TIDMKBT
RNS Number : 7219K
K3 Business Technology Group PLC
30 August 2023
AIM: KBT
K3 BUSINESS TECHNOLOGY GROUP PLC
("K3" or "the Group" or "the Company")
Provider of business-critical software solutions focused on
fashion and apparel brands.
Interim results for the six months to 31 May 2023
Key Points
Six months to 31 May 2023 2022
Revenue from continuing operations GBP20.3m GBP19.9m
---------- ----------
Gross profit GBP12.4m GBP11.9m
---------- ----------
_ gross margin 61% 60%
-------------------------------------- ---------- ----------
Adjusted operating loss (see note (GBP0.8m) (GBP1.0m)
10)
---------- ----------
Loss before tax from continuing operations (GBP2.9m) (GBP2.8m)
---------- ----------
Adjusted net cash GBP2.9m GBP1.4m
---------- ----------
Reported loss per share (6.6p) (5.6p)
---------- ----------
Adjusted loss per share for continuing
operations (3.2p) (2.6p)
---------- ----------
Financial
-- Overall performance ahead of management expectations
-- K3 strategic fashion and apparel products annualised recurring revenue up 20% to GBP5.4m
-- Revenue ahead. Approx GBP1.1m of income was not recognised in H1, in line with new policy
o income from new contracts secured by strategic fashion and
apparel products is now recognised over the term of the contract,
instead of upfront
-- Reflecting focus on adjusted net cash, adjusted operating
profit/loss(10) metric has replaced adjusted EBITDA as key
performance indicator
o adjusted operating loss was GBP0.8m (2022: GBP1.0m)
-- Group generated adjusted net cash in the last 12 months;
adjusted net cash at GBP2.9m at 31 May 2023 (31 May 2022:
GBP1.4m)
-- Group earnings and adjusted net cash generation remain
strongly weighted to H2, reflecting the significant H2 weighting of
annual software licence and maintenance and support contract
renewals
Operational
-- K3 Products division - continued strong sales growth from
fashion and apparel offering (strategic products), although
divisional performance still impacted by legacy products in managed
run-off
o Divisional revenue of GBP6.5m (2022: GBP6.5m); gross profit of
GBP5.0m (2022: GBP5.2m)
o Gross profit margin of 77% (2022: 80%)
o Strategic fashion products annualised recurring revenue up 20%
in H1 to GBP5.4m at period-end, driven by new customer wins and
existing customers increasing software licences
o Legacy products performed in line with management
expectations
o Further investment in Sustainability offering to align
functionality with forthcoming legislation from Europe and USA
-- Third-party Solutions division - higher profitability and strongly cash generative
o Divisional revenue of GBP13.8m (2022: GBP13.4m) and gross
profit of GBP7.4m (2022: GBP6.7m)
o Gross profit margin of 53% (2022: 50%) - reflected revenue mix
and reduced overheads
o Global Accounts; lower level of store openings following 2-3
years of high activity
o NexSys (formerly known as SYSPRO); average deal size
increased; strong H2 expected with very healthy services back-log
and high volume of software licence and maintenance and support
contract renewals due; renewals typically c.98%
Prospects
-- Current trading and free cash flow; both in line with
management expectations. Encouraging new business pipeline for
H2
o strategic fashion products - targeting growth of 30% p.a. in
recurring revenue in FY23 and beyond
-- Board is focused on further simplifying operations, reducing
central cost, adjusted net cash generation and continued transition
to higher margin growth activities
Marco Vergani, Chief Executive Officer of K3 Business Technology
Group plc, said:
"We made encouraging progress in key strategic areas of the
business in the first half. We are especially pleased with the
performance of our strategic products for the fashion and apparel
market in the K3 Products division. Our flagship K3 Fashion product
has the potential to maintain its high growth trajectory and has
strong endorsement from Microsoft. Third-party Solutions remains a
cash engine for the Group, and the division will generate high cash
inflows in the second half of the financial year as software
licence and maintenance and support renewals come through.
" Our healthy balance sheet underpins the improvements that we
are making to the business. We remain focused on our high-margin
growth opportunities, cost discipline and adjusted net cash as we
continue to move to higher quality earnings."
Enquiries:
K3 Business Technology Marco Vergani (CEO)
Group plc
www.k3btg.com Tom Crawford (Chairman) T: 0161 876 4498
finnCap Limited Julian Blunt/ Milesh Hindocha T: 020 7220 0500
(NOMAD & Broker) (Corporate Finance)
Sunila De Silva (Corporate
Broking)
KTZ Communications Katie Tzouliadis/ Robert T: 020 3178 6378
Morton
Interim Report
Overview
We have made excellent progress in some key strategic areas, in
particular in our fashion and apparel segment in K3 Products, which
continues to grow very strongly. Overall, the Group's performance
over the first half of the current financial year was ahead
management expectations, with the attrition rate of legacy
products, which are in managed run-off, in line with budgets.
In the six months ended 31 May 2023, Group revenue from
continuing operations was GBP20.3m (2022: GBP19.9m), gross profit
increased to GBP12.4m (2022: GBP11.9m), and gross margin was up to
61% (2022: 60%). Importantly, the Group generated adjusted net cash
in the last 12 months, with net cash at GBP2.9m at the period end
(31 May 2022: GBP1.4m). Group cash generation is typically strongly
weighted to the second half of the financial year. This reflects
the significant cash inflows from NexSys annual software licence
and maintenance and support contract renewals, which fall due in
the second half, with renewal rates historically at c.98%.
