2018 2019 2018 2019 2018
Software licences 1.8 2.4 1.6 2.2 91.5% 94.0%
Services 0.5 0.8 0.4 0.4 83.8% 49.7%
Recurring 5.1 4.6 4.0 3.7 78.0% 79.0%
Hardware and other 0.7 1.2 0.3 0.5 39.6% 44.1%
-------- ------- ------- ------ ------- ------
Total 8.1 9.0 6.3 6.8 78.0% 75.9%
-------- ------- ------- ------ ------- ------
Recurring revenue comprises software maintenance renewals,
support contracts, and hosting & managed services.
2019 2018
Adjusted profit from operations(*5) (GBPm) 1.9 2.5
Recurring revenue as % of total revenues 62.8% 51.8%
While recurring revenues from own IP increased to GBP5.1m (2018:
GBP4.6m), which reflected the growth of our stand-alone agnostics
IP solutions including 'K3 I dataswitch', DdD and 'K3 I imagine',
total revenue from own IP reduced to GBP8.1m (2018: GBP9.0m).
Revenues from software licence sales decreased to GBP1.8m (2018:
GBP2.4m) with delays to expected deals and follow-on orders as
highlighted above. As mentioned, three new customers for 'K3 I
fashion' were added in the first half, including Regatta and we
expect licence revenue to increase as further orders as roll-outs
proceed. The number of customers expanded by 12% in H1 and the
pipeline is good and of a high quality. Gross profit trends in
software mirrored the revenue due to high margins. Services gross
margins increased to revenue from our integrations team.
We expect recurring revenue to continue to grow as we
commercialise 'K3 I imagine'. This will also benefit sales of 'K3 I
dataswitch', our integration product. 'K3 I imagine' revenue in H1
was GBP0.3m (2018: nil).
Support Costs
Support costs(*6) include the global costs of the Group's
finance, IT, legal and human resource functions, as well as Board
and PLC costs. There was a net increase in cost in the period,
which arose from investment in IT security only partially set off
by further internal efficiencies.
(*1) Group adjusted profit/(loss) from operations is calculated before
amortisation of acquired intangibles of GBP1.2m (2018: GBP1.3m),
exceptional reorganisation costs of GBP0.3m (2018: GBP0.7m), and
share-based payment charge of GBP0.3m (2018: GBP0.2m).
(*2) Group adjusted profit/(loss) before tax is calculated before amortisation
of acquired intangibles of GBP1.2m (2018: GBP1.3m), exceptional
reorganisation costs of GBP0.3m (2018: GBP0.7m), and share-based
payment charge of GBP0.3m (2018: GBP0.2m).
(*3) Group adjusted earnings/(loss) per share is calculated before amortisation
of acquired intangibles (net of tax) of GBP1.0m (2018: GBP1.0m),
exceptional reorganisation costs (net of tax) of GBP0.2m (2018:
GBP0.6m), and share-based payment charge (net of tax) of GBP0.3m
(2018: GBP0.2m).
(*4) Supply chain solutions and managed services adjusted profit/(loss)
from operations is calculated before amortisation of acquired intangibles
of GBP0.7m (2018: GBP0.7m) and exceptional reorganisation costs
of GBP0.1m (2018: GBP0.4m).
(*5) Own IP adjusted profit from operations is calculated before amortisation
of acquired intangibles of GBP0.5m (2018: GBP0.5m) and exceptional
reorganisation costs of GBP0.2m (2018: GBP0.2m).
(*6) Support costs are calculated before exceptional reorganisation
costs of GBPnil (2018: GBP0.1m) and share-based payment charge
of GBP0.3m (2018: GBP0.2m).
K3 BUSINESS TECHNOLOGY GROUP PLC
CONSOLIDATED INCOME STATEMENT
For the six months ended 31 May 2019
Unaudited Unaudited Audited
Six months Six months 12 months
to 31 May to 31 May to
Notes 2019 2018 30 November
2018
GBP'000 GBP'000 GBP'000
Revenue 38,212 41,407 83,335
Cost of sales (18,697) (19,789) (39,446)
-------------------------------------- -------- ------------ ------------ -------------
Gross profit 19,515 21,618 43,889
Administrative expenses (20,554) (22,127) (43,205)
Adjusted profit/(loss) from
operations 824 1,668 4,649
Amortisation of acquired intangibles (1,238) (1,263) (2,507)
Acquisition costs (7) -
Exceptional reorganisation
costs 2 (287) (738) (1,355)
Share-based payment charge (338) (169) (103)
-------------------------------------- -------- ------------ ------------ -------------
Profit /(Loss) from operations (1,039) (509) 684
Finance expense (411) (506) (667)
-------------------------------------- -------- ------------ ------------ -------------
Loss before taxation (1,450) (1,015) 17
Tax (expense)/credit 3 (118) (175) (505)
-------------------------------------- -------- ------------ ------------ -------------
Loss for the period (1,568) (1,190) (488)
-------------------------------------- -------- ------------ ------------ -------------
All of the loss for the period is attributable to equity holders
of the parent.
