Half Yearly Report

RNS Number : 6593S
K3 Business Technology Group PLC
21 March 2016
 

AIM: KBT

21 March 2016

 

 

K3 BUSINESS TECHNOLOGY GROUP PLC

Provider of industry specific mission-critical software (owned and third party), hosted solutions and managed services to the retail, manufacturing and distribution sectors

 

Interim results for the six months to 31 December 2015

 

KEY POINTS

 

Financial

·     Results in line with management expectations - and profitability substantially ahead of prior year

·     Adj. PBT1 up 33% to £4.72m (2014: £3.56m) (up 36% with constant currency)

-    benefiting from strong performance from retail activities, increase in own IP and cloud hosting revenues as well as efficiency initiatives

Reported PBT up 27% to £2.28m (2014: £1.79m)

·     Adj. EPS2 up 43% to 12.0p (2014: 8.4p) / Reported EPS up 51% to 5.9p (2014: 3.9p)

·     Revenues up 1% to £42.29m (up 4% with constant currency) (2014: £41.67m)

-      recurring revenue margin up to 70% (2014: 64%)  and account for c.47% of total

-      higher margin own IP revenues represented 23% of total sales (2014: 22%)

·     Net debt reduced by 13% to £10.45m (2014: £12.07m)

·     Adj. cash generated from operations3 rose to 114% (2014: 109%) with higher rate of cash conversion

Operational

·     Continued encouraging progress as business transitions to increase own IP content

-      strong growth in chosen focus areas of own IP, channel sales and hosting

·     Major new orders remained buoyant at £11.3m (2014: £12.3m)

·     Channel partner sales - a key to accelerating growth - progressing very well, with first major contracts with Global Systems Integrators ("GSIs")

·    Major endorsement from Microsoft - membership of elite Microsoft Dynamics 'Inner Circle' -  supports channel partner sales strategy and relationships with GSIs

·    Hosting and managed services activities growing well and bolstered by the acquisition of Starcom in April 2015

·     Board remains confident regarding future prospects

 

Lars-Olof Norell, Chairman, said:

 

"We are encouraged by these results, which show a significant increase in profits, driven by a strong performance from our retail activities, own IP sales and cloud hosting as well as cost reduction initiatives. 

 

A key part of our growth plans for K3 is to drive sales of our own IP software products, particularly our retail product on Microsoft Dynamics AX. As part of this strategy, we are focused on growing sales through channel partners as well as through our own direct sales teams.  We made encouraging progress here in the period and received our first orders through a Global Systems Integrator for our ax I is fashion" product. Microsoft's endorsement of K3 in July 2015 as member of its elite Microsoft Dynamics 'Inner Circle' supports growing channel partner interest in our solutions and we are also engaging with Microsoft on potential opportunities

 

Looking forward, we remain confident about the potential to exploit our own IP and expect to see continuing progress in our growth strategy together with rising channel partner sales and hosting. As we have previously noted, cloud-based subscription models are becoming increasingly important to us as customers move towards consumption-based licensing. This means that whilst income from contracts is recognised over longer periods rather than upfront, the lifetime value has the potential to be significantly higher.

 

As we seek to further develop the business, we also intend to consider acquisitions which enhance our existing product offering."

 

 

Enquiries:

 

K3 Business Technology Group plc

David Bolton (CEO)

T: 020 3178 6378 (today)

www.k3btg.com

Brian Davis (CFO)

Thereafter 0161 876 4498

 

finnCap Limited

Julian Blunt, James Thompson

T: 020 7220 0500

(NOMAD)

Malar Velaigam (Corporate Broking)

 

 

 

 

KTZ Communications

Katie Tzouliadis, Viktoria Langley, Emma Pearson

T: 020 3178 6378

Notes:

Note 1

Calculated before amortisation of acquired intangibles of £1.60m (2014: £1.61m) and exceptional reorganisation costs of £0.85m (2014: £0.16m).

 

Note 2

Calculated before amortisation of acquired intangibles (net of tax) of £1.28m (2014: £1.29m) and exceptional reorganisation costs (net of tax) of £0.68m (2014: £0.13m).

 

 

Note 3

Calculated before cashflows in respect of exceptional reorganisation costs of £0.85m (2014: £0.16m).

 

 

 

 

CHAIRMAN'S STATEMENT

 

OVERVIEW

 

K3's half year trading results are in line with management expectations, and show a significant improvement in profitability with adjusted profit before tax*1 up 33% to £4.72m (2014: £3.56m) (36% with constant currency).  This reflects a strong performance from our retail activities and cloud hosting as well as the benefits of reorganisation changes, which helped lift the Group's gross margin percentage to 55.6% from 50.7% in the same period last year.  As expected, Group revenues at £42.29m (2014: £41.67m) were affected by the shift towards cloud-based consumption licensing and the weaker Euro.

