Half Yearly Report

RNS Number : 7371Y
K3 Business Technology Group PLC
06 March 2012
 



KBT

K3 BUSINESS TECHNOLOGY GROUP PLC

("K3" or "the Group" or "the Company")

 

Unaudited Half-yearly Report

For the

Six months to 31 December 2011

 

KEY POINTS

Financial Key Points

 

·       Revenue up 35% to £33.36m (2010: £24.67m) − includes £3.73m from acquisitions in H1 and benefit of acquisitions made in 2010 

recurring income up 36% to £17.1m (2010: £12.6m)

 

·       Adjusted profit from operations*1 up 11% to £6.91m (2010: £6.24m)

Profit from operations unchanged at £4.66m (2010: £4.66m)

 

·       Investment of c.£0.5m made in managed services and retail software (AX), continuing in H2

 

·       Adjusted profit before tax*2 up 7% to £6.23m (2010: £5.81m)

Profit before tax of £3.98m (2010: £4.23m)

 

·       Adjusted basic earnings per share*3 up 7% to 18.1p (2010: 16.9p)

        Basic earnings per share of 12.3p (2010: 12.7p)

 

·       Underlying operating cash generation*4 of £7.29m - represents 105% of adjusted profit from operations*1 (2010: £5.97m, 96% of adjusted profit from operations*1 )

 

·       Placing raised £5.02m (net) in July 2011 and further banking facility of £1.05m agreed

 

·       Net debt at 31 December 2011 of £13.35m (2010: £11.48m, 30 June 2011: £15.49m)

 

·      No interim dividend (in line with dividend policy) but final dividend expected

 

·      Commencement of formal sale process, announced on 1 March 2012

 

Operational Key Points

 

·       Increased revenues across all four divisions (Microsoft UK, SYSPRO and Sage, International and Managed Services)

 

·        Five significant acquisitions completed.  Total initial payment on acquisitions of £6.36m - all complementary, readily integrated

 

·        Major new order wins totalled £8.6m, up 72% (2010: £5.0m)

 

·        Significant investment in Microsoft AX capability - flagship new order win with Eason 

 

·        Significant investment in Managed Services Division - hosting platforms now in place for  SYSPRO, Microsoft Dynamics NAV and Sage 200

 

·        Board views prospects for the remainder of the year positively

 

Commenting on the results, Tom Milne, Chairman of K3, said,

 

"We are pleased with K3's performance over the six months to 31 December 2011.  A number of major new orders were closed in the period and our International Division in particular is showing encouraging growth.   Results were supported by the high levels of recurring income the Group enjoys from annual software licence and support renewals across our growing customer base. Cash flows were also strong as expected.

 

We have continued our acquisition strategy to accelerate the growth of the business. The acquisitions in the period have added further customers, additional intellectual property and increased the reach of the business. The new divisional structure is a good platform for generating synergies from the existing business and the acquisitions.

 

The expansion of our hosting capability in the Managed Services Division remains a major focus. We have recruited additional skilled resource and invested in capacity and will continue to do so.   

 

As announced on 1 March 2012, we have commenced a formal sales process and will be making further announcements in due course. With the growth opportunities available and our strong financial position and supportive bankers, we expect K3 to make good progress over the remainder of the financial year and beyond."

 

Notes:

*¹ Adjusted profit from operations for the six months ended 31 December 2011 is calculated before amortisation of acquired intangibles of £1.75m (2010: £1.43m) and acquisition and reorganisation costs of £0.50m (2010: £0.15m).

*2 Adjusted profit before tax for the six months ended 31 December 2011 is calculated before amortisation of acquired intangibles of £1.75m (2010: £1.43m) and acquisition and reorganisation costs of £0.50m (2010: £0.15m).

*3 Adjusted basic EPS for the six months ended 31 December 2011 is calculated before amortisation of acquired intangibles (net of tax) of £1.19m (2010: £0.93m) and acquisition and reorganisation costs (net of tax) of £0.46m (2010: £0.15m).

*4 Underlying operating cash is calculated before the cost of regularising liabilities in acquired entities of £1.18m (2010: £0.91m) and acquisition and reorganisation costs of £0.30m (2010: £0.15)

 

Enquiries:

 

K3 Business Technology Group plc

Andy Makeham (CEO)


David Bolton (CFO)

Deloitte Corporate Finance

Jonathan Hinton/ James Lewis

(Financial Adviser)




FinnCap Limited

Marc Young/ Henrik Persson

(NOMAD)




Biddicks

Katie Tzouliadis/Sophie McNulty


OVERVIEW

 

In tough market conditions, results for the six months to 31 December 2011 are encouraging and continue to illustrate the robustness of K3's earnings, which are underpinned by high levels of recurring income. The Group's revenues increased by 35% year-on-year to £33.36m, helped by the acquisitions we have made. Adjusted profit before tax*1 increased to £6.23m, which is a 7% rise on the same period last year. The level of profitability was held back, as expected, by the significant investment that we made in our Managed Services and Microsoft UK Divisions in the period.    