(Loss) per share 4
Basic (3.0)p (2.8)p (1.1)p
Diluted (3.0)p (2.8)p (1.1)p
K3 BUSINESS TECHNOLOGY GROUP PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 31 May 2019
Unaudited Unaudited Audited
Six months Six months 12 months
to 31 May to 31 May to
2019 2018 30 November
2018
GBP'000 GBP'000 GBP'000
Loss for the period (1,568) (1,190) (488)
-------------------------------------- ------------ ------------ -------------
Other comprehensive income
Exchange differences on translation
of foreign operations 121 (10) 300
Other comprehensive income, net of
tax 121 (10) 300
Total comprehensive expense for the
period (1,447) (1,200) (188)
-------------------------------------- ------------ ------------ -------------
All of the total comprehensive expense for the period is
attributable to equity holders of the parent. All of the other
comprehensive (expense)/income will be reclassified subsequently to
profit or loss when specific conditions are met. None of the items
within other comprehensive (expense)/income had a tax impact.
K3 BUSINESS TECHNOLOGY GROUP PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 May 2019
Notes Unaudited Unaudited Audited As
As at 31 As at at 30 November
May 2019 31 May 2018
2018
GBP'000 GBP'000 GBP'000
ASSETS
Non-current assets
Property, plant and equipment 2,237 2,292 2,326
Goodwill 51,086 50,973 51,187
Other intangible assets 17,175 19,031 18,184
Deferred tax assets 1,304 1,277 1,307
Available-for-sale investments 98 98 98
Total non-current assets 71,900 73,671 73,102
-------------------------------- ------- ---------- ---------- ----------------
Current assets
Trade and other receivables 26,427 33,642 27,006
Cash and cash equivalents 5,065 1,905 16,914
Total current assets 31,492 35,547 33,920
-------------------------------- ------- ---------- ---------- ----------------
Total assets 103,392 109,218 107,022
-------------------------------- ------- ---------- ---------- ----------------
LIABILITIES
Non-current liabilities
Long-term borrowings 5 13 10,355 15
Deferred tax liabilities 1,592 2,275 1,814
Total non-current liabilities 1,605 12,630 1,829
-------------------------------- ------- ---------- ---------- ----------------
Current liabilities
Trade and other payables 6 24,122 27,889 28,428
Current tax liabilities 61 - 279
Short-term borrowings 5 10,780 59 7,517
-------------------------------- ------- ---------- ---------- ----------------
Total current liabilities 34,963 27,948 36,224
-------------------------------- ------- ---------- ---------- ----------------
Total liabilities 36,568 40,578 38,053
-------------------------------- ------- ---------- ---------- ----------------
EQUITY
Share capital 10,737 10,737 10,737
Share premium account 28,897 28,897 28,897
Other reserves 10,448 10,448 10,448
Translation reserve 2,365 2,176 2,486
Retained earnings 14,377 16,382 16,401
-------------------------------- ------- ---------- ---------- ----------------
Total equity attributable to
equity holders of the parent 66,824 68,640 68,969
-------------------------------- ------- ---------- ---------- ----------------
Total equity and liabilities 103,392 109,218 107,022
-------------------------------- ------- ---------- ---------- ----------------
K3 BUSINESS TECHNOLOGY GROUP PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 31 May 2019
Unaudited Unaudited Audited
Six months Six months 12 months
to 31 May to 31 May to
Notes 2019 2018 30 November
2018
GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Loss for the period (1,568) (1,190) (488)
Adjustments for:
Share based payments charge 338 169 103
Depreciation of property, plant
and equipment 412 450 885
Amortisation of intangible assets
and development expenditure 2,631 2,481 5,091
Loss on sales of property, plant
and equipment 22
Finance expense 441 506 667
Tax expense (146) 175 505
(Increase)/decrease in trade
and other receivables (328) (3,248) 2,697
Decrease in trade and other payables (4,576) (1,749) (853)
----------------------------------------- -------- ------------ ------------ -------------
Cash (utilised in)/generated
from operations 7 (2,796) (2,406) 8,629
Finance expense paid (182) (391) (662)
Income taxes received/(paid) (54) (133) (151)
----------------------------------------- -------- ------------ ------------ -------------
Net cash (utilised in)/generated
from operating activities (3,032) (2,930) 7,816
----------------------------------------- -------- ------------ ------------ -------------
Cash flows from investing activities
