REG - K3 Bus Tech Grp PLC - Interim Results
30/08/2023 07:00
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RNS Number : 7219K K3 Business Technology Group PLC 30 August 2023
AIM: KBT
K3 BUSINESS TECHNOLOGY GROUP PLC
("K3" or "the Group" or "the Company")
Provider of business-critical software solutions focused on fashion and
apparel brands.
Interim results for the six months to 31 May 2023
Key Points
Six months to 31 May 2023 2022
Revenue from continuing operations £20.3m £19.9m
Gross profit £12.4m £11.9m
― gross margin 61% 60%
Adjusted operating loss (see note 10) (£0.8m) (£1.0m)
Loss before tax from continuing operations (£2.9m) (£2.8m)
Adjusted net cash £2.9m £1.4m
Reported loss per share (6.6p) (5.6p)
Adjusted loss per share for continuing operations (3.2p) (2.6p)
Financial
· Overall performance ahead of management expectations
· K3 strategic fashion and apparel products annualised recurring
revenue up 20% to £5.4m
· Revenue ahead. Approx £1.1m of income was not recognised in
H1, in line with new policy
o income from new contracts secured by strategic fashion and apparel
products is now recognised over the term of the contract, instead of upfront
· Reflecting focus on adjusted net cash, adjusted operating
profit/loss((10)) metric has replaced adjusted EBITDA as key performance
indicator
o adjusted operating loss was £0.8m (2022: £1.0m)
· Group generated adjusted net cash in the last 12 months; adjusted
net cash at £2.9m at 31 May 2023 (31 May 2022: £1.4m)
· Group earnings and adjusted net cash generation remain strongly
weighted to H2, reflecting the significant H2 weighting of annual software
licence and maintenance and support contract renewals
Operational
· K3 Products division - continued strong sales growth from fashion
and apparel offering (strategic products), although divisional performance
still impacted by legacy products in managed run-off
o Divisional revenue of £6.5m (2022: £6.5m); gross profit of £5.0m (2022:
£5.2m)
o Gross profit margin of 77% (2022: 80%)
o Strategic fashion products annualised recurring revenue up 20% in H1 to
£5.4m at period-end, driven by new customer wins and existing customers
increasing software licences
o Legacy products performed in line with management expectations
o Further investment in Sustainability offering to align functionality with
forthcoming legislation from Europe and USA
· Third-party Solutions division - higher profitability and
strongly cash generative
o Divisional revenue of £13.8m (2022: £13.4m) and gross profit of £7.4m
(2022: £6.7m)
o Gross profit margin of 53% (2022: 50%) - reflected revenue mix and reduced
overheads
o Global Accounts; lower level of store openings following 2-3 years of high
activity
o NexSys (formerly known as SYSPRO); average deal size increased; strong H2
expected with very healthy services back-log and high volume of software
licence and maintenance and support contract renewals due; renewals typically
c.98%
Prospects
· Current trading and free cash flow; both in line with management
expectations. Encouraging new business pipeline for H2
o strategic fashion products - targeting growth of 30% p.a. in recurring
revenue in FY23 and beyond
· Board is focused on further simplifying operations, reducing
central cost, adjusted net cash generation and continued transition to higher
margin growth activities
Marco Vergani, Chief Executive Officer of K3 Business Technology Group plc,
said:
"We made encouraging progress in key strategic areas of the business in the
first half. We are especially pleased with the performance of our strategic
products for the fashion and apparel market in the K3 Products division. Our
flagship K3 Fashion product has the potential to maintain its high growth
trajectory and has strong endorsement from Microsoft. Third-party Solutions
remains a cash engine for the Group, and the division will generate high cash
inflows in the second half of the financial year as software licence and
maintenance and support renewals come through.
"Our healthy balance sheet underpins the improvements that we are making to
the business. We remain focused on our high-margin growth opportunities, cost
discipline and adjusted net cash as we continue to move to higher quality
earnings."
Enquiries:
K3 Business Technology Group plc Marco Vergani (CEO)
www.k3btg.com (http://www.k3btg.com) Tom Crawford (Chairman) T: 0161 876 4498
finnCap Limited Julian Blunt/ Milesh Hindocha T: 020 7220 0500
(NOMAD & Broker) (Corporate Finance)
Sunila De Silva (Corporate Broking)
KTZ Communications Katie Tzouliadis/ Robert Morton T: 020 3178 6378
Interim Report
Overview
We have made excellent progress in some key strategic areas, in particular in
our fashion and apparel segment in K3 Products, which continues to grow very
strongly. Overall, the Group's performance over the first half of the current
financial year was ahead management expectations, with the attrition rate of
legacy products, which are in managed run-off, in line with budgets.