In line with our focus on cash generation, we are no longer
using adjusted earnings before interest, tax, depreciation and
amortisation ("EBITDA") as a key performance indicator ("KPI"). We
have instead adopted adjusted operating profit/loss, which in the
period was a loss of GBP0.8m (2022: GBP1.0m). We have also made a
second important change, and have updated our revenue recognition
policy relating to our strategic fashion and apparel products.
Previously, we recognised income from sales of fashion and apparel
products upfront, at the start of a contract. We are now
recognising income over the term of the contract, which will also
align with payment inflows and provide better visibility of
revenues as we pursue our ambitious growth target in this segment.
The effect of the change is that c. GBP1.1m of fashion software
revenue was not recognised in this period, but will be in future
periods.
Our primary focus remains on the development and growth of our
strategic products for the fashion and apparel markets, and related
large retail brands, where we see a very high growth opportunity.
At the same time, we are continuing to realise the growth
opportunities in other parts of the Group.
The requirement for digital transformation continues to be a key
priority for companies in our target sectors. Retail businesses,
especially in fashion, are needing to adapt their models and
systems to engage with customers and suppliers in new and more
varied and efficient ways. Our expertise in the retail sector,
particularly in fashion and apparel, and Microsoft's endorsement of
our K3 Fashion product as its preferred solution for this vertical,
place us in a strong position to continue to drive the growth of
our strategic products. We are targeting growth in annualised
recurring revenue of c. 30% per annum from strategic fashion and
apparel products this year and beyond.
The Third-party Solutions division generates predictable and
strong cash flows from its large customer base, and we are pleased
to see the NexSys unit adding to this base of recurring income,
with some excellent wins in the period.
Our major programme to upgrade and unify our IT systems, which
started over a year ago, has largely completed. It covered Finance,
Sales, Customer Support, and Project Management processes, and has
driven insights and efficiencies. We will continue to seek further
efficiencies and have identified additional areas for cost saving
initiatives in our operations. As part of our approach to greater
cost control, we will be allocating certain Central costs to
relevant business units.
Financial Results
Results from continuing operations
In the six months ended 31 May 2023, the Group generated total
revenue from continuing operations of GBP20.3m (2022: GBP19.9m)
despite the change in revenue recognition policy, and gross profit
increased to GBP12.4m (2022: GBP11.9m). Gross margin was higher at
approximately 61% (2022: 60%), which mainly reflected improved
gross margin in the Third-party Solutions Division.
It is important to note that our decision to change our revenue
recognition policy for fashion and apparel software product sales,
recognising revenue over the term of the contract rather than at
the start of the contract, has shifted approximately GBP1.1m of
fashion software revenue into the future. This change has also
impacted reported gross profit in the period.
As previously mentioned, we have also introduced adjusted
operating profit/(loss) as a key performance metric for the Group.
It now replaces adjusted EBITDA and has resulted in revised
administration expenses being shown in the comparatives for H1 2023
and in FY2022 data, including both depreciation and capitalised
development costs to provide a better alignment with the actual
cash requirements of the business. The adjusted operating loss for
the period was GBP0.8m (2022: GBP1.0m).
Capitalised development costs are then added back in the income
statement in arriving at the reported loss from operations, though
we would expect the level of capitalised development costs to
reduce in future reflecting a more prudent treatment.
The table below provides the reconciliation between adjusted
operating loss in the first half of the financial year under review
and adjusted EBITDA in the comparable period last year.
H1 2023 H1 2022 Change FY 2022
GBP'000 GBP'000 % GBP'000
--------------------------------------- --------- --------- ------- ---------
Adjusted EBITDA (as previously
reported for H1 2022 and FY 2022) 347 994 (65%) 5,064
- depreciation (784) (964) 19% (1,817)
- capitalised development costs (354) (1,013) 65% (1,699)
---- --------- --------- ------- ---------
Adjusted operating profit/(loss) (791) (983) 20% 1,748
--------------------------------------- --------- --------- ------- ---------
Reported adjusted administrative expenses increased slightly to
GBP13.1m (2022: GBP12.9m), which is in-line with revenue growth,
and expenses are expected to reduce next year and beyond.
Adjusted operating loss from continuing activities reduced to
GBP0.8m (2022: GBP1.0m). This encouraging improvement resulted from
higher gross margin and revenue growth and, as previously stated,
is after the change to our revenue recognition policy for fashion
and apparel software sales.
The reported loss before tax from continuing activities was
GBP2.9m (2022: GBP2.8m). This is stated after depreciation and
amortisation of GBP2.1m (2022: GBP3.0m), exceptional reorganisation
costs of GBP0.4m (2022: GBP0.1m), acquisition costs of GBPnil
(2022: GBP0.1m), share-based charges of GBP0.5m (2022: GBP0.3m) and
net finance expense of GBP0.3m (2022: GBP0.2m).
The adjusted loss per share from continuing operations was 3.2p
(2022: 2.6p), and excludes amortisation of development costs,
capitalised development costs, exceptional reorganisation costs,
acquisition costs and share-based charges, and is net of the
related tax charge of GBP0.1m (2022: GBP0.1m). The reported loss
per share from continuing operations, which includes profit from
discontinued activities, increased to 7.2p (2022: 5.9p) .
