REG - K3 Bus Tech Grp PLC - Interim Results
24/08/2022 07:00
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RNS Number : 9817W K3 Business Technology Group PLC 24 August 2022
AIM: KBT
24 August 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.
Interim results for the six months to 31 May 2022
Key Points
Financial
· First half results from continuing operations in line with
management expectations
· Revenue from continuing operations of £19.9m (2021: £20.9m)
- recurring or predictable income(2) accounted for £14.7m or 74% of the
total (2021: £14.8m or 71%)
· Gross margin increased to 60% (2021: 58%), reflecting increased
margins in both units, K3 Products and Third-party Solutions
· Adjusted EBITDA(1) of £1.0m (2021: £0.9m)
· Reported loss before tax from continuing operations of £2.8m
(2021: £2.5m)
- this is after depreciation & amortisation, amortisation of acquired
intangibles, exceptional reorganisation and acquisition costs, and share-based
payment charges, which totalled £3.6m (2021: £3.4m)
· Adjusted loss per share(5) from continuing operations was 4.9p
(2021: loss of 11.3p)/ Reported loss per share from continuing operations
earnings per share was 5.9p (2021: loss of 10.7p) includes profit from
discontinued activities
· Net cash of £1.4m (2021: £4.4m). Financial year-end position is
expected to close significantly higher, reflecting strong seasonal weighting
of cash inflows
*2021 results have been restated following the classification of K3 FDS Sage
business as discontinued activities
Operational
· Acquisition of ViJi, sustainability-focused software developer, in
January 2022 significantly broadened offering in supply-chain transparency and
traceability, increasing operational investment by £0.2m
· K3 Products:
- generated revenue of £6.5m and gross profit of £5.2m (2021: £7.9m and
£6.0m)
- gross margin increased to 80.2% from 76.4%, reflecting cost reductions
- annualised revenue value from strategic products up 12% to £4.3m
- contribution from legacy point-of-sale products continued to decrease, as
expected
- initiatives to enhance future channel partner sales and build new revenues
from USA
· Third-party Solutions:
- generated revenue of £13.4m and gross profit of £6.7m (2021: £13.0m and
£6.1m)
- gross margin increased to 49.7% (2021: 46.9%), reflecting better services
chargeability, offshoring and higher licence and maintenance income
- SYSPRO performed well and has established a good back-log and new business
pipeline
- Global Accounts continues to grow, with good visibility of ongoing
services work
· Major IT system upgrade begun, expected to improve operational
efficiency
· Rebranding programme completed and new marketing initiatives
launched to support new strategy
Marco Vergani, Chief Executive Officer of K3 Business Technology Group plc,
said:
"We are executing against the new growth strategy that we established in Q4
last year and have made encouraging progress in the first half.
"K3 Products has clear growth opportunities in its fashion and apparel markets
and we are focusing on three critical areas for customers - Sustainability,
Omni-channel and Business Insights. The acquisition of the
Sustainability-focused software developer, ViJi, in the period, will enhance
our offering here.
"Third-party Solutions performed well and remains a significant cash
generator. We are investing in products and delivery resource to support
growth.
"The second half of the financial year is typically stronger than the first,
with substantial cash inflows due from software licence and support and
maintenance contract renewals. While there are increasing macroeconomic
uncertainties, we remain confident of our long-term strategic direction and
will continue to focus on growth, cash and costs."
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 Silva
(Corporate Broking)
KTZ Communications Katie Tzouliadis/ Dan Maloney T: 020 3178 6378
CHIEF EXECUTIVE OFFICER'S STATEMENT
Introduction
I am pleased to present K3's interim results for the six months to 31 May
2022, a period in which the Group continued to make progress in line with its
new strategic growth plan, established in the second half of the last
financial year.
Against a backdrop of increasing macroeconomic uncertainties, the Group's
first half performance was in line with management expectations. Revenue from
continuing operations was £19.9m (2021: £20.9m), gross margins improved,
especially at K3 Products, and adjusted EBITDA was £1.0m (2021: £0.9m). Net
cash at 31 May 2022 stood at £1.4m, with the second half expected to close
significantly higher as cash inflows from software licence and maintenance and
support contract renewals, which fall due in this period, come through.
As previously reported, our new strategic growth plan identified opportunities
across all core activities and has clearly defined the Group's long-term
vision, priorities, and objectives. We are now executing against this plan,
which will drive recurring revenues. We are particularly focused on the
development and growth of our strategic products for the fashion and apparel
markets, and related large retail brands. Retail businesses in these markets
are contending with the need for profound digital transformation as they adapt
their models and systems to engage with customers and suppliers in new and
more agile ways. We see a substantial opportunity in three critical areas;
Sustainability (especially supply chain traceability), Omni-channel and
'unified inventory' (to create an integrated digital and physical shopping
experience) and Business Insights (to extract actionable intelligence from
data collected).
