REG - K3 Bus Tech Grp PLC - Final Results
05/04/2022 07:00
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RNS Number : 2348H K3 Business Technology Group PLC 05 April 2022
AIM: KBT
5 April 2022
K3 BUSINESS TECHNOLOGY GROUP PLC
("K3" or "the Group" or "the Company")
Provider of business-critical software solutions focused on fashion and
apparel brands.
Final results for the 12 months to 30 November 2021
Key Points
Financial
12 months 12 months
to 30 November 2021 to 30 November 2020
Revenue £45.3 £43.8
Recurring or predictable revenue(*2) 75.0% 77.0%
K3 Products revenue (Note 2) £16.3m £15.9m
K3 Products revenue as percentage of total revenue(*3) 36.1% 36.2%
K3 Products gross profit (Note 2) £12.2m £12.6m
K3 Products gross profit as a percentage of total gross profit(*4) 45.6% 46.8%
Gross margin 59.3% 61.3%
Adjusted EBITDA(*1) £4.4m £4.0m
Loss before tax from continuing operations, including exceptional £(7.8)m £(20.8)m
impairments(**)
Operating continuing cash flow normalized for Government coronavirus support £3.2m £4.1m
Net debt(*5) £9.0m £(1.9)m
Reported gain / (loss) per share 8.0p (49.3)p
Adjusted (loss) / earnings per share for Continuing Activities(*6) (13.6)p (3.2)p
Gain/(Loss) from disposal of discontinued activities*** £11.9m £0.0m
** exceptional impairments (all non-cash items) totalling £1.4m, (2020:
£16.8m) which related to DdD, RSG and Walton. (see note 7)
*** Discontinued activities relate to Sage and Starcom Technologies Limited
(see note 6 for further details)
Financial
· Revenue from continuing activities up 3% to £45.3m (2020:
£43.8m)
- recurring or predictable revenue(2) of £33.9m (2020: £33.7m)
- strategic fashion products (within K3 Products) revenue up 16% to
£5.0m (2020: £4.3m)
- Third-party Solutions revenue of £28.9m (2020: £27.9m)
· Gross profit from continuing activities constant at £26.8m
(2020: £26.8m)
- strategic fashion products (within K3 Products) contributed £3.6m
(2020: £3.2m)
- Third-party Solutions contributed £14.6m (2020: £14.2m)
· Support/admin costs down by 2% to £22.3m (2020: £22.7m)
· Capitalised development down by £2.2m (48%) to £2.3m
· Adjusted EBIDTA up 8% to £4.4m (2020: £4.0m)
· Loss before taxation from Continuing Activities £(7.8)m (2020:
£20.8m)
· Gain / loss after taxation from Discontinued Activities £12.3m
profit (2020: loss £0.3m)
· Adjusted EPS loss (13.6)p (2020: loss (3.2)p) / Reported EPS
profit 8.0p (2020: loss (49.3)p
· Net cash at 30 November 2021 of £9.0m (2020: net debt of £1.9m)
Operational
· New growth strategy established following appointment of Marco Vergani as CEO
in March 2021
- very good growth opportunities identified across all core
activities
- strong focus on fashion, apparel and related large retail brands,
and the significant opportunity in Sustainability (supply chain traceability),
Omni-channel and Business Insights
· Operations reorganised and new appointments made in line with growth plans
· Disposal of two non-core businesses, Starcom Managed Services unit and Sage
business
- strengthened balance sheet and supported business refocusing
· Significant growth in key market of strategic fashion and apparel IP with 16%
increase in revenue; reflected major new customer wins and increased licence
sales to existing customers
· Non-core legacy point of sales products remain in managed decline
· Third Party Solutions:
- High level of renewal of SYSPRO software licences and support and
maintenance contracts, 98% (2020: 97%). Strong order book for 2022, with
increase in average size of new orders
- Global Accounts continued to expand; roll-out of stores for Inter
IKEA Concept franchisees in the Far East and in Central and South America is
ongoing
· Post-period acquisition of Sustainability-focused software developer, ViJi,
adds strategically important IP
Tom Crawford, Chairman of K3 Business Technology Group plc, said:
"This has been a transformational year for K3. Under our new CEO, Marco
Vergani, we have established a clear and focused growth strategy, and made
substantial organisational changes, including two disposals, which support our
growth objectives. We have also simplified the way we present the business by
creating two clear divisions of K3 Products and Third Party Solutions. The
Group is now financially stronger and better placed to take advantage of the
significant market opportunities we have identified across our core areas of
activity."
"Our post year end acquisition of Sustainability-focused software developer
ViJi is a signal of our ambitions to extend our existing solutions to address
the exciting new opportunities we have identified."
"The Board is very pleased with the progress that has been has made, and the
new financial year has started in line with our expectations."
Enquiries:
K3 Business Technology Group plc Marco Vergani (CEO)
www.k3btg.com (http://www.k3btg.com) Robert Price (CFO) T: 0161 876 4498
finnCap Limited Julian Blunt/ James Thompson T: 020 7220 0500
(NOMAD & Broker) (Corporate Finance)
Richard Chambers, Sunila De (Corporate Broking)
KTZ Communications Katie Tzouliadis/ Dan Maloney T: 020 3178 6378
CHAIRMAN'S STATEMENT
Overview
I am very pleased to present the Group's annual results after my first full
year as Chairman, having joined K3 at the end of October 2020. It has been a
strategically significant year for the business, with a number of decisive
decisions and actions taken, which set the Group on a firm course for future
growth.
Marco Vergani, who was appointed Chief Executive Officer on 30 March 2021, has
led a thorough re-evaluation of market strategy and operations. Together
with the Board and senior management team, he has established a clear growth
plan for K3's future development, including a roadmap for product development.
He has also reallocated investment and made significant organisational changes
that have strengthened the business and reduced costs.
The sale of our Starcom and Sage businesses during the year have not only
allowed us to significantly strengthen our balance sheet but have also have
reduced business complexity, prompting us to present the Group in a simpler
way with just two division: K3 Products and Third Party Solutions.
As well as this, I am pleased to report that, in a challenging market, the
Group's trading performance has remained resilient. Group revenue from
continuing activities increased by 3% to £45.3m (2020: £43.6m), and adjusted
EBITDA rose by 8% to £4.4m (2020: £4.0m). We benefitted from a strong end to
the financial year, signing both new customers and renewals in the fashion and
apparel sectors, core target markets for us. In addition, our manufacturing
software solution renewals, which are strongly weighted to the final quarter
of the financial year, remained very high, reflecting our depth of expertise
and close customer relationships.
As a result of our actions, the Group is significantly better positioned, with
a clear strategy and commercial goals. In January 2022, we made a
strategically significant acquisition, ViJi, which has delivered valuable IP
in Sustainability and specifically supply chain transparency, in line with our
growth strategy.
Financial Results
Revenue from continuing operations for the 12 months ended 30 November 2021
was up 3% year-on year to £45.3m (2020: £43.8m). Recurring or predictable
revenue accounted for 74.8% of total revenue at £33.9m (2020: 77.2%), with
SaaS, maintenance and support contracts contributing £19.8m (2020: £20.3m)
and strategic products of £2.6m (2020: £2.2m).
Group gross profit for the year was constant at £26.8m (2020: £26.8m), and
gross margin was 59.2% (2020: 61.0%), which mainly reflected a change in the
contribution from services.
Support/administrative expenses net of capitalised development cost reduced by
2% to £22.3m (2020: £22.7), with a further reduction of £2.2m in
capitalised development, as a result of streamlining operations. Adjusted
EBITDA(1) from continuing activities was up 8% to £4.4m (2020: £4.0m), aided
by a reduction and redeployment of overhead resource. The loss before tax from
continuing activities was £9.7m (2020: £20.9m) with 2020 including £16.8m
of exceptional impairments.
The balance sheet has been transformed and is significantly stronger than a
year ago. Net cash at 30 November 2021 amounted to £9.0m (31 November 2020:
net debt of £1.9m), and Operating cashflow from Continuing Activities
normalised for Government coronavirus support was £3.2m (2020: £4.1m).
Growth Strategy
After an in-depth analysis of K3's offering, expertise, domain strengths and
market opportunities, we have developed a new strategic growth plan for the
Group. It continues to focus on product-led, high-margin recurring revenue, as
previously, but is now more tightly focused on certain target markets and
sales execution.
We see significant growth opportunities across all the Group's strategic
products and third party solution activities over the next few years, with
some areas offering greater commercial rewards, which we will reflect in our
ongoing capital allocation plans. Growth in fashion, apparel, and related
large retail brands is a particular focus for us. We already offer a
powerful set of solutions to the fashion, apparel and designer sectors, which
support core business processes, and believe there is a significant
opportunity to assist brands in the key areas of Sustainability, Omni-channel
and Business Insights.
We see opportunities to increase sales in other market segments, including
manufacturing and distribution, where we have well-established
third-party-based software solutions, capable of serving larger projects.
Recurring revenue from these third-party solutions contribute significantly to
the Group's profitability and cash flows, and are important contributors to
investment in strategic software product development. Our Global Accounts
activity, which is specialist services led, also has good growth potential
well into the medium term internationally, and provides cross-selling
opportunities for K3 Product.
K3's sector expertise and ERP heritage is being leveraged to pursue the growth
opportunities we have identified, and our cloud-native K3 | imagine technology
platform is a strategically important element. It is micro-service and API
driven, in a 'headless' agnostic architecture with strong in-built integration
capabilities. It therefore plays a key role in the easy adoption of our
solutions.
We continue to support our legacy solutions, comprising mostly point-of-sale
("POS") products. However, we expect to see revenue from these POS solutions
continue to decrease year-on-year.
We have significantly re-shaped the business this year. We disposed of two
non-core businesses, selling Starcom (managed services) in February 2021 and
our Sage reseller business in September 2021. This has streamlined K3, leaving
it tightly focused on core solutions and chosen markets. It has also
significantly strengthened the Group's year-end balance sheet, eliminating net
debt.