 

We continue to be very encouraged by the progress we are making in driving sales in areas we have chosen to focus on, which are our own IP software products, channel sales and hosting. We are particularly pleased with the major orders for our fashion retail product on Microsoft Dynamics AX. As a result of this strong sales performance, our own IP product software licence revenue of £4.89m accounted for 25% (2014: 23%) of all product software licence revenue sold in the period.  Total revenues derived from our own IP amounted to £9.56m which represents approximately 23% of the Group's total sales and importantly, the gross margin percentage on this income also improved to 65.5% from 63.9%.

 

A key part of our growth plans for K3 is to drive sales of our own IP software products through channel partners as well as through our own direct sales teams.  We are making excellent progress here and, as we previously reported, in September 2015, we received our first order through a Global Systems Integrator ("GSI") for our "ax I is fashion" product.  The order was our largest so far through our channel partner network and our first in Germany, Europe's largest market for fashion. Over the period, we signed three major contracts through GSIs and new channel partners, and continue to remain very confident of the significant opportunity that the channel represents. Microsoft's endorsement of K3 in July 2015 as member of its elite Microsoft Dynamics 'Inner Circle' supports the growing channel partner interest in our solutions and we are also engaging with Microsoft on potential opportunities. 

 

Major new orders in the period remained encouraging, totalling £11.3m against a strong prior period (2014: £12.3m) and we have closed the half year with a pipeline of potential new deals valued at £56.5m (2014: £56.7m). This pipeline includes the remaining part of an initial order with a global fashion retailer which has the potential to grow significantly.

 

The business continues to deliver high levels of recurring revenues, which made up 47% of the Group's total revenues in the first half.  At £19.72m (2014: £19.84m), they are mainly derived from annual software licence renewals, support contracts and hosting.  I am also pleased to highlight the increase in gross margin percentage on this income which has risen to 70.0% from 63.9% in the comparative period. 

 

We also focused on driving the growth of our cloud hosting and managed services activities.  These operations are growing well and annualised subscription income is now at £8.2m, of which over £6.4m is from our cloud hosting operations.  Our cloud hosting business has since won its largest ever order, and has a number of other contracts for implementation in the coming months. 

 

Looking forward, we remain confident about the potential to exploit our own IP and expect to see continuing progress in our growth strategy. We also expect cloud-based consumption licensing to be an increasing feature of the Group's revenue mix, together with rising channel partner sales and hosting. As we seek to further develop the business, we also intend to consider acquisitions which enhance our existing product offering.

 

 

 

FINANCIAL RESULTS

 

 

Revenue (£m)

 

Gross Margin (£m)

 

Gross Margin (%)

 

2015

2014

 

2015

2014

 

2015

2014

Software licences

6.88

7.63

 

4.54

4.78

 

66.0%

62.6%

Services

13.19

11.93

 

4.55

3.16

 

34.5%

26.5%

Recurring *  

19.72

19.84

 

13.81

12.68

 

70.0%

63.9%

Hardware and other

2.50

2.27

 

0.62

0.49

 

24.8%

21.6%

Total

42.29

41.67

 

23.52

21.11

 

55.6%

50.7%

 

 

2015

2014

% change

Adjusted profit from operations*2 (£m)

5.11

4.11

+24%

Recurring revenue* as % of total revenues

46.6%

47.6%

-2%

Customer adds

111

81

+37%

 

 

*Recurring revenue: software maintenance renewals, support contracts, and hosting & managed services

 

K3 Intellectual Property

 

We highlight the revenue generated by K3's own IP below, which is included in the revenues above.

 

 

Revenue (£m)

 

2015

2014iii)

K3 Product Licencei)

4.89

4.54

K3 Product Relatedii)

4.67

4.53

Total K3 Product

9.56

9.07

 

Gross margin £m

 

6.26

 

5.80

Gross margin %

65.5%

63.9%

       

 

i)   K3 Product Licence includes initial and annual software licences.

ii) K3 Product Related represents the additional identifiable revenues which flow directly from our K3 Product sales.

iii) adjusted to reflect reclassification of £0.35m from product licence to product related.

 

For the six months to 31 December 2015, total revenues rose by 1% to £42.29m (2014: £41.67m) affected by consumption licencing and a weakening Euro.  Recurring revenues, from software maintenance renewals, support contracts, hosting and managed services, accounted for 47% of the Group's income and totalled £19.72m (2014: £19.84m). Services revenue was up 11% to £13.19m (2014: £11.93m) and reflected strong activity levels following the excellent close to the last financial year. Software licence sales at £6.88m (2014: £7.63m) represented a good performance against a record result in the prior year and as expected, the current year has seen an increase in consumption-based licencing. 

 

Results show a significant year-on-year improvement in gross margin which increased by 11% to £23.52m (2014: £21.11m) with the gross percentage margin rising to 56% (2014: 51%). This improvement reflects the benefits of the initiatives we implemented to reduce resourcing costs for implementations through in-house training and near-shore resourcing. The gross margin on recurring income also benefitted from the higher margin on our hosting and managed services businesses and a reduced impact of Microsoft embed partner margin  Overhead costs*2 increased to £18.4m (2014: £17.0m) and includes an additional £1.0m of personnel cost, £0.2m of additional premises costs and £0.1m of additional development cost amortisation.