We are now integrating our fashion ERP solutions, K3|fashion and
K3|pebblestone, which are based on Microsoft Dynamics, with K3|imagine, our
'headless' cloud commerce platform (which integrates readily with any IT
infrastructure) and K3|ViJi, a strategic new software suite acquired in
January 2022. This integration programme adds further power to our solutions
and market positioning and enables us to offer customers a simple and highly
effective route to digital transformation in critical areas of their
businesses, driving their sustainability agenda and providing a strong return
on investment.
The acquisition of ViJi, the sustainability-focused software developer, has
added a compelling suite of products that addresses supply chain transparency,
significantly broadening our existing Sustainability capabilities. Market
interest in Sustainability solutions is growing, driven both by consumer
demands and emerging legislation requiring brands to certify the origins and
manufacturing standards of their products.
As part of the ongoing development of the Group, we started a major programme
in the period to upgrade and unify our IT systems. This will improve
efficiencies and simplify operations. The programme covers Finance, Sales,
Customer Support, and Project Management processes, and we expect it to be
completed over the next 12 months. In the first half, we also completed a
rebranding programme and launched new marketing initiatives, reflecting our
revised vision and strategy, which will further support K3's position as a
market leader in the fashion industry.
In January 2022, Microsoft named K3 as one of its key Independent Software
Vendors within the Microsoft Retail Cloud Platform. This provides additional
endorsement of our capabilities, and we are deepening our existing
collaboration with Microsoft to generate demand and opportunities, as well as
expanding our Channel Partner Network. K3|fashion continues to be Microsoft's
preferred solution for the fashion and apparel vertical and K3 will be a
featured partner in Microsoft's FY23 partner investments and incentives launch
in October 2022.
While the conflict in Ukraine and global instability has created greater
uncertainty, the need for digital transformation remains a high priority for
our target sectors. Our products offer exciting growth potential, and our
expertise in the retail sector, particularly in fashion, apparel & design,
online, and direct-to-consumer brands, is a significant strength.
Financial Results
Results from continuing operations
In the six months ended 31 May 2022, the Group generated total revenue from
continuing operations of £19.9m (2021: £20.9m), with recurring or
predictable revenue(2) accounting for £14.7m or 74% of the total (2021:
£14.8m or 71%). Recurring revenue from strategic products (i.e. SaaS and
maintenance and support income)(3) accounted for £1.3m of total revenue
(2021: £1.4m).
Gross margin increased to approximately 60% (2021: 58%), reflecting improved
gross margin in both K3 Products and Third-party solutions. Gross profit for
the period was £11.9m (2021: £12.1m).
Reported administrative expenses decreased slightly to £14.3m (2021: £14.5m)
and underlying support/administrative expenses(6) were also lower at £11.7m
(2021: £12.0m). This was driven by more focused product development
resourcing and lower people costs, mainly in the legacy support operations.
Adjusted EBITDA(1) from continuing activities increased to £1.0m (2021:
£0.9m), which also included a reduction of capitalised development cost of
c.£0.3m.
The reported loss before tax from continuing activities was £2.8m (2021:
£3.7m). This is after depreciation and amortisation of £3.0m (2021: £3.8m),
amortisation of acquired intangibles of £nil (2021: £0.3m), exceptional
reorganisation costs of £0.1m (2021: income of £0.9m), acquisition costs of
£0.1m (2021: £nil) and share-based charges of £0.3m (2021: £0.2m), which
together amounted to £3.6m (2021: £3.4m).
The adjusted loss per share(5) from continuing operations was 4.9p (2021:
11.3p). This figure excludes depreciation and amortisation, amortisation of
acquired intangibles, exceptional reorganisation costs, acquisition costs and
share-based charges, and is net of the related tax charge of £0.1m (2021: tax
credit £0.1m).
Reported loss per share from continuing operations reduced to 5.9p (2021: loss
of 10.7p). Reported loss per share was 6.2p (2021: earnings of 11.6p, which
includes profit from discontinued activities of Starcom and K3 FDS).
Balance sheet and cash flows
The Group's cash flow over the financial year remains heavily weighted towards
the second half. This reflects the significant cash inflows from annual
software licence and maintenance and support renewals, with the largest
element being SYSPRO renewals. The SYSPRO renewal rate is typically c.98%.
The cash outflow from operations reduced to £5.2m (2021: £7.4m), with the
comparative period in 2021 including the profit on disposal of the Starcom
unit (£10.3m) and the removal of the associated negative working capital
balances of £0.5m. The profit on disposal was updated between 31 May 2021 and
30 November 2021 by an onerous contract adjustment of £1.1m. The comparative
period in 2021 also included £1.3m of repayments relating to coronavirus tax
deferment schemes. Finance expenses were substantially reduced to £0.2m
(2021: £1.2m) as a result of the equity conversion of the £3.0m shareholder
loan. The equity conversion incurred £0.6m of costs, recognised in 2021.
