Preliminary Results
K3 Business Technology Group PLC
03 April 2008
KBT
K3 BUSINESS TECHNOLOGY GROUP PLC
('K3' or 'the Group')
IT solutions supplier to the supply chain industry
Announces
Preliminary Results for the Year to 31 December 2007
Highlights
* Excellent results reflecting strong organic growth and partial benefits of
earnings enhancing acquisitions
* Revenue increased by 25% to £34.15m (2006: £27.35m)
* Adjusted profit before tax*1 rose by 78% to £4.72m (2006: £2.66m)
Profit before tax rose by 43% to £3.68m (2006: £2.57m)
* Cash generated from operations increased by 182% to £6.23m (2006: £2.21m)
* Adjusted earnings per share*2 rose by 60% to 16.8p (2006: 10.5p)
Earnings per share rose by 41% to 13.4p (2006: 9.5p)
* Dividend of 0.5p proposed (2006: nil)
* Recurring revenues from licence and maintenance fees now totals £13.8m on
annualised basis
* Three highly complementary acquisitions completed:
- two manufacturing software businesses (MBL and Index) and a retailer
software provider (Landsteinar)
- full benefits to be evident in 2008
* Disposal of non-core business, Elucid, in February 2007
* Board views the prospects for 2008 positively - sales pipeline at record
levels
*1 Calculated before amortisation of acquired intangibles of £0.90m (2006:
nil) and share-based payment costs of £0.15m (2006: £0.09m).
*2 Calculated before amortisation of acquired intangibles of £0.90m (2006:
nil), share-based payment costs and related tax charge of £0.11m (2006:
£0.06m) and loss on disposal of operations including the related tax
charge of £0.14m (2006: £0.11m).
Tom Milne, Chairman, commented,
'K3 made excellent progress over the year as results demonstrate. The three
acquisitions we made during the year have added critical mass to the business
and significantly enhanced recurring income streams and operating cash flow. We
have yet to exploit the full benefits of all our acquisitions and see
significant potential to come from them in future.
We continue to look for complementary acquisition opportunities that will
enhance our existing product range and skills or bring additional routes to
market. Our product range is now also sufficiently broad to consider the
acquisition of 'feeder' businesses, with established customer bases in our
chosen sectors. These will provide predictable, recurring income streams but
also deliver opportunities for cross-selling as customers upgrade their existing
software solutions with newer Microsoft products.
We continue to view the Group's prospects for 2008 positively.'
Enquiries:
K3 Business Technology Andy Makeham, Chief Executive T: 020 7448 1000 (today)
Group plc David Bolton, Chief Finance Officer Thereafter: 01282 864111
Biddicks Katie Tzouliadis T: 020 7448 1000
Daniel Stewart (NOMAD) Paul Shackleton T: 020 7776 6550
CHAIRMAN'S STATEMENT
Overview
K3 made excellent progress over the year as results demonstrate. Revenue for the
12 months to 31 December 2007 increased by 25% to £34.15m and adjusted profit
before tax*1 rose by 78% to £4.72m, with adjusted earnings per share*2
increasing by 60% to 16.8p. Profit before tax rose by 43% to £3.68m with
earnings per share increasing by 41% to 13.4p.
Both legs of the business, the Retail Software Division and the Manufacturing
Software Division, performed well. In addition, during the year, we acquired
three complementary businesses, two in manufacturing software and one in retail
software. These made partial contributions to this year's results but, more
significantly, they greatly enhance prospects for the Group for 2008 and beyond.
The acquisition of McGuffie Brunton Limited ('MBL') in April 2007 transforms our
Manufacturing Software Division. As the only other domestic distributor of
SYSPRO, it makes K3 the sole supplier in the UK for a system which is widely
recognised as the leading software range in mid-tier manufacturing. The merger
of MBL with our existing SYSPRO business brings substantial benefits which will
be more evident in 2008. One immediate benefit I am pleased to highlight is
MBL's large customer base which delivers substantial recurring income from
annual licence and maintenance fee renewals. Just before the end of the
financial year we acquired Index Computer Systems Limited ('Index'), a leading
reseller of Microsoft Dynamics AX (Axapta) suite of business software and a
Microsoft Gold Partner. Index takes the Manufacturing Software Division into the
complementary field of 'process' manufacturing and, as one of the fastest
growing solutions in the market for larger manufacturing companies, Axapta opens
up exciting new opportunities for the Division.