 

Adjusted profit from operations*3 increased by 24% to £5.11m (2014: £4.11m). Key drivers in this improvement were the reorganisations and management changes we announced in September 2015 at a cost of £0.85m (2014: £0.16m). These costs are reported as exceptional in these results and have contributed to a step change in the performance of our retail operation.  The charge for amortisation of acquired intangibles was £1.60m, in line with the prior year.

 

Net finance expenses decreased to £0.39m (2014: £0.55m) as a result of reduced debt and the impact of currency.

 

Adjusted profit before tax*3 rose by 33% to £4.72m (2014: £3.56m) and adjusted earnings per share*4 increased by 43% to 12.0p (2014: 8.4p). 

 

Reported profit before tax increased by 27% to £2.28m (2014: £1.79m) with basic earnings per share rising by 51% to 5.9p (2014: 3.9p).  There was a net tax charge for the period of £0.41m (2014: £0.57m) after the benefit of a £0.14m deferred tax credit (2014: £0.12m).

 

Cash flow and banking

 

Net debt at 31 December 2015 decreased by 13% to £10.45m (2014: £12.07m). Cash flow from operations was up 16% at £4.97m (2014: £4.30m) reflecting the higher profit in the period and management of working capital. In what is traditionally our stronger half year for cash generation due to SYSPRO annual licence billings, the adjusted cash flow generated from operations*5 increased to 114% (2014: 109%) of adjusted operating profit*3. Net cash absorbed by financing in the period was £1.36m (2014: £3.06m net generated from refinancing).

 

The expenditure on capitalised development increased to £2.17m (2014: £1.75m) as we continued to execute our strategy of building our own product IP. Expenditure on fixed assets was £0.57m (2014: £0.33m) and deferred consideration on acquisitions cost a further £0.03m (2014: £nil).

 

DIVIDEND

 

In line with the Group's dividend policy, no interim dividend will be declared but the Directors intend to propose a progressive final dividend.

 

BOARD CHANGE

 

In December 2015, we were delighted to welcome Jonathan Manley to the Board as a Non-executive Director. He has over 35 years' experience in IT, both in the UK and US including at Harrods Ltd, where he is currently leading an IT change program, John Lewis and Estee Lauder. He replaces Peter Cookson who retired from the Board with our grateful thanks for all his hard work and contribution to K3. 

 

OUTLOOK

 

We are starting to see the benefits of our focus on own IP come through in increased Group profitability, channel partner sales and hosting, and remain very excited about ongoing opportunities. 

 

As part of our growth strategy we will continue to invest significantly in developing our product offerings and also intend to consider acquisitions which complement our existing activities.  As we have previously noted, cloud-based subscription models are becoming increasingly important to us as customers move towards consumption-based licensing. While this shift away from traditional on-premise models means that income from contracts is recognised over longer periods rather than upfront, the lifetime value has the potential to be significantly higher. The estimate of this lifetime value will be a key metric for monitoring the development of the business going forward.

 

The pipelines across both our retail and manufacturing and distribution activities remain very healthy and we are confident that K3 will continue to make good progress with its growth plans. 

 

Lars-Olof Norell

Chairman

 

21 March 2016

 

 

*1

Group adjusted profit before tax is calculated before amortisation of acquired intangibles of £1.60m (2014: £1.61m) and exceptional reorganisation costs of £0.85m (2014: £0.16m).

 

*2

Overhead costs are calculated before amortisation of acquired intangibles of £1.60m (2014: £1.61m) and exceptional reorganisation costs of £0.85m (2014: £0.16m).

 

*3

Group adjusted profit from operations is calculated before amortisation of acquired intangibles of £1.60m (2014: £1.61m) and exceptional reorganisation costs of £0.85m (2014: £0.16m).

 

*4

Group adjusted earnings per share is calculated before amortisation of acquired intangibles (net of tax) of £1.28m (2014: £1.29m) and exceptional reorganisation costs (net of tax) of £0.68m (2014: £0.13m).

 

*5

Group adjusted cash from operations is calculated before exceptional reorganisation costs of £0.85m (2014: £0.16m).