Following these disposals, we have reorganised the Group into two primary
segments, K3 Products, comprising solutions based on significant K3
intellectual property ("IP"), and Third-party Solutions, which includes our
SYSPRO and Global Accounts activities.
People
In a challenging year, with the coronavirus pandemic still overshadowing work
and personal life, our staff have shown great adaptability and dedication.
They have innovated to overcome obstacles created by the pandemic situation,
and we would like to thank them for their commitment and hard work during the
year.
There were three Board changes in the financial year. In March 2021, as
previously mentioned, Marco Vergani joined as Chief Executive Officer, and in
September 2021, Per Johan Claesson, Non-executive Director retired from the
Board, with Gabrielle Hase joining as Non-executive Director in his place. We
also made a number of new senior executive appointments in the year. This has
brought additional expertise, commercial drive and domain knowledge into the
Group, and has strengthened our leadership teams.
Marco has over 30 years' experience in the technology industry and has worked
in leadership roles in commercial sales across the UK, Europe, US and Asia. He
has extensive experience of retail, fashion and direct-to-consumer sectors
with a long and successful career at IBM.
Gabrielle Hase is a senior-level specialist in global ecommerce and has
significant experience in advising on omni-channel growth strategies and
digital transformation, in particular for fashion retailers.
We would like to reiterate our thanks to Per Johan Claesson, who retired from
the Board after twenty years of service. He has been a very strong supporter
of the business and made a considerable contribution over many years.
In addition, Jonathan Manley has decided not to stand for re-election at the
AGM in May this year. Jonathan, who joined the Board in December 2015, plans
to spend more time in the US, and felt the 2022 AGM was an appropriate time to
retire from the Board. Jonathan has provided valuable support to the Group
during his tenure, and we also reiterate our thanks to him. We will be
commencing a recruitment process to appoint an independent non-executive
director as successor to Jonathan.
Summary and Outlook
The Group has been significantly transformed this year. It is now financially
and operationally stronger, with a clear growth strategy and stronger balance
sheet.
Our focus is on growth cash generation and recurring income. The Group already
generates substantial recurring income, but we intend to move more strongly
towards SaaS-based revenues, in particular by driving the growth of our
strategic products. Current SaaS, maintenance and support revenue generated by
K3 totals approximately £20m, including a proportion generated by legacy
products under managed decline. Third-party Solutions delivers highly visible
and predictable income under framework contracts, worth approximately an
additional £14m per annum.
We believe there is a substantial opportunity to exploit our existing
expertise in the fashion, apparel and retail markets by expanding our offering
to address unmet needs in Supply Chain Sustainability, Omni-channel and
Business Insights. Brands are increasing their focus on Sustainability,
prioritising environmental and ethical considerations concerns, and seeking
greater transparency over their supply chains. Legislation is also driving a
requirement for greater supply chain traceability. In addition, digital and
physical sales channels typically require greater integration and unification,
and next-generation analytics is another burgeoning area.
Our recent acquisition of ViJi, a software developer with innovative and
proven Sustainability software solutions aiding fashion retailers, is an
exciting development, and will help to accelerate our offering in this area.
K3 has made significant progress over the financial year, and a clear growth
plan is now in place. We are continuing with initiatives to improve the
operations. In an inflationary environment with some resourcing issues, we
are also managing costs carefully.
Third Party Solutions is experiencing encouraging demand, and has secured
contracts with larger UK manufacturing customers, and the expansion of IKEA
franchisee stores in Asia and Latin America is continuing in line with
schedules.
K3 Products is seeing positive signs of increased activity, with new clients
signed and additional software licences taken by existing fashion customers.
Its market position has been strengthened byK3's inclusion as an Independent
Software Vendor (ISV) within the newly announced Microsoft Retail Cloud.
Non-strategic products are being managed in line with expectations.
Cash balances are at planned levels and further supported by an extension to
banking facilities, secured in this first quarter. The Board expects to make
further progress with growth initiatives.
T Crawford
Chairman
5 April 2022
CHIEF EXECUTIVE OFFICER'S Review
Introduction
My priority on joining K3 in March 2021 was to conduct a thorough review of
the Group. This included reviewing its markets, solutions, product portfolio,
sales strategies and organisational structure. As a result of this exercise,
we have established a new purpose, vision and growth strategy for K3. We have
also made operational changes that support our new commercial objectives,
including streamlining operations, upgrading certain systems and recruiting
additional talent.
Retail Sector
The retail industry, particularly the fashion, design and apparel sectors, is
experiencing fundamental transformation. Certain megatrends, including
'Unified Consumer Experience', 'Digitalisation', 'Personalisation', and
'Omni-channel' retailing, are at the forefront. They are driving changes in
the way brands and retailers sell to and engage with customers. Retailers are
working hard to enable consumers to choose products and make purchases in the
most convenient way and to establish closer customer relationships and
reinforce their brand values.
In addition, there are a number of even more profound trends, based on new and
emerging societal priorities and values, which are altering consumer
purchasing habits. A greater emphasis on environmental and ethical concerns is
evident. Younger generations, in particular, are attracted to a digital
experience of brands and increasingly model their tastes and preferences on
the basis of social influence exercised via social media. Consumer lifestyle
changes, including those driven by the coronavirus pandemic, are also shifting
consumers' purchasing patterns and behaviours.
Understanding consumer motivation and behaviour remains a fundamental
objective for all brands. However traditional classifications of consumers -
by age, income, culture - are being superseded by more sophisticated AI-driven
personalisation techniques. Nonetheless, while AI enables retailers to
identify and leverage some consumer patterns, it still does not accurately
predict individual behaviors, trends, and patterns or easily identify changes
in the emotional dynamics between consumers and brands.
Traditional retailers, particularly in non-grocery industries - the so-called
"horizontal" retailers - are adapting their models, image and branding as they
react to these market trends. On the opposite side, "vertical" retailers,
including direct-to-consumer brands, are growing. These include manufacturers
and distributors now selling directly to the consumer, as well as online
retailers, whose models provide greater commercial agility than traditional
retailers.
Overall, the retail sector is contending with the need to micro-segment and to
effect strategic and operational change more rapidly. Fashion retailers and
direct-to-consumer brands are now seeking to shorten their supply lead times
in order to be able to offer more frequent collections as well as to adapt
more rapidly to sales trends. For example, pricing and promotion changes have
to be executed more often and consumer data collected and analysed more
frequently. These requirements are driving closer supply chain collaboration
and, where possible, virtualisation.
While these changed dynamics constitute challenges for many consumer brands
and retailers, they have also created fertile ground for new and existing
brands, who have a clear understanding of the power of technology and digital
channels to strengthen their reputation, image and market positioning, engage
with consumers globally, and amplify sales.
A new Vision
We have identified compelling growth opportunities across all our core
activities, with particularly exciting opportunities in fashion and apparel
and related large retail and direct-to-consumer brands.
K3 Products - Strategic focus on Fashion & Apparel
K3 has a deep knowledge and experience of retail businesses, rooted in its
delivery of Enterprise Resource Planning ("ERP") and Point of Sales ("POS")
solutions.
We have significant expertise across all the core "Concept-to-Consumer"
processes, which include product design, manufacturing, supply and returns, as
well as all the intermediate steps. We also have a strong understanding of the
challenges facing our customers and their changing priorities as a result of
new technologies, new regulation, and changing consumer behaviour. The ongoing
digital transformation affecting the sector is, in particular, driving a
requirement for solutions that enable strong supply chain collaboration, a
smarter and more integrated sales experience, as well as a shift to data led
cloud-based Software as a Service ("SaaS") solutions.
We believe that we have a particular opportunity to capitalise on our existing
position and reputation in the fashion and apparel and related large retail
markets. This includes brands that have an ambition to develop their
direct-to-consumer sales.
We have encapsulated our new purpose and vision, with the phrase, 'Transform
retail for good'. The two key ideas of 'transformation' and 'good' summarise
the direction of travel we are taking i.e. in providing solutions that will
support necessary innovation and adaptation in core business processes,
including in relation to environmental and ethical priorities.
The key growth areas we are focusing on are:
· Sustainability - especially supply chain traceability, as further
evidenced by the March 2022 EU strategy for sustainable and circular textiles;
· Omni-channel and 'unified inventory' - in particular creating a
seamless shopping experience for consumers as they engage digitally and
physically with brands, from the discovery stage to checkout and returns; and
· Business Insight - enabling brands to extract actionable
intelligence from the data collected through our products to optimise
inventory, maximise profitability, reduce wastage and inefficiencies, and
engage with consumers in a more personalised way.
We believe that we have a unique opportunity to closely integrate our ERP
solutions, K3|fashion and K3| pebblestone, which are based on Microsoft, with
K3|imagine, our 'headless' cloud commerce platform (which integrates readily
with any IT infrastructure) so as to provide a comprehensive suite of
solutions capable of supporting customer needs in these critical areas of
their business.
We believe that this will provide us with a highly differentiated and
compelling offering to mid-size enterprise fashion and apparel clients that
need to replace old legacy systems and/or want to embrace modern and agile
ways of supporting their core business processes, managing their sales and
enhancing their engagement and brand with consumers. We also envisage a 'land
and expand' strategy, where we win new clients with a particular product and
then cross-sell other products, which offer broader end-to-end capabilities,
optimisation and streamlined operations.
The recent acquisition of ViJi, the sustainability-focused software developer
with a compelling suite of products addressing supply chain transparency,
allows us to extend the existing Sustainability capabilities already provided
by our fashion ERP solutions. Supply chain transparency is a burgeoning area
that is increasingly regulated, and demand for end-to-end solutions is growing
rapidly.