 

In line with our growth plan, we continued to make acquisitions, completing five significant purchases in the period. Initial payments on acquisitions were £6.36m. All the acquisitions are complementary to our existing operations and can be readily integrated. A major strand of our acquisition strategy is to add complementary customer bases which are suitable for introduction to our hosting model.  In this way, we will accelerate the growth of our recurring income stream.  

 

I am particularly encouraged by the growth in our International Division which has seen revenues rise by 29% to £4.84m and adjusted profit from operations*2 rise by 25% to £1.4m in the first half.  These excellent results have been driven by a combination of steady order wins in our fashion/wholesale market and a high level of activity with Inter IKEA Systems B.V. (the owner and franchisor of The IKEA Concept), the largest customer in the International Division. We anticipate further good growth in this division.

 

The UK market remained challenging and our Microsoft UK Division and SYSPRO and Sage Division are highly focused on minimising costs whilst delivering sales targets. We have however invested heavily in the development of our Retail AX Multi Channel solution as we believe there are significant opportunities to drive growth as Microsoft takes this product to market.  This decision bore fruit at the end of the period with a number of very significant order wins, including Eason and Son Ltd ("Eason"), the largest supplier of books, magazines and newspapers in Ireland.

 

The development of our Managed Services Division has huge potential to drive K3's long-term growth and we have invested heavily in this in the current financial year and will continue to do so. Revenues at the Division are growing well, however the required investment and increase in costs together with the phased recognition of income (which is recognised over the life of the hosting contract) means that profitability is being impacted.  The exploitation of the hosting proposition is the key focus of our growth plans.

 

On 1 December 2011, we announced that we had received an approach from K3's largest shareholder, Mr P J Claesson, regarding a possible offer for the Company.  At the same time, we also began a strategic review of the options available to the Group.  Since then, on 26 January 2012, we announced that the Board of K3 did not wish to take Mr Claesson's proposal forward.  On 1 March 2012, we announced that the Company had received a number of indicative proposals at levels materially higher than the current share price at that date. Whilst the Board firmly believes that the Company has a secure future as an independent business, it recognises that further investment will enable it to more fully exploit the potential of its managed services business. The strategic review has therefore completed and the Company is holding ongoing discussions with these potential offerors. We will make any further announcements as appropriate. 

 

K3 continues to generate good cash flows and our bankers are highly supportive of both our acquisition strategy and our working capital needs.  K3 is financially and operationally well-placed.  Our strong product offering and good cash flows will help to support our growth and we view prospects for the remainder of the year positively.  

FINANCIAL RESULTS

 

For the six months to 31 December 2011, the Group generated revenues of £33.36m, representing an increase of 35% over the prior period (2010: £24.67m).  The five acquisitions completed in the period made a revenue contribution totalling £3.73m.  Recurring revenues from maintenance and support in the half year totalled £17.1m (2010: £12.6m), representing 51% of Group income in the first half, and it continues to underpin profitability. 

 

Adjusted profit from operations*2 for the six month period rose by 11% to £6.91m against the same period last year (2010: £6.24m). It should be noted that this was after significant investment in our Managed Services Division and Retail AX software suite in the period, of which we have expensed £0.5m. Additionally,we have capitalised £0.45m in respect of platforms and intellectual property that will benefit future periods and spent £0.25m on equipment.  Acquisitions contributed £0.51m of the adjusted profit*3.  Acquisition and reorganisation costs included write-off of investments of £0.10m (2010: £nil). Profit from operations remained flat at £4.66m (2010: £4.66m) reflecting higher acquisition and exceptional costs together with an increased charge for the amortisation of intangibles. 

 

Adjusted profit before tax*1 rose by 7% to £6.23m (2010: £5.81m).  Profit before tax was 6% lower at £3.98m (2010: £4.23m). This is after a £0.35m increase in acquisition and reorganisation costs, a £0.26m increase in finance costs and a £0.32m increase in goodwill amortisation. Adjusted earnings per share*4 increased by 7% to 18.1p (2010: 16.9p).  Basic earnings per share was 3% lower at 12.3p (2010: 12.7p).  This is stated after amortisation of acquired intangibles (net of tax) of £1.19m (2010: £0.93m) and acquisition and reorganisation costs of £0.46m (2010: £0.15m). The tax charge for the period was £0.52m (2010: £0.98m) and includes the benefit of a £0.57m credit to deferred tax on acquired intangibles (2010: £0.51m) and a £0.20m current tax credit primarily in respect of research and development from prior years. 

 

Cash flow and banking

 

Net debt at the period end increased to £13.35m (2010: £11.48m) but has reduced from the 30 June 2011 position of £15.49m.  We completed a share placing of £5.02m (net of costs) in July 2011 and in the same month agreed £1.05m of additional revolving credit facility, which was used for an acquisition.  The acquisitions we made in the first half were also funded by cash in the business and the share placing completed in July 2011. The initial net cash cost of acquisitions (i.e. net of amounts paid/deducted for cash balances and overdrafts in the acquired businesses) was £6.36m with a further £1.27m payable on a contingent basis and up to £1.48m of potential earn out subject to the achievement of performance criteria. A further £1.18m was utilised to fund the working capital requirements and loan repayments of the acquired businesses, together with acquisition costs of £0.26m. Additional facilities of up to £5.00m are available to match the net receipts of the share placing though we have not utilised these to date.  Operating cash flow in the first half was £5.81m, representing 84% of adjusted profit from operations*2 (2010: £4.91m, representing 79%). After adding back  overdue liabilities, together with acquisition and reorganisation costs relating to the acquisitions, the underlying operating cash for the period is £7.29m, representing 105% of adjusted operating profit*2.  Finance costs at £0.69m (2010: £0.43m) reflect higher average borrowings and facility fees.

