Interims & Placing
K3 Business Technology Group PLC
14 September 2005
K3 BUSINESS TECHNOLOGY GROUP PLC
INTERIM RESULTS
FOR THE SIX MONTHS TO 30 JUNE 2005
&
PLACING
Key Points
• Fundamental transformation of K3 in 2004
- benefits of two acquisitions showing through in first half
• Turnover on continuing operations of £9.08m (2004: £2.38m)
• Adjusted operating profit*1 of £0.86m (2004: £0.13m)
• Operating profit of £0.18m (2004: loss of £0.12m)
• Strong overall performance - retail division substantially ahead of
expectations
• Acquisition of IEG, UK distributors of the SYSPRO range of ERP
software for SME manufacturers in June
- complements group's existing manufacturing offering
- provides significant cost savings and cross-selling opportunities to come
• Today's announced placing will raise £1.4 million gross from
institutions to repay shareholder loans and provide additional working capital
to the Group
Commenting, Chairman, George Matthews, said, 'K3 commenced the new financial
year fundamentally transformed following two acquisitions and a disposal in the
last financial year and our results reflect this. In June, we completed a third
acquisition which significantly enhances our manufacturing software operation.
We are particularly encouraged by the performance of our retail and
manufacturing divisions and view prospects for the group overall with optimism.'
Enquiries:
K3 Business Technology Group plc Andy Makeham, Chief Executive T: 01282 864111
David Bolton, Chief Finance Officer T: 01282 864111
Biddicks Katie Tzouliadis T: 020 7448 1000
Robert W. Baird Limited Shaun Dobson T: 020 7488 1212
Nick Tulloch
*1 Calculated before amortisation of goodwill of £0.68m (2004: £0.26m).
OVERVIEW
Over the course of 2004, K3 was fundamentally transformed, with two acquisitions
and the disposal of a non-core operation.
The acquisitions in 2004 extended the business into higher growth areas of
retail and distribution within the supply chain software sector. Our third
acquisition in June 2005, Information Engineering Group ('IEG'), complements our
existing manufacturing software activities and we see significant synergies
between the two businesses. As we stated in the Annual Report, all our software
products are now Microsoft-based and we have in place a firm foundation for
future growth.
The Group's results for the first half of the year are very encouraging and
reflect full contributions from the two acquisitions made in 2004 and a partial
contribution from IEG which was acquired in the second quarter of the current
financial year.
Financial Results
Group turnover on continuing activities rose nearly four-fold to £9.08m from
£2.38m. This reflected a full six months contribution from our acquisitions, K3
Landsteinar and K3 Elucid, as well as turnover generated by our existing
manufacturing software business in Walton. Including a partial contribution of
£0.26m from IEG, which we acquired in June 2005, the total turnover was £9.34m,
against £2.79m last year.
Costs of £0.09m (2004: £0.24m) relating to the development of our SmartVisionCRM
business application reflected the early completion of this project.
Overall, the adjusted operating profit*2 of the Group of £0.86m (2004: £0.13m)
was significantly better than expectations reflecting the contribution of the
acquisitions since 2004. Our new acquisition, IEG, contributed an adjusted
operating profit*3 of £0.14m.
Profit on ordinary activities before taxation was £0.07m (2004: profit of £1.17m
including profit on disposal of operations of £1.30m). Adjusted earnings per
share*4 were 3.9p (2004: 0.9p) and, after taking into account goodwill
amortisation of £0.68m (2004: £0.26m) and exceptional items of nil (2004:
£1.09m), loss per share was 1.1p (2004: earnings per share of 9.0p).
At 30 June 2005, the Group's net cash position was £1.19m overdrawn compared
with cash balances of £3.05m at 30 June 2004 and £0.40 at 31 December 2004.
The Directors do not propose to pay a dividend (2004: nil).
*2 Calculated before amortisation of goodwill of £0.68m (2004: £0.26m).
*3 Calculated before amortisation of goodwill of £0.02m.
*4 Calculated before amortisation of goodwill of £0.68m and exceptional items of
£nil (2004: amortisation of goodwill of £0.26m and exceptional items of £1.09m).
OPERATIONAL REVIEW
Retail Division
The acquisition of K3 Landsteinar in October 2004 underpinned the Group's
expansion into the retail sector and its operations now comprise our retail
division. We are delighted with K3 Landsteinar's performance to date. Over the
first half, it secured seven new contracts worth £6.7m, the most notable being
agreements with Carpetright plc and Moss Pharmacy.
The Carpetright contract supported significant growth in consultancy services
which grew to £2.95m in the period and contributed to total revenues of £6.30m
and an adjusted operating profit*5 of £0.61m. In the nine months of ownership K3
Landsteinar has delivered revenues of £9.23m and adjusted operating profits*6 of
£1.05m. These are well in excess of our expectations and whilst we are
particularly encouraged by the strength of these results, they also reflect the
earlier than expected receipt of revenues previously expected to fall in the
second half of 2005.