Third-party Solutions
SYSPRO
There is an increasing demand for digital transformation, smart manufacture
and direct machine integration, as SYSPRO customers move away from first
generation, monolithic ERPs or fragmented legacy applications, which are
typically poorly integrated or siloed. This provides a significant growth
opportunity for us, and we plan to expand our presence in the UK market. Our
focus is on serving and delivering larger-scale implementations and
transformation for customers in growth sectors.
We are also continuing to invest in our relationship with SYSPRO and in new
software development that enriches the SYSPRO offering with our own modules,
capabilities and add-ons. These include 'CAD integration', 'warehouse
management', 'shop floor labour control' and 'Making Tax Digital'. We also
have an unrivalled unified, end-to-end support service that underpins our
offering.
Global Accounts
Our Global Accounts business includes our relationship with Inter IKEA Systems
B.V. (the owner and franchisor of the IKEA concept) and the Inter IKEA Concept
franchisees. The backbone of our activity is the development of the core IKEA
solution for franchisees and supporting franchisees with the IT
infrastructure, integration and system enhancement that underpins all IKEA
franchisee stores and back-office solutions.
Developing and delivering additional complementary new solutions, such as our
'Mobile Goods Flow' and 'Self-ordering Kiosk' applications, are important
additional support functions that keep our relationships strong and K3 as the
vendor of choice.
The continuing expansion of the IKEA Concept and stores into new territories
is well-established. We expect further growth in new store openings in Latin
America as well as additional expansion in Asia and Middle East.
Restructuring
Alongside this refocusing, we have restructured K3, selling two non-core
businesses in the year, Starcom, the Managed Services unit, and the Sage
reseller practice. This has significantly strengthened the Group's financial
position, generating total cash proceeds of £16.2m.
Following these disposals, and in line with our growth plans, we now report on
two segments, K3 Products and Third-party Solutions, alongside central support
costs as previously.
Organisational and operational changes
We made a number of changes to the organisation of the Group, reallocating
resource and reporting lines and making some new appointments to align the
business more effectively. In particular, we focused on the Group's commercial
functions.
We allocated additional resource to our strategic partnerships, which include
Microsoft and channel partners responsible for reselling our fashion
offerings. Our relationship with Microsoft remains close, and K3 has been
nominated as part of Microsoft Retail Cloud, which is an important recognition
of our products in the fashion and apparel sector. We also strengthened the
new sales team for North America, which supports our 'go-to-market' resource
with Microsoft in this important region. We have sought to improve client
support, increase cross-selling and upselling, and strengthen delivery
processes and knowledge management practices.
Review of Performance
K3 Products
K3 Products are those software products and solutions that are powered by our
own IP. K3 Products comprise:
· Strategic products focused on the fashion and apparel markets,
including K3|fashion, K3|imagine retail solutions and K3|pebblestone;
· solutions for the visitor attraction market, integration products
and manufacture solutions; and
· stand-alone point solutions, mainly our legacy point-of-sale
("POS") products.
£m 2021 2020*
Revenue 16.3 15.9
Gross profit 12.2 12.6
Gross margin % 74.9% 79.3%
Underlying admin / support costs (12.2) (14.1)
EBITDA pre capitalised development (0.0) (1.5)
Capitalised development 2.3 4.1
Adjusted EBITDA 2.3 2.6
*restated
Total revenue increased by 3% to £16.3m (2020: £15.9m), with very good
growth in the strategic fashion products where revenue increased by 16%
year-on-year. As expected, the revenue contribution from legacy POS business
continued to decline, partially offsetting growth elsewhere. This also
impacted gross profit and gross margin, although gross margin remained high at
74.9%. We reduced underlying administration and support costs, and EBITDA
before capitalised development costs improved by £1.5m to a breakeven
position, with a more focused deployment of development resource. Adjusted
EBITDA was £2.3m. (2020: £2.6m).
New orders for fashion and apparel product increased, with £3.1m of contracts
closed for K3|fashion and K3|pebblestone (2020: £2.2m) after a strong end to
the financial year. New orders included a number of new customers wins, as
well as increased licence sales to existing customers. New customers included
a Swedish clothing brand for children, a German e-commerce fashion and
homeware brand, and a Scandinavian designer brand.
We remain confident about prospects for our fashion products, which are sold
primarily via selected Microsoft business partners. Microsoft's global
endorsement as its recommended 'add-on' solution for the fashion and apparel
vertical continues to underline the quality of our products.
We believe that there are very good growth opportunities in the USA for our
fashion products, and we have increased our sales resource there to three
executives (2020:1). We have also strengthened our channel partner management
team, bringing in new talent to help drive channel sales.
Own-IP solutions for visitor attractions, integration products and manufacture
solutions performed in line with management expectations. The UK visitor
attractions segment was heavily hit by the coronavirus pandemic but, with the
lifting of restrictions during the summer, has been recovering strongly. We
have significantly upgraded our offering, with an enhanced reservation engine
and improved online ticketing capability, and are planning to release shortly
a refreshed user-interface.
After the financial year end, in January 2022, we made a strategic purchase of
intellectual property, acquiring ViJi, an innovative French software
developer. ViJI is wholly focused on enabling fashion retailers to trace and
authenticate more easily the environmental and social credentials of their
supply chains. It has developed fully scalable software solutions, covering
the collection, verification and renewal of supplier certifications, as well
as a consumer-facing component that enables fashion retailers to provide
ethical and environmental information on their products.
ViJi's exciting new products are entirely complementary to K3's existing
offering and align with our plans to create a suite of products that address
sustainability and in particular supply chain transparency. We will
integrate the solutions with the sustainability features in our fashion
products. As forthcoming sustainability-related legislation comes into effect
both in Europe and the USA, we believe that our solutions will be
well-positioned for the fashion and apparel markets.
Third-party Solutions
Third-party Solutions comprises our SYSPRO and Global Accounts units, which
both resell third-party solutions. These are typically 'on-premise', and
revenues are generated from implementation, software licence renewals, and
ongoing maintenance and support contracts.
£m 2021 2020*
Revenue 28.9 27.9
Gross profit 14.6 14.2
Gross margin % 50.4% 51.1%
Underlying admin / support costs (6.6) (6.8)
EBITDA pre capitalised development 8.0 7.4
Capitalised development 0.0 0.1
Adjusted EBITDA 8.0 7.5
restated
Total revenue increased by 4% to £28.9m (2020: 27.9m) and adjusted EBITDA
increased by 7% to £8.0m (2020: £7.5m).
Our UK manufacturing customer base, which largely comprises SYSPRO customers,
delivered a resilient performance in the pandemic environment, with customers
proceeding with new software installations. We secured a good level of new
SYSPRO business in the year, and were successful in targeting larger, more
complex projects. As a result, the average size of new orders has increased
significantly, and we have a strong services order book for 2022. We plan to
increase our resource to support the opportunities we have created.
Software licence and maintenance and support contract renewals across the
SYSPRO customer base remained very high at c.98% (2020: 97%). Most of these
renewals take place in the final quarter of the financial year, and generate
substantial cash inflows.
Internationally, our Third-party Solutions business mainly comprises Global
Accounts and, in particular, the Inter IKEA Concept franchisee network, and
this business performed well. We are supporting a significant expansion of
IKEA franchisee stores in Central and South America. Reflecting this, we
increased our Far East off-shoring resource earlier in the year, which caused
a reduction in our services gross margin. Activity levels are expected to
remain high over the new financial year, and we have plans to substantially
increase the size of our delivery teams for Global Accounts. While there has
been a shortage of available skilled resources, we expect the situation to
normalise over the year. We were also pleased to support Global Account
customers with some of our new K3 applications, including 'Mobile Goods Flow'
and the integration of our 'Self-ordering Kiosk' application into IKEA store
restaurants.
Central costs
Central Support costs include our central IT, finance, legal, HR, insurance,
marketing and PLC costs, which are not allocated to revenue generation. These
decreased slightly to £5.9m from £6.1m in 2020 following some efficiency
drives
Summary
It has been a transformational year for K3. We have taken major steps
forward in repositioning the business for long-term, sustainable profitable
growth and cash generation. We believe that we are establishing an
organisation that is more commercially-driven and customer-focused, as well as
more agile. Our emphasis is on ensuring that the business is
"market-product-price-fit" driven and provides an excellent customer service.
We have clearly defined growth plans for the future and have identified very
good growth opportunities across our fashion and apparel activities and in our
SYSPRO and Global Accounts operations.
Marco Vergani
Chief Executive Officer
5 April 2022
financial Review
Overview
These financial statements are for the financial year ended 31 November 2021.
It should be noted that the comparatives for the prior financial year
consolidated income statement have been restated. This followed the
classification of the Sage practice as a discontinued activity after its
disposal in September 2021. The Starcom Managed Services unit, which was
disposed of in February 2021, was already classified as an asset held for sale
as at 30 November 2020 and presented within discontinued operations. The 2020
comparatives have therefore been restated to present Sage as part of the
discontinued operations in order to provide comparability.
The Group's reported segments are now 'K3 Products' and 'Third party
Solutions', with central support costs reported separately as previously. This
aligns segmental reporting with the Group's growth strategy and the disposals
of the Sage and Starcom businesses.
The Directors consider the key performance indicators by which they measure
the performance of the Group by division to be:
· revenue;
· recurring or predictable revenue(*2);
· gross profit; and
· gross margin
· Adjusted EBITDA
The Group's results for the year end to 30 November 2021, together with
comparatives for the same period in 2020, are summarised in the tables below.
K3's intellectual property as a percentage of total gross profit is also
highlighted below.
Continuing activities Revenue
£m 2021 2020*
Revenue 45.3 43.8
- recurring or predictable revenue(2) 33.9 33.7
- Strategic SaaS, maintenance, and support 2.6 2.2
Gross profit 26.8 26.8
Gross margin percentage 59.2% 61.3%
Underlying support / admin costs (24.7) (26.9)
Capitalised development costs 2.3 4.2
Adjusted EBITDA 4.4 4.0
*restated
2021 2020
K3 products gross profit as a percentage of total gross profit(*4) 45.6% 46.9%
K3 generated revenue of £45.3m, which was 3% ahead of the prior financial
year. This growth was slightly offset by the expected decline in revenue from
legacy product. .