In the six months ended 31 May 2023, Group revenue from continuing operations
was £20.3m (2022: £19.9m), gross profit increased to £12.4m (2022:
£11.9m), and gross margin was up to 61% (2022: 60%). Importantly, the Group
generated adjusted net cash in the last 12 months, with net cash at £2.9m at
the period end (31 May 2022: £1.4m). Group cash generation is typically
strongly weighted to the second half of the financial year. This reflects the
significant cash inflows from NexSys annual software licence and maintenance
and support contract renewals, which fall due in the second half, with renewal
rates historically at c.98%.
In line with our focus on cash generation, we are no longer using adjusted
earnings before interest, tax, depreciation and amortisation ("EBITDA") as a
key performance indicator ("KPI"). We have instead adopted adjusted operating
profit/loss, which in the period was a loss of £0.8m (2022: £1.0m). We have
also made a second important change, and have updated our revenue recognition
policy relating to our strategic fashion and apparel products. Previously, we
recognised income from sales of fashion and apparel products upfront, at the
start of a contract. We are now recognising income over the term of the
contract, which will also align with payment inflows and provide better
visibility of revenues as we pursue our ambitious growth target in this
segment. The effect of the change is that c. £1.1m of fashion software
revenue was not recognised in this period, but will be in future periods.
Our primary focus remains on the development and growth of our strategic
products for the fashion and apparel markets, and related large retail brands,
where we see a very high growth opportunity. At the same time, we are
continuing to realise the growth opportunities in other parts of the Group.
The requirement for digital transformation continues to be a key priority for
companies in our target sectors. Retail businesses, especially in fashion, are
needing to adapt their models and systems to engage with customers and
suppliers in new and more varied and efficient ways. Our expertise in the
retail sector, particularly in fashion and apparel, and Microsoft's
endorsement of our K3 Fashion product as its preferred solution for this
vertical, place us in a strong position to continue to drive the growth of our
strategic products. We are targeting growth in annualised recurring revenue of
c. 30% per annum from strategic fashion and apparel products this year and
beyond.
The Third-party Solutions division generates predictable and strong cash flows
from its large customer base, and we are pleased to see the NexSys unit adding
to this base of recurring income, with some excellent wins in the period.
Our major programme to upgrade and unify our IT systems, which started over a
year ago, has largely completed. It covered Finance, Sales, Customer Support,
and Project Management processes, and has driven insights and efficiencies. We
will continue to seek further efficiencies and have identified additional
areas for cost saving initiatives in our operations. As part of our approach
to greater cost control, we will be allocating certain Central costs to
relevant business units.
Financial Results
Results from continuing operations
In the six months ended 31 May 2023, the Group generated total revenue from
continuing operations of £20.3m (2022: £19.9m) despite the change in revenue
recognition policy, and gross profit increased to £12.4m (2022: £11.9m).
Gross margin was higher at approximately 61% (2022: 60%), which mainly
reflected improved gross margin in the Third-party Solutions Division.
It is important to note that our decision to change our revenue recognition
policy for fashion and apparel software product sales, recognising revenue
over the term of the contract rather than at the start of the contract, has
shifted approximately £1.1m of fashion software revenue into the future. This
change has also impacted reported gross profit in the period.
As previously mentioned, we have also introduced adjusted operating
profit/(loss) as a key performance metric for the Group. It now replaces
adjusted EBITDA and has resulted in revised administration expenses being
shown in the comparatives for H1 2023 and in FY2022 data, including both
depreciation and capitalised development costs to provide a better alignment
with the actual cash requirements of the business. The adjusted operating loss
for the period was £0.8m (2022: £1.0m).
Capitalised development costs are then added back in the income statement in
arriving at the reported loss from operations, though we would expect the
level of capitalised development costs to reduce in future reflecting a more
prudent treatment.
The table below provides the reconciliation between adjusted operating loss in
the first half of the financial year under review and adjusted EBITDA in the
comparable period last year.
H1 2023 H1 2022 Change FY 2022
£'000 £'000 % £'000
Adjusted EBITDA (as previously reported for H1 2022 and FY 2022) 347 994 (65%) 5,064
- depreciation (784) (964) 19% (1,817)
- capitalised development costs (354) (1,013) 65% (1,699)
Adjusted operating profit/(loss) (791) (983) 20% 1,748
Reported adjusted administrative expenses increased slightly to £13.1m (2022:
£12.9m), which is in-line with revenue growth, and expenses are expected to
reduce next year and beyond.
Adjusted operating loss from continuing activities reduced to £0.8m (2022:
£1.0m). This encouraging improvement resulted from higher gross margin and
revenue growth and, as previously stated, is after the change to our revenue
recognition policy for fashion and apparel software sales.
The reported loss before tax from continuing activities was £2.9m (2022:
£2.8m). This is stated after depreciation and amortisation of £2.1m (2022:
£3.0m), exceptional reorganisation costs of £0.4m (2022: £0.1m),
acquisition costs of £nil (2022: £0.1m), share-based charges of £0.5m
(2022: £0.3m) and net finance expense of £0.3m (2022: £0.2m).
