Interim Results
K3 Business Technology Group PLC
30 September 2004
30 September 2004
K3 BUSINESS TECHNOLOGY GROUP PLC
INTERIM RESULTS
FOR THE SIX MONTHS TO 30 JUNE 2004
Key Points
• Strategy to refocus the business progressing well
• Sale of Enterprise Systems Division for £1.92m
- exit from very low growth business area
- realised £1.3m profit
• Acquisition of remaining 62% holding in PSE Ltd, the warehousing and
distribution management software company in April 2004
- first step into retail and distribution sectors in line with strategy
- business performing strongly
• Flagship Microsoft-based CRM product, SmartVision, generating strong
interest
- £240,000 invested in development over first half
- substantial pipeline of prospects
• Turnover on continuing operations of £1.92m
• Operating profit before goodwill amortisation and excluding profit
on disposal of Enterprise Systems Division of £0.13m
• Profit before tax of £1.17m - includes proceeds from sale of
Enterprise Systems Division
• Cash balance of £3.05m at 30 June 2004
Commenting on prospects, Chairman, George Matthews, said,
'We have ambitious growth plans for the Group, which are focused around the
development of our Microsoft-based business solutions and expansion into the
distribution and retail sectors.
With our enhanced cash position, we are well placed to exploit acquisition
opportunities that fulfil our criteria and are in active negotiations with a
number of possible acquisitions that will strengthen our portfolio of Microsoft
based business solutions for the Supply Chain Sector. We continue to view the
Group's prospects very positively.'
Enquiries:
K3 Business Technology Group plc Andy Makeham, Chief Executive T: 01282 864111
David Bolton, Finance Director T: 01282 864111
Biddicks Katie Tzouliadis T: 020 7448 1000
Rowan Dartington & Co. Limited Barrie Newton, Managing Director T: 0117 933 0010
CHAIRMAN'S STATEMENT
OVERVIEW
We have ambitious growth plans for the Group, which are focused around the
development of Microsoft-based business solutions and expansion into the
distribution and retail sectors. Over the first half of 2004, we made
constructive steps forward with our objectives. In March, we completed the sale
of the Enterprise Systems Division, realising a profit of £1.30m and in April,
we acquired the outstanding balance of shares in a warehousing and distribution
management software business, PSE Ltd ('PSE'). The acquisition of PSE is
important to us strategically, extending our footprint beyond our traditional
manufacturing sector and into retail and distribution.
I can also report good progress in the development of SmartVisionCRM, our new
business solution product which has Microsoft's new CRM software embedded within
it. We invested approximately £0.24m in its development during the first half,
and we have a substantial pipeline of prospects. Our investment has been
charged against profits.
In April, we conducted a share consolidation of one 25p ordinary share for every
five 5p ordinary shares previously in issue. As a consequence our shares in
issue and our earnings per share have been restated accordingly.
Financial Results
Results for the first half reflect the disposal of our Enterprise Systems
business. Turnover therefore reduced to £2.79m against £3.48m in the same period
last year. As expected, turnover on continuing operations showed a small decline
as we switched to generating demand for our SmartVisionCRM product, with £1.92m
of sales against £2.23m in the same period last year.
After costs of £0.24m relating to the development of our SmartVisionCRM business
application, which commenced in January 2004, adjusted operating profit*1 on
continuing operations was £0.05m (2003: loss of £0.25m).
For the three months to June 2004, our new acquisition, PSE, contributed an
adjusted operating profit*2 of £0.08m. For the two months to 29 February, prior
to its disposal, our Enterprise Systems Division contributed an adjusted
operating profit*3 of £0.01m. Overall, the Group's operating loss of £0.12m was
better than expectations (2003: £0.39m which reflects the impact of write-offs
of £0.55m).
The sale of the Enterprise Systems Division resulted in a profit on disposal of
£1.30m. Profit on ordinary activities before taxation was £1.17m (2003: loss of
£0.43m). This resulted in earnings per share before amortisation of goodwill of
11.5p (2003: loss of 2.0p) and earnings per share of 9.0p (2003: loss per share
of 4.0p).