Prospects for the Retail Software Division have been enhanced with the purchase
of Landsteinar Nederlands BV ('Landsteinar') in August 2007. Based in Holland,
Landsteinar distributes the same software as our UK business and so is a
complementary business in an area we understand. Importantly, it also gives us a
European footprint. We see our UK business gaining from Landsteinar in terms of
product enhancement but, more significantly, we believe we can use our marketing
and sales expertise to grow the Landsteinar business. An important development
in 2007 was our investment to incorporate a multi-channel solution in our Retail
software. This is a significant step for us and the customer base, given the
increasing importance of online sales for retailers.
The three acquisitions we have made considerably strengthen the Group, adding
critical mass to our existing operations, increasing our presence within our
chosen markets sectors and broadening our market opportunities. The full
benefits of the acquisitions, and particularly of Landsteinar, will be more
fully felt in trading results for 2008. Results will continue to be weighted
towards the second half of the year since the majority of licence fee revenues
in the Manufacturing Software Division occur in October. However the weighting
in the financial year to 31 December 2008 will be less marked following the
acquisition of Landsteinar. The Board remains optimistic about the Group's
prospects for 2008.
Financial Results
These full year results are reported under International Financial Reporting
Standards as endorsed by the EU ('IFRS') for the first time. Accordingly,
comparative results for the prior year, ending 31 December 2006, have been
restated. The impact on our operating results of adopting IFRS is not
significant. However, it has resulted in a reduction in the amortisation of
intangible assets arising on acquisitions and a small change in the level of
holiday pay accruals.
Group revenue for the year to 31 December 2007 increased by 25% to £34.15m from
£27.35m last year. This included a nine month contribution from MBL, a four
month contribution from Landsteinar but only a very limited contribution from
Index, which we acquired in mid December. In total, the acquisitions contributed
£7.23m to Group revenue.
Adjusted profit from operations*1 for the year rose by 97% to £5.76m (2006:
£2.92m). After amortisation of acquired intangible assets of £0.90m (2006: nil)
and share-based payment costs of £0.15m (2006: £0.09m), the profit from
operations was £4.71m (2006: £2.83m), an increase of 66% on last year.
Adjusted profit before tax*1 rose by 78% to £4.72m (2006: £2.66m) and adjusted
earnings per share*2 increased by 60% to 16.8p (2006: 10.5p). After taking into
account amortisation of acquired intangibles of £0.90m (2006: nil), and
share-based payment costs of £0.15m (2006: £0.09m), profit before taxation
increased by 43% to £3.68m (2006: £2.57m) and the earnings per share rose by 41%
to 13.4p (2006: 9.5p).
At 31 December 2007, the Group's cash balance stood at £3.09m (2006: £2.27m) and
the balance of bank and other loans was £16.48m (2006: £1.57m). The rise in
borrowing resulted from loans taken out to finance the cash element of the
acquisitions of MBL, Landsteinar and Index.
Dividend
Reflecting the substantial progress the business has made, the Board is
delighted that the Group is in a position to commence the payment of dividends
and is pleased to propose a net dividend of 0.5p per share (2006: nil). This
will be paid on 11 June 2008 to shareholders on the register at the close of
business on 16 May 2008, subject to shareholder approval at the Annual General
Meeting, which is to be held at the offices of K3 Supply Chain Solutions
Limited, Baltimore House, 50 Kansas Avenue, Salford Quays, Manchester M50 2GL on
4 June 2008 at 10.30 am.
Review of Operations
Retail Software Division
The Retail Software business generated total sales of £20.47m, an increase of
25% over last year (2006: £16.44m) and the adjusted profit from operations*3
rose by 79% to £2.91m (2006: £1.63m) against the same period last year. These
results included only four months contribution from Landsteinar, which was
acquired in August 2007. Landsteinar generated revenues of £1.61m and an
adjusted profit from operations*4 of £0.57m.
The core UK business performed extremely well, with sales increasing by 15% over
the year to £18.86m (2006: £16.44m) and adjusted profit from operations*5 rising
by 44% to £2.34m (2006: £1.63m). These strong results were driven both by a
number of major new customer wins and new orders from existing customers. The
total value of the new orders secured during the year was £5.3m. Reflecting both
the growth in the customer base last year and our initiatives to focus on
customer account management, services and support revenue rose by 41% to £13.72m
(2006: £9.75m) while revenue from existing customers increased by 24% to £7.84m
(2006: £6.31m).
We signed our first large scale multi-channel retail contract in December with
The White Company, the luxury home accessories retailer. This prestigious win
provides us with an excellent reference site and we believe this high growth
sector will be an important area for us in 2008.
The acquisition of Landsteinar, for an initial £9.75m, in August 2007 was a
highly attractive move for us. The Netherlands-based company is very closely
related to our core UK business, both being distributors of the Microsoft
Dynamics software suite. Landsteinar has a strong domestic and overseas customer
base and some very close retail relationships, most notably with Inter IKEA
System B.V. ('IKEA'), the global home furnishing business. In recent years, it
developed and now retains the worldwide rights to software modules for IKEA.