The adjusted loss per share from continuing operations was 3.2p (2022: 2.6p),
and excludes amortisation of development costs, capitalised development costs,
exceptional reorganisation costs, acquisition costs and share-based charges,
and is net of the related tax charge of £0.1m (2022: £0.1m). The reported
loss per share from continuing operations, which includes profit from
discontinued activities, increased to 7.2p (2022: 5.9p).
Balance sheet and cash flows
The Group balance sheet remains strong with cash and cash equivalents of
£4.7m (2022: £4.3m) and net cash of £2.9m (2022: £1.4m). K3 has a bank
facility with Barclays, its long-standing banking relationship, which provides
for the draw down of up to £3.5m to support seasonal cash movements. In
February 2023, this facility agreement was extended for a further year until
March 2024. At 31 May 2023, £1.8m was drawn down (2022: £1.6m).
As in prior years, Group cash flow remains heavily weighted towards the second
half of the financial year. This reflects the significant cash inflows from
annual software licence and maintenance and support renewals. The largest
element of this is NexSys renewals, where the renewal rate is typically c.98%.
Cash outflow from operations reduced significantly to £2.8m (2022: £5.2m).
Net cash used in investing activities amounted to £0.8m (2022: £1.6m). This
included spend on property, plant and equipment of £0.4m (2022: £0.4m), less
development expenditure capitalised at £0.3m (2022: £1.0m) and ViJi
acquisition costs of £nil (2022: £0.2m).
Operational Review
The Group's results for the six months ended 31 May 2023, together with
comparatives for the same period in 2022, are summarised in the tables below.
The segmental analysis provides further information on the key areas of
activity, K3 Products (which includes strategic fashion and apparel products)
and Third-party Solutions.
H1 Revenue (£m) Gross profit (£m) Gross margin
2023 2022 2023 2022 2023 2022
K3 Products 6.5 6.5 5.0 5.2 77% 80%
Third-party solutions 13.8 13.4 7.4 6.7 53% 50%
Total 20.3 19.9 12.4 11.9 61% 60%
K3 Products - K3 strategic products 2023 Y/Y Change
Recurring revenue £5.4m +20%
(SaaS, maintenance, annual contracts and support)
K3 Products
The division provides software products and solutions that are powered by our
own IP. They comprise:
• strategic products focused on fashion and apparel markets, principally K3
Fashion and K3 Pebblestone, as well as K3 ViJi and K3 imagine;
• solutions for the visitor attraction market; and other stand-alone point
solutions and apps, which are mainly our legacy point-of-sale ("POS")
products.
Revenue from strategic products, which are focused on the fashion and apparel
markets and include our flagship product, K3 Fashion, continued to increase
strongly and the growth opportunity remains very exciting. Overall results
from the division however were affected by legacy products, which are in
managed run-off, and by traction with K3 Imagine. We are taking action to
ensure that K3 Imagine is cash neutral by the end of the financial year.
In total, revenue generated by the division was £6.5m (2022: £6.5m). This
figure does not include around £1.1m of revenues from new fashion and apparel
software contracts won in the first half. In line with our new revenue
recognition policy, this income will be recognised over the term of the
contracts, rather than upfront. Gross profit was £5.0m (2022: £5.2m)
although, as with revenue, it was reduced by the application of the new
revenue recognition policy. Gross margin was 77% (2022: 80%), which reflected
the revenue mix.
Our flagship K3 Fashion product performed very strongly. We gained a number of
major new customers in the period and continued to expand software licence
sales with existing customers. It led the increase in total annualised
recurring revenue from strategic fashion and apparel products, which rose to
£5.4m by the end of the first half, a 20% uplift in just the first half. As
well as securing a major contract with a Swedish outdoor sports fashion brand,
worth c.£1.0m over three years, we secured the largest global deployment of
K3 Fashion. This was with a major global jewellery/watches retailer, and is
worth c.£1.4m over three years. We also won a large contract with a major
Swiss outdoor brand, worth c.£0.5m over five years, and a five-year contract
worth £0.2m with a European golf brand. Alongside these new contracts, we
added a number of smaller value contracts for K3 Fashion, which we expect to
expand over time. These new customers included a German fashion brand, an
Italian fabrics and furnishings manufacturer, a UK ski-wear and accessories
company and an Italian fashion brand.
K3 Fashion remains Microsoft's recommended 'add-on' solution for the fashion
and apparel vertical globally, and our wins continue to come through our
business partner network, with K3 providing thought leadership and sales
support through its domain expertise. The trend for new customers to buy an
initial number of software licences, mainly for centralised functions such as
purchasing, and catalogue and pricing management, and then to increase their
licence numbers, as they extend the use of the software across their
operations, remains a typical pathway for software adoption. This is the
pattern of we expect to see over the next year and beyond with the smaller
contracts we have gained in the period.