Development expenditure capitalised (1,688) (990) (2,627)
Purchase of property, plant and
equipment (313) (223) (748)
Net cash absorbed by investing
activities (2,001) (1,213) (3,375)
----------------------------------------- -------- ------------ ------------ -------------
Cash flows from financing activities
Proceeds from long-term borrowings 3,250 4,146 1,204
Payment of finance lease liabilities (30) (29) (58)
Dividends paid - (601)
----------------------------------------- -------- ------------ ------------ -------------
Net cash generated from financing
activities 3,220 4,117 545
----------------------------------------- -------- ------------ ------------ -------------
Net change in cash and cash equivalents (1,813) (26) 4,986
Cash and cash equivalents at
start of period 6,914 1,941 1,941
Exchange gains on cash and cash
equivalents (36) (10) (13)
----------------------------------------- -------- ------------ ------------ -------------
Cash and cash equivalents at
end of period 5,065 1,905 6,914
----------------------------------------- -------- ------------ ------------ -------------
K3 BUSINESS TECHNOLOGY GROUP PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 31 May 2019
Share Share Other Translation Retained Total
capital premium reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 December 2017 10,737 28,897 10,448 2,186 17,389 69,657
--------------------------- --------- --------- --------- ------------ ---------- --------
Changes in equity
for six months ended
31 May 2018
Profit for the period - - - - (1,190) (1,190)
Other comprehensive
income for the period - - - (10) - (10)
--------------------------- --------- --------- --------- ------------ ---------- --------
Total comprehensive
income - - - (10) (1,190) (1,200)
Share-based payment
credit - - - - 169 169
Movement in own shares
held - - - - 14 14
Dividends to equity
holders
--------------------------- --------- --------- --------- ------------ ---------- --------
At 31 May 2018 10,737 28,897 10,448 2,176 16,382 68,640
--------------------------- --------- --------- --------- ------------ ---------- --------
Changes in equity
for six months ended
30 November 2018
Loss for the period - - - - 702 702
Other comprehensive
income for the period - - - 310 - 310
--------------------------- --------- --------- --------- ------------ ---------- --------
Total comprehensive
income - - - 310 702 1012
Share-based payment
credit - - - - (66) (66)
Warrants exercised - - - - - -
Conversion of shareholder
loan to equity - - - - - -
Issue of new shares - - - - - -
Movement in own shares
held - - - - (16) (16)
Dividends to equity
holders - - - - (601) (601)
--------------------------- --------- --------- --------- ------------ ---------- --------
At 30 November 2018 10,737 28,897 10,448 2,486 16,401 68,969
--------------------------- --------- --------- --------- ------------ ---------- --------
Changes in equity
for six months ended
31 May 2019
Loss for the period - - - - (1,568) (1,568)
IFRS adjustments - - - - (794) (794)
Other comprehensive
income for the period - - (121) - (121)
--------------------------- --------- --------- --------- ------------ ---------- --------
Total comprehensive
income - - (121) (2,362) (2,483)
Share-based payment
credit - - - 338 338
Movement in own shares
held - - - - - -
--------------------------- --------- --------- --------- ------------ ---------- --------
At 31 May 2019 10,737 28,897 10,448 2,365 14,377 66,824
--------------------------- --------- --------- --------- ------------ ---------- --------
K3 BUSINESS TECHNOLOGY GROUP PLC
NOTES TO THE UNAUDITED INTERIM STATEMENT
1. Basis of preparation
The consolidated interim financial information has been prepared
in accordance with the accounting policies that are expected to be
adopted in the Group's full financial statements for the year
ending 30 November 2019 which are not expected to be significantly
different to those set out in Note 1 of the Group's audited
financial statements for the 12 month period ended 30 November
2018. These are based on the recognition and measurement principles
of IFRS in issue as adopted by the European Union (EU) and are
effective at 30 November 2019 or are expected to be adopted and
effective at 30 November 2019. The financial information has not
been prepared (and is not required to be prepared) in accordance
with IAS 34. The accounting policies have been applied consistently
throughout the Group for the purposes of preparation of this
financial information.