Landsteinar operates a low-cost sales model which means that it has the
potential to achieve high levels of profitability from sales growth. We believe
that there are significant synergies between Landsteinar and our UK software
business in product development and marketing and we are starting to exploit
these as we move into 2008.
Manufacturing Software Division
The Manufacturing Software businesses generated total sales of £13.5m (2006:
£8.85m) and an adjusted profit from operations*6 of £3.42m (2006: £1.64m). These
are excellent results and include a nine month contribution from MBL, which was
acquired in April, but only a very small contribution from Index, acquired in
December.
The year saw major changes in the Manufacturing Software Division with the
acquisition of MBL. The merger of the business with its 'sister' company, IEG,
is now completed and we have rebranded the combined entity as K3 Supply Chain
Solutions ('SCS').
The logic for acquiring MBL, the only other UK distributor of the SYSPRO range
of Enterprise Resource Planning ('ERP') software, was compelling. Bought for a
total consideration of £13.80m, MBL's fit with IEG, which comprises our core
business within this Division, is highly complementary. Significantly, it also
means that K3 is now the sole UK distributor for this market leading ERP
software. The combined IEG and MBL customer base now totals approximately 450
companies and the enlarged SYSPRO business, SCS, generated combined sales of
£10.4m and adjusted profit from operations*7 of £2.45m in 2007. This was after
absorbing the costs of the merger of £0.25m. It is especially encouraging to see
that, as expected, the average order value increased steadily during the year.
Of the revenues generated from SCS, approximately half is derived from recurring
annual licence fees and maintenance income, the majority of which is invoiced in
October each year. This has the effect of weighting the performance of this
Division heavily towards the second half of the financial year.
The acquisition of Index, in December 2007 for £3.01m, has broadened our product
base, adding Microsoft Dynamics AX software, one of the fastest growing
enterprise resource planning solutions worldwide. Index also holds the
intellectual property rights for complementary modules in the food and process
manufacturing vertical markets.
Our Walton-on-Thames business saw revenue reduce, as expected, from £3.50m to
£3.05m and profitability rise as a result of structural changes implemented in
anticipation of this reduction. The adjusted profit from operations*8 increased
by 36% to £0.97m (2006: £0.71m). The business has now extended its offering to
include Customer Relationship Management and business support and we expect the
revenue level to stabilise in 2008.
Disposal
In February, we sold our Elucid business to Sanderson Group plc, as it had
become a non-core part of the Group. Elucid's multi-channel software solution is
focused on smaller catalogue and mail order companies rather than our target
market of larger retailers. The loss in the period was £0.14m and the Group
generated £1.08m of cash from its disposal.
Outlook
The three acquisitions we made during the year have added critical mass to the
business and significantly enhanced recurring income streams and operating cash
flow. Recurring revenue, which derives from licence fee renewals and associated
support, now totals approximately £13.8m on an annualised basis and represents a
highly predictable income stream. We have yet to exploit the full benefits of
all our acquisitions and see significant potential to come from them in future.
We continue to look for complementary acquisition opportunities that will
enhance our existing product range and skills or bring additional routes to
market. Our product range is now also sufficiently broad to consider the
acquisition of 'feeder' businesses, with established customer bases in our
chosen sectors. These will provide predictable, recurring income streams but
also deliver opportunities for cross-selling as customers upgrade their existing
software solutions with newer Microsoft products.
Results for the current year will continue to be more significantly weighted
towards the second half but Landsteinar will boost first half performance
compared to 2007.
We continue to view the Group's prospects for 2008 positively.
Tom Milne
Chairman
*1 Calculated before amortisation of acquired intangibles of £0.9m (2006:
nil) and share-based payment costs of £0.15m (2006: £0.09m).
*2 Calculated before amortisation of acquired intangibles of £0.9m (2006:
nil), share-based payment costs and related tax charge of £0.11m (2006:
£0.06m) and loss on disposal of operations including the related tax
charge of £0.14m (2006: £0.11m).
*3 Calculated before amortisation of acquired intangibles of £0.24m (2006:
nil) and share-based payment costs of £0.07m (2006: £0.03m).
*4 Calculated before amortisation of acquired intangibles of £0.24m.
*5 Calculated before share-based payment costs of £0.07m (2006: £0.03m).
*6 Calculated before amortisation of acquired intangibles of £0.66m (2006:
nil) and share-based payment costs of £0.08m (2006: £0.04m).