 

 

 

 

 

     
 

 

Operational Review

 

RESULTS OVERVIEW BY INDUSTRY SECTOR

 

The operational results for the Group are summarised by industry sector as follows:

 

 

Revenue

Revenue

Adj profit

Adj profit

 

2015

2014

2015

2014

 

£m

£m

£m

£m

 

 

 

 

 

Retail*6

19.72

19.63

2.51

1.06

Manufacturing & Distribution*7

22.57

22.04

2.99

3.40

Head office

-

-

(0.39)

(0.35)

Total

42.29

41.67

5.11

4.11

 

 

RETAIL ACTIVITIES

Results Overview

 

 

Revenue

Revenue

Gross margin (£m)

Gross margin (%)

 

2015

2014

2015

2014

2015

2014

 

£m

£m

£m

£m

%

%

 

 

 

 

 

 

 

Software licences

4.50

4.08

3.13

2.87

69.6%

70.3%

Services

7.68

7.63

2.34

1.57

30.5%

20.6%

Recurring*

6.20

6.78

4.39

3.84

70.8%

56.6%

Hardware and other

1.34

1.14

0.40

0.28

29.9%

24.6%

Total

19.72

19.63

10.26

8.56

52.0%

43.6%

 

                   

 

2015

2014

% change

Adjusted profit from operations*6 (£m)

2.51

1.06

+137%

Recurring revenue* as % of total revenues

31.4%

34.5%

-9%

Customer adds

51

33

+55%

*Recurring revenue: from software maintenance renewals, support contracts, and hosting and managed services.  

 

Intellectual Property

 

Revenue (£m)

 

 

2015

2014iii)

 

K3 Product Licencei)

3.13

2.62

 

K3 Product Relatedii)

4.49

4.32

 

Total K3 Product

7.62

6.94

 

 

Gross margin

 

4.47

 

3.84

 

Gross margin %

58.7%

55.4%

 

 

i)   K3 Product Licence includes initial and annual software licences.

ii) K3 Product Related represents the additional identifiable revenues which flow directly from our K3 Product sales.

iii)  adjusted to reflect reclassification of £0.35m from product licence to product related.

 

 

Retail Performance

 

Our retail operations performed strongly overall, with adjusted profit from operations*6 more than doubling to £2.51m (2014: £1.06m) on revenues of £19.72m (2014: £19.63m). Encouragingly, revenue attributable to our own IP has risen by 10% to £7.62m from £6.94m in 2014.

 

The significant improvement in profitability was driven by both higher software licence sales and the initiatives we put in place to reduce the cost of software implementations. While trading conditions in the Dutch fashion and retail market and the weaker Euro hampered results, the cost base reductions we made in Holland at the beginning of the period helped to offset this effect. 

 

Software sales at £4.50m were up 10% year on year with the 70% gross margin on these sales reflecting the own IP content of the deals. Services revenues at £7.68m were in line with the prior year with gross margin significantly increased to 30.5% (2014: 20.6%) as implementation costs reduced. While recurring revenues decreased to £6.2m (2014: £6.78m) because of the lower number of multi-year enhancement deals, the gross margin percentage increased significantly to 70.8% from 56.6%. This reflected the increase in own IP in the revenue mix, a reduced impact from the low margin Microsoft Embed (OEM) programme and higher margin on support renewals. 

 

Major new orders in the period totalled £6.6m (2014: £6.8m). 

 

We continued to drive sales across all our retail solutions, however a key focus remains on our own IP and, in particular, delivering the full potential of our "ax l is" product, which we consider is significant.  An important element of our growth strategy is to expand sales through channel partners as well as through our own direct sales teams. We were therefore delighted to sign our first contract for "ax l is" through a Global Systems Integrator ("GSI") in the period.  The deal secured with TriStyle, a leading European mail order fashion retailer, via a GSI in Germany was the largest order secured to date through our channel partner network. It was also K3's first win in Germany, the largest market for fashion in Europe.  We subsequently signed two further major channel partner contracts for "ax|is fashion" in the period.  This included a second win in Germany with one of Germany's largest online fashion retailers, KLiNGEL. We are also now well advanced with initial work on a contract for a large global fashion retailer which has potential to deliver significant annual revenue in future years.

 

In the second quarter, we signed a major deal with a new customer, to provide our Microsoft Dynamics NAV retail software suite on a hosted consumption basis. The contract is notable because it was our first major cloud-based subscription model win. As we have previously indicated, we expect to see an increasing shift in the way we sell our solutions, away from traditional 'on-premise' sales to the 'consumption' model as customers move towards adopting cloud hosted systems. This move towards more consumption based delivery is underscored by Microsoft's move to launch its new version of AX for a six month period via the cloud on its Azure platform. 

 

Our business with IKEA was also strong in the period, with a good mix of licence, support and services from Inter IKEA and the concept franchisees following the extension of our strategic partnership in 2014 through to 2020, which included a multi-year enhancement licence commitment.  At the lower end of the Retail market we were also encouraged by the excellent performance of our Retail Essential Solutions, which focuses on "events and venues" and is a flourishing section of the UK retail market, as well as our Unisoft Dutch business which focuses on smaller retailers in Benelux.   

 

Reflecting the importance of our IP and channel partner strategy, during the period, we established a core IP team.  This team is solely focused on developing our innovative core solutions for sale through our channel partner network. We see the expansion of this activity as a key part of our strategy to improve profitability and replace lower margin services income. As indicated in our last annual report, we took steps to tackle performance issues in our services centric Dutch fashion and retail business and rationalised our retail management structure at a cost of £0.66m.  