Amortisation decreased to £nil (2021: £0.3m) following the write-off of
intangibles in the prior period.
Net cash used in investing activities amounted to £1.6m (2021: inflow of
£12.5m, which included a £13.8m net cash inflow from the sale of
businesses). This included spend on property, plant and equipment of £0.4m
(2021: £nil), which mainly related to the unification of internal systems
(2021: £nil), development expenditure capitalised of £1.0m (2021: £1.3m)
and ViJi acquisition costs of £0.2m (2021: £nil).
Operational Review
The Group's results for the six months ended 31 May 2022, together with
comparatives for the same period in 2021, are summarised in the tables below.
The segmental analysis provides further information on the key areas of
activity, K3 Products and Third-party Solutions.
2021 comparatives have been restated following the classification of Starcom
and the Sage reseller business as discontinued activities.
Revenue Gross profit Gross margin
2022 2021 (restated) 2022 2021 (restated) 2022 2021 (restated)
£m £m £m £m
K3 Products 6.5 7.9 5.2 6.0 80.0% 75.9%
Third-party solutions 13.4 13.0 6.7 6.1 50%% 46.9%
Total 19.9 20.9 11.9 12.1 59.8% 57.9%
2022 2021
£m £m
Recurring or predictable revenue(2) 14.7 14.8
Recurring revenue from K3 strategic products (SaaS, maintenance, annual 1.3 1.4
contracts and support)
K3 Products
K3 Products comprises:
• K3 strategic products focused on fashion &
apparel, principally K3|fashion, K3|ViJi, K3|pebblestone and K3|imagine; and
• other stand-alone point solutions and apps,
including our legacy point-of-sale ("POS") products.
Revenue generated by K3 Products was £6.5m (2021: £7.9m). This decrease
mainly reflected revenue recognition of larger multi-year deals in the last
financial year as well as some deal 'lumpiness'. We are now moving to a trend
of customers buying annual software licences and progressively ramping up
licence procurement, thereby increasing overall licence sizes. Gross profit
was £5.2m (2021: £6.0m), and gross margin rose by 3.8 percentage points to
80.0% (2021: 75.9%), benefiting from a reduction in the cost base.
The value of strategic products continues to grow, helped by both new customer
wins and existing customers taking more product. The total annualised revenue
value of software licences from strategic products as at 31 May 2022 increased
by 12% to £4.3m (31 May 2021: £3.9m) and at 31 July 2022 annualised revenue
value stood at £4.9m. Just after the period end, in June 2022, the largest
annual recurring revenue contract for K3|fashion was signed. Worth £0.2m
annually, it was secured via our channel partner network with an existing
customer. It continues the trend of larger licence contracts for this product
and the trend for new customers to initially buy a small number of licences
and subsequently acquire many more as the product is rolled out through their
business. We have focused additional resource on channel partner management
and, in particular, have expanded the commercial team in North America. We
believe there is scope to increase sales of K3|fashion in this region to a
significant percentage of the overall total.
We are integrating our new Sustainability suite, K3|ViJi, with our existing
strategic products, and have also begun to offer it selectively as a discrete
product to prospects and clients. ViJi's capabilities tap into growing demand,
and we will continue to develop its solution suite.
As expected, the contribution from the legacy point-of-sale business reduced
in the period, reflecting the legacy nature of this product set, although the
contribution from maintenance and support contracts remained steady.
Third-party Solutions
Third-party Solutions comprises:
· our SYSPRO activity, which is focused on the manufacturing and
distribution sector; and
· Global Accounts, which provides specialist services.
Revenue increased by 3% to £13.4m (2021: £13.0m) and gross profit was 10%
higher at £6.7m (2021: £6.1m), with gross margin up by 3.1 percentage points
to 50.0% (2021: 46.9%). The improvement in gross margin was driven by a
combination of better services chargeability, offshoring, and increased
licence and maintenance income.
SYSPRO continued to perform well and has established a solid contracted
services back-log and a good pipeline of new business opportunities, with
larger deal sizes. We have continued to invest in delivery resource and to
develop intellectual property that supplements and enhances SYSPRO
functionality.
Global Accounts continued to grow, supporting five new Inter IKEA Concept
franchisee store openings in the six months to 31 May 2022. This included the
first IKEA store in Oman and the largest IKEA store globally in the
Philippines. Visibility on future activity is very good. We have recently
completed the first IKEA store opening in Chile with a new franchisee, as well
as a second store opening in Mexico. The revenue benefits are reflected in
increased licences and recurring revenue. We have also improved the unit's
gross margin through better utilisation and offshoring, and are continuing to
recruit to satisfy increasing demand.
Central Costs
Underlying support/administrative costs(6) decreased by 3% to £10.9m (2021:
£11.2m). This reflected lower people costs across all segments. Including
capitalised development, costs reduced by 5% to £11.9m (2021: £12.6m).