Balance sheet and cash flows
The Group balance sheet remains strong with cash and cash
equivalents of GBP4.7m (2022: GBP4.3m) and net cash of GBP2.9m
(2022: GBP1.4m). K3 has a bank facility with Barclays, its
long-standing banking relationship, which provides for the draw
down of up to GBP3.5m to support seasonal cash movements. In
February 2023, this facility agreement was extended for a further
year until March 2024. At 31 May 2023, GBP1.8m was drawn down
(2022: GBP1.6m).
As in prior years, Group cash flow remains heavily weighted
towards the second half of the financial year. This reflects the
significant cash inflows from annual software licence and
maintenance and support renewals. The largest element of this is
NexSys renewals, where the renewal rate is typically c.98%.
Cash outflow from operations reduced significantly to GBP2.8m
(2022: GBP5.2m). Net cash used in investing activities amounted to
GBP0.8m (2022: GBP1.6m). This included spend on property, plant and
equipment of GBP0.4m (2022: GBP0.4m), less development expenditure
capitalised at GBP0.3m (2022: GBP1.0m) and ViJi acquisition costs
of GBPnil (2022: GBP0.2m).
Operational Review
The Group's results for the six months ended 31 May 2023,
together with comparatives for the same period in 2022, are
summarised in the tables below. The segmental analysis provides
further information on the key areas of activity, K3 Products
(which includes strategic fashion and apparel products) and
Third-party Solutions.
H1 Revenue (GBPm) Gross profit Gross margin
(GBPm)
2023 2022 2023 2022 2023 2022
------------- -------- ------- ------- ------ ------- ------
K3 Products 6.5 6.5 5.0 5.2 77% 80%
Third-party
solutions 13.8 13.4 7.4 6.7 53% 50%
------------- -------- ------- ------- ------ ------- ------
Total 20.3 19.9 12.4 11.9 61% 60%
------------- -------- ------- ------- ------ ------- ------
K3 Products - K3 strategic 2023 Y/Y Change
products
----------------------------- --------- -----------
Recurring revenue
(SaaS, maintenance, annual
contracts and support) GBP5.4m +20%
----------------------------- --------- -----------
K3 Products
The division provides software products and solutions that are
powered by our own IP. They comprise:
-- strategic products focused on fashion and apparel markets,
principally K3 Fashion and K3 Pebblestone, as well as K3
ViJi and K3 imagine;
-- solutions for the visitor attraction market; and other
stand-alone point solutions and apps, which are mainly
our legacy point-of-sale ("POS") products.
Revenue from strategic products, which are focused on the
fashion and apparel markets and include our flagship product, K3
Fashion, continued to increase strongly and the growth opportunity
remains very exciting. Overall results from the division however
were affected by legacy products, which are in managed run-off, and
by traction with K3 Imagine. We are taking action to ensure that K3
Imagine is cash neutral by the end of the financial year.
In total, revenue generated by the division was GBP6.5m (2022:
GBP6.5m). This figure does not include around GBP1.1m of revenues
from new fashion and apparel software contracts won in the first
half. In line with our new revenue recognition policy, this income
will be recognised over the term of the contracts, rather than
upfront. Gross profit was GBP5.0m (2022: GBP5.2m) although, as with
revenue, it was reduced by the application of the new revenue
recognition policy. Gross margin was 77% (2022: 80%), which
reflected the revenue mix.
Our flagship K3 Fashion product performed very strongly. We
gained a number of major new customers in the period and continued
to expand software licence sales with existing customers. It led
the increase in total annualised recurring revenue from strategic
fashion and apparel products, which rose to GBP5.4m by the end of
the first half, a 20% uplift in just the first half. As well as
securing a major contract with a Swedish outdoor sports fashion
brand, worth c.GBP1.0m over three years, we secured the largest
global deployment of K3 Fashion. This was with a major global
jewellery/watches retailer, and is worth c.GBP1.4m over three
years. We also won a large contract with a major Swiss outdoor
brand, worth c.GBP0.5m over five years, and a five-year contract
worth GBP0.2m with a European golf brand. Alongside these new
contracts, we added a number of smaller value contracts for K3
Fashion, which we expect to expand over time. These new customers
included a German fashion brand, an Italian fabrics and furnishings
manufacturer, a UK ski-wear and accessories company and an Italian
fashion brand.
K3 Fashion remains Microsoft's recommended 'add-on' solution for
the fashion and apparel vertical globally, and our wins continue to
come through our business partner network, with K3 providing
thought leadership and sales support through its domain expertise.
The trend for new customers to buy an initial number of software
licences, mainly for centralised functions such as purchasing, and
catalogue and pricing management, and then to increase their
licence numbers, as they extend the use of the software across
their operations, remains a typical pathway for software adoption.
This is the pattern of we expect to see over the next year and
beyond with the smaller contracts we have gained in the period.
We achieved a good level of new signings for K3 Pebblestone, our
solution based on Microsoft 365 Business Central. We also have a
large base of established clients operating with an 'on-premises'
suite. This offers us the medium-term potential to migrate
customers to a new cloud-based version, sold on a subscription
basis. We are adding functionality to the cloud version to enhance
the proposition. In the current environment, the pace of conversion
is likely to be dictated by customer investment sentiment.
We are seeing an encouraging level of interest in K3 ViJi, our
sustainability software product, which reflects emerging
legislation, targeted at 2025 and beyond, from the European Union
and the USA. This new legislation is designed to reduce waste,
promote a circular economy, and to preserve biodiversity and
natural resources. We are reacting to the still forming legislation
and invested further in ViJi's solution suite during the period in
order to strengthen its regulatory support. We continue to assess
market reaction and approaches on how to leverage our corporate
social responsibility functionalities in both K3 Fashion and K3
ViJi.