We achieved a good level of new signings for K3 Pebblestone, our solution
based on Microsoft 365 Business Central. We also have a large base of
established clients operating with an 'on-premises' suite. This offers us the
medium-term potential to migrate customers to a new cloud-based version, sold
on a subscription basis. We are adding functionality to the cloud version to
enhance the proposition. In the current environment, the pace of conversion is
likely to be dictated by customer investment sentiment.
We are seeing an encouraging level of interest in K3 ViJi, our sustainability
software product, which reflects emerging legislation, targeted at 2025 and
beyond, from the European Union and the USA. This new legislation is designed
to reduce waste, promote a circular economy, and to preserve biodiversity and
natural resources. We are reacting to the still forming legislation and
invested further in ViJi's solution suite during the period in order to
strengthen its regulatory support. We continue to assess market reaction and
approaches on how to leverage our corporate social responsibility
functionalities in both K3 Fashion and K3 ViJi.
Our solutions for the visitor attractions market performed well, helped by our
previous investment to update and enhance our offering. Legacy products
performed as expected and remain in managed run-off.
Third-party Solutions
Third-party Solutions comprises:
• NexSys, a value-added reseller (with additional own IP and modules) of SYSPRO
ERP to the UK manufacturers and distributors; and
• Global Accounts, which provides specialist services, predominantly to the
Inter IKEA Concept overseas franchisee network.
The Third-party solutions division generated total revenue of £13.8m,
consistent with the same period last year (2022: £13.4m) while gross profit
increased to £7.4m (2022: £6.7m). Gross margin increased by around three
percentage points to 53% (2022: 50%). This rise reflected the revenue mix,
which was made up of a higher proportion of software licence and maintenance
and support income, and reduced overheads.
The NexSys business (formerly known as SYSPRO) delivered an encouraging
performance and secured a number of new projects, with larger deal sizes.
Major new wins were signed with a manufacturer of automotive plastic
components, worth c. £0.56m, a bicycle manufacturer, worth c. £0.35m and a
manufacturer of products for the farming industry, worth c.£0.31m. These
initial order values include the first year's software licence, the first
year's support, and initial services.
We believe that this encouraging performance is partly due to pent-up demand,
following the suspension of purchasing decisions in 2022 when energy costs
soared, but more importantly, reflects the trend to 're-platform'
manufacturing ERP, improve operational connectivity and drive data-led
efficiencies. NexSys's performance also benefited from the selective
investment we made previously in sales, delivery resource and software
development to enhance functionality, as well as from disciplined cost
control. The business enters the second half with a very healthy services
back-log and encouraging new business pipeline.
Global Accounts saw a period of significant store expansion over the last two
to three years, by Inter IKEA Concept overseas franchisees, in the Far East,
Central America and South America. During the first half, we continued to
support franchisees, including with K3 Product roll-out such as 'Mobile Goods
Flow'. There were more limited new store openings though, and we are
anticipating more subdued expansion activity from IKEA. Our focus continues on
supporting our relationships, delivered from an appropriately-sized resource
base.
Central Costs
Administration expenses include sales, marketing and central IT, finance,
legal, HR, insurance and PLC costs. They amounted to £13.1m in the period
(2022: £12.9m). As previously stated, we will now allocate costs previously
included in central support to the relevant business units. We believe that
this will provide greater accountability, responsibility and cost control.
The Board
In early April 2023, Eric Dodd joined the Company as Chief Financial Officer,
with Rob Price stepping down from this role after six years with K3, as
previously reported. We take this opportunity to thank Rob for his
contribution during his tenure.
Eric has significant experience of the technology sector and was previously
Chief Financial Officer of ATTRAQT Group Plc, which specialises in omnichannel
search, merchandising and personalised product discovery technology for online
retailers and brands, mainly in the fashion sector. Prior to this, he was
Chief Financial Officer of Iptor Supply Chain Systems UK Limited, a private
equity backed software and services business, and before that, Chief Financial
Officer of KBC Advanced Technology plc, the software and consultancy provider
to the hydrocarbon industry.
Summary and Outlook
The Group generated adjusted net cash over the last 12 months, and we expect
its adjusted net cash position to strengthen in the second half. This mainly
reflects the strong weighting of earnings and cash flows to this period,
predominantly from NexSys.
Our focus remains on the transition we are making to higher quality recurring
earnings while, at the same time, continuing with cost discipline and
operational simplification. While challenges remain in the current economic
environment, and we anticipate more subdued activity in Global Accounts, we
have taken action to reduce costs and are very encouraged with the uptake of
our flagship K3 Fashion product, which has a significant global growth
opportunity. We are targeting growth in annualised recurring revenue of around
30% per annum in FY23 from our strategic products for the fashion and apparel
market, and believe this rate of growth can be maintained in the near term. We
have achieved a lot in the year to date and remain confident in the Group's
prospects.