Outlook
K3 has a clear growth strategy for both K3 Products and Third-party Solutions,
and we are highly focused on the growth opportunities we have identified
across both segments, as well as on cash generation and cost management. Once
completed, the IT upgrade programme will support operational efficiencies and
improved management processes.
Trading in June and July has been encouraging with a good level of deal
closures, ahead of the same period last year, across both K3 Products and
Third-party Solutions. Average software deal size is increasing, and we are
satisfied with the level of new business opportunities in the Group's overall
pipeline. There are attractive potential deals at both K3 Products and
Third-party Solutions. We have also released new modules that support our
strategic products. While attrition in our non-core legacy products customer
base will continue, we are focused on providing a migration path to our
strategic products for key accounts.
There are uncertainties ahead, which means that it remains prudent to be
cautious about the rate and pace of deal closures. Nonetheless, the
opportunity for K3 Products to participate more strongly in the fundamental
shift under way in the retail sector, driven by the rise of digital shopping,
is exciting. Our strongly cash-generative Third-party Solutions business has
grown its software sales, maintenance and support income, as well as its order
book, and we now expect the services revenue to grow accordingly.
The second half of the financial year is seasonally our stronger half,
delivering high cash inflows from software licence and maintenance and support
contract renewals, and we expect this weighting to be replicated this year.
Marco Vergani
Chief Executive Officer
Consolidated Income Statement
for the six months ended 31 May 2022
Restated^
Unaudited Unaudited Audited
6 months 6 months 12 months to
to 31 May to 31 May 30 November
2022 2021 2021
£'000 £'000 £'000
Revenue 19,939 20,854 45,267
Cost of sales (8,047) (8,747) (18,432)
Gross profit 11,892 12,107 26,835
Administrative expenses (14,295) (14,514) (33,106)
Impairment losses on financial assets (165) (125) (118)
Adjusted EBITDA 994 880 4,357
Depreciation and amortisation (3,024) (3,824) (6,797)
Amortisation of acquired intangibles - (284) (518)
Exceptional Impairment - - (1,421)
Exceptional reorganisation costs (118) 881 (1,570)
Acquisition costs (98) - -
Share-based payment (322) (185) (440)
charge
Loss from operations (2,568) (2,532) (6,389)
Finance expense (219) (1,167) (1,433)
Loss before taxation from continuing operations (2,787) (3,699) (7,822)
Tax credit/(expense) 156 (951) (939)
Loss after taxation from continuing operations (2,631) (4,650) (8,761)
(Loss)/profit after taxation from discontinued operations (130) 9,689 12,292
(Loss)/profit for the period/year (2,761) 5,039 3,531
^ The results for the 6 month period ended 31 May 2021 have been restated to
present K3 FDS Limited as discontinued operations.
All the loss for the year is attributable to equity shareholders of the
parent.
Note Restated^
Unaudited Unaudited Audited
6 months 6 months 12 months to
to 31 May to 31 May 30 November
2022 2021 2021
(Loss)/profit per share
Basic and diluted earnings/(loss) per share (6.2)p 11.6p 8.0p
Basic and diluted loss per share from continuing operations (5.9)p (10.7)p (19.9)p
Adjusted earnings per share (4.9)p (11.3)p (13.8)p
Consolidated Statement of Comprehensive Income
for the six months ended 31 May 2022
Notes Restated^
Unaudited Unaudited Audited
6 months 6 months 12 months to
to 31 May to 31 May 30 November
2022 2021 2021
£'000 £'000 £'000
(Loss)/profit for the period/year (2,761) 5,039 3,531
Other comprehensive income
Exchange differences on translation of foreign operations 7 (842) (1,085)
Total comprehensive income/(expense) for the period/year (2,754) 4,197 2,446
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 Notes Restated
as at 31 May 2022 Unaudited as at 31 May 2022 Unaudited
as at 31 Audited
May 2021 as at 30
November 2021
£'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 1,661 1,629 1,551
Right-of-use assets 1,098 1,851 1,709
Goodwill 25,475 25,733 24,772
Other intangible assets 5,902 8,408 6,648
Deferred tax assets 1,010 681 1,010
Total non-current assets 35,146 38,302 35,690
Current assets
Stock 448 497 467
Trade and other receivables 11,742 10,387 10,605
Cash and cash equivalents 4,322 6,295 9,146
Total current assets 16,512 17,179 20,218
Total assets 51,658 55,481 55,908
LIABILITIES
Non-current liabilities
Lease liabilities 223 926 135
Provisions 783 472 1,129
Deferred tax liabilities 1,288 925 1,288
Total non-current liabilities 2,294 2,323 2,552
Current liabilities
