Final Results
K3 Business Technology Group PLC
3 April 2002
K3 BUSINESS TECHNOLOGY GROUP PLC
(Formerly known as RAP Group plc)
PRELIMINARY RESULTS
FOR THE YEAR TO 31 DECEMBER 2001
In March 2001, the group completed its disposal programme to divest itself of
its legacy businesses in hardware distribution and acquired two IT businesses
specialising in enterprise resource planning and supply chain management. On
completion of the restructuring, the group changed its name to K3 Business
Technology Group plc.
The results for the year to 31 December 2001 therefore reflect three months
contribution from the discontinued operations and nine months contribution from
the enterprise resource planning businesses.
• The newly acquired software businesses outperformed management
expectations, delivering turnover of £6.39m and operating profit (before
amortisation of goodwill) of £1.65m in the nine month period, April -
December 2001.
- Enterprise Systems division secured two major contracts and agreed a
strategic partnership with John Dickinson Stationery Limited.
- Business Systems division launched a new product, Micross Omnis, for
SME manufacturers and enhanced customer support services.
• Continuing operations, Touchline, contributed turnover of £0.42m and
operating loss of £0.48m.
• The Hardware Companies contributed turnover of £1.15m and operating loss
of £0.37m for the three months prior to disposal in March 2001.
• Group turnover of £7.97m (2000: £14.25m).
• Group operating profit (before amortisation of goodwill) of £0.71m (2000:
loss of £3.55m).
• The directors are considering complementary acquisitions.
• Prospects remain encouraging despite difficult market conditions.
Enquiries:
K3 Business Technology Group plc Tel: 020 7448 1000 on 3 April
Andy Makeham, Chief Executive Thereafter: 01270 211211
David Bolton, Finance Director (Andy Makeham mobile: 07767 458 684)
Biddicks Tel: 020 7448 1000
Zoe Biddick or Katie Tzouliadis
Rowan Dartington & Co. Limited Tel: 0117 933 0010
Barrie Newton, Managing Director
Chairman's statement
The following is the full text of the preliminary announcement of audited
results for K3 Business Technology Group plc for the year ended 31 December
2001.
Introduction
I am delighted to announce results for the year ended 31 December 2001. The
group generated an operating profit of £0.71m on revenues of £7.97m as it
completed its transformation from an industrial products business into one of
the UK's leading providers of Enterprise Resource Planning and Supply Chain
Management software to the SME sector.
Operational review
2001 saw the group complete its change from a loss-making industrial products
business to a profitable Enterprise Resource Planning ('ERP') group. This
transformation was completed in March 2001, when the group disposed of its
remaining legacy businesses in hardware distribution, and acquired two ERP
software businesses. With the restructuring, the company changed its name from
RAP Group plc to K3 Business Technology Group plc.
The results for the year to 31 December 2001, therefore, reflect three months
contribution from the legacy businesses and the loss on disposal of those
businesses. The loss includes a reduction in the expected net deferred
consideration for the Hardware Companies of £0.80m and the write off of goodwill
amounting to £0.66m which arose on the original acquisition of these businesses
and which had previously been written off to reserves. This goodwill charge had
no impact on the balance sheet in 2001 as the reserves are credited with a
compensating amount. More significantly, the results show nine months
contribution from the ERP businesses which generated £1.65m operating profit
(before goodwill amortisation) since April 2001.
Continuing operations - Acquisitions
The ERP software divisions produced strong revenues and operating profits in the
nine month period to December, with both divisions exceeding management
expectations. Sales were particularly encouraging in the second half of the year
at £4.29m generating an operating profit of £1.10m.
The Enterprise Systems division at Crewe made good progress in developing its
ERP business management solutions with major corporate accounts. Two new
contracts were secured and a strategic partnership with John Dickinson
Stationery Limited agreed.
During the period, the Business Systems division at Walton-on-Thames focused on
improving two key areas, customer support and product development. In the second
half, the division launched Micross Omnis, a product aimed at SME manufacturers.
Micross Omnis is a new ERP system designed for both new customers and existing
Micross users wishing to upgrade their systems. I am pleased to report that
customer response to the new product has been encouraging. The division is now
in an improved position; service levels to customers have been significantly
enhanced and our new products will help to widen our customer base.