The key metric of adjusted earnings before interest, tax, depreciation,
amortisation and exceptional items ("EBITDA") increased by 8% to £4.4m (2020:
£4.0m), with Gross Profit flat on 2020 and a reduction in underlying support
/ admin costs. Gross margins reduced to 59.2%, (2020: 61.3%) due upfront
investment in Third Party Solution Services teams.
Administrative expenses
£m 2021 2020*
Support/ administration costs net of capitalised development costs 22.3 22.7
Depreciation & amortization 6.8 4.4
Amortization of acquired intangibles 0.5 1.5
Exceptional costs impairment & reorganisation 3.1 17.8
Share based payments 0.4 0.0
Total 33.1 46.4
Support/administration costs net of capitalised development costs( *7) reduced
by 2% to £22.3m (2020: £22.7). This followed a decision to reduce
non-revenue generating resource and redirect this investment in new
customer-facing staff.
Depreciation and amortization costs increased in line with a change in
amortization period for capitalised development costs from five-seven years to
three years. Exceptional costs in 2021 related to the funding of redundancy
costs to support the reduction in support / administration costs and onerous
contracts following the Starcom disposal. The significantly higher exceptional
costs in 2020 included the impairment of goodwill and capitalised development
costs of £16.8m.
Discontinued activities
On the 28 February 2021, the Group disposed of its Starcom Managed Services
unit for £13.3m. The unit had already been classified as an 'available for
sale' asset as at 30 November 2020 and had been accounted for in discontinued
activities in 2020 reported results.
Starcom's total external revenue for the three months to 28 February 2021 was
£2.3m (12 months to 30 November 2020: £9.5m) and it generated a profit
before taxation of £9.5m (12 months to 30 November 2020: £1.1m) including
profit on disposal of £9.3m.
On 1 October 2021, the Group disposed of its Sage business for £1.5m. This
business generated external revenue for the 10 months to 30 September 2021 of
£4.0m and a profit before tax of £2.6m including the £2.6m gain on the sale
of trade and negative net assets (12 months to 30 November 2020: revenues of
£5.1m and loss before tax of £0.1m).
In April 2020, the UK Dynamics subsidiary was put into administration. The
subsidiary has no reported results for 2021. It showed a loss after tax of
£3.4m in 2020 results.
Earnings per share
Reported gain per share was 8.0p (2020: Loss 49.3p). The Group's adjusted loss
per share for Continuing Activities( )was(*6) (13.6)p (2020: adjusted loss
per share(*6) 42.4p).
Dividends
No dividend will be declared for the year ended 30 November 2021 (2020: nil).
Taxation
£m 2021 2020
Net VAT 2.8 3.3
Corporation tax 0.8 0.5
Employer social security contributions 3.2 3.2
Total 6.8 7.0
% of revenue 15.0% 14.1%
Employer social security contribution amounted to £3.2m (2020: £3.2m)
reflecting the number of people in the Group. Aggregated corporation tax
charges, employee taxes and net VAT totalled £6.6m (2020: £7.0m).
During the previous financial year, we received governmental support during
the early part of the coronavirus pandemic. We deferred £2.7m of PAYE and VAT
payments as at 30 November 2020, which we subsequently repaid in full by 30
November 2021.
There was a corporation tax charge for the financial year of £0.8m (2020:
£0.3m credit). This comprised a charge for current taxation of £0.6m
(2020: £0.3m) relating to the non UK businesses and a charge for deferred
taxation of £0.2m (2020: £0.6m benefit).
Balance Sheet
The Balance Sheet has altered significantly since last year following the
disposal of two units and the associated pay down of Bank Facilities and the
conversion to equity of the £3m shareholder loans. The Starcom business was
disposed of in 2021, however, its assets and associated liabilities had
already been classified as held for sale as at 30 November 2020, with
Starcom's net asset value at that date standing at £3.3m. The Sage business
was also disposed of during 2021, and this consequently reduced non-current
assets by £nil, current assets by £0.2m and current liabilities by £0.8m.
A sharper focus on product development cost spend meant additions to
development costs were £2.3m compared to £4.5m in 2020, with 90% of this
invested in development of fashion and apparel products. Following a review of
the Group's accounting policies and the resultant decision to reduce the
amortization period to three years from five to seven years, amortisation of
development costs increased to £5.1m (2020: £2.5m).
Within working capital, Trade and other receivables amounted to £10.6m (2020:
£10.6m) with K3 maintaining ownership of the Sage receivables following the
disposal and with the increase on last year driven by an increase of services
revenue. Trade and other payables totalled £14.4m (2020: £18.0m) with 2020
including £2.7m relating to governmental tax deferrals schemes).
The Group's net cash(*5) position has significantly strengthened. At the
financial year end, it stood at £9.0m (2020: net debt of £1.9m). This
material improvement was underpinned by the disposal proceeds of Starcom
(£13.3m) and Sage (£1.5m), as well as the conversion to equity of the £3.0m
shareholder loan.
After the financial year end, the Group's facilities agreement with Barclays
was extended for another year until the next renewal review in March 2023.
Cash flow
Cash generated from Operations was £0.9m (2020: £8.6m) for the Group which
included both Discontinued Activities and Government coronavirus support
programmes in which the Group delayed payments in FY20 and paid them in FY21.
The table beneath shows the normalisation for the Government coronavirus
support payments and for Discontinued operations. Operating cash flow from
Continuing Activities normalized for Government coronavirus support is £3.2m
(2020: £4.1m), the main difference driven by some slower moving sales ledger
balances in FY21, which are now unwinding. The FY20 exceptional income of
£2.5m was associated with the Dynamics administration.
£m 2021 2020
Net cash from operating activities 0.9 8.6
Total
- Add back Sage outflows 0.2 0.2
- Add back Starcom inflows (0.6) (1.1)
Add back Dynamics outflow - 1.6
Government coronavirus tax support paid/ (deferred) 2.7 (2.7)
Exceptional income - (2.5)
Operating cash flow from Continuing Activities normalised for Government 3.2 4.1
coronavirus support
Income taxes paid increased to £1.4m (2020: £0.4m) due increasing taxable
profits being made in non UK tax regimes.
Investing Activities included the disposal proceeds of the Starcom and Sage
businesses of £13.3m and £1.5m respectively. A sharper focus on the
development cost base reduced the amount of capitalised development
expenditure capitalised £2.3m (2020: £4.5m).
Within Financing Activities, following the high level of Starcom and Sage
disposal proceeds, these funds were used to pay down the Bank Facilities of
£6.8m. In addition, Net Debt was reduced by the non cash debt to equity
conversion of the £3m shareholder loan. Interest expenses paid also increased
despite the lower debt levels due to £0.6m interest costs associated with the
shareholder loan conversion.
Robert Price
Chief Financial Officer
5 April 2022
Consolidated income statement
for the year ended 30 November 2021
Notes Year ended Year ended
30 November 30 November
2021 2020 (restated)
£'000 £'000
Revenue 2 45,267 43,762
Cost of sales (18,432) (16,926)
Gross profit 26,835 26,836
Administrative expenses (33,106) (46,435)
Impairment losses on financial assets (118) (62)
Adjusted EBITDA 4,357 4,034
Depreciation and amortisation (6,797) (4,446)
Amortisation of acquired intangibles (518) (1,471)
Exceptional Impairment 7 (1,421) (16,855)
Exceptional reorganisation costs (1,570) (902)
Share-based payment (440) (20)
charge
(Loss)/profit from operations (6,389) (19,660)
Finance expense (1,433) (1,193)
Loss before taxation from continuing operations (7,822) (20,853)
Tax expense 3 (939) (22)
Loss after taxation from continuing operations (8,761) (20,875)
Loss after taxation from discontinued operations 6 12,292 (255)
Profit / (loss) for the year 3,531 (21,130)
^ The 2020 results have been restated to present Sage within the discontinued
operations. See Note 6 for further details.
All the loss for the year is attributable to equity shareholders of the parent
Gain / (Loss) per share Year ended Year ended
30 November 30 November
2021 2020 (restated)
Basic and diluted 9 8.0p (49.3)p
Basic and diluted from Continuing operations 9 (19.9)p (48.8)p
Year ended Year ended
30 November 30 November
2021 2020 (restated))
£'000 £'000
Profit / (loss) for the year 3,531 (21,130)
Other comprehensive (loss) / income
Exchange differences on translation of foreign operations (1,085) 1,065
Other comprehensive (loss) (1,085) 1,065
Total comprehensive expense / (loss) for the year 2,446 (20,065)
All the total comprehensive expense is attributable to equity holders of the
parent. All the other comprehensive income will be reclassified subsequently
to profit or loss when specific conditions are met. None of the items within
other comprehensive income/(loss) had a tax impact.