 

Dividend

 

In line with the Group's dividend policy, no interim dividend is proposed but the Directors intend to propose a final dividend with results for the full financial year.

  

Operational Review

 

As indicated in the annual report and financial statements for the year ended 30 June 2011, from 1 July 2011, the reporting of results reflects four trading divisions: Microsoft UK, International, SYSPRO and Sage, and Managed Services together with central costs. The comparatives for the six months ended 31 December 2010 have been restated accordingly.

 

The financial results by operating division are summarised in the table below:

 


Revenue

Revenue

Adjusted profit

Adjusted profit


Six months

Six months

Six months

Six months


to 31 Dec

to 31 Dec

to 31 Dec

to 31 Dec


2011

2010

2011

2010


£m

£m

£m

£m

Microsoft UK

12.10

10.67

1.52

1.58

International

4.84

3.75

1.40

1.12

SYSPRO and Sage

13.81

8.57

4.07

3.53

Managed Services

2.61

1.68

0.09

0.15

Central costs

-

-

(0.17)

(0.14)


33.36

24.67

6.91

6.24

 

Microsoft UK Division

 

Revenues at the Microsoft UK Division increased by 13% to £12.10m (2010: £10.67m), with recurring income delivering £4.37m (2010: £3.41m). However adjusted profit from operations*5 at £1.52m was unchanged year-on-year (2010: £1.58m) partly reflecting the major investment we are making in our retail software offering, in particular bringing the Microsoft AX product in line with our Microsoft Dynamics NAV portfolio. We also invested in our sales and delivery resource in advance of sales of this product offering. The cost of our investment was £0.30m with a further £0.25m capitalised as development costs. 

 

After a slow start to the financial year in our UK retail markets, the Division closed three major new deals in November and December worth a combined £5.7m (2010: eight major contracts, £3.4m). This included our first major order for Microsoft's new AX for Retail solution in a substantial contract we won with Eason, which was secured against some tier one competitors.  We are very encouraged by the increasing demand for this new solution and are well placed to exploit it. A large element of our own IP is included in these sales, which supports good margins.

 

In the course of our Group reorganisation to create the Microsoft UK Division, we have integrated our other smaller Microsoft based software units under a single management team. This is allowing cost savings to be achieved and we are also seeing efficiencies arising from the use of common resources. 

 

The addition of Retail Systems Group Ltd ("RSG") in December 2011, one of the leading providers of Microsoft Dynamics 'RMS' to retailers in the UK and Ireland, brings us a software suite more suitable for smaller retailers and therefore widens our marketplace.  RSG also has a managed service offering which will further expand K3's own growing Managed Services Division. 

 

The prospects pipeline for the Division stands at approximately £24.0m (2010: £18.0m), with nearly half the opportunities focused on our Microsoft AX Multi Channel retail solution. 

 

International Division

 

The International Division, based in The Netherlands, performed very strongly in the first half.  Revenues increased by 29% year-on-year to £4.84m (2010: £3.75m), with recurring income at  £1.90m (2010: £1.76m), and adjusted profit from operations*6 rose by 25% to £1.40m (2010: £1.12m). These results are in part due to the strengthening of our relationship with Inter IKEA Systems B.V. (the owner and franchisor of The IKEA Concept), the largest customer in the Division.  They also reflect the growth of the Pebblestone acquisitions, made in 2010, which established K3 as a major supplier of ERP systems in the Dutch fashion market and added a 30 country international partner channel for K3's IP. Sales into this reseller channel have increased by 58% to £0.75m as a result of investment in the Pebblestone solution that was made over the last 18 months.

 

We signed nine major new contracts in the period, worth a total of £0.50m (2010: six contracts, £0.64m). The Division also generated excellent levels of services income and we are currently recruiting additional personnel to add extra resource. 

 

In December 2011, we acquired certain assets of Unisoft BV, a leading provider of retail point of sale solutions in Holland and Scandinavia.  The solutions complement our existing offering and should create cross-selling opportunities.

 

The prospects pipeline, excluding potential business anticipated in a long term plan with Inter IKEA Systems B.V., currently amounts to approximately £3.3m of orders. It also includes a number of AX opportunities, a market that is now becoming increasingly important to us.

 

SYSPRO and Sage Division

 

In the first half, the SYSPRO and Sage Division (which comprises four business units) saw revenues increase by 61% to £13.81m (2010: £8.57m), with recurring income at £8.79m (2010: £6.15m).  Adjusted profit from operations*7 rose by 15% to £4.07m (2010: £3.53m).  Acquisitions contributed £3.09m of revenue and £0.31m of adjusted operating profit*8. The majority of the revenue increase relates to Sage acquisitions that generally deliver lower operating margins. The pipeline of prospects is holding up well with a value of £9.20m, split relatively evenly between Sage and SYSPRO opportunities.