Continuing operations - Touchline
Touchline, which specialises in multimedia and e-commerce development, acquired
the business of Subnet, a web development business, in May 2001 with a view to
increasing its ability to support the e- business requirements of the group's
ERP customers. Demand from the customer base proved lower than expected and the
business was, therefore, rationalised in November.
Touchline is now focusing on its multimedia sports activities and during the
period won a three year contract as host broadcaster and media partner for Leeds
United Football Club. Its contract with Bolton Wanderers Football Club was also
extended by a further three years.
Touchline is now a non-core activity and the group is looking to realise its
investment at the appropriate time.
Discontinued operations - Hardware businesses
On 28 March 2001, the group disposed of Welpac Hardware Limited, Harwood
Hardware Limited and Anderson and Firmin Limited (together the 'Hardware
Companies'). The consideration for the sale is deferred and will be determined
by the net proceeds arising from the sale of these businesses by the current
owner Silverslaggan AB ('Silverslaggan') in due course. The results for 2001
reflect the contribution of the Hardware Companies for the three month period
from 1 January to 28 March. Revenues from the Hardware Companies grew in these
three months as the fixings business benefited from a major new contract and the
decline in gardening products sales was reversed. Nevertheless, these benefits
were more than offset by the costs of mobilising the new contract. As a result,
the Hardware Companies reported a loss of £0.37m for the three month period.
As the consideration for the Hardware Companies is deferred and dependent on the
eventual sale of the businesses, the company remains interested in the
performance of these businesses. Since the end of March, the businesses have
continued to grow and steps have been taken to reduce the cost base in order to
help stem losses. The sale process, however, is likely to extend beyond the
original time-scale and the directors now expect that the net consideration from
the sale of the businesses will be lower at approximately £0.25m, the new
written down value in the balance sheet.
Finance
Shareholders' funds increased by £2.45m (2000: decrease of £2.84m) reflecting
the increase in share capital and other reserves arising from the share issue in
March 2001 of £3.41m. The group's cash inflow in the year was £0.28m (2000:
£2.59m).
Key events
On 28 March 2001 the company acquired the entire issued share capital of K3 BTG
Limited ('K3 Technology') and of K3 Business Technology Software Limited ('K3
Software') from Silverslaggan AB ('Silverslaggan'). K3 Technology was acquired
for £1.16m satisfied by the issue of £0.77m in shares on completion, with the
balance of £0.39m payable in cash in seven quarterly instalments commencing June
2001. In addition, warrants to subscribe for a further six million ordinary
shares of 5p each were granted to Silverslaggan. These warrants are exercisable
within three years of completion at a price of 20p per ordinary share of 5p
each. K3 Software was acquired for £2.58m, satisfied by the issue of shares on
completion. In addition, warrants to subscribe for a further 12 million ordinary
shares of 5p each were granted to Silverslaggan. These warrants are exercisable
within three years of completion at a price of 20p per ordinary share of 5p
each.
In March 2001, 2,730,296 ordinary shares of 5p each were taken up under a
placing and open offer at a price of 15p per share. 2,541,463 shares were taken
up by shareholders and a further 188,833 shares were placed with employees.
On 28 March 2001, the group disposed of the entire issued share capital of the
Hardware Companies to Paddico (226) Limited (now RAP Group Limited) a company
controlled by Silverslaggan. The consideration for the disposal of the Hardware
Companies is deferred and will be determined by reference to the net proceeds on
the eventual sale of the Hardware Companies by RAP Group Limited. The terms of
the disposal are structured around eventual net proceeds of £1 million. To the
extent that the eventual net proceeds are greater than £1million, K3 Business
Technology Group will receive £1 million plus 80% of the excess; if the eventual
proceeds are less than £1 million, K3 will receive £1 million less 90% of the
shortfall subject to a minimum of £200,000. Whilst it is understood that RAP
Group Limited intends to sell the Hardware Companies during the course of the
next twelve to eighteen months, this is likely to be twelve months later than
originally envisaged.
On 28 March 2001 the company changed its name from RAP Group plc to K3 Business
Technology Group plc.