Our solutions for the visitor attractions market performed well,
helped by our previous investment to update and enhance our
offering. Legacy products performed as expected and remain in
managed run-off.
Third-party Solutions
Third-party Solutions comprises:
-- NexSys, a value-added reseller (with additional own IP
and modules) of SYSPRO ERP to the UK manufacturers and
distributors; and
-- Global Accounts, which provides specialist services, predominantly
to the Inter IKEA Concept overseas franchisee network.
The Third-party solutions division generated total revenue of
GBP13.8m, consistent with the same period last year (2022:
GBP13.4m) while gross profit increased to GBP7.4m (2022: GBP6.7m).
Gross margin increased by around three percentage points to 53%
(2022: 50%). This rise reflected the revenue mix, which was made up
of a higher proportion of software licence and maintenance and
support income, and reduced overheads.
The NexSys business (formerly known as SYSPRO) delivered an
encouraging performance and secured a number of new projects, with
larger deal sizes. Major new wins were signed with a manufacturer
of automotive plastic components, worth c. GBP0.56m, a bicycle
manufacturer, worth c. GBP0.35m and a manufacturer of products for
the farming industry, worth c.GBP0.31m. These initial order values
include the first year's software licence, the first year's
support, and initial services.
We believe that this encouraging performance is partly due to
pent-up demand, following the suspension of purchasing decisions in
2022 when energy costs soared, but more importantly, reflects the
trend to 're-platform' manufacturing ERP, improve operational
connectivity and drive data-led efficiencies. NexSys's performance
also benefited from the selective investment we made previously in
sales, delivery resource and software development to enhance
functionality, as well as from disciplined cost control. The
business enters the second half with a very healthy services
back-log and encouraging new business pipeline.
Global Accounts saw a period of significant store expansion over
the last two to three years, by Inter IKEA Concept overseas
franchisees, in the Far East, Central America and South America.
During the first half, we continued to support franchisees,
including with K3 Product roll-out such as 'Mobile Goods Flow'.
There were more limited new store openings though, and we are
anticipating more subdued expansion activity from IKEA. Our focus
continues on supporting our relationships, delivered from an
appropriately-sized resource base.
Central Costs
Administration expenses include sales, marketing and central IT,
finance, legal, HR, insurance and PLC costs. They amounted to
GBP13.1m in the period (2022: GBP12.9m). As previously stated, we
will now allocate costs previously included in central support to
the relevant business units. We believe that this will provide
greater accountability, responsibility and cost control.
The Board
In early April 2023, Eric Dodd joined the Company as Chief
Financial Officer, with Rob Price stepping down from this role
after six years with K3, as previously reported. We take this
opportunity to thank Rob for his contribution during his
tenure.
Eric has significant experience of the technology sector and was
previously Chief Financial Officer of ATTRAQT Group Plc, which
specialises in omnichannel search, merchandising and personalised
product discovery technology for online retailers and brands,
mainly in the fashion sector. Prior to this, he was Chief Financial
Officer of Iptor Supply Chain Systems UK Limited, a private equity
backed software and services business, and before that, Chief
Financial Officer of KBC Advanced Technology plc, the software and
consultancy provider to the hydrocarbon industry.
Summary and Outlook
The Group generated adjusted net cash over the last 12 months,
and we expect its adjusted net cash position to strengthen in the
second half. This mainly reflects the strong weighting of earnings
and cash flows to this period, predominantly from NexSys.
Our focus remains on the transition we are making to higher
quality recurring earnings while, at the same time, continuing with
cost discipline and operational simplification. While challenges
remain in the current economic environment, and we anticipate more
subdued activity in Global Accounts, we have taken action to reduce
costs and are very encouraged with the uptake of our flagship K3
Fashion product, which has a significant global growth opportunity.
We are targeting growth in annualised recurring revenue of around
30% per annum in FY23 from our strategic products for the fashion
and apparel market, and believe this rate of growth can be
maintained in the near term. We have achieved a lot in the year to
date and remain confident in the Group's prospects.
Tom Crawford Marco Vergani
Chairman Chief Executive Officer
Co nsolidated Income Statement
for the six months ended 31 May 2023
Restated Restated
Unaudited Unaudited Audited
6 months 6 months 12 months
31 May 31 May 30 November
2023 2022 2022
GBP'000 GBP'000 GBP'000
Revenue 20,267 19,939 47,532
Cost of sales (7,917) (8,047) (19,382)
--------------------------------------- ---------- ---------- ------------
Gross profit 12,350 11,892 28,150
Administrative expenses (13,034) (12,710) (26,300)
Impairment losses on financial assets (107) (165) (102)
Adjusted operating profit/(loss) (791) (983) 1,748
--------------------------------------- ---------- ---------- ------------
Amortisation of development cost (1,331) (2,060) (3,766)
Capitalised development costs 354 1,013 1,699
Amortisation of acquired intangibles - - -
Exceptional impairment - - (1,603)
Exceptional reorganisation costs (374) (118) (595)
Acquisition costs - (98) (98)
Share-based payment charge (532) (322) (855)
--------------------------------------- ---------- ---------- ------------
Loss from operations (2,674) (2,568) (3,470)
Finance expense (266) (219) (338)
Loss before taxation from continuing
operations (2,940) (2,787) (3,808)
Tax credit/(expense) (245) 156 (278)
Loss after taxation from continuing
operations (3,185) (2,631) (4,086)
(Loss)/profit after taxation
from discontinued operations 317 (130) 108
Loss for the period/year (2,868) (2,761) (3,978)
--------------------------------------- ---------- ---------- ------------
All the loss for the year is attributable to equity shareholders
of the parent.