Trade and other payables 10,610 11,318 14,456
Current tax liabilities 632 1,577 509
Lease liabilities 951 943 1,623
Borrowings 2,949 1,901 113
Provisions 854 122 854
Total current liabilities 15,996 15,861 17,555
Total liabilities 18,290 18,184 20,107
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 1,545 1,781 1,538
Accumulated losses (21,962) (18,269) (19,522)
Total equity attributable to equity holders of the parent 33,368 37,297 35,801
Total equity and liabilities 51,658 55,481 55,908
Consolidated Cash Flow Statement
for the six months ended 31 May 2022
Notes Restated^
Unaudited Unaudited Audited
6 months 6 months 12 months to
to 31 May to 31 May 30 November
2022 2021 2021
£'000 £'000 £'000
Cash flows from operating activities
(Loss)/profit for the period (2,761) 5,039 3,531
Adjustments for:
Finance expense 219 1,160 1,448
Tax (income)/expense (156) 841 829
Depreciation of property, plant and equipment 300 268 591
Depreciation of right-of-use assets 678 869 963
Amortisation of intangible assets and development expenditure 2,060 3,219 5,639
Impairment of intangible assets - - 1,421
Loss on sale of property, plant and equipment - - 466
Share-based payments charge 322 185 440
Profit on disposal of discontinued operations, net of tax - (10,314) (11,893)
(Decrease)/increase in provisions (346) 169 1,558
(Increase)/decrease in trade and other receivables (1,087) 1,062 (242)
(Decrease) in trade and other payables (4,658) (9,863) (3,896)
Cash (used in)/generated from operations (5,429) (7,365) 855
Income taxes 279 (38) (1,362)
Net cash (used in)/generated from operating activities (5,150) (7,403) (507)
Cash flows from investing activities
Net cash flow arising on the sale of businesses - 13,795 14,762
Acquisition of subsidiary (180) - -
Development expenditure capitalised (1,013) (1,330) (3,024)
Purchase of property, plant and equipment (410) - (623)
Net cash (used in)/from investing activities (1,603) 12,465 11,115
Cash flows from financing activities
Proceeds from loans and borrowings 1,500 - 4,800
Issue of shares - 3,000 -
Repayment of loans and borrowings (83) (9,253) (11,571)
Repayment of lease liabilities (584) (791) (1,187)
Interest paid on lease liabilities (96) (131) (202)
Finance expense paid (26) (1,051) (673)
Net cash (used in)/from financing activities 711 (8,226) (8,833)
Net change in cash and cash equivalents (6,042) (3,164) 1,775
Cash and cash equivalents at start of period/year 9,033 7,566 7,566
Exchange losses on cash and cash equivalents (64) (8) (308)
Cash and cash equivalents at end of period/year 2,927 4,394 9,033
Cash and cash equivalents 4,322 6,295 9,146
Bank overdrafts (secured) 8 (1,395) (1,901) (113)
Net cash and cash equivalents 2,927 4,394 9,033
Consolidated Statement of Changes in Equity
for the period ended 31 May 2022
Share capital Share premium Other reserves Translation reserve Accumulated earnings Total equity
£'000 £'000 £'000 £'000 £'000 £'000
At 1 December 2020 10,737 28,897 11,151 2,623 (23,493) 29,915
Changes in equity for the six months ended 31 May 2021 -
Profit for the period - - - - 5,039 5,039
Other comprehensive expense for the period - - - (842) - (842)
Total comprehensive income/(expense) - - - (842) 5,039 4,197
Share based payment - - - - 185 185
Issue of shares 446 2,554 - - - 3,000
At 31 May 2021 11,183 31,451 11,151 1,781 (18,269) 37,297
Changes in equity for year ended 30 November 2021
Loss for the year - - - - (1,508) (1,508)
Other comprehensive expense for the year - - - (243) - (243)
Total comprehensive income/(expense) - - - (243) (1,508) (1,751)
Share based payment - - - - 255 255
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
1 Segment information
For the six months ended 31 May 2022
K3 Products Third-party solutions Central Costs Total
£'000 £'000 £'000 £'000
Total segment revenue 8,676 14,785 - 23,461
Less Inter-segment revenue (2,186) (1,337) - (3,523)
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%
Underlying Administrative expenses(7) (4,617) (3,482) (2,799) (10,898)
Adjusted EBITDA(1) from continuing operations 587 3,206 (2,799) 994
Depreciation and amortisation - - (3,024) (3,024)
Exceptional reorganisation costs - - (118) (118)
Acquisition costs - - (98) (98)
Share-based payment charge - - (322) (322)
Loss from operations 587 3,206 (6,361) (2,568)
Finance expense - - (219) (219)
Loss before tax and discontinued operations 587 3,206 (6,580) (2,787)
Tax credit - - 156 156
Loss from discontinued operations - - (130) (130)
Profit/(loss) for the year 587 3,206 (6,554) (2,761)
For the six months ended 31 May
2021
K3 Products Third-party solutions Central Costs Total
£'000 £'000 £'000 £'000
Total segment revenue 10,605 14,026 - 24,631