Board changes
As previously reported, Andy Makeham became Chief Executive on 28 March 2001. On
the same date, John Griffith was appointed as a Non-Executive Director and Johan
Claesson, one of the company's major shareholders and the Chairman of Claesson
and Anderzen AB, a substantial Swedish property company, joined the Board as
Non-Executive Chairman.
Following the sale of the RAP hardware businesses, Brian Shaw resigned from the
company.
On 27 March 2002, John Griffith resigned from the company. The Board will seek
to appoint a new non-executive director in due course.
Outlook
K3 has proved its ability to deliver its forecast operating profits from its
current businesses against challenging market conditions. The Directors are
confident of the group's performance in 2002 and will continue to seek suitable
IT acquisition opportunities to support future growth.
Johan Claesson
Chairman
Consolidated profit and loss account
For the year ended 31 December 2001
2001 2000
Continuing operations Discontinued Total Continuing Discontinued Total
operations operations operations
Acquisitions Continuing Continuing
£000 £000 £000 £000 £000 £000 £000
Turnover 6,393 424 1,155 7,972 305 13,945 14,250
Cost of sales (947) (206) (815) (1,968) (161) (10,536) (10,697)
Gross profit 5,446 218 340 6,004 144 3,409 3,553
Selling and distribution
costs (1,704) - (231) (1,935) - (1,512) (1,512)
Administrative expenses (2,439) (978) (476) (3,893) (589) (5,010) (5,599)
Operating profit (loss)
before amortisation of
goodwill 1,648 (571) (367) 710 (433) (3,113) (3,546)
Amortisation of goodwill (345) (189) - (534) (12) - (12)
Operating profit (loss) 1,303 (760) (367) 176 (445) (3,113) (3,558)
Loss on disposal of
operations - - (1,463) (1,463) - (1,667) (1,667)
Profit on disposal of
property - - - - - 305 305
Profit (loss) on ordinary
activities before interest 1,303 (760) (1,830) (1,287) (445) (4,475) (4,920)
Interest payable and
similar charges (86) (271)
Loss on ordinary activities
before taxation (1,373) (5,191)
Tax on loss on ordinary
activities (246) -
Loss for financial year (1,619) (5,191)
Loss per share
Basic (3.6p) (29.2p)
Diluted (3.6p) (29.2p)
Basic before exceptional
items (0.3p) (19.7p)
There were no recognised gains or losses in either year other than the loss for
that year.
Consolidated balance sheet
As at 31 December 2001
2001 2000
£000 £000
Fixed assets
Goodwill 4,280 141
Tangible assets 618 235
Investments - 7
4,898 383
Current assets
Properties for resale 70 260
Stocks - 1,071
Debtors
due within one year 3,204 1,088
due after one year 250 -
3,524 2,419
Creditors: amounts falling due within one year (5,265) (2,071)
Net current (liabilities) assets (1,741) 348
Total assets less current liabilities 3,157 731
Creditors: amounts falling due after more than one year (85) -
Provisions for liabilities and charges (131) (243)
Net assets 2,941 488
Capital and reserves
Called up share capital 2,536 1,283
Shares to be issued 73 73
Share premium account 6,441 6,516
Other reserve 2,320 85
Revaluation reserve - 41
Profit and loss account (8,429) (7,510)
Equity shareholders' funds 2,941 488
Consolidated cash flow statement
For the year ended 31 December 2001
2001 2000
£000 £000
Net cash outflow from operating activities (414) (1,595)
Returns on investments and servicing of finance (33) (271)
Taxation (11) -
Capital expenditure and financial investment (89) 288
Acquisitions and disposals 891 3,100
Cash inflow before financing 344 1,522
Financing (63) 1,064
Increase in cash in the year 281 2,586
Notes to the preliminary statement
1. Other operating expenses
The operating profit (loss) for the year included exceptional items within
administrative expenses as summarised below:
2001 2000
£000 £000
Fixed asset impairment - 327
2. Acquisition of subsidiary undertakings
On 28 March 2001 the company acquired the entire issued share capital of K3
BTG Limited ('K3 Technology') from Silverslaggan AB ('Silverslaggan'). The
consideration was £1.16m satisfied by the issue of £0.77m in shares on
completion with the balance of £0.39m payable in cash in seven quarterly
instalments commencing June 2001. In addition, warrants to subscribe for a
further six million ordinary shares of 5p each were granted to
Silverslaggan. These warrants are exercisable within three years of
completion at a price of 20p per ordinary share of 5p each.