*7 Calculated before amortisation of acquired intangibles of £0.65m (2006:
nil) and share-based payment costs of £0.05m (2006: £0.02m).
*8 Calculated before share-based payment costs of £0.04m (2006: £0.02m).
BUSINESS REVIEW
CURRENT YEAR OPERATIONS SUMMARY
The Board considers the key performance indicators by which it measures the
performance of the Group to be revenue, gross margin and profit from operations,
adjusted for amortisation of acquired intangibles and share-based payment costs.
The performance indicators used by the Group are summarised as follows:
2007 2006
Revenue (£000) 34,146 27,346
Gross margin percentage 67% 61%
Adjusted profit from operations (£000) 5,760 2,918
Operating cash percentage 108% 76%
Adjusted EPS (pence) 16.8p 10.5p
Percentage of recurring revenue 36% 30%
Staff retention percentage 77% 77%
The Group's financial statements have been prepared under International
Financial Reporting standards as endorsed by the EU ('IFRS') for the first time.
Prior year balances have been restated in accordance with IFRS.
2007 was a year of controlled growth for the business with the focus being on
improving margins within existing businesses whilst targeting growth through a
number of key strategic acquisitions. The business has performed strongly with
revenue up 25% and profit from operations up 66%.
Good progress was made in both divisions. Our Retail Software Division continued
its impressive record with a further 25% growth in sales to £20.47m (2006:
£16.44m). Following last year's investment in the division, significant progress
was made in the newly targeted markets of Fashion and Home Retail, including
major new sales to several high street retailers including Clinton Cards and
Agent Provocateur. We also signed our first large scale multi-channel retail
contract with The White Company, which will provide us with an excellent
reference site going forward in this high growth sector. The UK retail division
contributed revenue of £18.86m (2006: 16.44m) and adjusted profit from
operations*1 of £2.34m (2006: 1.63m). Whilst multi-channel mid-tier retail
solutions remain important to K3, in February, we sold our Elucid business to
Sanderson Group plc, as it had increasingly become non-core to our ongoing
operations focusing very much at the lower end of the marketplace.
In August 2007, we acquired Landsteinar Nederland B.V. ('Landsteinar'), a
distributor of Microsoft Dynamics NAV with a strong domestic and overseas
customer base. It also owns the worldwide rights to software modules
specifically designed for the franchise operations of Inter IKEA B.V. ('IKEA'),
the global home furnishings business. The business contributed revenue of £1.61m
and adjusted profit from operations*2 of £0.57m since acquisition.
Our SYSPRO based Manufacturing Software Division grew 94%, with adjusted profit
from operations*3 up 163%, and included a nine month revenue contribution of
£5.57m and £1.95m adjusted profit from operations*3 from McGuffie Brunton
(acquired in April 2007). Following its acquisition, the business was merged
with our existing SYSPRO business (Information Engineering Group, 'IEG') onto
one site in Manchester during the second half and the merged business rebranded
as K3 Supply Chain Solutions. The benefits of the merger of these businesses
will be seen in 2008. K3 is now the sole distributor in the UK of the
Microsoft-centric SYSPRO brand of manufacturing software.
Our Walton business has continued to perform ahead of our expectations with
revenue in the current year of £3.05m (2006: £3.50m) and adjusted profit from
operations*4 of £0.97m (2006: 0.71m). Revenue dropped as we transferred new
business activity to our Manchester offices, however, the unit is also
increasingly generating business outside its traditional product areas including
leads for our SYSPRO businesses and opportunities in Customer Relationship
Management ('CRM').
Late in the year, the acquisition of Index Computer Systems Limited ('Index') in
December broadened our product range to include Microsoft Dynamics AX software,
one of the fastest growing Enterprise Resource Planning solutions worldwide.
Index also holds the intellectual property for complementary modules in the food
and process manufacturing markets.
Our policy of focusing on Microsoft based business solutions continues to serve
us well and as one of the larger Microsoft business partners in the UK, we
remain well placed to benefit from Microsoft's ongoing investment in the
business solutions sector. K3 is a member of Microsoft's Inner Circle, which is
reserved for its top 60 partners worldwide, and we continue to pursue our goal
to become the UK's market leading supplier of Microsoft-based supply chain
management solutions to small and medium sized companies. In 2008, we expect to
expand our footprint within the Retail and Manufacturing software sectors. We
have also identified potential acquisition targets in both the manufacturing and
retail markets which would complement our existing offerings for these sectors.