 

 

Retail Prospects

 

We remain very positive about the global sales potential of our "ax l is" offering and our new elevated status as a member of the Microsoft Dynamics Inner Circle will greatly assist our strategy to drive global sales, both directly and indirectly through an international network of channel partners. 

 

Our pipeline as we entered the second half of the financial year stands at a healthy £26.3m (2014: £28.7m) and with potential deals across both "ax|is fashion" and our more established solutions, we believe that our retail operations will continue to make encouraging progress. 

 

 

MANUFACTURING AND DISTRIBUTION ACTIVITIES

Results Overview

 

 

Revenue (£m)

 

Gross Margin (£m)

 

Gross Margin (%)

 

2015

2014

 

2015

2014

 

2015

2014

 

 

 

 

 

 

 

 

 

Software licences

2.39

3.54

 

1.41

1.91

 

59.0%

54.0%

Services

5.50

4.30

 

2.21

1.59

 

40.2%

37.0%

Recurring *  

13.52

13.06

 

9.42

8.84

 

69.7%

67.7%

Hardware and other

1.16

1.14

 

0.22

0.21

 

19.0%

18.4%

Total

22.57

22.04

 

13.26

12.55

 

58.8%

56.9%

 

 

 

2015

2014

% change

 

Adjusted profit from operations*7 (£m)

2.99

3.40

-12%

 

Recurring revenue* as % of total revenues

59.9%

59.3%

+1%

 

Customer adds

60

48

+25%

 

 

 

 

 

 

             

*Recurring revenue from software maintenance renewals, support contracts, and hosting and managed services

 

Intellectual Property

 

Revenue (£m)

 

 

2015

2014

 

 

 

 

 

K3 Product Licencei)

1.76

1.92

 

K3 Product Relatedii)

0.18

0.21

 

Total K3 Product

1.94

2.13

 

 

Gross margin

 

1.80

 

1.96

 

Gross margin %

92.8%

92.0%

 

 

i)   K3 Product Licence includes initial and annual software licences.

ii) K3 Product Related represents the additional identifiable revenues which flow directly from our K3 Product sales.

 

Manufacturing and Distribution Performance

 

Our manufacturing and distribution activities performed robustly in the period, with revenues up by 2.4% to £22.57m. While adjusted profit from operations at £2.99m*7 (2014: £3.40m) was impacted by order delays in some units, gross margins improved to 58.8% (2014: 56.9%).  This reflected growth in hosting and efficiency improvements in the delivery of services.

 

Nearly 60% of this segment's revenue comprises recurring income which provides significant cash flow for the investment activities for the whole Group. (It also accounts for approximately 69% of the Group's total recurring income.) Recurring income increased by 4% to £13.52m in the period, with SYSPRO maintenance and support renewals continuing to account for the major part. SYSPRO renewal rates remained high at 98% (2014: 98%) and, as annual renewals are billed in October, revenues and cash flows from this segment are significantly weighted to the first half of the financial year.

 

Overheads increased by £1.03m following the investment in resources noted at the prior year end and the addition of Starcom.

 

Our SYSPRO business performed in line with expectations as we updated our core own IP products (Dataswitch Connectivity, Equator Payroll and Orchard Warehouse Management) and achieved initial sales through our channel partners.  We expect to see continuing progress in these areas in the second half. Our hosting and managed services businesses continued to grow well, benefiting from the merger with Starcom, acquired in April 2015. The combined business has enabled us to provide hosting to different service level requirements and also to merge a number of on-premise support businesses under common management.   The hosting operations now trade solely under the Starcom name.

 

New orders were encouraging at £4.7m (2014: £5.5m) although a number of larger software deals, which include own IP related revenues, moved into the second half.   

 

Services revenues rose 28% to £5.5m (2014: £4.3m) reflecting delivery of contracts signed in the prior year in SYSPRO, our NAV and AX manufacturing business, and in our hosting operation where Starcom has a small level of chargeable services. The NAV and AX business closed the half year with a strong pipeline, which we are now starting to see converting into orders since the period end.  The Sage business delivered lower levels of services revenues reflecting the relatively low numbers of deal closures in the first four months of the period with margins also reduced as a result. In recent months though, we have seen an increase in the Sage prospects pipeline which provides encouragement for the second half year.

 

Our hosting and managed services operation is performing well with the addition of Starcom boosting our delivery capabilities. Now part of a merged hosting operation, we estimate that it added approximately £1.5m to sales and £0.2m to adjusted operating profit*9 in the period.  Hosting and managed services contributed £3.79m of recurring revenues in the period (2014: £2.73m) and the closing contracted run rate of subscription income has increased by 29% to £8.22m (2014: £6.36m). This run rate now includes the major hosting contract referred to in our retail activities, running for an initial period of five years. The range of cloud hosting activities that we offer across a variety of products and price points is proving attractive to customers and we remain very optimistic about continuing growth prospects for our hosting and managed services business. 