The fair value of the consideration was £1.16m.
The following table sets out the book values of the identifiable assets and
liabilities acquired and their fair value to the group:
Fair value Fair value to
Book value adjustments the group
£000 £000 £000
Fixed assets
Goodwill 1,650 (1,650) -
Tangible 36 36
Current assets
Debtors 1,062 26 1,088
Cash at bank 223 223
Total assets 2,971 (1,624) 1,347
Creditors
Trade (283) (283)
Other (520) (520)
Accruals and deferred income (1,006) (1,006)
Total liabilities (1,809) (1,809)
Net assets (liabilities) 1,162 (1,624) (462)
Goodwill 1,624
Consideration 1,162
Satisfied by
Shares issued 772
Deferred cash consideration 390
1,162
The fair value adjustments relate to:
the write-off of goodwill in the acquired company in order to comply with
Financial Reporting Standard 7;
the creation of a deferred tax asset due to the acquisition of deferred
income balances which have already been subject to tax on a receipts basis.
Net cash inflows in respect of the acquisition comprised:
£000
Cash at bank and in hand acquired 223
K3 Technology suffered a loss after taxation of £0.02m in the year ended 31
December 2001 (four month period ended 31 December 2000 - profit of
£0.06m), of which a loss of £0.07m, arose in the period from 1 January 2001
to 28 March 2001.
There were no recognised gains or losses other than the loss for the period.
With effect from 30 April 2001, the trade and net assets of K3 Technology
were transferred to the parent company, K3 Business Technology Group plc, at
net book value.
On 28 March 2001 the company acquired the entire issued share capital of K3
Business Technology Software Limited ('K3 Software') from Silverslaggan. The
consideration was £2.58m satisfied by the issue of shares on completion. In
addition, warrants to subscribe for a further twelve million ordinary shares
at 5p each were granted to Silverslaggan. These warrants are exercisable
within three years of completion at a price of 20p per ordinary share of 5p
each.
The fair value of the consideration was £2.58m.
The following table sets out the book values of the identifiable assets and
liabilities acquired and their fair values to the group.
Fair value Fair value to
Book value adjustments the group
£000 £000 £000
Fixed assets
Goodwill 3,221 (3,221) -
Tangible 81 81
Current assets
Debtors 1,466 220 1,686
Cash at bank 276 276
Total assets 5,044 (3,001) 2,043
Creditors
Trade (102) (102)
Other (696) (696)
Accruals and deferred income (1,666) (1,666)
Total liabilities (2,464) (2,464)
Net assets (liabilities) 2,580 (3,001) (421)
Goodwill 3,001
Consideration 2,580
Satisfied by
Shares issued 2,580
The fair value adjustments relate to:
the write-off of goodwill in the acquired company in order to comply with
Financial Reporting Standard 7;
the creation of a deferred tax asset due to the acquisition of deferred
income balances which have already been subject to tax on a receipts basis.
Net cash inflows in respect of the acquisition comprised:
£000
Cash at bank and in hand acquired 276
K3 Software earned a profit after taxation of £0.23m in the year ended 31
December 2001 (one month period ended 31 December 2000 - £0.05m), of which a
profit of £0.19m arose in the period from 1 January 2001 to 28 March 2001.
There were no recognised gains or losses other than the profit for the
period.
With effect from 30 April 2001, the trade and net assets of K3 Software were
transferred to the parent company, K3 Business Technology Group plc, at net
book value.
3. Sale of subsidiary undertakings
On 28 March 2001, the group disposed of the entire issued share capital of
the legacy businesses, Welpac Hardware Limited, Harwood Hardware Limited,
and Anderson and Firmin Limited ('the Hardware Companies') to Paddico (226)
Limited (now RAP Group Limited), a company owned by Silverslaggan. The
consideration for the Hardware Companies is deferred and will be determined
by reference to the net proceeds on the eventual sale of the Hardware
Companies by RAP Group Limited. The terms of the disposal are structured
around eventual net proceeds of £1 million. To the extent that the eventual
net proceeds are greater than £1 million, K3 Business Technology Group plc
will receive £1 million plus 80% of the excess; if the eventual net proceeds
are less than £1 million, the company will receive £1 million less 90% of
the shortfall subject to a minimum of £0.2m.