DIVISIONAL REVIEW
Retail Software Division
2007 2006
Revenue (£000) 20,473 16,435
Gross margin percentage 57% 51%
Adjusted profit from operations*5 (£000) 2,912 1,628
Percentage of recurring revenue 22% 18%
Staff retention percentage 80% 72%
The Division continued to grow strongly during 2007, with sales increasing by
25% to £20.47m and adjusted profit from operations*5 rising by 79% to £2.91m
over the previous year. These excellent results reflected a strong performance
of our core UK business which generated revenue of £18.86m (2006: £16.44m) and
adjusted profit from operations*6 of £2.34m (2006: £1.63m) but also included
four months of trading from our acquisition, Landsteinar. Landsteinar's revenue
contribution was £1.61m and it delivered adjusted profit from operations*7 of
£0.57m. I am pleased to report that this result was in line with our
expectations at the time of its acquisition.
While the acquisition of Landsteinar was a key event in 2007 for the Retail
Software Division, our focus during much of the year was on consolidating the
growth the Division had achieved over the previous two years. Two major
initiatives were on margin enhancement and customer account management. As part
of this process, we made some key new appointments, rationalised the cost base
in certain areas and invested in staff training. I am pleased to highlight that
margins improved by 6 percentage points to 57% and that revenue from existing
customers increased by 24% to £7.84m. We continued to recruit directly
chargeable staff to satisfy the demand created by sales and overall, the number
of people employed in our core UK business increased from 134 to 145 during
2007.
The contract base continues to grow well and the Division secured a number of
high profile customer wins, including: Clinton Cards, the specialist retailer of
greeting cards; BHSF, the insurer and employee benefits provider; Rymans, the
stationery chain; and Agent Provocateur, a leading lingerie retailer. At the
same time, we secured major orders from the existing customer base. The combined
value of new orders was £5.3m, although the full impact of a number of these
wins will fall into our results for financial year to 31 December 2008. I am
also pleased to report that consultancy revenues increased by 41% to £9.42m from
£6.67m.
With online sales representing an increasingly significant channel to market for
retailers, it is important that our software offering encompasses multi-channel
sales. Our product development team completed a new software module to address
this demand and, in December, we won our first mid-range multi-channel order,
from The White Company, the luxury home accessories retailer. As we move into
2008, we see further opportunities in this area.
The acquisition of Landsteinar in August 2007 is a significant step forward in
the ongoing development of the Retail Software Division. Based in The Hague,
Landsteinar was established in 2001 and is a leading distributor of Microsoft
Dynamics NAV software. It is, in effect, the sister company of our core UK
business, Alpha Landsteinar, which we acquired in 2004. In total, Landsteinar
has some 43 retail customers and supports over 300 stores across 15 countries.
In particular, it has a close relationship with IKEA, for which it developed,
and now owns, the worldwide rights to specific software modules designed for
IKEA's overseas stores, which are franchised operations. The business has
historically operated a very low cost base, with minimal marketing expenditure.
We see considerable potential to grow sales and strong synergies with the UK
business on product offering and marketing.
As we move into 2008, we believe that there are significant opportunities in the
multi-channel, fashion, electronic point of sale ('EPOS') and customer
relationship management ('CRM') sectors. We are looking at strategic
partnerships to extend our product offering further.
Disposal
In February, we disposed of our Elucid business to Sanderson Group plc. Since
Elucid's multi-channel software solution was focused on smaller catalogue and
mail order companies rather than the mid-range retail sector, we viewed it as
non-core. The business generated sales of £0.18m (2006: £2.06m) and an operating
loss of £0.08m (2006: adjusted profit from operations*8 of £0.08m). We are now
providing our mid-tier multi-channel solution as part of our overall Microsoft
Dynamics based retail solution.
Manufacturing Software Division
2007 2006
Revenue (£000) 13,495 8,849
Gross margin percentage 84% 81%
Adjusted operating profit*9 (£000) 3,417 1,644
Percentage of recurring revenue 58% 51%
Staff retention percentage 74% 88%
The acquisition of MBL, in April 2007, has transformed the Manufacturing
Software Division as results demonstrate. Including a nine month contribution
from MBL, the Division generated sales of £13.5m (2006: £8.85m) and an adjusted
profit from operations*9 of £3.42m (2006: £1.64m). Significantly, recurring
revenues, derived from annual licence fee renewals, rose by 74% to £7.89m (2006:
£4.53m).
The benefits of the acquisition are both strategic and financial. As the only
other UK distributor of the SYSPRO range of Microsoft-based enterprise resource
planning ('ERP') software for manufacturing and distribution companies, the
strategic advantage of combining it with our IEG business was compelling.
Additionally, in adding critical mass, our enlarged business is now well
positioned to bid for larger contracts which MBL and IEG, as smaller,
independent companies, would not have previously bid for. We also saw cost
saving opportunities with IEG and MBL selling the same software product, in the
same territories, both from head offices in Manchester. One of the key
objectives during the year was to achieve a merger that would optimise the
synergies and cost benefits.