Consolidated statement of financial position
as at 30 November 2021
2021 2020
£'000 £'000
ASSETS
Non-current assets
Property, plant, and equipment 1,551 1,866
Right-of-use assets 1,709 2,719
Goodwill 24,772 26,132
Other intangible assets 6,648 10,271
Deferred tax assets 1,010 935
Total non-current assets 35,690 41,923
Current assets
Stock 467 452
Trade and other receivables 10,605 10,616
Cash and cash equivalents 9,146 9,306
Assets in disposal groups classified as held for sale - 6,899
Total current assets 20,218 27,273
Total assets 55,908 69,196
LIABILITIES
Non-current liabilities
Lease Liabilities 135 1,735
Provisions 1,129 416
Deferred tax liabilities 1,288 889
Total non-current liabilities b 3,040
Current liabilities
Trade and other payables 14,456 18,018
Current tax liabilities 509 1,274
Lease liabilities 1,623 925
Borrowings 113 12,443
Provisions 854 9
Liabilities directly associated with assets classified as held for sale - 3,572
Total current liabilities 17,555 36,241
Total liabilities 20,107 39,281
EQUITY
Share capital 11,183 10,737
Share premium account 31,451 28,897
Other reserves 11,151 11,151
Translation reserve 1,538 2,623
Retained earnings (19,522) (23,493)
Total equity attributable to equity holders of the parent 35,801 29,915
Total equity and liabilities 55,908 69,196
Consolidated Cash Flow Statement
for the year ended 30 November 2021
Notes Year ended Year ended
30-Nov 2021 30-Nov 2020
£'000 £'000
Cash flows from operating activities
Profit/ (loss) for the period 3,531 (21,130)
Adjustments for:
Finance expense 1,448 1,137
Tax expense / (credit) 829 (284)
Depreciation of property, plant, and equipment 591 730
Depreciation of right-of-use assets 963 1,727
Amortisation of intangible assets and development expenditure 5,639 4,247
Impairment of intangible assets 1,421 16,855
Loss on sale of property, plant, and equipment 466 254
Share-based payments credit 440 20
(Profit) / loss on disposal of discontinued operations (11,893) 957
Increase in provisions 1,558 71
(increase) / decrease in trade and other receivables (242) 6,680
Decrease in trade and other payables (3,896) (2,668)
Cash generated from operations 855 8,596
Income taxes paid (1,362) (364)
Net cash from operating activities (507) 8,232
Cash flows from investing activities
Development expenditure capitalised (3,024) (4,516)
Proceeds from disposal of operations net of cash balances in disposal unit 6 14,763 -
Purchase of property, plant, and equipment (623) (713)
Net cash generated from / (used in) investing activities 11,116 (5,229)
Cash flows from financing activities
Proceeds from loans and borrowings 4,800 9,950
Repayment of loans and borrowings (11,571) (6,468)
Repayment of lease liabilities (1,187) (1,841)
Interest paid on lease liabilities (202) (308)
Finance expense paid (673) (590)
Net cash from financing activities (8,833) 743
Net change in cash and cash equivalents 1,776 3,746
Cash and cash equivalents at start of year 7,566 3,841
Exchange losses on cash and cash equivalents (309) (21)
Cash and cash equivalents at end of year 9,033 7,566
Consolidated statement of Changes in Equity
for the year ended 30 November 2021
Share capital Share premium Other reserves Translation reserve Retained earnings Total equity
£'000 £'000 £'000 £'000 £'000 £'000
At 30 November 2019 10,737 28,897 10,448 1,558 (2,383) 49,257
Changes in equity for year ended 30 November 2020
Loss for the year - - - - (21,130) (21,130)
Other comprehensive income for the year - - - 1,065 - 1,065
Total comprehensive income/(expense) - - - 1,065 (21,130) (20,065)
Share-based payment - - - - 20 20
Issue of warrants - - 703 - - 703
At 30 November 2020 10,737 28,897 11,151 2,623 (23,493) 29,915
Changes in equity for year ended 30 November 2021
Profit for the year - - - - 3,531 3,531
Other comprehensive loss for the year - - - (1,085) - (1,085)
Total comprehensive income/(expense) - - - (1,085) 3,531 2,446
Share-based payment - - - - 440 440
Issue of shares 446 2,554 - - - 3,000
At 30 November 2021 11,183 31,451 11,151 1,538 (19,522) 35,801
1 Basis of preparation
Statement of compliance
These group financial statements have been prepared in accordance with UK
endorsed IFRS in conformity with the requirements of the Companies Act 2006
("IFRS"). The company financial statements have been prepared in accordance
with Financial Reporting Standard 101, Reduced Disclosure Framework
("FRS101").
The financial information has been prepared under the historical cost
convention except for derivative financial instruments which are stated at
their fair value.
Whilst the financial information included in this Preliminary Results
Announcement has been prepared in accordance with the recognition and
measurement criteria of IFRS, this announcement does not itself contain
sufficient information to comply with IFRS.
The Group's statutory financial statements for the year ended 30 November
2021, from which the financial information presented in this announcement has
been extracted, were prepared using the accounting policies disclosed in the
principal accounting policies set out in the Group's Annual Report. These
policies have been consistently applied to all years presented.
The preparation of financial statements in conformity with IFRS requires the
use of estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Although these
estimates are based on management's best knowledge of the amount, event or
actions, actual results ultimately may differ from these estimates.
This statement of Final Results does not constitute the Company's statutory
accounts for the years ended 30 November 2021 and 30 November 2020 within the
meaning of Section 435 of the Companies Act 2006 but is derived from those
statutory accounts.
The Group's statutory accounts for the year ended 30 November 2020 have been
filed with the Registrar of Companies, and those for 2021 will be delivered
following the Company's Annual General Meeting. The Auditor has reported on
the statutory accounts for 2021 and 2020. Their report for 2021 was (i)
unqualified, (ii) did not contain any material uncertainties and (iii) did not
contain statements under Sections 498 (2) or 498 (3) of the Companies Act 2006
in relation to the financial statements.
Going Concern
The Group closely reviews its funding position throughout the year, including
monitoring compliance with covenants and available facilities to ensure it has
sufficient headroom to fund operations. The Group has extended its current
Banking Facilities arrangements with its long term Bank, Barclays, for a
further year to 31 March 2023.
The capital structure of the Group has materially changed in the last year
with the disposal of the Starcom and Sage businesses for a combined £16.2m
and the conversion of a £3.0m shareholder loans to equity. The Group
therefore ended the year ended 30 November 2021 with a Net Cash position of
£9.0m compared to a Net Debt position of £1.9m the previous year end.
The Group has prepared cashflow forecast for a period of at least 12 months
from the date of approval of the financial statements which show that the
Group will have reasonably significant headroom and be in compliance with
covenants. The forecast has undergone sensitivity analysis and stress testing
and the Directors have concluded that there is no reasonably worst-case
scenario that is likely which would mean the group would run out of cash or
breach covenants.
The Directors therefore have a reasonable expectation that there are no
material uncertainties that cast significant doubt about the Group's ability
to continue in operation and meet its liabilities as they fall due for the
foreseeable future, being a period of at least 12 months from the date of
approval of the financial statements. For these reasons the financial
statements have been prepared on a going concern basis.
Key Accounting policies for the group financial statements
Goodwill
Goodwill is initially recognised and measured as set out above.
Goodwill is not amortised but is reviewed for impairment at least annually.
For impairment testing, goodwill is allocated to each of the Group's
subsidiaries or cash-generating units (or groups of cash-generating units)
expected to benefit from the synergies of the combination. Cash-generating
units to which goodwill has been allocated are tested for impairment annually,
or more frequently when there is an indication that the unit may be impaired.
If the recoverable amount of the cash-generating unit is less than the
carrying amount of the unit, the impairment loss is allocated first to reduce
the carrying amount of any goodwill allocated to the unit and then to the
other assets of the unit pro-rata based on the carrying amount of each asset
in the unit. An impairment loss recognised for goodwill is not reversed in a
subsequent period.
On disposal of a subsidiary or cash-generating unit, the attributable net book
value of goodwill is included in the determination of the profit or loss on
disposal.
Revenue recognition
The Group contracts for products and services in a variety of contractual
forms and deployment methods which impact IFRS 15 revenue recognition. These
include:
· Reselling of 3rd party products for which following contracting
the Group has no continuing performance obligations for software and the
customer controls the software. These are usually perpetual licenses with
customer on premise installations. Since the Group is reselling these all
already functional products, services are unbundled. Customers can also choose
to take maintenance and support for these products or indeed obtain services,
support, and maintenance from different suppliers.
· K3 bolt on own software IP (Intellectual Property) that adds
incremental vertical functionality and bolts onto Microsoft Dynamics products
and that is either sold directly to customer or via a channel partner. K3 does
not control the software after the contract and issue of access code, which is
contemporaneous. There is an ongoing performance obligation to maintain the
product to ensure the functionality continues to bolt onto Microsoft Dynamics
products.
· K3 own products for which K3 controls and has ongoing performance
obligations. These products are typically SaaS (Software as a Service) based
subscription products which include a right to access as the customer
continuously consumes functionality. The product offer is a typical bundle of
software access, maintenance, and support. The contracts typically have a low
level of services.
Software license revenue:
Software licenses for 3rd party products are recognised at a point in time, on
contract and issue of the initial license key which is contemporaneous.
K3 bolt on own software IP is recognised at a point in time, on contract and
issue of the license key which is contemporaneous.
K3 own products which is SaaS based is recognised over time and not in
software but rather in maintenance and support for the purposes of revenue
disaggregation disclosures. Revenue is recognised over time as K3 controls the
product, the license is not distinct, and the customer continually receives
benefits.
Services revenues
Services are linked to implementation and set up of K3 own and 3rd party
products, rather than product functionality build. Services are contracted for
on a time and materials basis, the customer takes ownership of the work
delivered and revenue is recognised as it is performed.
Hardware:
Hardware is peripheral to a number of contract implementations; the revenue is
recognised when the customer takes control of the asset on delivery.
Maintenance and Support:
Maintenance refers to the maintenance of the products and ensuring a right to
upgrade whilst Support refers to ongoing customer support including for
example help desk access.
3rd party products maintenance and support are provided by the product's
author K3 has no performance obligation and this is sold through K3 for a
margin. Revenue is recognised for the term of the contract at a point in time
when the contract is signed. Support of 3rd party products is provided by K3
over time over the term of the contract.
K3 bolt on own software IP is typically re-sold via channel partners who
provide support. K3 has an ongoing performance obligation for the maintenance
of the product and recognises a portion of revenue associated with that over
time.
K3 own SaaS / subscription products and usually hosted by K3 and typically a
bundled offer of maintenance and support is provided to customers which are
both performance obligations for K3 and revenue is recognised over time.