The financial information in this statement relating to the six
months ended 31 May 2019 and the six months ended 31 May 2018 has
neither been audited nor reviewed pursuant to guidance issued by
the Auditing Practices Board. The financial information for the 12
month period ended 30 November 2018 does not constitute the full
statutory accounts for that period. The Annual Report and Financial
Statements for the 12 month period ended 30 November 2018 have been
filed with the Registrar of Companies. The Independent Auditors'
Report on the Annual Report and Financial Statement for the 12
month period ended 30 November 2018 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.
IFRS 15 'Revenue from Contracts with Customers' is mandatory for
the Group from 1 December 2018. The Group has completed an
assessment of the impact of IFRS15. The complexities of IFRS 15
required a detailed analysis of the Group's performance obligations
under each significant contract in order to assess whether they are
distinct and to determine the point in time, or period over which,
it is appropriate to recognise revenue. This also included
determining whether customers had a right to use or a right to
access the software. Some contracts required revenue to be
recognised differently under IFRS 15 than under the preceding IFRS
and which included the following considerations:
-- Software licences where there are significant customisation
and installation obligations
-- Customer rights under multi-year deals
-- Customer rights under hosted services
-- Bundled software and support services
The Group has taken the decision to apply the cumulative effect
method as of the date of initial application with no restatement of
comparatives. The cumulative effect of applying the standard has
been recorded as an adjustment to the opening balance of equity
(retained earnings) at the date of 1st December 2018. The
adjustment to opening retained earnings with a debit to retained
reserves of GBP0.8m and a credit to accrued income of GBP0.8m. The
adjustment relates to subscription-based cloud hosted software
solutions which had been recognised previously at a point in time
which is now recognised over time. The impact on the financial
results for the 6 months to 31 May 2019 is a credit to revenue and
debit to Trade and Other Receivables for GBP0.2m.
IFRS 9 'Financial instruments' is mandatory for the Group from 1
December 2018. The standard replaces IAS 39 Financial Instruments:
Recognition and Measurement. IFRS 9 sets out a new forward looking
'expected credit loss (ECL)' model which replaces the incurred loss
model in IAS 39 and applies to, amongst other financial assets and
liabilities, trade receivables. Unlike IAS 39, entities will be
required to consider forward looking information when measuring
ECL. Therefore, a credit event (or impairment 'trigger') no longer
has to occur before credit losses are recognised. Therefore, the
provision for impairment of trade receivables will take account of
the forward looking information. The Group has developed its model
for calculating the ECL and the adoption of this standard has not
materially impacted the result from the previous standard.
IFRS16 "Leases" is will be applicable to the Group from 1
December 2019 and the Group is in the process of assessing the
impact of its adoption. The Group is not yet in a position to
quantify the impact of IFRS16 on the Group's reported results or
financial position.
2. Loss from operations
During the six month period to 31 May 2019, reorganisation costs
of GBP0.3m have been incurred, most of which are redundancy costs.
During the six month period to 31 May 2018, reorganisation costs of
GBP0.7m were incurred relating to the reorganisation programme to
create more unified, streamlined operations and a reduced cost
base.
