Final Results
K3 Business Technology Group PLC
05 March 2004
K3 BUSINESS TECHNOLOGY GROUP PLC
PRELIMINARY RESULTS
FOR THE YEAR TO 31 DECEMBER 2003
• Robust trading performance against background of difficult market
conditions
• Adjusted operating profit* of £1.07m (2002: £0.98m)
• Exceptional write-off of £0.61m (2002: £nil) related to amounts owed
by RAP Group
• Operating profit of £0.01m (2002: £0.51m)
• Cash of £1.10m generated in the year, giving strong cash position of
£1.23m at year end
• Selected by Microsoft as one of eight software development partners
for the UK launch of its new Customer Relationship Management software
• New SmartVision product well received by market
George Matthews, chairman, commented,
'Market conditions remain challenging in the manufacturing sector and, whilst we
do not expect any significant improvement in trading in our traditional products
this year, we view 2004 as a year of evolution for the group. Our new CRM
product represents an exciting opportunity for the medium term and to fully
realise its potential we intend to invest approximately £1.50m spread evenly
over the next two years, which will have a direct effect on profitability. At
this stage of the product's development, we anticipate a small contribution to
sales this year with sales building more strongly in 2005. We continue to review
a number of acquisition opportunities in our sector and, with our improving cash
position, we will seek to exploit these appropriately.'
Enquiries:
K3 Business Technology Group plc Andy Makeham, Chief Executive T: 020 7448 1000 (today)
David Bolton, Finance Director Thereafter: 01282 864111
Biddicks Katie Tzouliadis/Kathryn van der Kroft T: 020 7448 1000
Rowan Dartington & Co. Limited Barrie Newton T: 0117 933 0011
________________________________________________________________________________
* Calculated before amortisation of goodwill of £0.46m and exceptional write off
of £0.61m.
CHAIRMAN'S STATEMENT
Overview
Despite difficult market conditions during the year, trading was resilient and I
am pleased to report that the group delivered adjusted operating profits* in
line with expectations. Results were underpinned by our enhanced product range
as well as the efficiency initiatives undertaken in 2002. At the operating
level, the improvement in our margins and profitability was masked by the
write-off of £0.61m we made against amounts outstanding from RAP Group Limited
('RAP'). We received £0.47m during the year following the sale of the hardware
businesses by RAP with a further £0.04m since the year-end, making a total of
£0.51m. The group's cash balance now stands at a healthy £1.23m which was aided
by good cash generation in the second half.
Financial Results
During the year under review, turnover on continuing operations was £7.00m
against £7.92m last year. This reflected the challenging trading conditions in
the manufacturing Enterprise Resource Planning ('ERP') market. However, the
second half saw an improvement over the first half, with a reversal in the
declining trend in maintenance revenues. As a result, adjusted operating profit*
on continuing operations was £1.07m (2002: £1.12m). Operating profit after
amortisation of goodwill of £0.46m and exceptionals of £0.61m was £0.01m (2002:
£0.51m) and the loss before tax was £0.20m (2002: profit of £0.27m). Adjusted
earnings per share* were 1.3p (2002: 2.0p) and, after taking into account
goodwill amortisation of £0.46m and exceptional items of £0.61m, the loss per
share was 0.6p (2002: earnings per share of 0.7p).
At 31 December 2003, the group had a positive cash balance of £1.23m compared
with a cash balance of £0.12m at 31 December 2002.
The Directors do not propose to pay a dividend (2002: £nil). At present we are
prohibited under the Companies Act from paying dividends due to the accumulated
deficit on our profit and loss account reserve. The Directors intend to seek
shareholders' approval and in due course to apply to the Court under section 135
of the Companies Act in order to eliminate the deficit.
Review of Operations
Business Systems Division
The Business Systems Division traded strongly and results for the final quarter
of the year were particularly good. In June, we launched our new SmartVision
product, which replaces our MicrosoftForWindows mid-range manufacturing control
system. The SmartVision range has been well received, with a number of new
orders secured by the year end.