The integration of MBL took place during the second half of the year, with the
benefits achieved offsetting the £0.25m of integration costs. MBL's 11,000 sq ft
head office in Salford Quays has now been refurbished and become our northern
Manufacturing Software Division headquarters. The combined MBL and IEG
businesses, now rebranded as K3 Supply Chain Solutions ('SCS'), contributed
sales of £10.40m (2006: £5.35m) and adjusted profit from operations*10 of £2.45m
(2006: £0.93m) to the Division's overall results.
The MBL acquisition brought with it a particularly strong telesales and
marketing team with a comprehensive sales prospect database. Lead intake across
the Division increased significantly following the acquisition and we secured 19
new customers during the year. It was also encouraging to see that the average
order value of these new wins was higher than last year.
Significant new wins included a contract worth £0.65m with a distribution
company based in Northern Ireland. We secured this win by integrating SYSPRO
with MBL's warehouse management system (for which we own the intellectual
property rights) and an innovative vehicle scheduling and route planning
package. The project is of particular note as it potentially opens up a new
marketplace to us in the distribution sector. A major customer within IEG has
been slower than anticipated in placing additional business during 2007.
However, we anticipate significant new orders from this customer in 2008.
SCS launched a new network infrastructure service in September, which is
generating significant levels of interest from the existing customer base, and
we see good opportunities to roll out this service across existing and new
customers.
In January 2007, we restructured our Walton-on-Thames based manufacturing
systems business unit to remove cost and maximise profitability. As part of the
restructuring, we transferred new sales activity to our Manchester head office.
While this resulted in a 13% decrease in revenues to £3.05m (2006: £3.50m),
adjusted profit from operations*11 increased by 36% to £0.97m (2006: £0.71m).
In mid December, we completed our second acquisition within the manufacturing
sector, buying Microsoft Gold partner, Index. Index further strengthens our
manufacturing product portfolio. Whilst our existing SYSPRO business is focused
on 'discrete' manufacturing, Index's area of specialisation is 'process'
manufacturing. It therefore broadens our offering, bringing with it distribution
rights to Microsoft Dynamics AX and complementary modules which extend the
Dynamics AX functionality to support food and process manufacturers.
On an annualised basis, Index's revenue in 2007 was £2.11m, with customers
including: British Bakels, the global ingredients manufacturer; MBMG, a leading
UK supplier of fresh produce; Jeyes Group, the international household and
hygiene product manufacturer; and Abel and Cole, a leading organic delivery
company. We see Index as providing us with growth opportunities at the higher
end of the mid-tier market and larger manufacturing companies which we can
exploit with K3's marketing and sales capabilities.
K3 remains the largest supplier of manufacturing solutions to the SME market in
the UK and with our newly invigorated Manufacturing Software Division, market
leading products, substantial customer base and strong pipeline, we believe 2008
will deliver another strong performance.
Central Division
Central costs for the year were £0.49m (2006: £0.43m) reflecting the costs of
strengthening the central management team and ancillary costs.
Andy Makeham
Chief Executive
*1 Calculated before share based payment costs of £0.07m (2006: £0.03m).
*2 Calculated before amortisation of acquired intangibles of £0.24m (2006:
nil).
*3 Calculated before amortisation of acquired intangibles of £0.65m (2006:
nil).
*4 Calculated before share-based payment costs of £0.04m (2006: £0.02m).
*5 Calculated before amortisation of acquired intangibles of £0.24m (2006:
nil) and share-based payment costs of £0.07m (2006: £0.03m)
*6 Calculated before share-based payment costs of £0.07m (2006: £0.03m).
*7 Calculated before amortisation of acquired intangibles of £0.24m (2006:
nil)
*8 Calculated before share-based payment costs of nil (2006: £0.01m).
*9 Calculated before amortisation of acquired intangibles of £0.66m (2006:
nil) and share-based payment costs of £0.08m (2006: £0.04m).
*10 Calculated before amortisation of acquired intangibles of £0.65m (2006:
nil) and share-based payment costs of £0.05m (2006: £0.02m).
*11 Calculated before share-based payment costs of £0.04m (2006: £0.02m).
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2007
Notes 2007 2006
£'000 £'000
Revenue 34,146 27,346
Cost of sales (11,415) (10,641)
------------------------
Gross profit 22,731 16,705
Administrative expenses (18,019) (13,872)
------------------------
Profit from operations before amortisation of
acquired intangibles and cost of share-based
payments 5,760 2,918
Amortisation of acquired intangibles (896) -
Cost of share-based payments (152) (85)
------------------------
Profit from operations 4,712 2,833
Finance income 45 21
Finance expense (1,081) (283)
------------------------
Profit before taxation 3,676 2,571
Tax expense (761) (846)
------------------------
Profit for the year 2,915 1,725
========================
All of the profit for the year is attributable to equity shareholders of the
parent.