 

                             

Manufacturing and Distribution Prospects

 

The outlook for our manufacturing and distribution activities is encouraging, supported by a very robust recurring income and a pipeline of prospects worth £30.2m at the period end (2014: £28.0m). In addition, we are continuing to focus strongly on the growth potential of our cloud hosting business. 

 

 

CENTRAL COSTS

 

Head office

 

Head office costs for the period were £0.49m (2014: £0.35m) with the increase reflecting investment in legal staff and consultancy as the business has expanded. Costs are stated net of recovery of elements recharged to the operating units.

 

OUTLOOK

 

We continue to be optimistic about the performance of the Group as we transition to an increased product focus. We are encouraged by the progress we have made in the current period and will continue to seek ways to accelerate this process.

 

 

David Bolton

Chief Executive Officer

 

 

 

*6

 

Retail adjusted profit from operations is calculated before amortisation of acquired intangibles of £0.31m (2014: £0.32m) and exceptional reorganisation costs of £0.65m (2014: £0.05m).

 

*7

 

Manufacturing and Distribution adjusted profit from operations is calculated before amortisation of acquired intangibles of £1.29m (2014: £1.29m) and exceptional reorganisation costs of £0.20m (2014: £0.10m).

 

*8

Manufacturing and Distribution adjusted profit from operations for its non-core business is calculated before amortisation of acquired intangibles of £0.37m (2014: £0.37m) and exceptional reorganisation costs of £nil (2014: £0.10m).

 

*9

Starcom adjusted profit from operations is calculated before amortisation of acquired intangibles of £0.10m.

 

 

 

 

K3 BUSINESS TECHNOLOGY GROUP PLC

CONSOLIDATED INCOME STATEMENT

For the six months ended 31 December 2015

 

 

 

 

 

 

 

 

 

 

Notes

 

Unaudited

Six months

to 31 Dec

2015

 

Unaudited

Six months

to 31 Dec

2014

 

Audited

Year to

to 30 June 2015

 

 

 

£'000

£'000

£'000

 

 

 

 

 

Revenue

 

42,291

41,669

83,427

 

 

 

 

 

Profit from operations before amortisation of acquired intangibles and exceptional reorganisation costs

 

 

 

5,107

 

 

4,108

 

 

8,151

Amortisation of acquired intangibles

 

(1,595)

(1,606)

(2,800)

Acquisition costs

 

-

-

(138)

Exceptional  reorganisation costs

 

(847)

(158)

   (408)

 

 

 

 

 

Profit from operations

 

 

2,665

2,344

4,805

Finance income

 

18

7

6

Finance expense

 

(405)

(558)

(932)

Profit before taxation

 

2,278

1,793

3,879

Tax expense

2

(406)

(574)

(436)

Profit for the period

 

1,872

1,219

3,443

 

 

 

 

 

           

 

 

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

 

 

Earnings per share

 

3

 

 

 

Basic

 

5.9p

3.9p

10.9p

 

 

 

 

 

Diluted

 

5.8p

3.8p

10.7p

           

 

   

K3 BUSINESS TECHNOLOGY GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 31 December 2015

 

 

 

 

 

 

Notes

 

Unaudited

Six months

to 31 Dec

2015

 

Unaudited

Six months

to 31 Dec

2014

 

 

Audited

Year to

30 June 2015

 

 

 

£'000

£'000

£'000

 

 

 

 

 

Profit for the period

 

1,872

1,219

3,443

Other comprehensive income (expense)

 

 

 

 

Exchange differences on translation of foreign operations

 

 

703

 

(421)


(2,226)

 

Other comprehensive income (expense), net of tax

 

 

703

 

(421)


(2,226)

 

Total comprehensive income for the period

 

 

2,575

 

798


1,217

 

All of the total comprehensive income for the period is attributable to equity holders of the parent.   All of the other comprehensive income will be reclassified subsequently to profit or loss when specific conditions are met.

 

 

 

K3 BUSINESS TECHNOLOGY GROUP PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2015

 

 

 

 

 

 

Notes

Unaudited As at 31 December

2015

Unaudited As at 31 December

2014

Audited

As at 30 June

 2015

 

 

 

£'000

£'000

£'000

ASSETS

 

 

 

 

Non-current assets

 

 

 

 

Property, plant and equipment

 

2,414

2,306

2,316

Goodwill

 

43,808

43,839

43,541

Other intangible assets

 

20,483

19,557

20,806

Deferred tax assets

 

636

418

736

Available-for-sale investments

 

98

98

98

Total non-current assets

 

67,439

66,218

67,497

Current assets

 

 

 

 

Trade and other receivables

 

32,522

32,497

31,839

Cash and cash equivalents

 

2,118

1,366

1,895

Total current assets

 