Restated Restated
Unaudited Unaudited Audited
6 months 6 months 12 months
31 May 31 May 30 November
2023 2022 2022
GBP'000 GBP'000 GBP'000
(Loss)/profit per share
Basic and diluted loss per
share (6.5)p (5.6)p (9.0)p
Basic and diluted loss per
share from continuing operations (7.2)p (5.9)p (9.3)p
Adjusted earnings/(loss) per
share (3.2)p (2.6)p 2.1p
Consolidated Statement of Comprehensive Income
for the six months ended 31 May 2023
Restated Restated
Unaudited Unaudited Audited
6 months 6 months 12 months
31 May 31 May 30 November
2023 2022 2022
GBP'000 GBP'000 GBP'000
Loss for the period/year (2,868) (2,761) (3,978)
--------------------------------------- ---------- ---------- ------------
Other comprehensive income
Exchange differences on translation
of foreign operations 212 7 69
--------------------------------------- ---------- ---------- ------------
Total comprehensive income/(expense)
for the period/year (2,656) (2,754) (3,909)
--------------------------------------- ---------- ---------- ------------
All the total comprehensive income/(expense) is attributable to
equity holders of the parent. All the other comprehensive
income/(expense) will be reclassified subsequently to profit or
loss when specific conditions are met. None of the items within
other comprehensive income/(expense) had a tax impact.
Consolidated Statement of Financial
Position
as at 31 May 2023 Restated
Restated Audited
Unaudited Unaudited as at 30
as at 31 as at 31 November
Notes May 2023 May 2022 2022
GBP'000 GBP'000 GBP'000
ASSETS
Non-current assets
Property, plant and equipment 1,866 1,661 1,766
Right-of-use assets 738 1,098 801
Goodwill 25,000 25,475 25,022
Other intangible assets 2,422 5,902 3,394
Deferred tax assets 890 1,010 855
Total non-current assets 30,916 35,146 31,838
----------------------- ------------ -----------
Current assets
Stock 489 448 484
Trade and other receivables 11,136 11,742 13,549
Forward currency contracts 110 - 110
Cash and short-term deposits 4,672 4,322 7,113
Total current assets 16,407 16,512 21,256
----------------------- ------------ -----------
Total assets 47,323 51,658 53,094
----------------------- ------------ -----------
LIABILITIES
Non-current liabilities
Lease liabilities 33 223 79
Provisions - 783 179
Deferred tax liabilities 1,079 1,288 1,119
----------------------- ------------ -----------
Total non-current liabilities 1,112 2,294 1,377
----------------------- ------------ -----------
Current liabilities
Trade and other payables 12,143 10,610 16,882
Current tax liabilities 300 632 372
Lease liabilities 769 951 802
Borrowings 1,768 2,949 50
Provisions 798 854 968
Total current liabilities 15,778 15,996 19,074
----------------------- ------------ -----------
Total liabilities 16,890 18,290 20,451
----------------------- ------------ -----------
EQUITY
Share capital 11,183 11,183 11,183
Share premium account 31,451 31,451 31,451
Other reserves 11,151 11,151 11,151
Translation reserve 1,819 1,545 1,607
Accumulated losses (25,171) (21,962) (22,749)
----------------------- ------------ -----------
Total equity attributable to equity
holders of the parent 30,433 33,368 32,643
----------------------- ------------ -----------
Total equity and liabilities 47,323 51,658 53,094
----------------------- ------------ -----------
Consolidated Cash Flow Statement
for the six months ended 31 May 2023
Unaudited Unaudited Audited
6 months 6 months 12 months
31 May 31 May 30 November
2023 2022 2022
Notes GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Loss for the period (2,868) (2,761) (3,978)
Adjustments for:
Finance expense 266 219 336
Tax (income)/expense 245 (156) 90
Depreciation of property, plant and equipment 344 300 636
Depreciation of right-of-use assets 440 678 981
Amortisation of intangible assets and development expenditure 1,331 2,060 3,767
Impairment of intangible assets - - 1,603
Loss on sale of property, plant and equipment - - 10
Share-based payments charge 446 322 751
Net cash flow from provisions (359) (346) (717)
Net cash flow from trade and other receivables (1,669) (1,087) (3,037)
Net cash flow from trade and other payables (843) (4,658) 2,380
------------------------------------------------------------------------ ---------- ---------- ------------
Cash generated from operations (2,667) (5,429) 2,822
Income taxes paid (150) 279 (395)
------------------------------------------------------------------------ ---------- ---------- ------------
Net cash from operating activities (2,817) (5,150) 2,427
Cash flows from investing activities
Acquisition of a subsidiary, net of cash acquired - (180) (178)
Development expenditure capitalised (352) (1,013) (1,725)
Purchase of property, plant and equipment (445) (410) (845)
------------------------------------------------------------------------ ---------- ---------- ------------
Net cash from investing activities (797) (1,603) (2,748)
------------------------------------------------------------------------ ---------- ---------- ------------
Cash flows from financing activities
Proceeds from loans and borrowings 1,783 1,500 -
Issue of shares - - (111)
Repayment of loans and borrowings - (83) -
Repayment of lease liabilities (541) (584) (1,073)
Interest paid on lease liabilities (84) (96) (132)
Finance expense paid (30) (26) (150)
Net cash from financing activities 1,128 711 (1,466)
------------------------------------------------------------------------ ---------- ---------- ------------
Net change in cash and cash equivalents (2,486) (6,042) (1,787)
------------------------------------------------------------------------ ---------- ---------- ------------
Cash and cash equivalents at start of period/year 7,000 9,033 9,033