 

Our key business unit in this Division, K3 SYSPRO (formerly Supply Chain Solutions) which supplies SYSPRO ERP solutions, performed robustly. It closed six new deals with a combined value of £0.60m in the period (2010 full year: 13 deals; £0.93m) and generated significant additional work from the customer base.  Annual software licence fee renewals for SYSPRO were collected between October and December and licence renewals were in excess of 98% as is usual.  The SYSPRO maintenance licence and support income is worth approximately £5.90m per annum and we recognise some 85% of this figure in this half of our financial year. 

 

Having entered the Sage marketplace in November 2010, we are now a leading Sage supplier and provide the full range of Sage products, from Sage 50 up to enterprise level Sage 1000. Our Sage customer base now stands at 900 customers (2010: 400 customers) and generates recurring income of around £6.00m (2010: £2.4m) per annum, approximately half of which falls in the first half of our financial year. In July 2011, we acquired Fifth Dimension Systems Ltd and, in October 2011, the business secured the Sage Enterprise Partner of the Year award, which entitles it to higher margins in the next year.  Our Sage operations secured 39 new deals worth £1.3m (2010: 16 deals worth £0.3m).  While the Sage support market is highly price competitive, we continue to attract customers from other Sage partners.  Mirroring the model we are deploying for our Microsoft and SYSPRO customers, we will be cross-selling our Cloud Computing solutions to our new Sage customer base and have a deployment model already operational for the Sage 200 product.

 

The other two business units comprise customers running smaller ERP systems who can be offered upgrade opportunities to our SYSPRO or AX solutions and hosting.  These businesses contributed £1.02m (2010: £1.15m) of sales in the period, substantially all of which is recurring.

 

Managed Services Division

 

Revenue rose by 55% to £2.61m (2010: £1.68m), with recurring income delivering £2.04m (2010: £1.09m).  However, as expected, profits lagged revenue growth as we invested £0.2m in additional resource.  Divisional overheads have increased to £1.36m (2010: £0.7m), capitalised development was £0.22m and capital expenditure was £0.25m.   Adjusted profit from operations*9 was £0.09m (2010: £0.15m). We now have platforms in place for the hosting of SYSPRO, Microsoft Dynamics NAV and Sage 200 software and are seeing a good demand for these and the other complementary services we can offer from "the Cloud".  Our deployment now ranges from on-site managed services to fully hosted services provided on a multi-tenanted solution in the Cloud.

 

As this Division grows, it will increase our annualised recurring income, which at 31 December 2011 had increased to c.£4.2m (2010: £3.28m), with a delivery pipeline of £0.77m awaiting deployment.  Currently, the prospects pipeline stands at £2.38m of potential income.

 

Head Office

 

Central costs*10 for the first half were £0.17m (2010: £0.14m).  Underlying costs remain unchanged but subject to the operational performance of the Group.

 

Outlook

 

The increase in K3's underlying profitability and cash flow is highly encouraging. We have an excellent record of acquiring complementary businesses and delivering synergies.  We also have a number of exciting growth opportunities to leverage our large customer base and build on our key customer and supplier relationships.  A formal sale process is now in place and we will be making further announcements in due course. 

 

With the growth opportunities available and the strong financial platform in place, we remain excited about the future prospects for the Group.

 

Tom Milne

Chairman

 

*1

Group adjusted profit before tax is calculated before amortisation of acquired intangibles of £1.75m (2010: £1.43m) and acquisition and reorganisation costs of £0.50m (2010: £0.15m)

 

*2

Group adjusted profit from operations is calculated before amortisation of acquired intangibles of £1.75m (2010: 1.43m) and acquisition and reorganisation costs of £0.50m (2010: £0.15m)

 

*3

Adjusted profit from operations on acquisitions is calculated before amortisation of acquired intangibles of £0.08m and acquisition and reorganisation costs of £0.38m

 

*4

Group adjusted earnings per share is calculated before amortisation of acquired intangibles (net of tax) of £1.19m (2010: £0.93m) and acquisition and reorganisation costs (net of tax) of £0.46m (2010: £0.15m)

 

*5

Microsoft UK Division adjusted profit from operations is calculated before amortisation of acquired intangibles of £0.20m (2010: £0.12m) and acquisition and reorganisation costs of £0.11m (2010: £nil)

 

*6

International Division adjusted profit from operations is calculated before amortisation of acquired intangibles of £0.60m (2010: £0.59m) and acquisition and reorganisation costs of £0.10m (2010: £nil)

 

*7

SYSPRO and Sage Division adjusted profit from operations is calculated before amortisation of acquired intangibles of £0.88m (2010: £0.62m) and acquisition and reorganisation costs of £0.17m (2010: £0.14m)

 

*8

Adjusted profit from operations on SYSPRO and Sage acquisitions is calculated before amortisation of acquired intangibles of £0.05m and acquisition and reorganisation costs of £0.17m



*9

Managed Services Division adjusted profit from operations is calculated before amortisation of acquired intangibles of £0.08m (2010: £0.11m)



*10

Central costs are calculated before acquisition and reorganisation costs of £0.12m (2010: £nil)

 

 