Less Inter-segment revenue (2,722) (1,055) - (3,777)
Software licence revenue 1,878 1,614 - 3,492
Services revenue 553 8,060 - 8,613
Maintenance & support 4,879 3,256 - 8,135
Hardware and other revenue 573 41 - 614
External revenue 7,883 12,971 - 20,854
Cost of sales (1,860) (6,887) - (8,747)
Gross profit 6,023 6,084 - 12,107
Gross margin 76.4% 46.9% - 58.1%
Underlying Administrative expenses(7) (4,845) (3,396) (2,986) (11,227)
Adjusted EBITDA(1) from continuing operations 1,178 2,688 (2,986) 880
Depreciation and amortisation - - (3,824) (3,824)
Amortisation of acquired intangibles - - (284) (284)
Exceptional reorganisation costs - - (185) (185)
Share-based payment charge - - (185) (185)
Loss from operations 1,178 2,688 (6,398) (2,532)
Finance expense - - (1,167) (1,167)
Loss before tax and discontinued operations 1,178 2,688 (7,565) (3,699)
Tax expense - - (951) (951)
Profit from discontinued operations - - 9,689 9,689
Profit for the year 1,178 2,688 1,173 5,039
For the twelve months ended 30 November 2021
K3 Products Third-party solutions Central Costs Total
£'000 £'000 £'000 £'000
Total segment revenue 20,297 32,613 - 52,910
Less inter-segment revenue (5,512) (2,131) - (7,643)
Software licence revenue 3,316 3,325 - 6,641
Services revenue 1,048 16,277 - 17,325
Maintenance & support 9,091 10,777 - 19,868
Hardware and other revenue 1,331 102 - 1,433
External revenue 14,786 30,482 - 45,267
Cost of sales (3,653) (14,780) - (18,432)
Gross profit 11,133 15,702 - 26,835
Gross margin 75.3% 51.5% - 59.3%
Underlying Administrative expenses(7) (9,922) (6,628) (5,928) (22,478)
Adjusted EBITDA(1) from continuing operations 1,211 9,074 (5,928) 4,357
Depreciation and amortisation - - (6,797) (6,797)
Amortisation of acquired intangibles - - (518) (518)
Exceptional impairment - - (1,421) (1,421)
Exceptional reorganisation costs - - (1,570) (1,570)
Share-based payment charge - - (440) (440)
Loss from operations 1,211 9,074 (16,674) (6,389)
Finance expense - - (1,433) (1,433)
Loss before tax and discontinued operations 1,211 9,074 (18,107) (7,822)
Tax expense - - (939) (939)
Profit from discontinued operations - - 12,292 12,292
Profit for the year 1,211 9,074 (6,754) 3,531
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".
3 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 2021,
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 2021.
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.
4 Significant events
On 27 January 2022, K3 acquired the French sustainability start-up, ViJi SAS.
ViJi's products enable brands to trace and authenticate more easily and
reliably with 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.
On 9 February 2022, the Group granted a further 80,000 Market Prices Share
Options and a further 175,000 new Nominal Priced Options to certain PDMRs.
On 11 February 2022, the Group agreed an extension to its Current Revolving
Credit Facility with Barclays for £3.5m until 31 March 2023.
On 18 May 2022, 500,000 Market Priced Options and 175,000 Nominal Priced
Options were issued to certain PDMRs and employees of the Group.
In May 2022, Jonathan Manley (non-executive director) retired by rotation at
the Annual General meeting.
5 ViJi acquisition
On 27 January 2022, K3 purchased 100% of the share capital of ViJi, an
innovative software developer with an exciting suite of products focused on
sustainability. Based in south-west France, ViJi developed fully scalable
software solutions that support the sustainability objectives and strategies
of fashion retailers.
The strategic acquisition will complement K3's refocused growth strategy and
international customer base as we continue to transform fashion, apparel and
select retail markets for good.
Details of the fair value of identifiable assets and liabilities acquired,
purchase consideration and goodwill are as follows:
Fair Value
£'000
Development Costs 53
Other intangibles assets 250
Property, plant and equipment 2
Accounts receivables 35
Cash 30
Bank loans (138)
Trade and other payables (35)
Net Assets 197
Fair value of consideration paid £'000
Cash on completion 210
Deferred consideration 84
Contingent consideration 588
882
Goodwill 685
Net cash outflow arising on acquisition
Cash consideration 210
Less: cash and cash equivalent balances acquired (30)
180
Acquisition costs of £98k arose as a result of the transaction. These have
been recognised as part of exceptional administrative expenses in the
statement of comprehensive income.
The deferred consideration of £84k (€100k), is to be paid in Cash on the
anniversary of the closing date, Contingent consideration capped at £588k
(€700k) will be paid as an earn-out in respect of achievement of measures
during financial years 2023 and 2024.