The highlight of the year came in December when K3 was chosen by Microsoft as
one of eight software development partners in the UK to launch Microsoft's new
Customer Relationship Management ('CRM') software. We had been working with
Microsoft over the course of the year and are embedding Microsoft CRM within our
flagship SmartVision business solution. In January this year, we introduced our
new product at Microsoft's CRM launch in London. Bill Gates was present at the
high profile event and it was exceptionally well attended. We believe there are
exciting opportunities ahead and over the new few years intend to support the
continuing development of our Microsoft-based CRM solution with significant
investment of £1.50m over the next two years.
________________________________________________________________________________
* Calculated before amortisation of goodwill of £0.46m and exceptional write off
of £0.61m.
Enterprise Systems Division
The Enterprise Systems Division saw improved new sales in the second half,
assisted by the release in June of Version 3 of our IBS ERP solution. The
product, targeted at both new and existing customers, generated significant
interest. Results were further helped by the cost savings we achieved through
business rationalisation in mid 2002 and the division delivered full year
operating profits ahead of 2002 levels.
PSE Limited
In November, we acquired a 38% stake in PSE Ltd ('PSE'), authors of the Elucid
distribution management and warehousing solution. Elucid is a modern technology
Microsoft SQL-based application solution already widely used by distribution
companies across the UK. The initial consideration for the 38% stake was £0.10m
with a further £0.09m due within two years.
Outlook
Market conditions remain challenging in the manufacturing sector and, whilst we
do not expect any significant improvement in trading in our traditional products
this year, we view 2004 as a year of evolution for the group. Our new CRM
product represents an exciting opportunity for the medium term and to fully
realise its potential we intend to invest approximately £1.50m spread evenly
over the next two years, which will have a direct effect on profitability. At
this stage of the product's development, we anticipate a small contribution to
sales this year with sales building more strongly in 2005. We continue to
review a number of complementary acquisition opportunities in our sector and,
with our improving cash position, we will seek to exploit these appropriately.
George Matthews
Chairman
OPERATIONAL REVIEW
2003 proved another challenging year for the group but with strong final quarter
sales, the continuing operations delivered adjusted operating profits* of
approximately £1m, in line with last year's result. The settlement of balances
with RAP during the year resulted in a write-off of £0.61m, but also released
back to K3 cash of £0.47m. The group therefore ended the year with an enhanced
cash position.
Business Systems Division
The Business Systems Division continued its excellent trading performance in the
second half with a particularly strong final quarter. This was supported by
ongoing upgrades by customers to our new suite of products, including Sigma,
Omnis and JobBOSS. The launch of our new SmartVision product went well and we
secured 14 new orders in the second half.
The most exciting new development however has been the growing business
partnership with Microsoft. In December 2003, we were selected as one of only
eight partners in the UK working with Microsoft in the launch of its new
Customer Relationship Management ('CRM') software. In January 2004, at
Microsoft's well-publicised CRM launch in London, K3 was a keynote presenter.
Attended by Bill Gates, the event drew a very large audience and was an ideal
platform for us to showcase our new SmartVision product range. In February
2004, we were appointed as a strategic Independent Software Vendor ('ISV') by
Microsoft which is a global recognition of the strengthening partnership.
Microsoft CRM represents a major opportunity for us and, to exploit fully this
partnership, we are seamlessly embedding Microsoft CRM within our flagship
SmartVision business application. Our strategy remains to track Microsoft's
moves into the business applications marketplace and to continue to use
Microsoft tools and standards wherever possible in developing our range of
Microsoft-centric modern technology business applications for the SME sector.
Enterprise Systems Division
After a disappointing first half, the Enterprise Systems Division saw much
improved new business activity following the release of IBS Version 3 during the
second half. IBS Version 3 was developed in partnership with the IBS User Group
and features many new facilities, including Microsoft SQL Server access for
reporting and analysis. Aided by a continued programme of cost control, the
division delivered a 10% improvement in profits in 2003.
PSE Ltd
The acquisition of the 38% stake in PSE is part of a strategic move to satisfy
increasing demand for warehousing and distribution management functionality from
our existing customer base. We believe PSE has significant growth
opportunities.