K3 BUSINESS TECHNOLOGY GROUP PLC

CONSOLIDATED INCOME STATEMENT

For the six months ended 31 December 2011

 

 

 

 

 

 

 

 

 

 

Notes

 

Unaudited

Six months

to 31 Dec

2011

 

Unaudited

Six months

to 31 Dec

2010

 

 

Audited

Year to

to 30 June 2011

 



£'000

£'000

£'000






Revenue


33,355

24,671

52,800






Profit from operations before amortisation of acquired intangibles, acquisition and reorganisation costs


 

6,912

 

6,237

 

9,581

Amortisation of acquired intangibles


(1,754)

(1,434)

(2,826)

Acquisition and reorganisation costs


(498)

(146)

(942)

 





Profit from operations

 

 

4,660

4,657

5,813

Finance income


3

2

35

Finance expense


(688)

(426)

(940)

Profit before taxation


3,975

4,233

4,908

Tax expense

2

(518)

(981)

(428)

Profit for the period


3,457

3,252

4,480






 

 

All of the profit for the period is attributable to equity holders of the parent.

 

 

Earnings per share

 

3




Basic


12.3p

12.7p

17.5p






Diluted


12.0p

12.5p

17.0p

 

 

  

 

 

 

K3 BUSINESS TECHNOLOGY GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 31 December 2011

 

 

 

 

 

 

Notes

 

Unaudited

Six months

to 31 Dec

2011

 

Unaudited

Six months

to 31 Dec

2010

 

 

Audited

Year to

30 June 2011

 

 

 

£'000

£'000

£'000

 

 

 

 

 

Profit for the period

 

3,457

3,252

4,480

Other comprehensive (expense) income

 

 

 

 

Exchange differences on translation of foreign operations

 

 

(900)

 

635


1,511

Net investment hedge

 

278

(258)

(504)

Cash flow hedges:

 

 

 

 

  Losses recognised on hedging instruments

 

(4)

(16)

(22)

  Transferred to income statement

 

35

67

113

Other comprehensive (expense) income, net of tax

 

 

(591)

 

428


1,098

 

Total comprehensive income for the period

 

 

2,866

 

3,680


5,578

 

All of the total comprehensive income for the period is attributable to equity holders of the parent.

  

 

 

 

 

 

K3 BUSINESS TECHNOLOGY GROUP PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2011

 

 

 

 

Notes

Unaudited As at 31 December

2011

Unaudited As at 31 December

2010

Audited

As at 30 June

 2011

 

 

 

£'000

£'000

£'000

ASSETS

 

 

 

 

Non-current assets

 

 

 

 

Property, plant and equipment

 

2,310

1,942

1,993

Goodwill

 

44,293

36,272

39,082

Other intangible assets

 

22,846

16,739

17,635

Deferred tax assets

 

524

487

551

Available-for-sale investments

 

98

196

196

Total non-current assets

 

70,071

55,636

59,457

Current assets

 

 

 

 

Trade and other receivables

 

26,791

21,238

22,642

Cash and cash equivalents

 

1,405

2,684

814

Total current assets

 

28,196

23,922

23,456

Total assets

 

98,267

79,558

82,913

 

LIABILITIES

 




Non-current liabilities





Long-term borrowings

5

-

10,711

11,502

Other non-current liabilities

6

1,915

1,104

442

Deferred tax liabilities

 

5,551

4,481

4,427

Total non-current liabilities

 

7,466

16,296

16,371

Current liabilities

 

 

 

 

Trade and other payables

7

30,300

23,224

24,074

Current tax liabilities

 

819

1,258

428

Short-term borrowings

5

14,751

3,457

4,798

Total current liabilities

 

45,870

27,939

29,300

Total liabilities

 

53,336

44,235

45,671

 

EQUITY





Share capital

 

7,119

6,443

6,477

Share premium account

 

7,236

2,795

2,863

Other reserves

 

10,448

10,448

10,448

Cashflow hedging reserve

 

(54)

(125)

(85)

Translation reserve

 

1,108

1,100

1,730

Retained earnings

 

19,074

14,662

15,809

Total equity attributable to equity holders of the parent

 

 

44,931

 

35,323

 

37,242

Total equity and liabilities

 

98,267

79,558

82,913

 

 

 

 

 

 

 

K3 BUSINESS TECHNOLOGY GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 31 December 2011

 

 

 

 

 

 

 

 

 

Notes

Unaudited

Six months

to 31 Dec

2011

Unaudited

Six months

to 31 Dec

2010

 

Audited

Year to

30 June 2011

 


 

£'000

£'000

£'000

Cash flows from operating activities





Profit for the period


3,457

3,252

4,480

Adjustments for:





Share based payments charge


36

16

52

Depreciation of property, plant and equipment


382

180

462

Amortisation of intangible assets and development expenditure


 

2,215

 

1,620


3,305

Loss on sale of property, plant and equipment


-

-

7

Impairment loss on available-for-sale investment


98

-

-

Finance income


(3)

(2)

(35)

Finance expense


688

426

940

Tax expense


518

981

428

Increase in trade and other receivables


(1,967)

(4,217)

(4,909)

Increase in trade and other payables


383

2,656

910

Cash generated from operations

8

5,807

4,912

5,640

Finance expense paid


(409)