At 30 June 2004, the Group had a positive cash balance of £3.05m compared with
£0.12m at 30 June 2003 and £1.23m at 31 December 2003.
The Directors do not propose to pay a dividend (2003: nil). However, authority
was obtained from shareholders in April for a share capital reduction which will
enable us to seek the confirmation of the High Court which, if obtained, will
enable us to pay dividends in the future.
*1 Calculated before amortisation of goodwill of £0.15m and
exceptional write offs of £nil.
*2 Calculated before amortisation of goodwill of £0.02m and
exceptional write offs of £nil.
*3 Calculated before amortisation of goodwill of £0.08m and
exceptional write offs of £nil.
OPERATIONAL REVIEW
Business Systems Division
The Business Systems Division, based in Walton-on-Thames, turned in a good
performance with sales of Sigma, Omnis, JobBOSS and SmartVision to both new and
existing customers. Considerable interest has been shown in SmartVisionCRM, our
new Microsoft centric business solution for the SME sector, and whilst this is
still being developed, a strong pipeline of orders has been generated that is
likely to benefit 2005.
Enterprise Systems Division
This Division, based at Crewe, was sold in March 2004 to Azur Group Limited for
£1.92m, of which £0.05m is deferred, realising a profit on sale of £1.30m. The
sale of the business is part of the management's strategy to focus on both
developing the Group's Microsoft-based business solutions and expand the
business into the distribution and retail sectors. Figures for the first half
include the results of this Division for the period to 29 February.
PSE
In April, we announced the acquisition of the remaining 62% of the shares in PSE
Limited, the warehousing and distribution software company based in Lancashire.
We had previously acquired a 38% holding in PSE in November 2003. The balance
of the shares in April was acquired for an initial consideration of £0.45m,
bringing the total cash consideration for the entire share capital of PSE to
£0.64m. With an estimated deferred consideration based on future growth in the
business over the next three years of £0.25m, the expected total price is
£0.89m.
In its first three months as part of the Group, PSE won six new orders worth
£0.4m and sales reached £0.46m in the period. This is substantially ahead of
2003 levels where sales for the twelve month period to 30 November 2003 were
£1.18m. The strong first quarter performance was helped by orders from JJB
Sports (clothing), Bright Minds (educational toys), and Rock Group
(electronics). PSE contributed £0.08m to adjusted operating profit*2. The
prospective orders are encouraging and should translate into a continued strong
performance in the second half year.
Outlook
We expect market conditions in the manufacturing sector to remain challenging
but are encouraged by the increasing interest in SmartVisionCRM and the level of
order intake in PSE which should see it continue to perform well over the second
half of the year.
With our enhanced cash position, we are well placed to exploit acquisition
opportunities that fulfil our criteria and are in active negotiations with a
number of possible acquisitions that will strengthen our portfolio of Microsoft
based business solutions for the Supply Chain Sector. We continue to view the
Group's prospects very positively.
George Matthews
Chairman
30 September 2004
*2 Calculated before amortisation of goodwill of £0.02m and
exceptional write offs of £nil.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the six months ended 30 June 2004
Unaudited Unaudited Audited
Six months Six months Year to 31
December 2003
to 30 June to 30 June
Notes 2004 2003
£'000 £'000 £'000
Turnover
Continuing 1,921 2,233 4,305
Acquisitions 456 - -
Discontinued 413 1,250 2,697
Total 2,790 3,483 7,002
Operating profit before goodwill amortisation
and exceptional write down 132 407 1,074
Goodwill amortisation (255) (243) (463)
Exceptional write down - (550) (605)
Continuing (104) (410) (276)
Acquisitions 52 - -
Discontinued (71) 24 282
Operating (loss) profit 3 (123) (386) 6
Profit (loss) on disposal of operations 1,303 - (100)
Net interest payable and similar charges (6) (46) (105)
Profit (loss) on ordinary activities before 1,174 (432) (199)
taxation
Tax on profit (loss) on ordinary activities (256) - (130)
Profit (loss) for the financial period 918 (432) (329)
Earnings (loss) per share
(comparatives restated for share
consolidation of one 25p share for every five
5p shares)
Basic 6 9.0p (4.0p) (3.0p)
Diluted 6 9.0p (4.0p) (3.0p)
Basic before amortisation of goodwill 6 11.5p (2.0p) 1.5p
Basic before amortisation of goodwill and 6 0.9p 3.5p 6.5p
exceptional items
The group has no recognised gains or losses in any of the above periods other
than the profit (loss) for that period.
