Final Results

K3 Business Technology Group PLC 07 March 2003 K3 BUSINESS TECHNOLOGY GROUP PLC PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2002 Results for the year represent the reconstructed Group's first full year of trading. The comparative period last year reflects only nine months contribution from the new core business and three months contribution from the legacy businesses and therefore does not offer a like-for-like comparison of trading over the year as a whole. Under a new management team, the Group is now focused on the provision of supply chain management solutions. â€¢ Group records first profit at the pre-tax level for six years â€¢ Enterprise Resource Planning businesses demonstrate satisfactory growth in difficult markets - Business Systems Division: - new sales activity up 25% year-on-year - upgrades of software products well received - further releases of new products planned - Enterprise Systems Division: - second half substantially ahead of first half - major new release of product planned â€¢ Disposal of non-core multimedia operation, Touchline, completed in September 2002 â€¢ Group turnover of Â£8.09m includes turnover on continuing operations of Â£7.92m â€¢ Operating profit of Â£0.51m includes operating profit on continuing operations of Â£1.12m before goodwill amortisation Enquiries: K3 Business Technology Group plc Andy Makeham, Chief Executive T: 020 7448 1000 (today) David Bolton, Finance Director Thereafter: 01270 211211 Biddicks Katie Tzouliadis or Kathryn Burn T: 020 7448 1000 Rowan Dartington & Co. Limited Barrie Newton, Managing Director T: 0117 933 0010 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 2002. OVERVIEW Results for the twelve months to 31 December 2002 represent the first full year's trading of the new Enterprise Resource Planning (ERP) businesses. The transformation of the Group's business was completed in September 2002, with the sale of Touchline, a non-core multimedia operation. This disposal now leaves K3 focused on its new ERP businesses and on the provision of supply chain management solutions. Against a background of very difficult market conditions, in which the business software sector as a whole declined over the year, the ERP businesses made good progress and I am pleased to report that the Group recorded a profit at the pre-tax level for the first time in six years. Financial Results During the period under review, turnover increased to Â£8.09m (2001: Â£7.97m). Turnover from the ERP Businesses, the continuing operations, increased to Â£7.92m from Â£6.39m in 2001, reflecting a full year's trading contribution. Operating profit on continuing operations before amortisation of goodwill was Â£1.12m (2001: Â£1.37m). Operating profit was Â£0.51m (2001: Â£0.18m). Profit on ordinary activities before interest was Â£0.34m (2001: loss of Â£1.29m). This resulted in earnings per share before amortisation of goodwill and exceptional items of 2.0p (2001: 0.9p) and earnings per share of 0.7p (2001: loss per share of 3.6p). Operating profit on continuing operations before amortisation of goodwill rose sharply in the second half of the year, up from Â£0.36m in the first six months to Â£0.76m in the second half. This result reflected a particularly strong performance from the Enterprise Systems Division. At 31 December 2002, the Group had a positive cash balance of Â£0.12m compared with an overdraft of Â£0.06m at 31 December 2001. The Directors do not propose to pay a dividend (2001: nil). Business Review The Business Systems Division, based in Walton-on-Thames, traded well in the first half and this trend continued into the second half of the year. New sales increased by approximately 25% year-on-year. Our success in new business activity was underpinned by our ongoing research and development programme which resulted in a number of upgraded products being released. These generated high levels of interest from both our existing clients and also prospective customers. We believe this level of activity will be sustained in 2003, with further product releases already planned. The Enterprise Systems Division, based in Crewe, experienced a disappointing first half, due to the slow conversion of prospects. The second half showed a marked improvement as firm orders came through and a number of significant contracts were added. These contracts, combined with the rationalisation undertaken in the summer, produced an overall satisfactory performance. The division's performance was all the more pleasing given the tough market conditions that prevailed throughout the year. CHAIRMAN'S STATEMENT (CONTINUED) During the first half, we commenced discussions to sell our non-core multimedia operation, Touchline. As we announced in September, these were successfully concluded, and the business was disposed of. Board Changes I am pleased to announce the appointment to the Board of Russell Dorset, Managing Director of the Business Systems Division. His appointment takes effect on 7 March 2003. Russell joined the Company in January 2001 and has been the architect of the transformation of the Business Systems Division. I would like to welcome him to the Board and believe that he will make a major contribution to the future development of the Company. Outlook Market conditions remain difficult particularly for the Enterprise Systems Division. Management will continue to maintain a cost-base in line with the business climate, however, with the Group's large client base, experienced staff and expanding range of product, we believe that we can achieve our future growth plans. There are a number of potential acquisition opportunities in our sector and we will seek to exploit these appropriately. George Matthews Chairman 7 March 2003 OPERATIONAL REVIEW 2002 is the first year to reflect fully the results of the ERP software businesses, which were acquired in March 2001. The comparative results for 2001 reflect nine months' contribution from the ERP businesses and three months' contribution from the legacy businesses, together with the loss on disposal of these businesses. Business Systems Division The Business Systems Division at Walton-on-Thames registered strong new sales activity. This was supported by new releases of product, including Omnis (a new Windows/Browser version of the well established Micross manufacturing control system), Sigma (the latest release of Omicron, K3's integrated financial control system) and latest releases of JobBOSS (our manufacturing control system for smaller make-to-order manufacturers). Year-on-year new sales were ahead by 24.7%. (Calculated taking into account nine months post-acquisition sales and three months pre-acquisition sales for the previous year). Continued support for the 2002 product releases, significant advance interest in SmartVision, and the 2003 launch of JobBoss Version 7, leads us to believe that the Business Systems performance should continue in 2003. Enterprise Systems Division After a disappointing level of contract awards in the first half of 2002, major new business contracts were confirmed in the second half. The new contracts totalled Â£0.5m and included Celuform of Aylesford in Kent (which manufactures and supplies PVC-ue low maintenance building materials), Superior Tube of Philadelphia, Pennsylvania (a world leader in the production of close tolerance, small diameter metal tubing), and Powerfield of Crewe, Cheshire (which designs and manufactures diesel engines). These awards resulted in a satisfactory outcome for the year although new business sales were below the record levels seen for the full year 2001. The tough market conditions prompted a cost review during 2002 and the process of rationalising the ERP divisions commenced during the summer. This was substantially completed by autumn 2002, giving a lower level of operating costs, which should underpin the future profitability of the business. A major new release (Version 3) of our IBS ERP solution is planned for 2003. Early trials indicate that this will help increase sales to both new and existing customers. Version 3 features a new Windows/Browser user interface, much new functionality and further supports the product's migration to Microsoft SQL Server technology. Discontinued Activities The sale of Touchline was completed in September 2002 resulting in a loss on disposal of Â£0.17m. Operating losses for the business in the eight months, prior to its sale were Â£0.15m (Â£0.48m for twelve months 2001) on reduced turnover of Â£0.17m (Â£0.42m for twelve months 2001). In March 2001, the Company disposed of its interest in Welpac Hardware Limited, Harwood Hardware Limited and Anderson & Firmin Limited (the 'hardware companies '). The consideration for this disposal was deferred and is dependent on the eventual sale of these businesses. The directors understand that the sale of the business of the hardware companies is now at an advanced stage. OPERATIONAL REVIEW (CONTINUED) Employee Share Incentive Plan During the year, the Company established a share incentive plan to enable employees to participate in the future of the Company. Outlook Whilst we believe the ERP market will see limited overall growth in 2003, we do believe