Exchange losses on cash and cash equivalents 158 (64) (133)
------------------------------------------------------------------------ ---------- ---------- ------------
Cash and cash equivalents at end of period/year 4,672 2,927 7,113
------------------------------------------------------------------------ ---------- ---------- ------------
Consolidated Statement of Changes in Equity
for the period ended 31 May 2023
Translation Accumulated
Share capital Share premium Other reserves reserve losses Total equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 November
2021 11,183 31,451 11,151 1,538 (19,523) 35,800
----------------- -------------- -------------- --------------- --------------- ---------------- -------------
Changes in
equity for six
months ended 31
May 2022
Loss for the
period - - - - (2,761) (2,761)
Other
comprehensive
income for the
period - - - 7 - 7
----------------- -------------- -------------- --------------- --------------- ---------------- -------------
Total
comprehensive
expense - - - 7 (2,761) (2,754)
Share based
payment - - - - 322 322
----------------- -------------- -------------- --------------- --------------- ---------------- -------------
At 31 May 2022 11,183 31,451 11,151 1,545 (21,962) 33,368
----------------- -------------- -------------- --------------- --------------- ---------------- -------------
Changes in
equity for six
months ended 30
November 2022
Loss for the
period - - - - (1,216) (1,216)
Other
comprehensive
income for the
period - - - 62 - 62
----------------- -------------- -------------- --------------- --------------- ---------------- -------------
Total
comprehensive
expense - - - 62 (1,216) (1,154)
Share based
payment - - - - 429 429
----------------- -------------- -------------- --------------- --------------- ---------------- -------------
At 30 November
2022 11,183 31,451 11,151 1,607 (22,749) 32,643
----------------- -------------- -------------- --------------- --------------- ---------------- -------------
Changes in
equity for six
months ended 31
May 2023
Loss for the
period - - - - (2,868) (2,868)
Other
comprehensive
income for the
period - - - 212 - 212
----------------- -------------- -------------- --------------- --------------- ---------------- -------------
Total
comprehensive
expense - - - 212 (2,723) (2,511)
Share based
payment - - - - 446 446
----------------- -------------- -------------- --------------- --------------- ---------------- -------------
At 31 May 2023 11,183 31,451 11,151 1,819 (25,171) 30,433
----------------- -------------- -------------- --------------- --------------- ---------------- -------------
1 Segment information
For the six months ended 31 May 2023
K3 Products Third-party Solutions Central Costs Total
GBP'000 GBP'000 GBP'000 GBP'000
Software licence revenue 1,958 1,156 - 3,113
Services revenue 400 8,709 - 9,109
Maintenance & support 3,858 3,917 - 7,775
Hardware and other revenue 254 15 - 269
External revenue 6,470 13,797 - 20,267
Cost of sales (1,476) (6,441) - (7,917)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Gross profit 4,994 7,356 - 12,350
Gross margin 77.1% 53.3% 0.0% 60.9%
Adjusted administrative expenses (5,787) (2,367) (4,987) (13,141)
Allocation of Central Costs (1,512) (2,225) 3,737 -
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Adjusted operating profit/(loss) (2,305) 2,764 (1,250) (791)
Amortisation of development cost - - (1,331) (1,331)
Capitalised development costs - - 354 354
Exceptional impairment - - - -
Exceptional reorganisation costs - - (374) (374)
Acquisition costs - - - -
Share-based payment charge - - (532) (532)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
(Loss)/profit from operations (619) 4,816 (6,870) (2,674)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Finance expense - - (266) (266)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
(Loss)/profit before tax and discontinued
operations (619) 4,816 (7,136) (2,940)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Tax expense - - (245) (245)
Profit from discontinued operations - - 317 317
--------------------------------------------------- ------------ ------------------------ -------------- ---------
(Loss)/profit for the year (619) 4,816 (7,064) (2,868)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
For the six months ended 31 May 2022 (restated)
K3 Products Third-party solutions Central Costs Total
GBP'000 GBP'000 GBP'000 GBP'000
Software licence revenue 836 1,801 - 2,637
Services revenue 415 8,019 - 8,434
Maintenance & support 4,834 3,614 - 8,448
Hardware and other revenue 406 14 - 420
External revenue 6,491 13,448 - 19,939
Cost of sales (1,287) (6,760) - (8,047)
----------------------------------------------------- ------------ ---------------------- -------------- ---------
Gross profit 5,204 6,688 - 11,892
Gross margin 80.2% 49.7% - 59.6%
Adjusted administrative expenses (6,326) (3,658) (2,891) (12,875)
Allocation of Central Costs (680) (961) 1,641 -
----------------------------------------------------- ------------ ---------------------- -------------- ---------
Adjusted operating profit/(loss) from continuing
operations (1,802) 2,069 (1,250) (983)
Amortisation of development cost - - (2,060) (2,060)
Capitalised development costs - - 1,013 1,013
Exceptional impairment - - - -
Exceptional reorganisation costs - - (118) (118)
Acquisition costs - - (98) (98)
Share-based payment charge - - (322) (322)
----------------------------------------------------- ------------ ---------------------- -------------- ---------
Loss from operations (1,122) 3,030 (4,476) (2,568)
----------------------------------------------------- ------------ ---------------------- -------------- ---------