Outlook
While the Enterprise Resource Planning marketplace remains difficult, there are
significant opportunities in the complementary markets of CRM, distribution and
retail management. The CRM opportunity now open to us is substantial and will
require significant investment during 2004 and 2005.
We continue to seek to reduce our overall dependence on the UK manufacturing
sector and, as part of this refocus, we are seeking complementary acquisitions
in these new markets where our extensive supply chain management skills can be
exploited.
Andy Makeham
Chief Executive
________________________________________________________________________________
* Calculated before amortisation of goodwill of £0.46m and exceptional write off
of £0.61m.
Consolidated profit and loss account for the year ended 31 December 2003
2003 2002
Continuing Continuing Discontinued
operations operations operations Total
Notes £000 £000 £000 £000
Turnover 7,002 7,916 172 8,088
Cost of sales (958) (1,346) (123) (1,469)
Gross profit 6,044 6,570 49 6,619
Selling and distribution costs (2,353) (2,564) - (2,564)
Administrative expenses (3,685) (3,348) (195) (3,543)
Operating profit (loss) before amortisation of
goodwill and exceptional items included within
administrative expenses 1,074 1,121 (146) 975
Amortisation of goodwill (463) (463) - (463)
Exceptional administrative expenses 1 (605) - - -
Operating profit (loss) 6 658 (146) 512
Loss on disposal of operations 1 (100) - (173) (173)
(Loss) profit on ordinary activities before (94) 658 (319) 339
interest
Finance charges (net) (105) (73)
(Loss) profit on ordinary activities before (199) 266
taxation
Tax on (loss) profit on ordinary activities (130) 108
(Loss) profit for financial year 6 (329) 374
(Loss) earnings per share
Basic 7 (0.6p) 0.7p
Diluted 7 (0.6p) 0.7p
Basic before amortisation of goodwill 7 0.3p 1.6p
Basic before amortisation of goodwill and
exceptional items 7 1.3p 2.0p
There were no recognised gains or losses in either year other than the (loss)
profit for that year.
Consolidated balance sheet as at 31 December 2003
2003 2002
Notes £000 £000
Fixed assets
Goodwill 3,354 3,817
Tangible assets 342 426
Investments 2 190 -
3,886 4,243
Current assets
Properties for resale - 30
Debtors
due within one year 2,558 3,668
due after one year - 200
Cash at bank and in hand 1,226 123
3,784 4,021
Creditors: amounts falling due within one year (4,706) (4,920)
Net current liabilities (922) (899)
Total assets less current liabilities 2,964 3,344
Creditors: amounts falling due after more than one year - (51)
Net assets 2,964 3,293
Capital and reserves
Called up share capital 2,548 2,548
Share premium account 6 6,441 6,441
Other reserve 6 2,359 2,359
Profit and loss account 6 (8,384) (8,055)
Equity shareholders' funds 2,964 3,293
Consolidated cash flow statement for the year ended 31 December 2003
2003 2002
Notes £000 £000
Net cash inflow from operating activities 3 1,365 471
Returns on investments and servicing of finance (23) (35)
Taxation (11) -
Capital expenditure and financial investment (99) (66)
Acquisitions and disposals 4 (95) (105)
Cash inflow before financing 1,137 265
Financing 4 (34) (79)
Increase in cash in the year 5 1,103 186
Notes
1. Exceptional write-off and loss on disposal of operations
Operating profit is stated after charging a write-off of £605,000 no longer
considered recoverable (2002: £nil) following the settlement of outstanding
balances with RAP. A provision of £100,000 (2002: £nil) has been made against
the deferred consideration which arose based on the eventual disposal of the
businesses by RAP and this is included as a loss on disposal of operations.
2. Investments
On 3 November 2003, the company acquired 38% of the issued share capital of PSE
for an initial consideration of £95,000 with a further £95,000 due within two
years. Further consideration may become payable should the group increase its
shareholding to more than 51% of PSE and should certain performance targets be
met. Although the company owns 38% of the issued share capital, it has
accounted for the investment as a trade investment as the directors do not
consider that they exert significant influence over PSE. This is due to the
remaining shares being owned by a small group of people who together control the
decisions regarding trading and finance of PSE.