Net assets disposed of and the related sales proceeds were as follows: £000
Fixed assets 24
Current assets 2,403
Creditors (1,373)
Net assets 1,054
Related goodwill previously written off to reserves 659
Loss on sale (1,463)
Estimated net deferred sale proceeds 250
Satisfied by:
Net deferred consideration to be satisfied by cash 250
Net cash inflows in respect of the sale comprised: £000
Bank overdrafts sold 392
The directors have decided that although the net deferred consideration was
structured around £1.0m, taking into account the present trading and market
conditions and the extent of the likely reduction in proceeds arising from
the current view of the financial position of the Welpac pension scheme, the
consideration is expected to be £0.25m.
4. Reconciliation of operating profit/(loss) to operating cash flow
2001 2000
£000 £000
Operating profit (loss) 176 (3,558)
Depreciation charges and fixed asset impairment 211 683
Write down of property held for resale - 28
Write down of investment 7 -
Amortisation of goodwill 534 12
(Increase) decrease in stocks (62) 1,277
(Increase) decrease in debtors (1,418) 1,062
Increase (decrease) in creditors 250 (860)
Decrease in provisions (112) (239)
Net cash outflow from operating activities (414) (1,595)
5. Analysis of cash flows
Acquisitions and disposals
2001 2000
£000 £000
Bank balances acquired with subsidiary undertakings 499 24
Bank overdrafts disposed of with subsidiary undertakings 392 -
Sale of subsidiary - 500
Sale of businesses - 3,400
Costs of disposal - (824)
891 3,100
Financing
Issue of ordinary share capital 61 1,899
Repayment of secured loan - (687)
Capital element of finance lease rental payments (124) (148)
(63) 1,064
6. Analysis and reconciliation of net debt
Other non-cash 31 Dec
1 Jan 2001 Cash flow changes 2001
£000 £000 £000 £000
Bank overdraft (344) 281 - (63)
Finance leases (55) 124 (233) (164)
(399) 405 (233) (227)
2001 2000
£000 £000
Increase in cash in the year 281 2,586
Cash outflow from decrease in debt and lease financing 124 835
Change in net debt resulting from cash flows 405 3,421
New finance leases (233) -
Movement in net debt in year 172 3,421
Net debt at 1 January 2001 (399) (3,820)
Net debt at 31 December 2001 (227) (399)
7. Reserves
Share premium
account Other reserve Revaluation Profit and loss
reserve account Total
£000 £000 £000 £000 £000
At 1 January 2001 6,516 85 41 (7,510) (868)
Retained loss for the year - - - (1,619) (1,619)
Disposal of revalued property - - (41) 41 -
Goodwill previously written off to reserves - - - 659 659
Share capital issued 273 2,235 - - 2,508
Expenses of equity share issue (348) - - - (348)
At 31 December 2001 6,441 2,320 - (8,429) 332
8. The basic loss per share has been calculated on the loss before and after
taxation of £1.62m (2000: £5.19m) and on the weighted average number of
shares in issue of 44,957,508 (2000: 19,250,567). The basic before
exceptional items loss per share has been calculated on a loss of £0.16m
(2000: loss of £3.50m) and on the weighted average number of shares in issue
of 44,957,508 (2000: 19,250,567).
9. The directors do not recommend the payment of a final dividend and the
dividend for the year is therefore £nil (2000: £nil).
10. The results have been prepared under the historical cost convention as
modified for the revaluation of certain fixed assets and in accordance with
applicable accounting standards. The accounting policies have been applied
consistently with those stated in the previous accounts.
11. The financial information set out above does not comprise the company's
statutory accounts. Statutory accounts for the previous financial year ended
31 December 2000 have been delivered to the Register of Companies. The
auditors' report on those accounts was unqualified 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 2001 which will be delivered to the Registrar of Companies
following the Annual General Meeting.
12. This preliminary announcement was approved by the Board of directors on 27
March 2002.
13. The full financial statements will be posted to shareholders on 29 April
2002. Further copies will also be available from the company's registered
office at RAP House, Harrison Street, Briercliffe, Burnley, BB10 2HP from
that date.
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