3. Tax expense
Unaudited Unaudited Audited
Six months Six months 12 months
to 31 May to 31 May to
2019 2018 30 November
2018
GBP'000 GBP'000 GBP'000
Current tax expense/(credit)
UK corporation tax and income
tax of overseas operations on
profits/(losses) for the period 336 183 472
Adjustment in respect of prior
periods - 230 745
--------------------------------------- ------------ ------------ -------------
Total current tax expense/(credit) 336 413 1,217
--------------------------------------- ------------ ------------ -------------
Deferred tax income
Origination and reversal of temporary
differences (218) (238) (629)
Effect of change in rate of deferred
tax - - (83)
--------------------------------------- ------------ ------------ -------------
Total deferred tax income (218) (238) (712)
--------------------------------------- ------------ ------------ -------------
Total tax expense/(credit) 118 175 505
--------------------------------------- ------------ ------------ -------------
4. (Loss)/earnings per share
The calculations of (loss)/earnings per share are based on the
(loss)/profit for the financial period and the following numbers of
shares:
Unaudited Unaudited Audited 12
Six months Six months months to
to 31 May to 31 May 30 November
2019 2018 2018
Number of Number of Number of
Shares Shares Shares
Weighted average number of shares:
For basic earnings per share 42,871,302 42,871,302 42,871,000
Effects of employee share options - - -
and warrants
------------------------------------ ------------ ------------ -------------
For diluted earnings per share 42,871,302 42,871,302 42,871,000
------------------------------------ ------------ ------------ -------------
Adjusted earnings per share calculations have been computed
because the Directors consider that they are useful to shareholders
and investors. These are based on the following profits and the
above number of shares:
Unaudited six months Unaudited six months
to 31 May 2019 to 31 May 2018
Earnings Per share Per share Earnings Per share Per
amount amount amount share
Basic Diluted Basic amount
Diluted
GBP'000 p P GBP'000 p P
(Loss)/earnings per
share (eps) (1,568) (3.7) (3.7) (1,190) (2.8) (2.8)
Amortisation of intangibles
(net of tax) 1,003 2.3 2.3 1,023 2.4 2.4
Acquisition costs (net
of tax) 7 - -
Exceptional reorganisation
costs
(net of tax) 233 0.5 0.5 598 1.4 1.4
Release of contingent
consideration
(net of tax) - - -
Share-based payment
charge (net of tax) 338 0.8 0.8 169 0.4 0.4
----------------------------- --------- ---------- ---------- --------- ---------- ---------
Adjusted eps 6 0.0 0.0 607 1.4 1.4
----------------------------- --------- ---------- ---------- --------- ---------- ---------
Audited 12 months
to 30 November 2018
Earnings Per share Per share
amount amount
Basic Diluted
GBP'000 p P
(Loss)/earnings per
shares (eps) (488) (1.1) (1.1)
Amortisation of intangibles
(net of tax) 1,952 4.6 4.6
Acquisition costs (net - - -
of tax)
Exceptional reorganisation
costs
(net of tax) 1,355 3.2 3.2
Exceptional impairment
charge - - -
(net of tax)
Release of contingent
consideration - - -
(net of tax)
Share-based payment
charge (net of tax) 103 0.1 0.1
----------------------------- --------- ---------- ----------
Adjusted (l)/eps 2,922 6.8 6.8
----------------------------- --------- ---------- ----------
5. Loans and borrowings
Unaudited Unaudited Audited
As at 31 As at As at 30
May 2019 31 May November
2018 2018
GBP'000 GBP'000 GBP'000
Non-current
Bank loans (secured) - 10,339 -
Finance lease creditors 13 16 15
13 10,355 15
------------------------- ---------- ---------- ----------
Current
Finance lease creditors 4 59 32
Bank Loans (secured) 10,776 - 7,485
------------------------- ---------- ---------- ----------
10,780 59 7,517
------------------------- ---------- ---------- ----------
Total borrowings 10,793 10,414 7,532
------------------------- ---------- ---------- ----------
6. Trade and other payables
Unaudited Unaudited Audited As
As at 31 As at at 30 November
May 2019 31 May 2018
2018
GBP'000 GBP'000
Trade payables 4,579 5,084 5,163
Other payables 1,031 504 903
Accruals 5,239 7,341 6,945
---------------------------------------- ---------- ---------- ----------------
Total financial liabilities, excluding
loans and borrowings, classified
as financial liabilities measured
at amortised cost 10,849 12,929 13,011
Other tax and social security taxes 2,739 2,494 4,897
Deferred revenue 10,534 12,466 10,520
---------------------------------------- ---------- ---------- ----------------
24,122 27,889 28,428
---------------------------------------- ---------- ---------- ----------------
7. Notes to the cash flow statement
Cash generated from operations is stated after exceptional
reorganisation costs and acquisition costs. The adjusted cash
generated from operations has been computed because the directors
consider it more useful to shareholders and investors in assessing
the underlying operating cash flow of the Group. The adjusted cash
generated from operations is calculated as follows:
Unaudited Unaudited Audited
Six months Six months 12 months
to 31 May to 31 May to
2019 2018 30 November
2018
GBP'000 GBP'000 GBP'000
Cash (utilised in)/generated from
operating activities (2,796) (2,406) 8,629
Add:
Exceptional reorganisation costs 287 738 1,355
Acquisition costs 7 -
Adjusted (utilised in)/cash generated
from operations (2,509) (1,661) 9,984
------------ ------------ -------------
8. The above information is being sent to shareholders and is
available from the Company's website, www.k3btg.com, and from its
registered office: Baltimore House, 50 Kansas Avenue, Manchester
M50 2GL.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR LLFIADFITIIA
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