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:
Unaudited Unaudited Audited
6 months 6 months 12 months to
to 31 May to 31 May 30 November
2022 2021 2021
£'000 £'000 £'000
Cash consideration received - 14,474 14,474
Total consideration received - 14,747 14,747
Cash disposed of - (1,375) (1,375)
Net cash inflow on disposal of discontinued operations - 13,372 13,372
Net assets disposed (other than cash)
Property, plant and equipment - (199) (199)
Intangibles - (3,015) (3,015)
Right of use asset - (454) (454)
Trade and other receivables - (2,404) (2,404)
Trade and other payables - 1,958 1,958
- (4,114) (4,114)
Pre-tax gain on disposal of discontinued operations - 9,258 9,258
Related tax expense - - -
Gain on disposal of discontinued operations - 9,258 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:
Unaudited Unaudited Audited
6 months 6 months 12 months to
to 31 May to 31 May 30 November
2022 2021 2021
£'000 £'000 £'000
Total Revenue - 2,309 2,309
Less inter-segment revenue - - -
External revenue - 2,309 2,309
Cost of sales - (845) (845)
Gross profit - 1,464 1,464
Administrative expenses - (1,011) (1,011)
Impairment losses on financial assets - - -
Amortisation of acquired intangibles - (99) (107)
Profit from operations - 354 346
Profit on disposal - 9,258 9,258
Finance credit - 9 9
Profit before taxation from discontinued operations - 9,621 9,613
Tax credit including on gain on asset held for sale - 110 110
Profit for the year from discontinued operations - 9,731 9,723
Basic and diluted profit per share from discontinued operations (pence per share) - 24.8 2.6
The net cashflows incurred by Starcom are as follows:
Unaudited Unaudited Audited
6 months 6 months 12 months to
to 31 May to 31 May 30 November
2022 2021 2021
£'000 £'000 £'000
Operating - 379 628
Investing - - (129)
Financing - 12,835 (157)
Net cash inflow - 13,214 342
On 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 30 November 2021.
The post-tax gain on disposal of the Sage business was determined as follows:
Unaudited Unaudited Audited
6 months 6 months 12 months to
to 31 May to 31 May 30 November
2022 2021 2021
£'000 £'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:
Unaudited Unaudited Audited
6 months 6 months 12 months to
to 31 May to 31 May 30 November
2022 2021 2021
£'000 £'000
External revenue (46) 2,391 4,011
Cost of sales (2) (1,425) (2,437)
Gross (loss)/profit (48) 966 1,574
(82) (995) (1,641)
Administrative expenses (1) (5) 31
Impairment losses on financial assets (130) (34) (36)
(Loss)/profit from operations (47) 966 1,574
Disposal (costs)/profit - (6) 2,629
Finance credit/(expense) 1 (2) (24)
Profit before taxation from discontinued operations (130) (42) 2,569
Tax credit /(charge) including on gain on asset held for sale - - -
(Loss)/profit for the year from discontinued operations (130) (42) 2,569
Basic and diluted (loss)/profit per share from discontinued operations (pence per share) (0.3) (0.1) 5.8
The amounts included in the consolidated cashflows related to the Sage
business are as follows:
Unaudited Unaudited Audited
6 months 6 months 12 months to
to 31 May to 31 May 30 November
2022 2021 2021
£'000 £'000 £'000
Operating (131) (34) (230)
Investing - - -
Financing 1 (2) -
Net cash outflow (130) (36) (230)
7 (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 to
to 31 May to 31 May 30 November
2022 2021 2021
Denominator £'000 £'000 £'000
Weighted average number of shares used in basic and diluted EPS 44,705,570 43,602,052 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 to
to 31 May to 31 May 30 November
2022 2021 2021
£'000 £'000 £'000
Loss after tax from continuing operations (2,631) (4,650) (8,761)
Profit after tax from discontinued operations 130 9,689 12,292
(Loss)/profit attributable to ordinary equity holders of the parent for basic (2,501) 5,038 3,531
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.