Finance expense - - (219) (219)
----------------------------------------------------- ------------ ---------------------- -------------- ---------
Loss before tax and discontinued operations (1,122) 3,030 (4,695) (2,787)
----------------------------------------------------- ------------ ---------------------- -------------- ---------
Tax credit - - 156 156
Loss from discontinued operations - - (130) (130)
----------------------------------------------------- ------------ ---------------------- -------------- ---------
Profit/(loss) for the year (1,122) 3,030 (4,669) (2,761)
----------------------------------------------------- ------------ ---------------------- -------------- ---------
For the twelve months ended 30 November 2022 (restated)
K3 Products Third-party Solutions Central Costs Total
GBP'000 GBP'000 GBP'000 GBP'000
Software licence revenue 2,174 3,468 - 5,642
Services revenue 738 17,377 - 18,115
Maintenance & support 9,620 13,196 - 22,816
Hardware and other revenue 925 34 - 959
External revenue 13,457 34,075 - 47,532
Cost of sales (2,920) (16,462) - (19,382)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Gross profit 10,537 17,613 - 28,150
Gross margin 78.3% 51.7% - 59.2%
Adjusted administrative expenses (12,127) (5,099) (9,176) (26,402)
Allocation of Central Costs (1,904) (4,762) 6,666 -
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Adjusted operating profit/(loss) (3,494) 7,752 (2,510) 1,748
Amortisation of development cost - - (3,766) (3,766)
Capitalised development costs - - 1,699 1,699
Exceptional impairment - - (1,603) (1,603)
Exceptional reorganisation costs - - (595) (595)
Acquisition costs - - (98) (98)
Share-based payment charge - - (855) (855)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
(Loss)/profit from operations (1,590) 12,514 (14,394) (3,470)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Finance expense - - (338) (338)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
(Loss)/profit before tax and discontinued
operations (1,590) 12,514 (14,732) (3,808)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Tax expense - - (278) (278)
Profit from discontinued operations - - 108 108
--------------------------------------------------- ------------ ------------------------ -------------- ---------
(Loss)/profit for the year (1,590) 12,514 (14,902) (3,978)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
2 General information
K3 Business Technology Group Plc is incorporated in England and
Wales under the Companies Act (listed on AIM, a market operated by
the London Stock Exchange Plc) with the registered number 2641001.
The address of the registered office is Baltimore House, 50 Kansas
Avenue, Manchester M50 2GL.
The interim condensed consolidated financial statements comprise
the company and its subsidiaries, "the Group".
Basis of preparation and Going Concern
The financial information set out in this Interim Report does
not constitute statutory accounts as defined in Section 434 of the
Companies Act 2006. The Group's statutory financial statements for
the year ended 30 November 2022, prepared in accordance with the
international accounting standards in conformity with the
requirements of the Companies Act 2006, have been filed with the
Registrar of Companies. The auditor's report on those financial
statements was unqualified and did not contain a statement under
Section 498 (2) or (3) of the Companies Act 2006. The interim
financial information has been prepared in accordance with the
recognition and measurement principles of International Financial
Reporting Standards ("IFRS") and on the same basis and using the
same accounting policies as used in the financial statements for
the year ended 30 November 2022, except for change in revenue
policy discussion in the front half.
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 Interim Report has not been audited or reviewed in
accordance with the International Standard on Review Engagement
2410 issued by the Auditing Practices Board.
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future. For these reasons, they continue to adopt the
going concern basis of accounting in preparing this financial
information.
3 Significant events
During H1 2023, Robert Price (Chief Finance Officer) left the
business and is replaced by Eric Dodd.
As disclosed in our Annual Report and Accounts for FY2022, on 24
February 2023, the Group agreed an extension to its Current
Revolving Credit Facility with Barclays for GBP3.5m until 31 March
2024.
4 (Loss)/earnings per share
The calculations of (loss)/earnings per share (EPS) are based on
the profit/(loss) for the period and the following numbers of
shares:
Unaudited Unaudited Audited
6 months 6 months 12 months
31 May 31 May 30 November
2023 2022 2022
No. of Shares No. of Shares No. of Shares
Denominator
Weighted average number of
shares used in basic and diluted
EPS 44,090,074 44,705,570 44,090,074
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/year.
Unaudited Unaudited Audited
6 months 6 months 12 months
31 May 31 May 30 November
2023 2022 2022
GBP'000 GBP'000 GBP'000
Loss after tax from continuing operations (3,185) (2,631) (4,086)
Profit after tax from discontinued
operations 317 130 108
---------- -------- --------
(Loss)/profit attributable to ordinary
equity holders of the parent for
basic and diluted earnings per share (2,868) (2,501) (3,978)
---------- -------- --------
4 (Loss)/earnings per share (continued)
The alternative earnings per share calculations have been
computed because the directors consider that they are useful to
shareholders and investors. These are based on the following
profits/(losses) and the above number of shares.