Distribution Division
Order intake in the first half of 2005 was slower than expected. Nevertheless,
the business demonstrated its ability to win larger opportunities with the award
of the Scotts of Stow contract worth £0.30m at the beginning of 2005. Results
during the first half were also depressed by the investment the division made in
a significant upgrade to its core Warehouse Management module. Looking forward,
there is an encouraging sales pipeline and therefore we believe order intake for
the second half of the year should improve significantly.
First half revenues of £0.81m reflected a full six months contribution (2004:
£0.46m for three months). The adjusted operating loss*7 was £0.12m (2004: profit
for three months of £0.08m).
Manufacturing Division
The acquisition of IEG in June 2005 transforms this division. Since the
transaction was only completed just prior to the half year end, IEG made only a
partial contribution to the division's results. During the period to 30 June
2005, IEG contributed an adjusted operating profit*8 of £0.14m.
The Group's existing manufacturing software operation, based in
Walton-on-Thames, turned in another good performance. Sales of Sigma, Omnis,
JobBOSS and SmartVision together with SmartVisionCRM continued to prove
attractive offerings to our customer base and first half revenues of £1.93m were
marginally ahead of 2004 levels (£1.92m). Cost savings and lower central costs
allocated against the business saw operating profits rise to £0.23m (2004:
operating loss of £0.01m).
Founded in 1986, IEG is one of two UK distributors of SYSPRO Enterprise Resource
Planning software for the manufacturing sector. Targeting mid-range
manufacturers, the software is entirely complementary to the division's existing
products and offers a natural upgrade path for K3 customers. We see tremendous
scope for both cost savings and cross-selling and, with the introduction of
SYSPRO in June, we have already seen a boost to sales.
There is an encouraging sales pipeline for both businesses and we expect a good
performance from the division in the second half.
PLACING
We also today announce that the Company is raising approximately £1.4 million
gross by means of a placing of 1,555,555 new ordinary shares of 25p each (' New
Ordinary Shares') with institutional investors at a price of 90p per share (the
'Placing'). The Placing is being undertaken to repay shareholder loans and
provide additional working capital for the Group.
The New Ordinary Shares, which represent 9.6% of the Group's issued share
capital prior to the Placing, have been placed with institutional investors by
Robert W. Baird Limited.
Application will be made for the New Ordinary Shares to be admitted to the
Alternative Investment Market and to trading on the London Stock Exchange. The
Placing is conditional on admission, which is expected to become effective on 28
September 2005. When issued, the New Ordinary Shares will rank pari passu in all
respects with the existing Ordinary Shares. Following the Placing, K3 will have
a total of 17,740,719 Ordinary Shares in issue.
OUTLOOK
While the retail division has seen the timing of some revenue fall into the
first half rather than the second half of the year as originally anticipated, we
believe growth prospects remain encouraging. Market conditions within the
manufacturing sector are likely to remain challenging. However, the addition of
IEG significantly strengthens our existing manufacturing software portfolio and
we believe there are considerable synergies to be gained. Within our
distribution software division, the sales pipeline is strong and we therefore
expect the second half to show a stronger trading performance than the first
half.
Overall, we continue to view the Group's prospects very positively.
George Matthews
Chairman
13 September 2005
*5 Calculated before amortisation of goodwill of £0.47m.
*6 Calculated before amortisation of goodwill of £0.70m.
*7 Calculated before amortisation of goodwill of £0.05m (2004: £0.02m).
*8 Calculated before amortisation of goodwill of £0.02m.
K3 BUSINESS TECHNOLOGY GROUP PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the six months ended 30 June 2005
Notes Unaudited Unaudited Audited
Six months Six months Year to 31
to 30 June to 30 June December 2004
2005 2004
£'000 £'000 £'000
Turnover
Continuing 9,081 2,377 8,116
Acquisitions 263 - -
Discontinued - 413 413
---------------------- ------ --------- --------- ---------
Total 9,344 2,790 8,529
---------------------- ------ --------- --------- ---------
---------------------- ------ --------- --------- ---------
Operating profit
before goodwill
amortisation and
exceptional write down 857 132 603
Goodwill amortisation (679) (255) (636)
---------------------- ------ --------- --------- ---------
Continuing 59 (104) (10)
Acquisitions 119 52 -
Discontinued - (71) (23)
---------------------- ------ --------- --------- ---------
Operating profit(loss) 3 178 (123) (33)
Profit on disposal of
operations - 1,303 1,248
Net interest payable
and similar charges (106) (6) (55)
---------------------- ------ --------- --------- ---------
Profit on ordinary
activities before
taxation 72 1,174 1,160
Tax on profit on
ordinary activities (225) (256) (59)
---------------------- ------ --------- --------- ---------
(Loss) profit for the
financial period (153) 918 1,101
---------------------- ------ --------- --------- ---------
(Loss) earnings per share
Basic 5 (1.1)p 9.0p 10.0p
Diluted 5 (1.1)p 9.0p 10.0p
Basic before amortisation
of goodwill 5 3.9p 11.5p 15.8p
Basic before amortisation
of goodwill and exceptional
items 5 3.9p 0.9p 4.5p
The group has no recognised gains or losses in any of the above periods other
than the (loss) profit for that period.