Tom Crawford Marco Vergani
Chairman Chief Executive Officer
Consolidated Income Statement
for the six months ended 31 May 2023
Restated Restated
Unaudited Unaudited Audited
6 months 6 months 12 months
31 May 31 May 30 November
2023 2022 2022
£'000 £'000 £'000
Revenue 20,267 19,939 47,532
Cost of sales (7,917) (8,047) (19,382)
Gross profit 12,350 11,892 28,150
Administrative expenses (13,034) (12,710) (26,300)
Impairment losses on financial assets (107) (165) (102)
Adjusted operating profit/(loss) (791) (983) 1,748
Amortisation of development cost (1,331) (2,060) (3,766)
Capitalised development costs 354 1,013 1,699
Amortisation of acquired intangibles - - -
Exceptional impairment - - (1,603)
Exceptional reorganisation costs (374) (118) (595)
Acquisition costs - (98) (98)
Share-based payment charge (532) (322) (855)
Loss from operations (2,674) (2,568) (3,470)
Finance expense (266) (219) (338)
Loss before taxation from continuing operations (2,940) (2,787) (3,808)
Tax credit/(expense) (245) 156 (278)
Loss after taxation from continuing operations (3,185) (2,631) (4,086)
(Loss)/profit after taxation from discontinued operations 317 (130) 108
Loss for the period/year (2,868) (2,761) (3,978)
All the loss for the year is attributable to equity shareholders of the
parent.
Restated Restated
Unaudited Unaudited Audited
6 months 6 months 12 months
31 May 31 May 30 November
2023 2022 2022
£'000 £'000 £'000
(Loss)/profit per share
Basic and diluted loss per share (6.5)p (5.6)p (9.0)p
Basic and diluted loss per share from continuing operations (7.2)p (5.9)p (9.3)p
Adjusted earnings/(loss) per share (3.2)p (2.6)p 2.1p
Consolidated Statement of Comprehensive Income
for the six months ended 31 May 2023
Restated Restated
Unaudited Unaudited Audited
6 months 6 months 12 months
31 May 31 May 30 November
2023 2022 2022
£'000 £'000 £'000
Loss for the period/year (2,868) (2,761) (3,978)
Other comprehensive income
Exchange differences on translation of foreign operations 212 7 69
Total comprehensive income/(expense) for the period/year (2,656) (2,754) (3,909)
All the total comprehensive income/(expense) is attributable to equity holders
of the parent. All the other comprehensive income/(expense) will be
reclassified subsequently to profit or loss when specific conditions are met.
None of the items within other comprehensive income/(expense) had a tax
impact.
Consolidated Statement of Financial Position Notes
as at 31 May 2023 Unaudited as at 31 May 2023
Restated Restated
Unaudited Audited
as at 31 as at 30
May 2022 November 2022
£'000 £'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 1,866 1,661 1,766
Right-of-use assets 738 1,098 801
Goodwill 25,000 25,475 25,022
Other intangible assets 2,422 5,902 3,394
Deferred tax assets 890 1,010 855
Total non-current assets 30,916 35,146 31,838
Current assets
Stock 489 448 484
Trade and other receivables 11,136 11,742 13,549
Forward currency contracts 110 - 110
Cash and short-term deposits 4,672 4,322 7,113
Total current assets 16,407 16,512 21,256
Total assets 47,323 51,658 53,094
LIABILITIES
Non-current liabilities
Lease liabilities 33 223 79
Provisions - 783 179
Deferred tax liabilities 1,079 1,288 1,119
Total non-current liabilities 1,112 2,294 1,377
Current liabilities
Trade and other payables 12,143 10,610 16,882
Current tax liabilities 300 632 372
Lease liabilities 769 951 802
Borrowings 1,768 2,949 50
Provisions 798 854 968
Total current liabilities 15,778 15,996 19,074
Total liabilities 16,890 18,290 20,451
EQUITY
Share capital 11,183 11,183 11,183
Share premium account 31,451 31,451 31,451
Other reserves 11,151 11,151 11,151
Translation reserve 1,819 1,545 1,607
Accumulated losses (25,171) (21,962) (22,749)
Total equity attributable to equity holders of the parent 30,433 33,368 32,643
Total equity and liabilities 47,323 51,658 53,094
Consolidated Cash Flow Statement
for the six months ended 31 May 2023
Unaudited Unaudited Audited
6 months 6 months 12 months
31 May 31 May 30 November
2023 2022 2022
Notes £'000 £'000 £'000
Cash flows from operating activities
Loss for the period (2,868) (2,761) (3,978)
Adjustments for:
Finance expense 266 219 336
Tax (income)/expense 245 (156) 90
Depreciation of property, plant and equipment 344 300 636
Depreciation of right-of-use assets 440 678 981
Amortisation of intangible assets and development expenditure 1,331 2,060 3,767
Impairment of intangible assets - - 1,603
Loss on sale of property, plant and equipment - - 10
Share-based payments charge 446 322 751
Net cash flow from provisions (359) (346) (717)
Net cash flow from trade and other receivables (1,669) (1,087) (3,037)
Net cash flow from trade and other payables (843) (4,658) 2,380