(529)

(982)

Income taxes paid


(605)

(625)

(1,368)

Net cash generated from operating activities


4,793

3,758

3,290

Cash flows from investing activities





Acquisition of subsidiaries, net of cash acquired

8

(3,823)

(2,184)

(4,197)

Acquisition of other business units

8

(2,729)

(967)

(1,210)

Development expenditure capitalised


(753)

(449)

(1,374)

Purchase of property, plant and equipment


(480)

(419)

(681)

Finance income received


3

2

35

Net cash absorbed by investing activities


(7,782)

(4,017)

(7,427)

Cash flows from financing activities





Net proceeds from issue of share capital


4,988

103

174

Proceeds from long-term borrowings


1,050

5,025

7,500

Payment of long-term borrowings


(1,650)

(1,616)

(2,768)

Payment of finance lease liabilities


(40)

(44)

(106)

Dividends paid


-

-

(64)

Net cash generated from financing activities


4,348

3,468

4,736

Net change in cash and cash equivalents


1,359

3,209

599

Cash and cash equivalents at start of period


113

(571)

(571)

Exchange (losses) gains on cash and cash equivalents


(67)

46

85

Cash and cash equivalents at end of period


1,405

2,684

113

 

 

 

 

 

K3 BUSINESS TECHNOLOGY GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 31 December 2011

 

 


Share capital

Share premium

Other reserve

Cashflow hedging reserve

Translation reserve

Retained earnings

Total equity


£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

At 1 January 2010

6,380

2,627

10,448

(194)

1,642

10,739

31,642

Changes in equity for six months ended 30 June 2010








Share-based payment debit

-

-

-

-

-

(56)

(56)

Proceeds on share issue

31

84

-

-

-

-

115

Own shares acquired

-

-

-

-

-

(11)

(11)

Dividends to equity holders

-

-

-

-

-

(128)

(128)

Total comprehensive income for the period

 

-

 

-

 

-

 

18

 

(919)

 

782

 

(119)

At 30 June 2010

6,411

2,711

10,448

(176)

723

11,326

31,443

Changes in equity for six months ended 31 December 2010








Share-based payment credit

-

-

-

-

-

97

97

Proceeds on share issue

32

84

-

-

-

-

116

Own shares acquired

-

-

-

-

-

(13)

(13)

Total comprehensive income for the period

 

-

 

-

 

-

 

51

 

377

 

3,252

 

3,680

At 31 December 2010

6,443

2,795

10,448

(125)

1,100

14,662

35,323

Changes in equity for six months ended 30 June 2011








Share-based payment credit

-

-

-

-

-

14

14

Proceeds on share issue

34

68

-

-

-

-

102

Own shares acquired

-

-

-

-

-

(31)

(31)

Dividends to equity holders

-

-

-

-

-

(64)

(64)

Total comprehensive income for the period

 

-

 

-

 

-

 

40

 

630

 

1,228

 

1,898

At 30 June 2011

6,477

2,863

10,448

(85)

1,730

15,809

37,242

Changes in equity for six months ended 31 December 2011








Share-based payment debit

-

-

-

-

-

(165)

(165)

Proceeds on share issue

642

4,373

-

-

-

-

5,015

Own shares acquired

-

-

-

-

-

(27)

(27)

Total comprehensive income for the period

 

-

 

-

 

-

 

31

 

(622)

 

3,457

 

2,866

At 31 December 2011

7,119

7,236

10,448

(54)

1,108

19,074

44,931

 

 

 

 

 

 

K3 BUSINESS TECHNOLOGY GROUP PLC

NOTES TO THE UNAUDITED INTERIM STATEMENT

 

1.            Basis of preparation

 

The consolidated interim financial information has been prepared in accordance with the accounting policies that are expected to be adopted in the Group's full financial statements for the year ending 30 June 2012 which are not expected to be significantly different to those set out in Note 1 of the Group's audited financial statements for the year ended 30 June 2011.  These are based on the recognition and measurement principles of IFRS in issue as adopted by the European Union (EU) and are effective at 30 June 2012 or are expected to be adopted and effective at 30 June 2012.  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 financial information in this statement relating to the six months ended 31 December 2011 and the six months ended 31 December 2010 has neither been audited nor reviewed pursuant to guidance issued by the Auditing Practices Board. The financial information for the year ended 30 June 2011 does not constitute the full statutory accounts for that period.  The Annual Report and Financial Statements for the year ended 30 June 2011 have been filed with the Registrar of Companies.  The Independent Auditors' Report on the Annual Report and Financial Statement for the year ended 30 June 2011 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

               

2.            Tax expense

 


Unaudited Six months to 31 Dec

2011

Unaudited

Six months to 31 Dec 2010

Audited

Year to

 30 June 2011

 


£'000

£'000

£'000

Current tax expense




UK corporation tax and income tax of overseas operations on profits for the period

1,268

1,403

1,474

Adjustment in respect of prior periods

(195)

-

(53)

Total current tax expense

1,073

1,403

1,421

Deferred tax expense




Origination and reversal of temporary differences

(457)

(315)

(690)

Effect of change in rate of deferred tax

(98)

(107)