Allocation of transaction price:
Transaction price is measured based on the consideration specified in a
contract with a customer and, where applicable, the best estimate of any
consideration related to modifications to the contract which has yet to be
agreed. Any amounts expected to be paid to the customer, such as penalties for
late delivery, are deducted from the consideration. Where a transaction price
must be allocated between multiple performance obligations, this is generally
achieved through allocating a proportion of total price against each using
either standard list sales prices or an estimated cost methodology.
Critical accounting estimates and judgements
In applying the Group's accounting policies above the directors are required
to make judgements (other than those involving estimations) that have a
significant impact on the amounts recognised and to make estimates and
assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions
are based on historical experience and other factors that are considered to be
relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods.
The directors are of the opinion that there are no significant judgements to
be disclosed except those over going concern which are disclosed in detail in
the basis of preparation accounting policy in note 1. The key sources of
estimation that have a significant impact on the carrying value of assets and
liabilities are discussed below:
Impairment of goodwill and other intangibles
Determining whether goodwill is impaired requires an estimation of the value
in use of the cash generating units to which goodwill has been allocated.
The value in use calculation requires an entity to estimate the future cash
flows expected to arise from the cash generating unit. It also requires
judgement as to a suitable discount rate in order to calculate present value,
i.e., the directors' current best estimate of the weighted average cost of
capital ("WACC"). Other intangibles are assessed annually for impairment as
well as when triggers of impairment arise. An impairment review has been
performed at the reporting date. More details including carrying values are
included in note 7.
Capitalised development expenditure and subsequent amortisation
Where such expenditure meets the relevant criteria, the group is required to
capitalise development expenditure. In order to assess whether the criteria
are met the Board is required to make estimates in relation to likely income
generation and financial and technical viability of the relevant development
projects and the period over which the group is likely to benefit from such
expenditure. Development projects are subject to an investment appraisal
process with the product managers to assess the status of the development and
the expected commercial opportunities. Development costs are assessed for
impairment which requires an estimation of the future expected revenues to be
generated from each product. This methodology, which is similar to that used
to assess any impairment of goodwill, is discussed further in note 7.
Expenditure is only capitalised when the investment appraisal process has
assessed that the product is likely to benefit the Group in the future. More
details including carrying values are included in note 7.
Calculation of loss allowance
When measuring expected credit losses, the Group uses reasonable and
supportable forward-looking information, which is based on assumptions for the
future movement of different economic drivers and how these drivers will
affect each other.
Loss given default is an estimate of the loss arising on default. It is based
on the difference between the contractual cash flows due and those that the
lender would expect to receive, taking into account cash flows from collateral
and integral credit enhancements.
Probability of default constitutes a key input in measuring Expected Credit
Losses (ECL). Probability of default is an estimate of the likelihood of
default over a given time horizon, the calculation of which includes
historical data, assumptions and expectations of future conditions.
If the rates on trade receivables between 61 and 90 days past due had been 50
per cent higher as of November 2021, the loss allowance on trade receivables
would have been £16k (2020: £2k) higher.
If the ECL rates on trade receivables between 31 and 60 days past due had been
50 per cent higher as of November 2021, the loss allowance on trade
receivables would have been £4k (2020: £11k) higher.
Calculation of incremental borrowing rate and lease term in respect of IFRS 16
Lease liabilities are measured at the present value of the contractual
payments due to the lessor over the lease term, with the discount rate
determined by reference to the rate inherent in the lease unless (as is
typically the case) this is not readily determinable, in which case the
group's incremental borrowing rate on commencement of the lease is used. The
group's incremental borrowing rate is calculated by reference to borrowing
rates applicable to the group's other borrowings/financial liabilities and
then adjusted for the specifics of the lease and asset. For every 0.5%
increase in the incremental borrowing rate the right of use asset and lease
liability recognised would increase by approximately £300,000, conversely an
equivalent reduction in the incremental borrowing rate would decrease the
right of use asset and liability by approximately £300,000.
Lease term is ordinarily calculated by reference to the contractual terms of
the group's leases. Management may change their estimates in respect of the
term of any lease if the probability of an extension or termination option,
within the lease contract, being exercised changes. As a result of any change
in estimate of the lease term the group adjusts the carrying amount of the
lease liability to reflect the payments to make over the revised term, which
are discounted using a revised discount rate. An equivalent adjustment is made
to the carrying value of the right-of-use asset, with the revised carrying
amount being amortised over the remaining (revised) lease term. If the
carrying amount of the right-of-use asset is adjusted to zero, any further
reduction is recognised in profit or loss.
Prior period restatements
On 20 September 2021, the Group announced the trade and asset sale of its Sage
business CGU to Pinnacle Computing (Support) Limited. On 26 February 2021, the
Group announced that it had completed a share sale of Starcom Technologies
Limited. Starcom Technologies Limited had been classified as a disposal group
held for sale at 30 November 2020 and presented as a discontinued operation.
The 2020 comparatives have therefore been restated to present Sage as part of
the discontinued operations in order to provide comparability.
One further presentational adjustment was made in the statement of financial
position, to the 2020 comparatives, to reflect a correction to the IFRS15
treatment of certain Trade Receivable / Contract Liability (Deferred Income)
balances. The impact of this was to remove £1.1m of Trade Receivables and
Contract Liability balances as these balances related to invoices raised in
advance for work performed after 30 November 2020. There was no impact on
Profit/Loss, Net Assets or Cashflows.
2 Segment information
We have restated the 2020 segment information to remove the discontinued
activities of Sage, to be presented as discontinued alongside those of UK
Dynamics and Starcom which were shown as discontinued in 2020. The group
operates a streamlined organisation with management resource and central
services focused on working across the group in a more unified manner to
increase the strategic focus on the level of our own product sales. Reporting
is based on product split between K3 own products and Third-party reseller
activities across revenue and gross margin. This has changed from the prior
year reported disclosures which was based on three segments of K3 own IP,
Global Accounts and Third Party products. We have now merged Global Accounts
and Third Party Products into Third Party Solutions. Overheads and
administrative expenses are included as a central cost given resource works
across these three segments. The activities and products and services of the
operating segments are detailed in the Strategic Report on pages 9 to 12.
Transactions between operating segments are on an arms-length basis.The CODM
(Chief Operating Decision Maker, the Board) primarily assesses the performance
of the operating segments based on product revenue, gross margin and group
adjusted EBITDA(*1). The segment results for the year ended 30 November 2021
and for the year ended 30 November 2020, reconciled to loss for the year.
Year ended 30 November 2021
K3 Products Central Costs Total
Third-party Solutions
£'000 £'000 £'000 £'000
Total segment revenue 21,216 31,401 - 52,617
Less: Inter-segment revenue (4,887) (2,463) - (7,350)
Software licence revenue 3,678 2,963 - 6,642
Services revenue 1,310 16,014 - 17,325
Maintenance & support 10,000 9,868 - 19,867
Hardware and other revenue 1,341 93 - 1,433
External revenue 16,329 28,938 - 45,267
Cost of sales (4,091) (14,341) - (18,432)
Gross profit 12,238 14,597 - 26,835
Gross margin 74.9% 50.4% - 59.3%
Underlying administrative expenses(*7) (9,922) (6,629) (5,927) (22,478)
Adjusted EBITDA(*1) from continuing operations 2,316 7,968 (5,927) 4,357
Depreciation and amortisation - - (6,797) (6,797)
Amortisation of acquired intangibles - - (518) (518)
Exceptional impairment - - (1,421) (1,421)
Exceptional reorganisation costs - - (1,605) (1,605)
Acquisition gains - - 35 35
Share-based payment charge - - (440) (440)
Profit / (Loss) from operations 2,316 7,968 (16,673) (6,389)
Finance expense - - (1,433) (1,433)
Profit / (Loss) before tax and discontinued operations 2,316 7,968 (18,106) (7,822)
Tax expense - - (939) (939)
Profit from discontinued operations - - 12,292 12,292
11
Profit / (Loss) for the year 2,316 7,968 (6,753) 3,531
Year ended 30 November 2020 (restated^)
K3 Products Central Costs Total
Third-party Solutions
£'000 £'000 £'000 £'000
Total segment revenue 20,001 30,984 - 50,985
Less: Inter-segment revenue (4,143) (3,080) - (7,224)
Software licence revenue 3,303 1,896 - 5,200
Services revenue 1,184 15,535 - 16,719
Maintenance & support 10,031 10,301 - 20,331
Hardware and other revenue 1,340 172 - 1,512
External revenue 15,858 27,904 - 43,762
Cost of sales (3,282) (13,644) - (16,926)
Gross profit 12,576 14,260 - 26,836
Gross margin 79.3% 51.1% - 61.3%
Underlying administrative expenses(*7) (9,972) (6,741) (6,089) (22,802)
Adjusted EBITDA(*1) from continuing operations 2,604 7,519 (6,089) 4,034
Depreciation and amortisation - - (4,446) (4,446)
Amortisation of acquired intangibles - - (1,471) (1,471)
Exceptional impairment - - (16,855) (16,855)
Exceptional reorganisation costs - - (902) (902)
Share based payment charge / (credit) - - (20) (20)
Profit / (Loss) from operations 2,604 7,519 (29,783) (19,660)
Finance expense - - (1,193) (1,193)
Profit / (Loss) before tax and discontinued operations 2,604 7,519 (30,976) (20,853)
Tax expense - - (22) (22)
Loss from discontinued operations - - (255) (255)
Profit / (Loss) for the year 2,604 7,519 (31,253) (21,130)
^ The 2020 segmentation has been restated to present Sage as discontinued
operations alongside those of, UK Dynamics and Starcom which were shown as
discontinued operations in 2020 (see Note 11 for further details) and to
present the results based on the product segments of K3 Products and
Third-party reseller products.