Cash generated from operations (2,667) (5,429) 2,822
Income taxes paid (150) 279 (395)
Net cash from operating activities (2,817) (5,150) 2,427
Cash flows from investing activities
Acquisition of a subsidiary, net of cash acquired - (180) (178)
Development expenditure capitalised (352) (1,013) (1,725)
Purchase of property, plant and equipment (445) (410) (845)
Net cash from investing activities (797) (1,603) (2,748)
Cash flows from financing activities
Proceeds from loans and borrowings 1,783 1,500 -
Issue of shares - - (111)
Repayment of loans and borrowings - (83) -
Repayment of lease liabilities (541) (584) (1,073)
Interest paid on lease liabilities (84) (96) (132)
Finance expense paid (30) (26) (150)
Net cash from financing activities 1,128 711 (1,466)
Net change in cash and cash equivalents (2,486) (6,042) (1,787)
Cash and cash equivalents at start of period/year 7,000 9,033 9,033
Exchange losses on cash and cash equivalents 158 (64) (133)
Cash and cash equivalents at end of period/year 4,672 2,927 7,113
Consolidated Statement of Changes in Equity
for the period ended 31 May 2023
Share capital Share premium Other reserves Translation reserve Accumulated losses Total equity
£'000 £'000 £'000 £'000 £'000 £'000
At 30 November 2021 11,183 31,451 11,151 1,538 (19,523) 35,800
Changes in equity for six months ended 31 May 2022
Loss for the period - - - - (2,761) (2,761)
Other comprehensive income for the period - - - 7 - 7
Total comprehensive expense - - - 7 (2,761) (2,754)
Share based payment - - - - 322 322
At 31 May 2022 11,183 31,451 11,151 1,545 (21,962) 33,368
Changes in equity for six months ended 30 November 2022
Loss for the period - - - - (1,216) (1,216)
Other comprehensive income for the period - - - 62 - 62
Total comprehensive expense - - - 62 (1,216) (1,154)
Share based payment - - - - 429 429
At 30 November 2022 11,183 31,451 11,151 1,607 (22,749) 32,643
Changes in equity for six months ended 31 May 2023
Loss for the period - - - - (2,868) (2,868)
Other comprehensive income for the period - - - 212 - 212
Total comprehensive expense - - - 212 (2,723) (2,511)
Share based payment - - - - 446 446
At 31 May 2023 11,183 31,451 11,151 1,819 (25,171) 30,433
1 Segment information
For the six months ended 31 May 2023
K3 Products Central Costs Total
Third-party Solutions
£'000 £'000 £'000 £'000
Software licence revenue 1,958 1,156 - 3,113
Services revenue 400 8,709 - 9,109
Maintenance & support 3,858 3,917 - 7,775
Hardware and other revenue 254 15 - 269
External revenue 6,470 13,797 - 20,267
Cost of sales (1,476) (6,441) - (7,917)
Gross profit 4,994 7,356 - 12,350
Gross margin 77.1% 53.3% 0.0% 60.9%
Adjusted administrative expenses (5,787) (2,367) (4,987) (13,141)
Allocation of Central Costs (1,512) (2,225) 3,737 -
Adjusted operating profit/(loss) (2,305) 2,764 (1,250) (791)
Amortisation of development cost - - (1,331) (1,331)
Capitalised development costs - - 354 354
Exceptional impairment - - - -
Exceptional reorganisation costs - - (374) (374)
Acquisition costs - - - -
Share-based payment charge - - (532) (532)
(Loss)/profit from operations (619) 4,816 (6,870) (2,674)
Finance expense - - (266) (266)
(Loss)/profit before tax and discontinued operations (619) 4,816 (7,136) (2,940)
Tax expense - - (245) (245)
Profit from discontinued operations - - 317 317
(Loss)/profit for the year (619) 4,816 (7,064) (2,868)
For the six months ended 31 May 2022
(restated)
K3 Products Third-party solutions Central Costs Total
£'000 £'000 £'000 £'000
Software licence revenue 836 1,801 - 2,637
Services revenue 415 8,019 - 8,434
Maintenance & support 4,834 3,614 - 8,448
Hardware and other revenue 406 14 - 420
External revenue 6,491 13,448 - 19,939
Cost of sales (1,287) (6,760) - (8,047)
Gross profit 5,204 6,688 - 11,892
Gross margin 80.2% 49.7% - 59.6%
Adjusted administrative expenses (6,326) (3,658) (2,891) (12,875)
Allocation of Central Costs (680) (961) 1,641 -
Adjusted operating profit/(loss) from continuing operations (1,802) 2,069 (1,250) (983)
Amortisation of development cost - - (2,060) (2,060)
Capitalised development costs - - 1,013 1,013
Exceptional impairment - - - -
Exceptional reorganisation costs - - (118) (118)
Acquisition costs - - (98) (98)
Share-based payment charge - - (322) (322)
Loss from operations (1,122) 3,030 (4,476) (2,568)
Finance expense - - (219) (219)
Loss before tax and discontinued operations (1,122) 3,030 (4,695) (2,787)
Tax credit - - 156 156
Loss from discontinued operations - - (130) (130)
Profit/(loss) for the year (1,122) 3,030 (4,669) (2,761)
For the twelve months ended 30 November 2022 (restated)
K3 Products Central Costs Total
Third-party Solutions
£'000 £'000 £'000 £'000