Unaudited Unaudited Audited
6 months 6 months 12 months to
to 31 May to 31 May 30 November
2022 2021 2021
£'000 £'000 £'000
Loss after tax from continuing operations (2,631) (4,650) (8,761)
Add back Other Items:
Amortisation of acquired intangibles (0) 284 518
Exceptional reorganisation costs 118 (881) 1,605
Exceptional impairment costs - - 1,421
Acquisition costs 98 - -
Shared-based payment charge 322 185 440
Tax (credit)/charge related to Other Items (102) 132 (1,291)
Loss attributable to ordinary equity holders of the parent for basic and (2,195) (4,931) (6,068)
diluted earnings per share from continuing operations before other items
Unaudited Unaudited Audited
6 months 6 months 12 months to
to 31 May to 31 May 30 November
2022 2021 2021
£'000 £'000 £'000
(Loss)/profit per share
Basic and diluted loss per share (6.2) 11.6 8.0
Basic and diluted (loss)/profit per share from continuing operations (5.9) (10.7) (19.9)
(0.3) 22.3 27.9
Adjusted loss per share
Basic and diluted loss per share from continuing operations before other items (4.9) (11.3) (13.8)
8 Loans and borrowings
Unaudited as at 31 May 2022 Unaudited Audited
as at 31 as at 30
May 2021 November 2021
£'000 £'000 £'000
Current
Bank overdrafts (secured) 1,395 1,901 113
Bank loans (secured) 1,555 - -
2,950 1,901 113
9 Net debt
Unaudited as at 31 May 2022 Unaudited Audited
as at 31 as at 30
May 2021 November 2021
£'000 £'000 £'000
Loans and borrowings (2,949) (1,901) (113)
Cash 4,322 6,295 9,146
Net cash (before leases) 1,373 4,394 9,033
Non-current leases liabilities (223) (926) (135)
Current lease liabilities (951) (943) (1,623)
Net Cash 199 2,525 7,275
10 Trade and other payables
Unaudited as at 31 May 2022 Unaudited Audited
as at 31 as at 30
May 2021 November 2021
£'000 £'000 £'000
Trade payables 2,432 2,144 2,330
Other payables 1,437 1,100 704
Accruals 2,539 2,391 5,354
Total financial Liabilities, excluding loans and borrowings, classified as financial liabilities measures at amortised cost 6,408 5,635 8,388
Other tax and social security tax 1,181 2,163 2,704
Contract liabilities 3,021 3,520 3,364
10,610 11,318 14,456
11 Trade and other receivables
Unaudited as at 31 May 2022 Unaudited Audited
as at 31 as at 30
May 2021 November 2021
£'000 £'000 £'000
Trade receivables 7,797 7,149 7,407
Loss allowance (726) (1,089) (852)
Trade receivables - net 7,071 6,060 6,555
Other receivables 172 128 122
Contract assets 3,423 3,009 3,077
Prepayments 1,076 1,190 851
11,742 10,387 10,605
12 Tax
Unaudited Unaudited Audited
6 months 6 months 12 months to
to 31 May to 31 May 30 November
2022 2021 2021
£'000 £'000 £'000
Current tax (credit)/expense
Income tax of overseas operations on (losses)/profits for the period/year (156) 662 676
Adjustment in respect of prior periods - - (80)
Total current tax (credit)/expense (156) 662 596
Deferred tax (income)/expense
Origination and reversal of temporary differences - (272) 233
Adjustment in respect of prior periods - 451 -
Total deferred tax expense - 179 233
Total tax (credit)/expense (156) 841 829
Income tax (credit)/expense attributable to continuing operations (156) 951 939
Income tax credit attributable to discontinued operations - (110) (110)
(156) 841 829
13 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 £3.0m (May
2021: £3.8m, Nov 2021: £6.8m), amortisation of acquired intangibles £nil
(May 2021: £0.3m, Nov 2021 £0.5m), exceptional impairment costs £nil (May
2021 £nil, Nov 2021 £1.4m) exceptional reorganisation costs £0.1m (May
2021: £0.8m income, Nov 2021 £1.6m), acquisition costs £0.1m (May 2021:
£nil, Nov 2021: £nil), and share-based charges £0.3m (May 2021: £0.2m, Nov
2021 £0.4m).
2 Recurring or predictable revenue - Contracted support, maintenance
and services revenues with a framework agreement of 2 years or more.
3 Strategic SaaS, maintenance and support - maintenance and support
revenue for Strategic IP within K3 products.
4 Net cash/debt comprises Bank Loans, Shareholder Loans and
Overdrafts less Cash and cash equivalents, including Cash and cash equivalents
held for sale.
5 Adjusted loss/earnings per share - basic loss per share from
continuing operations adjusted to exclude amortisation of acquired intangibles
£nil (May 2021: £0.3m, Nov 2021 £0.5m), exceptional impairment costs £nil
(May 2021 £nil, Nov 2021 £1.4m) exceptional reorganisation costs £0.1m (May
2021: £0.8m income, Nov 2021 £1.6m), acquisition costs £0.1m (May 2021:
£nil, Nov 2021: £nil), and share-based charges £0.3m (May 2021: £0.2m, Nov
2021 £0.4m) net of the related tax charge £0.1m (May 2021 £0.1m credit, Nov
2021 £1.3m).
6 Underlying support/admin costs - administrative expenses adjusted
to exclude depreciation and amortisation of development costs £3.0m (May
2021: £3.8m, Nov 2021: £6.8m), amortisation of acquired intangibles £nil
(May 2021: £0.3m, Nov 2021 £0.5m), exceptional impairment costs £nil (May
2021 £nil, Nov 2021 £1.4m) exceptional reorganisation costs £0.1m (May
2021: £0.8m income, Nov 2021 £1.6m), acquisition costs £0.1m (May 2021:
£nil, Nov 2021: £nil), and share-based charges £0.3m (May 2021: £0.2m, Nov
2021 £0.4m).
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