Restated Restated
Unaudited Unaudited Audited
6 months 6 months 12 months
31 May 31 May 30 November
2023 2022 2022
GBP'000 GBP'000 GBP'000
Loss after tax from continuing operations (3,185) (2,631) (4,086)
Add back Other Items:
Amortisation of development cost 1,331 2,060 3,766
Capitalised development costs (354) (1,013) (1,699)
Amortisation of acquired intangibles - - -
Exceptional reorganisation costs 374 118 595
Exceptional impairment costs - - 1,603
Acquisition costs - 98 98
Shared-based payment charge 532 322 855
Tax (credit)/charge related to Other
Items (112) (102) (202)
---------- ---------- ------------
(Loss)/profit attributable to ordinary
equity holders of the parent for basic
and diluted earnings per share from
continuing operations before other items (1,414) (1,148) 930
---------- ---------- ------------
Restated Restated
Unaudited Unaudited Audited
6 months 6 months 12 months
31 May 31 May 30 November
2023 2022 2022
Pence Pence Pence
(Loss)/profit per share
Basic and diluted loss per share (6.5) (5.6) (9.0)
Basic and diluted (loss)/profit per
share from continuing operations (7.2) (5.9) (9.3)
Adjusted loss per share
Basic and diluted loss per share from
continuing operations before other items (3.2) (2.6) 2.1
-------------------------------------------- ------ ---------- ------------
5 Loans and borrowings
Unaudited Unaudited Audited
as at as at as at
31 May 31 May 30 November
2023 2022 2022
GBP'000 GBP'000 GBP'000
Current
Bank overdrafts (secured) - 1,395 -
Bank loans (secured) 1,768 1,555 50
1,768 2,950 50
---------- ---------- ------------
6 Net cash
Unaudited Unaudited Audited
as at as at as at
31 May 31 May 30 November
2023 2022 2022
GBP'000 GBP'000 GBP'000
Cash 4,672 4,322 7,113
Bank overdrafts (secured) - (1,395) -
Cash and cash equivalents 4,672 2,927 7,113
---------- ---------- ------------
Loans and borrowings (1,768) (1,555) (50)
Net adjusted cash (before leases) 2,904 1,372 7,063
---------- ---------- ------------
Non-current leases liabilities (33) (223) (79)
Current lease liabilities (769) (951) (802)
---------- ---------- ------------
Net Cash 2,102 198 6,182
---------- ---------- ------------
7 Trade and other payables
Unaudited Unaudited Audited
as at as at as at
31 May 31 May 30 November
2023 2022 2022
GBP'000 GBP'000 GBP'000
Trade payables 1,974 2,432 2,823
Other payables 1,128 1,437 2,202
Accruals 2,942 2,539 4,041
---------- ---------- ------------
Total financial Liabilities, excluding
loans and borrowings, classified as
financial liabilities measures at amortised
cost 6,044 6,408 9,066
Other tax and social security tax 1,311 1,181 2,504
Contract liabilities 4,788 3,021 5,312
12,143 10,610 16,882
---------- ---------- ------------
8 Trade and other receivables
Unaudited Unaudited Audited
as at as at as at
31 May 31 May 30 November
2023 2022 2022
GBP'000 GBP'000 GBP'000
Trade receivables 6,883 7,797 8,079
Loss allowance (1,099) (726) (784)
---------- ---------- ------------
Trade receivables - net 5,784 7,071 7,295
Other receivables 341 172 138
Contract assets 4,153 3,423 5,512
Prepayments 858 1,076 604
11,136 11,742 13,549
---------- ---------- ------------
9 Tax
Unaudited Unaudited Audited
6 months 6 months 12 months
31 May 31 May 30 November
2023 2022 2022
GBP'000 GBP'000 GBP'000
Current tax (credit)/expense
Income tax of overseas operations
on (losses)/profits for the period/year (245) (156) 203
Adjustment in respect of prior periods - - (100)
--------------------- ---------- ------------
Total current tax (credit)/expense (245) (156) 103
--------------------- ---------- ------------
Deferred tax (income)/expense
Origination and reversal of temporary
differences - - 19
Adjustment in respect of prior periods - - (32)
--------------------- ---------- ------------
Total deferred tax expense - - (13)
--------------------- ---------- ------------
Total tax (credit)/expense (245) (156) 90
--------------------- ---------- ------------
Income tax (credit)/expense attributable
to continuing operations (245) (156) 278
Income tax credit attributable to
discontinued operations - - (188)
--------------------- ---------- ------------
(245) (156) 90
--------------------- ---------- ------------
10 Non-statutory information
The Group uses a variety of alternative performance measures,
which are non-IFRS, to assess the performance of its operations.
The Group considers these performance measures to provide useful
historical financial information to help investors evaluate the
underlying performance of the business.
These measures, as described below, are used to improve the
comparability of information between reporting periods and
geographical units, to adjust for exceptional items or to adjust
for businesses identified as discontinued to provide information on
the ongoing activities of the Group. This also reflects how the
business is managed and measured on a day-to-day basis.
1 Adjusted administrative expenses and Adjusted operating profit
or loss are, as appropriate, stated before: exceptional and other
adjusting items including gains or losses on business acquisitions
and disposals, amortisation of acquired intangibles, costs relating
to share-based payments, exceptional impairment, exceptional
re-organisation costs, amortisation of development cost,
capitalised development costs and the related tax effect of these
exceptional and other adjusting items, as Management do not
consider these items when reviewing the underlying performance of
the Segment or the Group as a whole.
2 Recurring or predictable revenue - Contracted support,
maintenance and services revenues with a frame agreement of 2 years
or more, as % of total revenue.
3 Cash outflow - speed at which business spends the money that
is available to it. Calculated as delta between cash and cash
equivalents balances between two periods.
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END
IR FLFLATEIAFIV
(END) Dow Jones Newswires
August 30, 2023 02:00 ET (06:00 GMT)
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