3. Reconciliation of operating profit to operating cash flow
2003 2002
£000 £000
Operating profit 6 512
Depreciation charges and fixed asset impairment 182 206
Loss on sale of tangible fixed assets 1 29
Write down of property held for resale - 40
Amortisation of goodwill 463 463
Decrease (increase) in debtors 1,290 (312)
Decrease in creditors (577) (336)
Decrease in provisions - (131)
Net cash inflow from operating activities 1,365 471
4. Analysis of cash flows
Acquisitions and disposals
2003 2002
£000 £000
Acquisition of investment (95) -
Costs of disposal - (105)
(95) (105)
Financing
2003 2002
£000 £000
Capital element of finance lease rental payments (34) (79)
(34) (79)
5. Analysis and reconciliation of net cash resources
1 Jan 2003 Cash flow Other 31 Dec 2003
non-cash
changes
£000 £000 £000 £000
Cash in hand, at bank 123 1,103 - 1,226
Finance leases (85) 34 - (51)
Cash resources 38 1,137 - 1,175
2003 2002
£000 £000
Increase in cash in the year 1,103 186
Cash outflow from decrease in debt and lease financing 34 79
Change in net cash resources resulting from cash flows 1,137 265
Cash resources (net debt) at 1 January 2003 38 (227)
Cash resources at 31 December 2003 1,175 38
6. Reserves
Share Other Profit and
premium reserve loss
account account
£000 £000 £000
At 1 January 2003 6,441 2,359 (8,055)
Retained loss for the year - - (329)
At 31 December 2003 6,441 2,359 (8,384)
7. (Loss) earnings per share
The calculations of (loss) earnings per share are based on the following
(losses) profits and numbers of shares.
Basic and diluted
2003 2002
(Losses) Per share Earnings Per share
earnings amount Amount
£000 p £000 P
Basic (loss) earnings per share (eps) (329) (0.6) 374 0.7
Effect of goodwill amortisation 463 0.9 463 0.9
Basic eps before amortisation of goodwill 134 0.3 837 1.6
Exceptional administrative expenses (net of tax) *524 1.0 173 0.4
Basic eps before amortisation of goodwill
and exceptional items 658 1.3 1,010 2.0
* Relates to write-off of irrecoverable balances from RAP of £605,000 less
tax of £181,000 and a further loss on disposal of the legacy businesses
arising from reduced deferred consideration of £100,000 which had no tax
effect.
The alternative earnings per share calculations have been computed because the
directors consider that they are useful to shareholders and investors.
2003 2002
Number of shares Number of shares
Weighted average number of shares:
For basic earnings per share 50,962,144 50,844,943
Exercise of share options - -
For diluted earnings per share 50,962,144 50,844,943
FRS 14 requires presentation of diluted earnings per share when a company could
be called upon to issue shares which could decrease net profit or increase net
loss per share. For a loss-making company with outstanding share options, net
loss per share would only be increased by the exercise of out-of-the-money share
options. Since it seems inappropriate to assume that option holders would act
irrationally, no adjustment has been made to diluted earnings per share for
out-of-the-money share options.
8. The directors do not recommend the payment of a final
dividend and the dividend for the year is therefore £nil (2002: £nil).
9. The results have been prepared under the historical cost
convention and in accordance with applicable United Kingdom accounting
standards. The accounting policies have been applied consistently with
those stated in the previous accounts.
10. The financial information set out above does not comprise the Company's
statutory accounts. Statutory accounts for the previous financial
year ended 31 December 2002 have been delivered to the Registrar of
Companies. The auditors' report on those accounts was unqualified and did
not contain any statement under section 237(2) or (3) of the Companies Act
1985. The auditors have given an unqualified opinion on the accounts for
the year ended 31 December 2003 and it did not contain any statement under
section 237(2) or (3) of the Companies Act 1985. These will be delivered
to the Registrar of Companies following the annual general meeting.
11. This preliminary announcement was approved by the Board of directors on 5
March 2004.
12. The full financial statements will be posted to shareholders on or around 5
April 2004. Further copies will also be available from the Company's
registered office at Unit 19, Linden Business Centre, Linden Road, Colne,
Lancashire, BB8 9BA from that date.
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