(303)

Total deferred tax expense

(555)

(422)

(993)

Total tax expense

518

981

428

 

 

3.            Earnings per share

 

The calculations of earnings per share are based on the profit for the financial period and the following numbers of shares:

 


Unaudited Six months to 31 Dec

2011

Unaudited

Six months to 31 Dec 2010

Audited

Year to

 30 June 2011

 


Number of

Shares

Number of

Shares

Number of

Shares

Weighted average number of shares:




For basic earnings per share

28,134,239

25,553,904

25,650,457

Effects of employee share options and warrants

711,335

393,510

631,663

For diluted earnings per share

28,845,574

25,947,414

26,282,120

 

Adjusted 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 and the above number of shares:

 


Unaudited six months

to 31 Dec 2011

Unaudited six months

to 31 Dec 2010

Audited Year

 to 30 June 2011

 


Earnings

Per share amount

Basic

Per

share amount

Diluted

Earnings

 

Per

share amount

Basic

 

 

Per share amount Diluted

Earnings

 

Per

share amount

Basic

 

 

Per share amount Diluted


£'000

 

p

p

£'000

p

p

£'000

P

p

Earnings per share (eps)

3,457

12.3

12.0

3,252

12.7

12.5

4,480

17.5

17.0

Amortisation of acquired intangibles (net of tax)

1,186

4.2

4.1

927

3.6

3.6

1,759

6.8

6.7

Acquisition and reorganisation costs (net of tax)

462

1.6

1.6

146

0.6

0.6

817

3.2

3.1

Adjusted eps

5,105

18.1

17.7

4,325

16.9

16.7

7,056

27.5

26.8

 

 

 4.            Acquisitions during the period

 

Azurri  Retail

 

On 1 July 2011 the Company acquired the Retail Merchandising Division of Azurri Computer Solutions Limited ("Azurri Retail").  The initial consideration was £0.84m satisfied on completion in cash.  Contingent consideration of £0.10m is payable dependent on the completion of certain contracts.  Further contingent consideration of up to £0.50m is payable dependent on increases in gross margins generated over the next two years.

 

The following table sets out the book values of the identifiable assets and liabilities acquired and their values to the Group:


Book value

Adjustments

Provisional fair

value

 


£'000

£'000

£'000

Assets




Other intangible assets

-

1,010

1,010

Deferred tax assets

-

17

17

Liabilities




Other payables

(62)

-

(62)

Deferred tax liabilities

-

(263)

(263)

Net (liabilities) assets

(62)

764

702





Consideration




Initial cash consideration



838

Contingent cash consideration



350




1,188





Goodwill



486





Acquisition costs charged to income statement



17

 

 

 

Fifth Dimension Systems Limited

 

On 22 July 2011 the Company acquired FD Systems Limited ("FDS").  The initial consideration was £2.23m satisfied on completion in cash.  Deferred consideration of £0.05m is payable.  Further contingent consideration of up to £1.0m is payable dependent on profits generated in the year after acquisition.

 

The following table sets out the book values of the identifiable assets and liabilities acquired and their values to the Group:


Book value

Adjustments

Provisional fair

value

 


£'000

£'000

£'000

Assets




Property, plant and equipment

124

-

124

Other intangible assets

250

2,250

2,500

Trade receivables

1,366

-

1,366

Other current assets

451

-

451

Cash and cash equivalents

62

-

62

Liabilities




Bank loans

(414)

-

(414)

Trade and other payables

(3,414)

-

(3,414)

Deferred tax liabilities

-

(585)

(585)

Net (liabilities) assets

(1,575)

1,665

90





Consideration




Initial cash consideration



2,230

Deferred cash consideration



50

Contingent cash consideration



200




2,480





Goodwill



2,390





Acquisition costs charged to income statement



80

 

 

Unisoft BV

 

On 7 December 2011 the Company acquired certain assets of Unisoft BV ("Unisoft").  The initial consideration was €0.50m satisfied on completion in cash, with further consideration of up to €1.0m payable in cash dependent on certain criteria.  Contingent consideration of €1.27m is payable dependent on profits generated in the three years following acquisition. 

 

The following table sets out the book values of the identifiable assets and liabilities acquired and their values to the Group:


Book value

Adjustments

Provisional fair

value

 


£'000

£'000

£'000

Assets




Property, plant and equipment

29

-

29

Other intangible assets

-

918

918

Trade receivables

276

-

276

Liabilities




Deferred tax liabilities

-

(230)

(230)

Net assets

305

688

993





Consideration




Initial cash consideration



491

Contingent cash consideration



1,034




1,525





Goodwill



532





Acquisition costs charged to income statement



101

 

 

 

Integrated Business Systems

 

On 15 December 2011 the Company acquired certain assets of the Integrated Business Systems division ("IBS") of Maxima Holdings plc.  The initial consideration was £1.40m satisfied on completion in cash.  Contingent consideration of £0.20m is payable dependent on the retention of customers. 