CONSOLIDATED BALANCE SHEET
As at 30 June 2004
Unaudited As Unaudited Audited
at As at As at 31
30 June 30 June December 2003
2004 2003
Notes
£'000 £'000 £'000
Fixed assets
Goodwill 2,919 3,574 3,354
Tangible assets 317 425 342
Investments - - 190
3,236 3,999 3,886
Current assets
Debtors 1,564 3,338 2,558
Cash at bank and in hand 3,045 122 1,226
4,609 3,460 3,784
Creditors: amounts falling due within
one year 7 (3,921) (4,565) (4,706)
Net current assets (liabilities) 688 (1,105) (922)
Total assets less current liabilities 3,924 2,894 2,964
Creditors: amounts falling due after more than
one year (12) (33) -
Provisions for liabilities and charges - - -
Net assets 3,912 2,861 2,964
Capital and reserves
Called-up share capital 2,548 2,548 2,548
Shares to be issued 8 30 - -
Share premium account 8 6,441 6,441 6,441
Other reserve 8 2,359 2,359 2,359
Profit and loss account 8 (7,466) (8,487) (8,384)
Equity shareholders' funds 3,912 2,861 2,964
CONSOLIDATED CASH FLOW STATEMENT
For the period ended 30 June 2004
Unaudited Unaudited Audited
Six months Six months Year to 31
to 30 June 2004 to 30 June December
2003 2003
Notes
£'000 £'000 £'000
Net cash inflow from operating activities 9 703 113 1,365
Returns on investments and servicing of finance (6) (11) (23)
Taxation - - (11)
Capital expenditure and financial investment (25) (87) (99)
Acquisitions and disposals 1,131 - (95)
Cash inflow before financing 1,803 15 1,137
Financing 16 (16) (34)
Increase (decrease) in cash in the period 1,819 (1) 1,103
NOTES TO THE FINANCIAL STATEMENTS
1. The interim financial information has been prepared in
accordance with the accounting policies adopted in the accounts for the year
ended 31 December 2003.
2. The financial information in this statement relating to the
six months ended 30 June 2004 and the six months ended 30 June 2003 is unaudited
and does not constitute full statutory accounts within the meaning of Section
240 of the Companies Act 1985. The figures for the year ended 31 December 2003
have been extracted from the statutory accounts which have been filed with the
Registrar of Companies. The audit report was unqualified and did not contain
any statement under section 237 (2) and (3) of the Companies Act 1985.
3. Operating profit (loss)
The operating profit (loss) is stated after charging £0.24m for development
costs relating to the SmartVisionCRM project (2003: is stated after charging a
write down £0.55m relating to the disposal of the Group's interest in RAP Group
Limited).
4. Acquisition of subsidiary undertaking
On 5 April 2004 the company acquired the remaining 62% of the issued share
capital of PSE Limited ('PSE'). The company acquired a 38% shareholding in PSE
in November 2003 for an initial consideration of £0.19m. The balance of the
shares were acquired for an initial consideration of £0.45m with further
consideration payable based on PSE's revenues rising to £5m over the period up
to 31 March 2007. The fair value of the total consideration is estimated to be
£0.89m.