Earnings per share
Basic 1 13.4p 9.5p
Diluted 1 13.1p 9.5p
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the year ended 31 December 2007
2007 2006
£'000 £'000
Exchange differences on translation of foreign
operations 1,082 (15)
Exchange difference on hedge of net investment
in foreign operations (536) -
-----------------------
Net profit recognised direct in equity 546 (15)
Profit for the year 2,915 1,725
-----------------------
Total recognised income and expense for the year 3,461 1,710
=======================
All of the above recognised income and expense is attributable to equity holders
of the parent.
CONSOLIDATED BALANCE SHEET
As at 31 December 2007
Notes 2007 2006
£'000 £'000
ASSETS
Non-current assets
Property, plant and equipment 1,305 416
Goodwill 31,494 15,684
Other intangible assets 12,282 273
Deferred tax assets 466 191
Available-for-sale investments - 1,398
--------------------------
Total non-current assets 45,547 17,962
==========================
Current assets
Trade and other receivables 10,984 8,622
Cash and cash equivalents 3,085 2,267
--------------------------
Total current assets 14,069 10,889
--------------------------
Total assets 59,616 28,851
==========================
LIABILITIES
Non-current liabilities
Long-term borrowings 4 12,437 711
Other non-current liabilities 3 564 -
Deferred tax liabilities 3,508 -
--------------------------
Total non-current liabilities 16,509 711
==========================
Current liabilities
Trade and other payables 2 14,704 11,848
Current tax liabilities 639 1,003
Short-term borrowings 4 4,043 861
--------------------------
Total current liabilities 19,386 13,712
--------------------------
Total liabilities 35,895 14,423
==========================
EQUITY
Share capital 5,926 4,872
Share premium account 5 1,588 1,388
Other reserves 5 10,448 6,070
Translation reserve 5 531 (15)
Retained earnings 5 5,228 2,113
--------------------------
Total equity attributable to equity holders of the
parent 23,721 14,428
==========================
Total equity and liabilities 59,616 28,851
==========================
CONSOLIDATED CASHFLOW STATEMENT
For the year ended 31 December 2007
2007 2006
£'000 £'000
Cash flows from operating activities
Profit before tax 3,676 2,571
Adjustments for:
Share-based payments charge 152 85
Depreciation of property, plant and equipment 308 329
Amortisation of intangible assets and
development expenditure 1,078 118
Profit on sale of property, plant and equipment (4) (27)
Loss on sale of disposal group 121 -
Interest received (45) (21)
Interest expense 1,081 283
Decrease (increase) in trade and other
receivables 594 (2,276)
(Decrease) increase in trade and other payables (733) 1,146
--------------------------
Cash generated from operations 6,228 2,208
Interest paid (1,243) (256)
Income taxes (paid) received (2,074) 21
--------------------------
Net cash generated from operating activities 2,911 1,973
--------------------------
Cash flows from investing activities
Acquisition of subsidiaries, net of cash
acquired (18,947) (18)
Deferred consideration paid (121) (40)
Acquisition of trade investments - (1,398)
Development expenditure capitalised (372) (229)
Proceeds from sale of trade investments 1,398 -
Proceeds from sale of disposal group 1,081 -
Purchase of property, plant and equipment (271) (146)
Proceeds from sale of property, plant and
equipment 51 40
Interest received 45 21
-------------------------
Net cash absorbed by investing activities (17,136) (1,770)
-------------------------
Cash flows from financing activities
Proceeds from issue of share capital 263 1,825
Proceeds from long-term borrowings 16,586 -
Payment of long-term borrowings (1,915) (379)
Payment of finance lease liabilities (125) (256)
-------------------------
Net cash generated from financing activities 14,809 1,190
-------------------------
Net change in cash and cash equivalents 584 1,393
Cash and cash equivalents at start of year 2,267 874
Exchange gains on cash and cash equivalents 234 -
-------------------------
Cash and cash equivalents at end of year 3,085 2,267
=========================
NOTES
1. Earnings per share
The calculations of earnings per share are based on the profit for the year and
the following numbers of shares.