 

The following table sets out the book values of the identifiable assets and liabilities acquired and their values to the Group:

 

 


Book value

Adjustments

Provisional fair

value

 


£'000

£'000

£'000

Assets




Other intangible assets

-

1,630

1,630

Deferred tax assets

-

119

119

Other current assets

8

-

8

Liabilities




Trade and other payables

(475)

-

(475)

Deferred tax liabilities

-

(408)

(408)

Net (liabilities) assets

(467)

1,341

874





Consideration




Initial cash consideration



1,400

Contingent cash consideration



200




1,600





Goodwill



726





Acquisition costs charged to income statement



46

 

 

Retail Systems Group Limited

 

On 20 December 2011 the Company acquired Retail Systems Group Limited ("RSG").  The initial consideration was £1.13m satisfied on completion in cash, with a further payment of £1.50m in respect of surplus cash in the business at the date of acquisition.  Contingent consideration of £0.15m is payable dependent on the outcome of certain warranty and indemnity claims in the period of one year after acquisition.  Contingent consideration of up to £0.20m is payable dependent on profits generated in the two years after acquisition.

 

The following table sets out the book values of the identifiable assets and liabilities acquired and their values to the Group:


Book value

Adjustments

Provisional fair

value

 


£'000

£'000

£'000

Assets




Property, plant and equipment

22

-

22

Other intangible assets

-

626

626

Trade receivables

482

-

482

Current tax

30

-

30

Other current assets

97

-

97

Cash and cash equivalents

1,807

-

1,807

Liabilities




Trade and other payables

(556)

-

(556)

Deferred tax liabilities

(2)

(156)

(158)

Net assets

1,880

470

2,350





Consideration




Initial cash consideration



1,130

Initial cash consideration in respect of surplus cash



1,500

Contingent cash consideration



350




2,980





Goodwill



630





Acquisition costs charged to income statement



37

 

The initial accounting in the above tables of book values of the identifiable assets and liabilities acquired together with their values to the Group contain estimates in respect of the fair value adjustments required.

 

5.            Loans and borrowings

 


Unaudited As at

31 Dec

2011

Unaudited As at

31 Dec

2010

Audited

As at

30 June 2011

 


£'000

£'000

£'000

Non-current




Bank loans and other facilities

-

10,699

11,489

Finance lease creditors

-

12

13


-

10,711

11,502

 

Current




Bank overdrafts

-

-

701

Bank loans and other facilities

14,101

2,726

3,420

Finance lease creditors

10

91

37

Loans from related parties

640

640

640


14,751

3,457

4,798

 

Total borrowings

 

14,751

 

14,168


16,300

 

The bank loans and other facilities include a revolving credit facility which expires in December 2012.

 

 

6.            Other non-current liabilities

 


Unaudited As at

31 Dec

2011

Unaudited As at

31 Dec

2010

Audited

As at

30 June 2011

 


£'000

 

£'000

£'000

Contingent consideration

1,849

483

-

Deferred consideration

-

386

304

Accruals

66

235

138


1,915

           1,104

442

 

 

7.            Trade and other payables

 


Unaudited As at

31 Dec

2011

Unaudited As at

31 Dec

2010

Audited

As at

30 June 2011

 


£'000

 

£'000

£'000

Trade payables

4,808

4,131

4,717

Other payables

315

265

746

Deferred consideration

190

131

207

Accruals

7,912

5,817

6,437

Total financial liabilities, excluding loans and borrowings, classified as financial liabilities measured at amortised cost

 

 

13,225

 

 

10,344



12,107

Derivative financial instruments

37

138

72

Other tax and social security taxes

3,976

3,333

2,729

Contingent consideration

2,436

1,040

1,347

Deferred revenue

10,626

8,369

7,819


30,300

23,224

24,074

 

 

8.            Notes to the cash flow statement

 

Cash generated from operations is stated after payments to regularise liabilities that were significantly outside normal statutory due dates and commercial terms at the date of acquiring companies, that the directors consider to be a cost of acquisition.  In addition, cash flows from operations include acquisition costs and exceptional reorganisation costs arising as a result of acquisitions during the year.  The adjusted cash generated from operations has been computed because the directors consider it more useful to shareholders and investors in assessing the underlying operating cash flow of the Group.  The adjusted cash generated from operations is calculated as follows:

 


Unaudited

Six months ended

31 Dec

2011

Unaudited

Six months ended

31 Dec 2010

Audited

Year

ended

30 June 2011



£'000

£'000

£'000







Cash generated from operating activities

5,807

4,912

5,640


Add:





Regularising liabilities

1,180

914

1,693


Acquisition and reorganisation costs

300

146

942


Adjusted cash generated from operations

7,287

5,972

8,275


 

 

             Acquisition of subsidiaries and other business units, net of cash acquired comprises:

 


Unaudited

Six months ended

31 Dec

2011

Unaudited

Six months ended

31 Dec 2010

Audited

Year

ended

30 June 2011


£000

£000

£000





Initial consideration (including costs incurred in 2010)

(7,820)

(2,512)

(4,219)

Cash balances acquired

1,455

(617)

(883)

Contingent and deferred consideration paid

(187)

(22)

(305)


(6,552)

(3,151)

(5,407)

 

 

9.            The above information is being sent to the shareholders and is available from the Company's website, www.k3btg.com, and from its registered office: Baltimore House, 50 Kansas Avenue, Manchester M50 2GL.

 

 


 

 


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