Segment assets and segment liabilities are reviewed by the CODM in a
consolidated statement of financial position. Accordingly, this information
is replicated in the group consolidated statement of financial position on
page 42. As no measure of assets or liabilities for individual segments is
reviewed regularly by the CODM, no disclosure of total assets or liabilities
has been made, in accordance with the amendment to paragraph 23 of IFRS 8.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. Transactions
between segments are accounted for at cost.
The Group has one customer relationship which accounts for 43% (2020: 41%) of
external Group revenue.
Analysis of the group's external revenues (by customer geography) and
non-current assets by geographical location are detailed below:
External Revenue by end customer geography
External revenue Non-current assets
Year ended Year ended 2021 2020
30 November 30 November 2020 (restated)
2021
£000 £000 £000 £000
United Kingdom 15,648 14,347 30,606 31,142
Netherlands 7,978 9,170 180 420
Ireland 1,157 1,250 5,941 10,861
Rest of Europe 7,575 9,676 (1,570) (318)
Middle East 1,887 1,641 - -
Asia 7,494 4,503 304 274
USA 506 1,005 19 19
Rest of World 3,020 2,171 - -
45,267 43,762 35,480 43,399
% of non-UK revenue 65% 67%
External revenue by Business Unit Geography
2021
External Revenue by Market
UK Non-UK Total
£'000 £'000 £'000
Software Licence Revenue 1,734 4,908 6,642
Services Revenue 2,648 14,676 17,324
Maintenance & Support 10,664 9,204 19,867
Hardware and other Revenue 628 806 1,433
Total 15,674 29,593 45,267
External revenue by business unit geography
2021 Software Licencing Services Revenue Maintenance & support Revenue Hardware & Other Revenue Total
£'000 £'000 £'000 £'000 £'000
United Kingdom 1,596 2,783 10,623 627 15,629
Netherlands 4,389 14,149 6,069 57 24,664
Ireland 107 176 569 50 902
Rest of Europe 550 216 2,607 700 4,072
Total 6,642 17,324 19,867 1,433 45,267
External Revenue by revenue recognition category
2021 Software Licencing Services Revenue Maintenance & support Revenue Hardware & Other Revenue Total
£'000 £'000 £'000 £'000 £'000
Goods Transferred at a point in time 6,642 - - 1,432 8,074
Services transferred at a point in time - 17,324 9,880 2 27,206
Services transferred over time - - 9,987 - 9,987
Total 6,642 17,324 19,867 1,433 45,267
Revenue to be recognised in the future, related to agreed performance
obligations that are unsatisfied or partially satisfied as at 30 November
2021, was as follows
2022 2023 Later Total
£'000 £'000 £'000 £'000
Software Licence Revenue 328 - - 328
Services Revenue 93 - - 93
Maintenance & Support 4,073 - - 4,073
Hardware and other Revenue 4 - - 4
Total 4,499 -- - 4,499
2020
External Revenue by Market
UK Non-UK Total
£'000 £'000 £'000
Software Licence Revenue 1,833 3,367 5,200
Services Revenue 2,044 14,675 16,719
Maintenance & Support Revenue 9,913 10,418 20,331
Hardware and other Revenue 370 1,142 1,512
Total 14,160 29,602 43,762
External Revenue by business unit geography
Software Licencing Services Revenue Maintenance & support Revenue Hardware & Other Revenue Total
£'000 £'000 £'000 £'000 £'000
United Kingdom 2,089 2,168 10,562 417 15,238
Netherlands 2,781 14,248 6,480 112 23,621
Ireland 55 141 260 71 528
Rest of Europe 274 161 3,029 912 4,376
Total 5,200 16,719 20,331 1,512 43,762
External Revenue by revenue recognition category
Software Licencing Services Revenue Maintenance & support Revenue Hardware & Other Revenue Total
£'000 £'000 £'000 £'000 £'000
Goods Transferred at a point in time 5,200 - - 1,512 6,712
Services transferred at a point in time - 16,558 5,718 - 22,276
Services transferred over time - 161 14,613 - 14,774
Total 5,200 16,719 20,331 1,512 43,762
Revenue to be recognised in the future, related to agreed performance
obligations that are unsatisfied or partially satisfied as at 30 November
2020, was as follows:
2021 2022 Later Total
£'000 £'000 £'000 £'000
Software Licence Revenue 226 226 324 776
Services Revenue 321 - - 321
Maintenance & Support 5,066 - - 5,066
Hardware and other Revenue 333 - - 333
Total 5,946 226 324 6,496
Revenue recognised and included within contract assets can be reconciled as
follows:
2021
£'000
At 1 December 2020 3,220
Transfers in the period from contract assets to trade receivables (3,220)
Excess of revenue recognised over cash (or rights to cash) being recognised 3,077
during the period
At 30 November 2021 3,077
Revenue recognised and included within contract liabilities can be reconciled
as follows:
2021
£'000
At 1 December 2020 restated 5,369
Amounts included in contract liabilities that was recognised as revenue during (5,369)
the period
Cash received in advance of performance and not recognised as revenue during 3,364
the period
At 30 November 2021 3,364
3 Tax expense / (charge)
2020
2021 restated
£'000 £'000
Current tax expense/(credit)
Income tax of overseas operations on profits/(losses) for the period 676 397
Adjustment in respect of prior periods (80) (59)
Total current tax expense 596 338
Deferred tax (credit)/expense
Origination and reversal of temporary differences 233 (622)
Total deferred tax expense/(credit) 233 (622)
Total tax expense/(credit) in the current year 829 (284)
Income tax expense/(credit) attributable to continuing operations 939 22
Income tax (credit) attributable to discontinued operations (110) (306)
829 (284)
The March 2021 Budget announced an increase to the main rate of corporation
tax to 25% from April 2023 and this rate was enacted on 10 June 2021. Deferred
tax balances as at 30 November 2021 have been measured at 25%.
The reasons for the difference between the actual tax charge for the period
and the standard rate of corporation tax in the UK applied to profits/(losses)
for the year are as follows:
2020
2021 % restated %
£'000 £'000
Loss before taxation from continuing operations (7,822) (20,853)
Profit before taxation from discontinued operations (note 11) 12,182 1,149
Profit/(loss) before tax 4,360 (19,704)
Expected tax charge/(credit) based on the standard rate of corporation tax 828 19.0 (3,744) 19.0
Effects of:
Items not deductible for tax purposes 504 3,161
Non-taxable gain on disposal of shares (2,274) -
Adjustment to tax charge in respect of prior periods (180) (226)
Differences between overseas tax rates 571 110
Group relief not paid for 154 -
Super-deduction (11) -
Movements in temporary differences not recognised 1,184 435
Effect of deferred tax rate difference 54 (40)
Total tax expense / (credit) in current period 829 39.4 (304) 19
Deferred tax recognised directly in equity was £nil (2020: £nil). Current
tax recognised in equity was £nil (2020: £nil). None of the items within
other comprehensive income in the Consolidated Statement of Comprehensive
Income have resulted in a tax expense or tax income.
4 Dividends
No dividend in respect of the year ended 30 November 2021 will be
proposed (2020: nil).
5 (Loss)/earnings per share
The calculations of (loss)/earnings per share are based on the profit/(loss)
for the year and the following numbers of shares:
2021 2020
Number of shares Number of shares
Denominator
Weighted average number of shares used in basic and diluted EPS 44,090,074 42,899,598
Certain employee options and warrants have not been included in the
calculation of diluted EPS because their exercise is contingent on the
satisfaction of certain criteria that had not been met at the end of the
year.
Basic and diluted
2021 2020
Loss after tax from continuing operations (8,761) (20,875)
Profit/(loss) after taxation from discontinued operations 12,292 (255)
Profit / (Loss) attributable to ordinary equity holders of the parent for 3,531 (21,130)
basic and diluted earnings per share
The alternative earnings per share calculations have been computed because the
directors consider that they are useful to shareholders and investors. These
are based on the following profits/(losses) and the above number of shares.
Basic and diluted before Other items
2021 2020
Loss after tax from continuing operations (8,761) (20,875)
Add back other Items:
Amortisation of acquired intangibles 518 1,471
Exceptional reorganisation costs 1,605 902
Exceptional impairment costs 1,421 16,855
Shared-based payment charge 440 20
Tax charge related to Other Items (1,207) 255
(Loss)/profit attributable to ordinary equity holders of the parent for basic (5,984) (1,372)
and diluted earnings per share from continuing operations before other items
2021 2020 restated
Profit/(loss) per share
Basic and diluted earnings/(loss) per share 8.0 (49.3)
Basic and diluted earnings/(loss) per share from continuing operations (19.9) (48.8)
Basic and diluted earnings/(loss) per share from discontinued operations 27.9 (0.5)
Adjusted earnings per share
Basic and diluted earnings/(loss) per share from continuing operations before (13.6) (3.2)
other items
6 Discontinued operations
On 26 February 2021 the Group announced that a sale of the Starcom business
for consideration of £14.7m had been approved and completed. Starcom had
already been classified as a discontinued operation in the prior year as it
represented a major line of business for the Group.
The post tax gain on disposal of the Starcom business was determined as
follows:
2021 2020
£'000 £'000
Cash consideration received 14,474 -
Total consideration received 14,747 -
Cash disposed of (1,375) -
Net cash inflow on disposal of discontinued operations 13,372 -
Net assets disposed (other than cash)
Property, plant and equipment (199) -
Intangibles (3,015) -
Right of use asset (454) -
Trade and other receivables (2,404) -
Trade and other payables 1,958 -
(4,114) -
Pre-tax gain on disposal of discontinued operations 9,258 -
Related tax expense - -
Gain on disposal of discontinued operations 9,258 -
Trade and other payables includes an onerous contract provision of £1,125k
relating to higher than market pricing on the 3 year post completion service
agreement with the buyer.