K3 BUSINESS TECHNOLOGY GROUP PLC
CONSOLIDATED BALANCE SHEET
As at 30 June 2005
Notes Unaudited Unaudited Audited
As at As at As at 31
30 June 30 June December
2005 2004 2004
£'000 £'000 £'000
Fixed assets
Goodwill 16,394 2,919 9,919
Tangible assets 685 317 570
Investments 17 - 17
---------------------- ------ --------- --------- ---------
17,096 3,236 10,506
---------------------- ------ --------- --------- ---------
Current assets
Debtors 6,889 1,564 6,268
Cash at bank and in hand 56 3,045 403
---------------------- ------ --------- --------- ---------
6,945 4,609 6,671
---------------------- ------ --------- --------- ---------
Creditors: amounts
falling due within
one year
Convertible debt (523) - (500)
Other creditors 6 (11,481) (3,921) (9,345)
---------------------- ------ --------- --------- ---------
(12,004) (3,921) (9,845)
---------------------- ------ --------- --------- ---------
Net current (liabilities)
assets (5,059) 688 (3,174)
---------------------- ------ --------- --------- ---------
Total assets less current
liabilities 12,037 3,924 7,332
Creditors: amounts
falling due 7 (3,045) (12) (337)
after more than one year
Provisions for
liabilities and charges - - -
---------------------- ------ --------- --------- ---------
Net assets 8,992 3,912 6,995
---------------------- ------ --------- --------- ---------
Capital and reserves
Called-up share capital 3,895 2,548 3,329
Shares to be issued 8 - 30 -
Share premium account 8 6,463 6,441 6,463
Other reserve 8 6,070 2,359 4,486
Profit and loss account 8 (7,436) (7,466) (7,283)
---------------------- ------ --------- --------- ---------
Equity shareholders'
funds 8,992 3,912 6,995
---------------------- ------ --------- --------- ---------
K3 BUSINESS TECHNOLOGY GROUP PLC
CONSOLIDATED CASH FLOW STATEMENT
For the six months ended 30 June 2005
Notes Unaudited Unaudited Audited
Six months Six months Year to 31
to 30 June to 30 June December
2005 2004 2004
£'000 £'000 £'000
Net cash inflow from
operating activities 9 1,980 703 1,633
Returns on investments and
servicing of finance (89) (6) 24
Taxation - - (76)
Capital expenditure and
financial investment (87) (25) (12)
Acquisitions and disposals (3,217) 1,131 (2,331)
---------------------- ------ --------- --------- ---------
Cash (outflow) inflow
before financing (1,413) 1,803 (762)
Financing (177) 16 (61)
---------------------- ------ --------- --------- ---------
(Decrease) increase in cash
in the period (1,590) 1,819 (823)
---------------------- ------ --------- --------- ---------
K3 BUSINESS TECHNOLOGY GROUP PLC
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 2004.
2. The financial information in this statement relating to the
six months ended 30 June 2005 and the six months ended 30 June 2004 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 2004
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 loss for the six months ended 30 June 2005 is stated after
charging £0.09m (2004: £0.24m) for development costs relating to the
SmartVisionCRM project. The charge for the year ended 31 December 2004 was
£0.47m.
4. Acquisition of subsidiary undertaking
On 23 June 2005 the company acquired the entire issued share capital of
Information Engineering Group Limited ('IEG'). The total initial consideration
was £4.46m of which £2.31m was in cash with £2.15m in shares. £1.66m of cash was
paid on completion with a further £0.55m payable on 30 November 2005 and £0.10m
payable on 30 November 2006. Further consideration of up to £1.6m is payable
based on IEG's profits during the two years ending 31 May 2007. The fair value
of the total consideration is estimated to be £5.61m.
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 201 - 201
Current assets
Debtors 2,290 2,290
Cash 74 - 74
--------- --------- ---------
Total assets 2,565 - 2,565
--------- --------- ---------
Creditors
Bank
overdrafts (1,064) - (1,064)
Trade (371) - (371)
Other (543) - (543)
Accruals and
deferred
income (1,548) - (1,548)
--------- --------- ---------
Total
liabilities (3,526) - (3,526)
--------- --------- ---------
Net
liabilities (961) - (961)
--------- ---------
Goodwill 7,138
Costs of
acquisition (564)
---------
Consideration 5,613
---------
Satisfied by
Cash
consideration 1,663
Shares issued 2,150
Deferred cash
consideration 650
Further
deferred cash
consideration 1,150
---------
5,613
---------
Net cash outflows in respect of the acquisition comprised:
£000
Net bank overdrafts acquired 990
--------
IEG earned a profit after taxation of £92k in the one month ended 30 June 2005.