Software licence revenue 2,174 3,468 - 5,642
Services revenue 738 17,377 - 18,115
Maintenance & support 9,620 13,196 - 22,816
Hardware and other revenue 925 34 - 959
External revenue 13,457 34,075 - 47,532
Cost of sales (2,920) (16,462) - (19,382)
Gross profit 10,537 17,613 - 28,150
Gross margin 78.3% 51.7% - 59.2%
Adjusted administrative expenses (12,127) (5,099) (9,176) (26,402)
Allocation of Central Costs (1,904) (4,762) 6,666 -
Adjusted operating profit/(loss) (3,494) 7,752 (2,510) 1,748
Amortisation of development cost - - (3,766) (3,766)
Capitalised development costs - - 1,699 1,699
Exceptional impairment - - (1,603) (1,603)
Exceptional reorganisation costs - - (595) (595)
Acquisition costs - - (98) (98)
Share-based payment charge - - (855) (855)
(Loss)/profit from operations (1,590) 12,514 (14,394) (3,470)
Finance expense - - (338) (338)
(Loss)/profit before tax and discontinued operations (1,590) 12,514 (14,732) (3,808)
Tax expense - - (278) (278)
Profit from discontinued operations - - 108 108
(Loss)/profit for the year (1,590) 12,514 (14,902) (3,978)
2 General information
K3 Business Technology Group Plc is incorporated in England and Wales under
the Companies Act (listed on AIM, a market operated by the London Stock
Exchange Plc) with the registered number 2641001. The address of the
registered office is Baltimore House, 50 Kansas Avenue, Manchester M50 2GL.
The interim condensed consolidated financial statements comprise the company
and its subsidiaries, "the Group".
Basis of preparation and Going Concern
The financial information set out in this Interim Report does not constitute
statutory accounts as defined in Section 434 of the Companies Act 2006. The
Group's statutory financial statements for the year ended 30 November 2022,
prepared in accordance with the international accounting standards in
conformity with the requirements of the Companies Act 2006, have been filed
with the Registrar of Companies. The auditor's report on those financial
statements was unqualified and did not contain a statement under Section 498
(2) or (3) of the Companies Act 2006. The interim financial information has
been prepared in accordance with the recognition and measurement principles of
International Financial Reporting Standards ("IFRS") and on the same basis and
using the same accounting policies as used in the financial statements for the
year ended 30 November 2022, except for change in revenue policy discussion in
the front half.
The financial information has not been prepared (and is not required to be
prepared) in accordance with IAS 34. The accounting policies have been applied
consistently throughout the Group for the purposes of preparation of this
financial information.
The Interim Report has not been audited or reviewed in accordance with the
International Standard on Review Engagement 2410 issued by the Auditing
Practices Board.
The Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future. For
these reasons, they continue to adopt the going concern basis of accounting in
preparing this financial information.
3 Significant events
During H1 2023, Robert Price (Chief Finance Officer) left the business and is
replaced by Eric Dodd.
As disclosed in our Annual Report and Accounts for FY2022, on 24 February
2023, the Group agreed an extension to its Current Revolving Credit Facility
with Barclays for £3.5m until 31 March 2024.
4 (Loss)/earnings per share
The calculations of (loss)/earnings per share (EPS) are based on the
profit/(loss) for the period and the following numbers of shares:
Unaudited Unaudited Audited
6 months 6 months 12 months
31 May 31 May 30 November
2023 2022 2022
No. of Shares No. of Shares No. of Shares
Denominator
Weighted average number of shares used in basic and diluted EPS 44,090,074 44,705,570 44,090,074
Certain employee options and warrants have not been included in the
calculation of diluted EPS because their exercise is contingent on the
satisfaction of certain criteria that had not been met at the end of the
period/year.
Unaudited Unaudited Audited
6 months 6 months 12 months
31 May 31 May 30 November
2023 2022 2022
£'000 £'000 £'000
Loss after tax from continuing operations (3,185) (2,631) (4,086)
Profit after tax from discontinued operations 317 130 108
(Loss)/profit attributable to ordinary equity holders of the parent for basic (2,868) (2,501) (3,978)
and diluted earnings per share
4 (Loss)/earnings per share (continued)
The alternative earnings per share calculations have been computed because the
directors consider that they are useful to shareholders and investors. These
are based on the following profits/(losses) and the above number of shares.