2007 2006
Number of Number of
shares shares
Denominator
Weighted average number of shares used in basic EPS 21,695,518 18,075,153
Effects of:
Employee share options and warrants 641,022 87,053
---------------------------
Weighted average number of shares used in diluted EPS 22,336,540 18,162,206
===========================
Certain employee options and warrants have not been included in the calculation
of diluted EPS because their exercise is contingent on the satisfaction of
certain criteria that had not been met at the end of the year. In addition,
certain employee options have also been excluded from the calculation of diluted
EPS as their exercise price is greater than the weighted average share price
during the year (i.e. they are out-of-the-money) and therefore would not be
advantageous for the holders to exercise those options.
The alternative 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 (losses) and the above number of shares.
2007 2006
Earnings Per share Per share Earnings Per share Per share
amount amount amount amount
Basic Diluted Basic Diluted
£000 p p £000 p p
Numerator
Profit for the year (for
both basic and diluted EPS) 2,915 13.4 13.1 1,725 9.5 9.5
Amortisation of acquired
intangibles (net of tax) 492 2.3 2.2 - - -
Share-based payments (net of
tax) 106 0.5 0.4 59 0.4 0.3
Loss on sale of disposal
group (net of tax) 137 0.6 0.6 106 0.6 0.6
-----------------------------------------------------------
Adjusted EPS 3,650 16.8 16.3 1,890 10.5 10.4
===========================================================
The loss on sale of a disposal group (net of tax) in 2007 relates to Elucid on
which the pre-tax loss was £0.12m and the tax charge was £0.02m, and that in
2006 relates to the income tax expense arising from the profit on the sale
during 2004 of the operations based at Crewe.
2. Trade and other payables - current
2007 2006
£'000 £'000
Trade payables 2,733 1,676
Other tax and social security taxes 2,694 1,626
Other payables 623 80
Deferred consideration 320 960
Accruals 3,458 2,965
---------------------------
Total financial liabilities, excluding loan and
borrowings, classified as financial liabilities
measured at amortised cost 9,828 7,307
Deferred income 4,876 4,541
---------------------------
14,704 11,848
===========================
3. Other non-current liabilities
2007 2006
£'000 £'000
Deferred consideration 474 -
Other payables 90 -
--------------------------
564 -
==========================
4. Loans and borrowings
2007 2006
£'000 £'000
Non-current
Bank loans (secured) 12,378 356
Finance lease creditors 59 98
Loans from related parties - 257
---------------------------
12,437 711
--------------------------
Current
Bank loans (secured) 3,346 335
Finance lease creditors 43 129
Loans from related parties 654 397
---------------------------
4,043 861
---------------------------
Total borrowings 16,480 1,572
===========================
5. Reserves
Share Other Translation Retained
premium reserve reserve earnings
£'000 £'000 £'000 £'000
At 1 January 2007 1,388 6,070 (15) 2,113
Proceeds on share issue 73 4,378 - -
Share-based payment credit - - - 221
Options exercised 127 - - -
Own shares acquired - - - (21)
Translation differences on
overseas operations - - 546 -
Profit for the year - - - 2,915
--------------------------------------------
At 31 December 2007 1,588 10,448 531 5,228
============================================
6. The recommend the payment of a dividend of 0.5p per share (2006: nil) to be
payable to shareholders on the register on 16 May 2008.
7. These financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs and IFRIC interpretations) as
endorsed by the European Union ('endorsed IFRS') and with those parts of the
Companies Act 1985 applicable to companies preparing their accounts under
endorsed IFRS. This is the first time the company has prepared its financial
statements in accordance with endorsed IFRSs, having previously prepared its
financial statements in accordance with UK accounting standards.
Details of how the transition from UK accounting standards to endorsed IFRSs has
affected the group's reported financial position, was included in the Group
announcement dated 6 September 2007.
8. The financial information set out above does not comprise the Company's
statutory accounts. Statutory accounts for the previous financial year ended 31
December 2006 prepared under UK GAAP have been delivered to the Registrar of
Companies. The auditors have reported on those accounts; their report was
unqualified and did not include references to any matters to which the auditors
drew attention by way of emphasis of matter without qualifying their opinion and
did not contain any statement under section 237(2) or (3) of the Companies Act
1985. The auditors have given an unqualified opinion on the accounts for the
year ended 31 December 2007; their report did not include references to any
matters to which the auditors drew attention by way of emphasis of matter
without qualifying their opinion and it did not contain any statement under
section 237(2) or (3) of the Companies Act 1985. These will be delivered to the
Registrar of Companies following the annual general meeting.
9. This preliminary announcement was approved by the Board of directors on 3
April 2008.
10. The full financial statements will be posted to shareholders on or around 7
May 2008. Further copies will also be available from the Company's registered
office at Linden Business Centre, Linden Road, Colne, Lancashire, BB8 9BA from
that date.
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