5. (Loss) earnings per share
The calculations of (loss) earnings per share are based on the following
(losses) earnings and numbers of shares:
Unaudited six months Unaudited six months to 30 June 2004 Audited year
to 30 June 2005 to 31 December 2004
Earnings Per share Earnings Per share Earnings Per share Per share
(losses) amount (losses) amount (losses) amount amount
Basic and Basic and Basic Diluted
Diluted Diluted
£'000 p £'000 p £'000 p p
(Loss)
earnings per
share (eps) (153) (1.1) 918 9.0 1,101 10.0 10.0
Effect of
goodwill
amortisation 679 5.0 255 2.5 636 5.8 5.8
----------------- ------- ------ ------- ------ -------- ------ ------
Eps before
amortisation
of goodwill 526 3.9 1,173 11.5 1,737 15.8 15.8
Exceptional
items (net of
tax) - - *1(1,085) (10.6) *1(1,248) (11.3) (11.4)
----------------- ------- ------ ------- ------ -------- ------ ------
Eps before
amortisation
of goodwill
and
exceptional
items 526 3.9 88 0.9 489 4.5 4.4
----------------- ------- ------ ------- ------ -------- ------ ------
Unaudited six Unaudited six Audited year to
months to 30 months to 30 31 December
June 2005 June 2004 2004
Number of shares Number of shares Number of shares
Weighted average number of shares:
For basic
earnings per
share 13,416,215 10,192,428 10,980,489
Exercise of
share options 27,196 - 40,264
----------------- ------------ ----------- ---------------
For diluted
earnings per
share 13,443,411 10,192,428 11,020,753
----------------- ------------ ----------- ---------------
*1 Exceptional item in six months to 30 June 2004 and in year to 31 December
2004 relates to profit on disposal of the manufacturing software operation based
in Crewe of £1.25m on which there was no tax charge due to the availability of
capital losses (at 30 June 2004 the profit on disposal was estimated at £1.30m
less tax of £0.22m).
6. Creditors: amounts falling due within one year
Unaudited Unaudited Audited
As at 30 June As at 30 June As at 31 December
2005 2004 2004
Convertible debt
6% convertible loan notes 523 - 500
--------------------------- -------- -------- --------
Other creditors
Bank loans and overdrafts 1,243 - -
Obligations under finance leases
and hire purchase contracts 312 55 330
Other loans 550 - -
Other loans due to related
parties 827 537 1,303
Trade creditors 1,849 257 1,071
Corporation tax 204 339 -
Taxation and social security 1,188 302 1,032
Other creditors 185 531 799
Accruals and deferred income 5,123 1,900 4,810
--------------------------- -------- -------- --------
11,481 3,921 9,345
--------------------------- -------- -------- --------
7. Creditors: amounts falling due after more than one year
Unaudited Unaudited Audited
As at As at As at
30 June 30 June 31 December
2005 2004 2004
Obligations under finance leases
and hire purchase contracts 187 12 337
Other loans 100 - -
Other loans due to related
parties 1,458 - -
Accruals and deferred income 1,300 - -
--------------------------- -------- -------- --------
3,045 12 337
--------------------------- -------- -------- --------
8. Reserves
Share premium Other reserve Profit and loss
account account
£'000 £'000 £'000
At 1 January 2005 6,463 4,486 (7,283)
Shares issued in relation to
acquisition of Information
Engineering Group Limited - 1,584 -
Retained loss for the period - - (153)
---------------------------- -------- -------- --------
At 30 June
2005 6,463 6,070 (7,436)
---------------------------- -------- -------- --------
9. Cash flow statement
Reconciliation of operating profit (loss) to operating cash flows
Unaudited Unaudited Audited Year
Six months to Six months to to
to 30 Jun 2005 30 June 2004 31 Dec 2004
£000 £000 £000
Operating profit (loss) 178 (123) (33)
Depreciation and fixed
asset impairment 146 79 215
Loss on sale of tangible
fixed assets 27 - 24
Amortisation of goodwill 679 255 636
Decrease (increase) in
debtors 1,533 1,247 (445)
(Decrease) increase in
creditors (583) (755) 1,236
--------------------- --------- --------- --------
1,980 703 1,633
--------------------- --------- --------- --------
10. The above information is being sent to the shareholders and is
available from the Company's registered office: Linden Business Centre, Linden
Road, Colne, Lancashire, BB8 9BA.
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