The results of the Starcom business for the year are presented below:
2020
2021 restated
£'000 £'000
Total Revenue 2,309 10,229
Less inter-segment revenue - (710)
External revenue 2,309 9,519
Cost of sales (845) (3,966)
Gross profit 1,464 5,553
Administrative expenses (1,011) (3,998)
Impairment losses on financial assets - (25)
Amortisation of acquired intangibles (107) (322)
Profit from operations 346 1,208
Profit on disposal 9,258 -
Finance credit/(expense) 9 (73)
Profit before taxation from discontinued operations 9,613 1,135
Tax credit including on gain on asset held for sale 110 22
Profit for the year from discontinued operations 9,723 1,157
2020
2021 restated
Basic and diluted profit per share from discontinued operations 22.0 2.7
The major classes of assets and liabilities of the Starcom business classified
as held for sale as at 30 November 2021 are as follows:
2021 2020
£'000 £'000
Property, plant, and equipment - 237
Right-of-use assets - 332
Goodwill - 2,373
Other intangible assets - 690
Deferred tax assets - 136
Trade and other receivables - 1,871
Cash and cash equivalents - 1,260
Assets classified as held for sale - 6,899
Trade and other payables - (3,196)
Provisions - (60)
Lease liabilities - (316)
Liabilities directly associated with assets classified as held for sale - (3,572)
Net Assets directly associated with disposal group - 3,327
The net cashflows incurred by Starcom are as follows:
2021 2020
£'000 £'000
Operating 628 1,096
Investing (129) (155)
Financing (157) (133)
Net cash inflow 342 808
On the 20 September 2021, the Group disposed of the customers and employees of
its Sage business to Pinnacle Computing (Support) Ltd for £1.68m.
Formal completion occurred in early October 2021, following a TUPE
consultation process in respect of the transfer to Pinnacle of the employees,
and the disposal consideration was subject to a downward adjustment of £0.2m
in respect of restructuring costs that Pinnacle undertook immediately
following completion. The Group maintained ownership of the sales ledger at
Completion which was £0.1m at the 30 November 2021.
The post tax gain on disposal of the Sage business was determined as follows:
2021 2020
£'000 £'000
Cash consideration received 1,475 -
Total consideration received 1,475 -
Cash disposed of - -
Net cash inflow on disposal of discontinued operations 1,475 -
Net assets disposed (other than cash)
Trade and other receivables 682 -
Trade and other payables 478 -
1,160 -
Pre-tax gain on disposal of discontinued operations 2,635 -
Related tax expense - -
Gain on disposal of discontinued operations 2,635 -
Trade and other payables includes the release of working capital accruals no
longer payable following the disposal of the business.
The results of the Sage business for the year are presented below:
2021 2020
£'000 £'000
External revenue 4,011 5,057
Cost of sales (2,437) (3,184)
Gross profit 1,574 1,873
Administrative expenses (1,641) (1,967)
Impairment losses on financial assets 31 (60)
Profit from operations (36) (154)
Profit on disposal 2,629 -
Finance (expense)/credit (24) 69
Profit after taxation from discontinued operations 2,569 (85)
Tax credit /(charge) including on gain on asset held for sale - 14
Profit/(loss) for the year from discontinued operations 2,569 (71)
2021 2020
Basic and diluted profit per share from discontinued operations 5.8 0.2
The amounts included in the consolidated cashflows related to the Sage
business are as follows:
2021 2020
£'000 £'000
Operating (230) (197)
Investing 1,475 -
Financing (24) 69
Net cash inflow/(outflow) 1,221 (128)
7 Goodwill and impairment
Goodwill acquired in business combinations is allocated at acquisition to the
cash generating units ("CGUs") that are expected to benefit from that business
combination.
The carrying value of goodwill in respect of all CGUs is set out below. These
are fully supported by either value in use calculations in the year or the
fair value less cost to sell for CGUs held for sale.
Goodwill carrying amount
2021 2020
£'000 £'000
Global Accounts 9,227 9,729
Integrated Business Solutions (IBS) 771 771
SSL and Starcom - 400
Syspro 13,677 13,677
Walton 1,097 1,555
24,772 26,132
The Group tests goodwill and the associated intangible assets and property,
plant, and equipment of CGUs annually for impairment, or more frequently if
there are indications that an impairment may be required.
The recoverable amounts of the remaining CGUs are determined from value in use
calculations. The key assumptions for these calculations are discount rates,
sales growth, gross margin, and admin expense growth rates. The assumptions
for these calculations reflect the current economic environment. The discount
rate represents the current market assessment of the risks specific to the
Group, taking into consideration the time value of money and individual risks
of the underlying assets that have not been incorporated in the cash flow
estimates. The discount rate calculation is based on the specific
circumstances of the Group and its operating segments and is derived from the
weighted average cost of capital (WACC). Other assumptions used are based on
external data and management's best estimates.
For all the CGUs where the recoverable amount is determined from value in use,
the Group performs impairment reviews by forecasting cash flows based upon the
Board 3-year plan starting in the 2021, which anticipates sales, gross margin
and admin cost growth based on management's best estimates. A projection of
sales and cash flows based upon a blended inflation rate (1.5%) is then made
for a further two years.
The pre-tax cash flow forecasts used the following key assumptions:
· DdD Retail, IBS, Unisoft and Walton - these CGUs relate to older
products and the forecasts for DdD Retail have a year-on-year attrition of
revenue by 10% in FY22 and FY23 as the Group's decision to cease investing in
these products with a plan to transitioning customers, wherever possible, to
the K3|imagine platform. From FY24 we are assuming no revenue from these
legacy products with a plan to migrate to the K3|imagine platform.
· Syspro - growth rates of 21.4% to 13.2% over the next three
years.
· RSG - revenue decline rates decreasing from (35.7%) to (7.5%)
over the next three years.
· K3 products - as this is where the Group's strategy is focused,
strong growth rates of 123% to 58% over the next three years from a low base
· Global Accounts - revenue growing by 47.3% over the 5-year
forecast period with gross margin maintained at current performance
The rate used to discount the forecast pre-tax cash flows is 13.4% (2020:
12.1%) and represents the Directors' current best estimates of the weighted
average cost of capital ("WACC"). The Directors consider that there are no
material differences in the WACC for different CGUs.
Having calculated the value in use, the following impairments, against
goodwill and other intangible assets, have been recognised along with any
remaining headroom:
(Impairment) / Headroom
Goodwill Other Intangibles Development Costs Total
£'000 £'000 £'000 £'000 £'000
Global Accounts / IKEA 9,200 - 14 9,214 72,909
Integrated Business Solutions (IBS) 800 - - 800 324
Syspro 13,700 - 546 14,246 8,081
Walton 1,072 - 4 1,076 -
24,772 - 564 25,336 81,314
The impairments have been recognised in the reportable segments as follows
relating to DDD, RSG and Walton:
Impairment
Goodwill Other Intangibles Development Costs Total
£'000 £'000 £'000 £'000
K3 products (857) (564) - (1,421)
Global Accounts - - - -
Third-party products - - - -
(857) (564) - (1,421)
8 Events after the reporting date
On the 11th February 2022 the Group agreed an extension to its Current
Revolving Credit Facility with Barclays for £3.5m until 31 March 2023.
On the 27th January 2022, K3 acquired the French sustainability start up, ViJi
SAS. ViJi's products enable brands to trace and authenticate more easily and
reliably the environmental and social credentials of their supply chains. This
includes the collection, verification and renewals of supplier certifications.
The software also has a consumer-facing component, enabling the digital
communication of information on the ethical history of items, including
materials, manufacturing processes and sustainability.
ViJi generated revenue of 0.03m EUR and an EBITDA loss of 0.24m EUR in the
year ended 31 December 2021. Its net assets at that date stood at 0.1m EUR.
The acquisition has been agreed for an initial cash consideration of 0.35m EUR
in the first year, with further cash consideration, capped at 0.7m EUR, due
over the next two years, dependent on the attainment of annual recurring
revenue performance targets. An estimate of the allocation of intangible
assets is £0.1m of contracted customer relationships and £0.2m goodwill.
On 9 February 2022, the Group granted a further 80,000 Market Priced Share
Options and a further 175,000 new Nominal Priced Options to certain PDMRs.
Note 10 sets out the terms of those options.
Jonathan Manley (non-executive director) retires by rotation at the 2022 AGM
and, with plans to spend more time in the US, has decided not to offer himself
for re-election. Jonathan will therefore resign from the Board at the 2022
AGM.
9 Non-statutory information
The Group uses a variety of alternative performance measures, which are
non-IFRS, to assess the performance of its operations. The Group considers
these performance measures to provide useful historical financial information
to help investors evaluate the underlying performance of the business.
These measures, as described below, are used to improve the comparability of
information between reporting periods and geographical units, to adjust for
exceptional items or to adjust for businesses identified as discontinued to
provide information on the ongoing activities of the Group. This also reflects
how the business is managed and measured on a day-to-day basis.
*1 Adjusted EBITDA - is the loss from continuing activities
adjusted to exclude depreciation and amortisation of development costs),
amortisation of acquired intangibles exceptional impairment costs exceptional
reorganisation costs exceptional customer settlement provisions and
share-based charges.
*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 K3 Product revenue as a percentage of total Group
revenue
*4 K3 products gross profit as a percentage of total
gross profit
*5 Net debt comprises Bank Loans, Shareholder Loans and
Overdrafts less Cash and cash equivalents, including Cash and cash equivalents
held for sale. It excludes any liabilities associated with Right of Use Assets
under IFRS16.
*6 Adjusted loss/earnings per share - basic loss per
share from continuing operations adjusted to exclude amortisation of acquired
intangibles, exceptional impairment costs, exceptional reorganisation costs,
and share-based charges net of the related tax charge
*7 Underlying support/admin costs - administrative
expenses adjusted to exclude depreciation and amortisation of development
costs, amortisation of acquired intangibles, exceptional impairment costs
exceptional reorganisation costs and share-based charges.
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