Restated Restated
Unaudited Unaudited Audited
6 months 6 months 12 months
31 May 31 May 30 November
2023 2022 2022
£'000 £'000 £'000
Loss after tax from continuing operations (3,185) (2,631) (4,086)
Add back Other Items:
Amortisation of development cost 1,331 2,060 3,766
Capitalised development costs (354) (1,013) (1,699)
Amortisation of acquired intangibles - - -
Exceptional reorganisation costs 374 118 595
Exceptional impairment costs - - 1,603
Acquisition costs - 98 98
Shared-based payment charge 532 322 855
Tax (credit)/charge related to Other Items (112) (102) (202)
(Loss)/profit attributable to ordinary equity holders of the parent for basic (1,414) (1,148) 930
and diluted earnings per share from continuing operations before other items
Restated Restated
Unaudited Unaudited Audited
6 months 6 months 12 months
31 May 31 May 30 November
2023 2022 2022
Pence Pence Pence
(Loss)/profit per share
Basic and diluted loss per share (6.5) (5.6) (9.0)
Basic and diluted (loss)/profit per share from continuing operations (7.2) (5.9) (9.3)
Adjusted loss per share
Basic and diluted loss per share from continuing operations before other items (3.2) (2.6) 2.1
5 Loans and borrowings
Unaudited Unaudited Audited
as at as at as at
31 May 31 May 30 November
2023 2022 2022
£'000 £'000 £'000
Current
Bank overdrafts (secured) - 1,395 -
Bank loans (secured) 1,768 1,555 50
1,768 2,950 50
6 Net cash
Unaudited Unaudited Audited
as at as at as at
31 May 31 May 30 November
2023 2022 2022
£'000 £'000 £'000
Cash 4,672 4,322 7,113
Bank overdrafts (secured) - (1,395) -
Cash and cash equivalents 4,672 2,927 7,113
Loans and borrowings (1,768) (1,555) (50)
Net adjusted cash (before leases) 2,904 1,372 7,063
Non-current leases liabilities (33) (223) (79)
Current lease liabilities (769) (951) (802)
Net Cash 2,102 198 6,182
7 Trade and other payables
Unaudited Unaudited Audited
as at as at as at
31 May 31 May 30 November
2023 2022 2022
£'000 £'000 £'000
Trade payables 1,974 2,432 2,823
Other payables 1,128 1,437 2,202
Accruals 2,942 2,539 4,041
Total financial Liabilities, excluding loans and borrowings, classified as financial liabilities measures at amortised cost 6,044 6,408 9,066
Other tax and social security tax 1,311 1,181 2,504
Contract liabilities 4,788 3,021 5,312
12,143 10,610 16,882
8 Trade and other receivables
Unaudited Unaudited Audited
as at as at as at
31 May 31 May 30 November
2023 2022 2022
£'000 £'000 £'000
Trade receivables 6,883 7,797 8,079
Loss allowance (1,099) (726) (784)
Trade receivables - net 5,784 7,071 7,295
Other receivables 341 172 138
Contract assets 4,153 3,423 5,512
Prepayments 858 1,076 604
11,136 11,742 13,549
9 Tax
Unaudited Unaudited Audited
6 months 6 months 12 months
31 May 31 May 30 November
2023 2022 2022
£'000 £'000 £'000
Current tax (credit)/expense
Income tax of overseas operations on (losses)/profits for the period/year (245) (156) 203
Adjustment in respect of prior periods - - (100)
Total current tax (credit)/expense (245) (156) 103
Deferred tax (income)/expense
Origination and reversal of temporary differences - - 19
Adjustment in respect of prior periods - - (32)
Total deferred tax expense - - (13)
Total tax (credit)/expense (245) (156) 90
Income tax (credit)/expense attributable to continuing operations (245) (156) 278
Income tax credit attributable to discontinued operations - - (188)
(245) (156) 90
10 Non-statutory information
The Group uses a variety of alternative performance measures, which are
non-IFRS, to assess the performance of its operations. The Group considers
these performance measures to provide useful historical financial information
to help investors evaluate the underlying performance of the business.
These measures, as described below, are used to improve the comparability of
information between reporting periods and geographical units, to adjust for
exceptional items or to adjust for businesses identified as discontinued to
provide information on the ongoing activities of the Group. This also reflects
how the business is managed and measured on a day-to-day basis.
1 Adjusted administrative expenses and Adjusted operating profit or
loss are, as appropriate, stated before: exceptional and other adjusting items
including gains or losses on business acquisitions and disposals, amortisation
of acquired intangibles, costs relating to share-based payments, exceptional
impairment, exceptional re-organisation costs, amortisation of development
cost, capitalised development costs and the related tax effect of these
exceptional and other adjusting items, as Management do not consider these
items when reviewing the underlying performance of the Segment or the Group as
a whole.
2 Recurring or predictable revenue - Contracted support, maintenance
and services revenues with a frame agreement of 2 years or more, as % of total
revenue.
3 Cash outflow - speed at which business spends the money that is
available to it. Calculated as delta between cash and cash equivalents
balances between two periods.
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