34,640

33,863

33,734

Total assets

 

102,079

 

LIABILITIES

 

 

 

 

Non-current liabilities

 

 

 

 

Long-term borrowings

4

9,131

10,406

10,531

Other non-current liabilities

5

494

656

882

Deferred tax liabilities

 

2,964

3,056

3,437

Total non-current liabilities

 

12,589

14,118

14,850

Current liabilities

 

 

 

 

Trade and other payables

6

29,531

28,875

29,405

Current tax liabilities

 

354

598

38

Short-term borrowings

4

3,440

3,034

3,443

Total current liabilities

 

33,325

Total liabilities

 

45,914

 

EQUITY

 

 

 

 

Share capital                      

 

7,965

7,946

7,949

Share premium account

 

9,524

9,457

9,462

Other reserves

 

10,448

10,448

10,448

Translation reserve

 

(1,294)

(192)

(1,997)

Retained earnings

 

29,522

25,797

27,633

Total equity attributable to equity holders of the parent

 

 

56,165

Total equity and liabilities

 

102,079

 

 

 

 

K3 BUSINESS TECHNOLOGY GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 31 December 2015

 

 

 

 

 

 

 

 

 

Notes

Unaudited

Six months

to 31 Dec

2015

Unaudited

Six months

to 31 Dec

2014

 

Audited

Year to

30 June 2015

 

 

£'000

£'000

£'000

Cash flows from operating activities

 

 

 

 

Profit for the period

 

1,872

1,219

3,443

Adjustments for:

 

 

 

 

Share based payments charge

 

4

9

18

Depreciation of property, plant and equipment

 

493

451

916

Amortisation of intangible assets and development expenditure

 

 

2,763

 

2,670

 

4,690

Loss on sale of property, plant and equipment

 

-

-

2

Finance income

 

(18)

(7)

(6)

Finance expense

 

405

558

932

Tax expense

 

406

574

436

Increase in trade and other receivables

 

(531)

(4,030)

(3,031)

(Decrease) increase in trade and other payables

 

(421)

2,856

2,200

Cash generated from operations

7

4,973

4,300

9,600

Finance expense paid

 

(392)

(697)

(956)

Income taxes (paid) received

 

(212)

242

(264)

Net cash generated from operating activities

 

4,369

3,845

8,380

Cash flows from investing activities

 

 

 

 

Acquisition of subsidiaries, net of cash acquired

7

(25)

(458)

(1,998)

Development expenditure capitalised

 

(2,169)

(1,748)

(3,806)

Purchase of other intangible assets

 

-

-

(78)

Purchase of property, plant and equipment

 

(573)

(326)

(680)

Finance income received

 

-

7

6

Net cash absorbed by investing activities

 

(2,767)

(2,525)

(6,556)

Cash flows from financing activities

 

 

 

 

Net proceeds from issue of share capital

 

78

44

69

Proceeds from long-term borrowings

 

-

3,650

5,400

Payment of long-term borrowings

 

(1,464)

(625)

(1,875)

Payment of finance lease liabilities

 

(4)

(9)

(20)

Dividends paid

 

-

-

(397)

Net cash (absorbed by) generated from financing activities

 

(1,390)

3,060

3,177

Net change in cash and cash equivalents

 

212

4,380

5,001

Cash and cash equivalents at start of period

 

1,895

(2,997)

(2,997)

Exchange gains (losses) on cash and cash equivalents

 

11

(17)

(109)

Cash and cash equivalents at end of period

 

2,118

1,366

1,895

             

 

 

 

 

 

 

K3 BUSINESS TECHNOLOGY GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 31 December 2015

 

 

 

Share capital

Share premium

Other reserve

Translation reserve

Retained earnings

Total equity

 

£'000

£'000

£'000

£'000

£'000

£'000

 

At 1 July 2014

7,930

9,412

10,448

229

24,586

52,605

Changes in equity for six months ended 31 December 2014

 

 

 

 

 

 

Share-based payment credit

-

-

-

-

9

9

Options exercised

16

45

-

-

-

61

Movement in own shares held

-

-

-

-

(17)

(17)

Profit for the period

-

-

-

-

1,219

1,219

Other comprehensive income for the period

-

-

-

(421)

-

(421)

At 31 December 2014

7,946

9,457

10,448

(192)

25,797

53,456

Changes in equity for six months ended 30 June 2015

 

 

 

 

 

 

Share-based payment credit

-

-

-

-

9

9

Options exercised

3

5

-

-

-

8

Dividends to equity holders

-

-

-

-

(397)

(397)

Profit for the period

-

-

-

-

2,224

2,224

Other comprehensive income for the period

-

-

-

(1,805)

-

(1,805)

At 30 June 2015

7,949

9,462

10,448

(1,997)

27,633

53,495

Changes in equity for six months ended 31 December 2015

 

 

 

 

 

 