The following table sets out the book values of the identifiable assets and
liabilities acquired and their fair value to the group:
Book value Fair value Fair value to
adjustments the group
£000 £000 £000
Fixed assets
Tangible 67 - 67
Current assets
Debtors 228 (25) 203
Cash 50 - 50
Total assets 345 (25) 320
Creditors
Trade (106) - (106)
Other (100) - (152)
Accruals and deferred income (152) - (100)
Total liabilities (358) - (358)
Net liabilities (13) (25) (38)
Goodwill 928
Consideration 890
Satisfied by
Cash consideration 640
Deferred cash consideration 220
Shares to be issued 30
890
4. Acquisition of subsidiary undertaking (continued)
The fair value adjustment relates to a provision against a debt which is not
considered recoverable.
Net cash inflows in respect of the acquisition comprised:
£000
Cash at bank and in hand acquired 50
PSE earned a profit after taxation of £53k in the three months ended
30 June 2004.
5. Disposal of divisional undertaking
On 29 February 2004 the group disposed on its interest in its Enterprise Systems
Division to Azur Group Limited for a consideration of £1.92m.
Net assets disposed of and the related sales proceeds were as follows:
£000
Fixed assets
Goodwill 1,108
Tangible 38
Creditors
Deferred income (678)
Net assets 468
Transaction costs of disposal 25
Other costs of disposal 126
Profit before tax on sale 1,303
Proceeds 1,922
Satisfied by
Cash 1,872
Deferred cash consideration 50
1,922
In addition to the proceeds and the costs of the disposal, the company collected
trade receivables and discharged trade payables generating a further £0.69m.
6. Earnings (loss) per share
The calculations of earnings (loss) per share are based on the following
earnings (losses) and numbers of shares (restated for the share consolidation of
one 25p share for every five 5p share):
6. Earnings (loss) per share (continued)
Basic and diluted
Unaudited six months Unaudited six Audited year
to 30 June 2004 months to 30 June
2003 to 31 December
2003
£'000 p £'000 p £'000 p
Basic earnings (loss) per share 918 9.0 (432) (4.0) (329) (3.0)
Effect of goodwill amortisation 255 2.5 243 2.0 463 4.5
Basic earnings (loss) per share
before amortisation of goodwill 1,173 11.5 (189) (2.0) 134 1.5
Exceptional items
(net of tax) *1(1,085) (10.6) *2 550 5.5 *2 524 5.0
Basic earnings per share before
amortisation of goodwill and
exceptional items 88 0.9 361 3.5 658 6.5
Number of shares Number of shares Number of shares
Weighted average number of shares 10,192,428 10,192,428 10,192,428
*1 Exceptional item in six months to 30 June 2004 relates to profit on
disposal of the Enterprise Systems Division of £1.30m less tax of £0.22m.
*2 Exceptional item in six months to 30 June 2003 relates to write-off
of irrecoverable balances from RAP Group of £0.61m less tax with a further loss
on disposal of the legacy businesses in second half of 2003 arising from reduced
deferred consideration of £0.10m which had no tax effect.
7. Creditors: amounts falling due within one year
Included in creditors due within one year is deferred income of £1.49m (2003:
£2.29m) relating to income from support which is generally invoiced in advance
and recognised as revenue in equal monthly instalments over the relevant
periods.
8. Reserves
Share Shares to be Other Profit and
premium issued reserve loss account
account
£'000 £'000 £'000 £'000
At 1 January 2004 6,441 - 2,359 (8,384)
Deferred consideration in relation to - 30 - -
acquisition of PSE Limited
Retained profit for the period - - - 918
At 30 June 2004 6,441 30 2,359 (7,466)
9. Cash flow statement
Reconciliation of operating (loss) profit to operating cash flows
Unaudited Unaudited Audited Year
Six months Six months to to 31 Dec
to 30 Jun 2004 30 Jun 2003
2003
£000 £000 £000
Operating (loss) profit (123) (386) 6
Depreciation and fixed asset impairment 79 88 182
Loss on sale of tangible fixed assets - - 1
Amortisation of goodwill 255 243 463
Decrease in debtors 1,247 560 1,290
Decrease in creditors (755) (392) (577)
703 113 1,365
10. The above information is being sent to the shareholders and is
available from the Company's registered office: Unit 19, Linden Business Centre,
Linden Road, Colne, Lancashire, BB8 9BA.
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