Share-based payment credit

-

-

-

-

4

4

Options exercised

16

62

-

-

-

78

Movement in own shares held

-

-

-

-

13

13

Profit for the period

-

-

-

-

1,872

1,872

Other comprehensive income for the period

-

-

-

703

-

703

At 31 December 2015

7,965

9,524

10,448

(1,294)

29,522

56,165

 

 

  

 

 

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 2016 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 2015.  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 2016 or are expected to be adopted and effective at 30 June 2016.  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 2015 and the six months ended 31 December 2014 has neither been audited nor reviewed pursuant to guidance issued by the Auditing Practices Board. The financial information for the year ended 30 June 2015 does not constitute the full statutory accounts for that period.  The Annual Report and Financial Statements for the year ended 30 June 2015 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 2015 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

2015

Unaudited

Six months to 31 Dec 2014

Audited

Year to

 30 June 2015

 

 

£'000

£'000

£'000

Current tax expense

 

 

 

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

 

542

 

693

 

597

Adjustment in respect of prior periods

-

-

103

Total current tax expense

542

693

700

Deferred tax income

 

 

 

Origination and reversal of temporary differences

 

(136)

 

(119)

 

(249)

Effect of change in rate of deferred tax

-

-

(15)

Total deferred tax income

(136)

(119)

(264)

Total tax expense

406

574

436

 

 

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

2015

Unaudited

Six months to 31 Dec 2014

Audited

Year to

 30 June 2015

 

 

Number of

Shares

Number of

Shares

Number of

Shares

Weighted average number of shares:

 

 

 

For basic earnings per share

31,683,967

31,620,805

31,637,381

Effects of employee share options and warrants

 

508,458

 

452,602

 

590,623

For diluted earnings per share

32,192,425

32,073,407

32,228,004

 

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 2015

Unaudited six months

to 31 Dec 2014

Audited Year

 to 30 June 2015

 

 

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)

1,872

5.9

5.8

1,219

3.9

3.8

3,443

10.9

10.7

Amortisation of acquired intangibles (net of tax)

1,275

4.0

4.0

1,285

4.1

4.0

2,240

7.1

7.0

Acquisition costs (net of tax)

-

-

-

-

-

-

138

0.4

0.4

Exceptional reorganisation costs (net of tax)

678

2.1

2.1

125

0.4

0.4

323

1.0

1.0

Adjusted eps

3,825

12.0

11.9

2,629

8.4

8.2

6,144

19.4

19.1

 

  

 

 

4.            Loans and borrowings

 

Unaudited As at

31 Dec

2015

Unaudited As at

31 Dec

2014

Audited

As at

30 June 2015

 

 

£'000

£'000

£'000

Non-current

 

 

 

Bank loans (secured)

9,127

10,400

10,525

Finance lease creditors

4

6

6

 

9,131

10,406

10,531

 

Current

 

 

 

Bank loans (secured)

2,796

2,377

2,797

Finance lease creditors

4

17

6

Loans from related parties

640

640

640

 

3,440

3,034

3,443

 

Total borrowings

 

12,571

 

13,440


13,974

 

The bank loans and other facilities include a multi-option facility which expires in August 2017.

 

 

 

5.            Other non-current liabilities

 

Unaudited As at

31 Dec

2015

Unaudited As at

31 Dec

2014

Audited

As at

30 June 2015

 

 

£'000

 

£'000

£'000

Contingent consideration

-

25

25

Accruals

494

631

857

 

494

656

882

 

 

 

6.            Trade and other payables

 

Unaudited As at

31 Dec

2015

Unaudited As at

31 Dec

2014

Audited

As at

30 June 2015

 

 

£'000

 

£'000

 

£'000

Trade payables

5,887

4,652

7,602

Other payables

292

556

665

Accruals

8,302

8,246

7,875

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

 

 

14,481

 

 

13,454

 

 

16,142

Contingent consideration

56

18

75

Deferred consideration

25

25

25

Other tax and social security taxes

4,194

4,780

3,556

Deferred revenue

10,775

10,598

9,607

 

29,531

28,875

29,405

 

 

7.            Notes to the cash flow statement

 

Cash generated from operations is stated after exceptional reorganisation costs.  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

2015

Unaudited

Six months ended

31 Dec 2014

Audited

Year

ended

30 June 2015

 

 

£'000

£'000

£'000

 

 

 

 

 

 

Cash generated from operating activities

4,973

4,300

9,600

 

Add:

 

 

 

 

Exceptional reorganisation costs

847

158

311

 

Adjusted cash generated from operations

5,820

4,458

9,911

 

 

 

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

 

 

Unaudited

Six months ended

31 Dec

2015

Unaudited

Six months ended

31 Dec 2014

Audited

Year

ended

30 June 2015

 

£000

£000

£000

 

 

 

 

Initial consideration

-

(694)

(2,580)

Cash balances acquired

-

236

582

Contingent and deferred consideration paid

(25)

-

-

 

(25)

(1,998)

 

 

8.            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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