there are areas of the broader supply chain systems sector that are experiencing increasing demand. With the help of niche marketing and our newly released products, we believe we can exploit these new opportunities to underpin the 2003 performance, and provide a foundation for further growth in 2004 and beyond. Andy Makeham Chief Executive Consolidated profit and loss account for the year ended 31 December 2002 2002 2001 Continuing Discontinued Continuing Discontinued operations operations operations operations Total Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Turnover 7,916 172 8,088 6,393 1,579 7,972 Cost of sales (1,346) (123) (1,469) (947) (1,021) (1,968) Gross profit 6,570 49 6,619 5,446 558 6,004 Selling and distribution costs (2,564) - (2,564) (1,704) (231) (1,935) Administrative expenses (3,348) (195) (3,543) (2,718) (1,175) (3,893) Operating profit (loss) before amortisation of goodwill 1,121 (146) 975 1,369 (659) 710 Amortisation of goodwill (463) - (463) (345) (189) (534) Operating profit (loss) 658 (146) 512 1,024 (848) 176 Loss on disposal of operations - (173) (173) - (1,463) (1,463) Profit (loss) on ordinary activities before interest 658 (319) 339 1,024 (2,311) (1,287) Finance charges (net) (73) (86) Profit (loss) on ordinary activities 266 (1,373) before taxation Tax on profit (loss) on ordinary 108 (246) activities Profit (loss) for financial year 374 (1,619) Earnings (loss) per share Basic 0.7p (3.6p) Diluted 0.7p (3.6p) Basic before amortisation of goodwill 1.6p (2.4p) Basic before amortisation of goodwill and exceptional items 2.0p 0.9p There were no recognised gains or losses in either year other than the profit (loss) for that year. Consolidated balance sheet as at 31 December 2002 2002 2001 Â£000 Â£000 Fixed assets Goodwill 3,817 4,280 Tangible assets 426 618 4,243 4,898 Current assets Properties for resale 30 70 Debtors due within one year 3,668 3,204 due after one year 200 250 Cash at bank and in hand 123 - 4,021 3,524 Creditors: amounts falling due within one year (4,920) (5,265) Net current liabilities (899) (1,741) Total assets less current liabilities 3,344 3,157 Creditors: amounts falling due after more than one year (51) (85) Provisions for liabilities and charges - (131) Net assets 3,293 2,941 Capital and reserves Called up share capital 2,548 2,536 Shares to be issued - 73 Share premium account 6,441 6,441 Other reserve 2,359 2,320 Profit and loss account (8,055) (8,429) Equity shareholders' funds 3,293 2,941 Consolidated cash flow statement for the year ended 31 December 2002 2002 2001 Â£000 Â£000 Net cash inflow (outflow) from operating activities 471 (414) Returns on investments and servicing of finance (35) (33) Taxation - (11) Capital expenditure and financial investment (66) (89) Acquisitions and disposals (105) 891 Cash inflow before financing 265 344 Financing (79) (63) Increase in cash in the year 186 281 Notes 1. Sale of subsidiary undertaking On 25 September 2002, the group disposed of the entire issued share capital of Touchline Network Television Limited to J Myers. Net assets disposed of and the related sales proceeds were as follows: Â£000 Fixed assets 23 Current assets 69 Creditors (24) Net assets 68 Transaction costs of disposal 9 Loss on sale (173) Negative sale proceeds (96) Satisfied by: Consideration to be satisfied by cash (96) Other than in respect of the proceeds and the transaction costs of the disposal, there were no cash inflows or outflows in respect of the sale. 2. Reconciliation of operating profit to operating cash flow 2002 2001 Â£000 Â£000 Operating profit 512 176 Depreciation charges and fixed asset impairment 206 211 Loss on sale of tangible fixed assets 29 - Write down of property held for resale 40 - Write down of investment - 7 Amortisation of goodwill 463 534 Increase in stocks - (62) Increase in debtors (312) (1,418) (Decrease) increase in creditors (336) 250 Decrease in provisions (131) (112) Net cash inflow (outflow) from operating activities 471 (414) Notes (continued) 3. Analysis of cash flows Acquisitions and disposals 2002 2001 Â£000 Â£000 Bank balances acquired with subsidiary undertakings - 499 Bank overdrafts disposed of with subsidiary undertakings - 392 Costs of disposal (105) - (105) 891 Financing Issue of ordinary share capital - 61 Capital element of finance lease rental payments (79) (124) (79) (63) 4. Analysis and reconciliation of net debt/cash resources 1 Jan 2002 Cash flow Other 31 Dec 2002 non-cash changes Â£000 Â£000 Â£000 Â£000 Cash in hand, at bank - 123 - 123 Bank overdraft (63) 63 - - Finance leases (164) 79 - (85) (Net debt) cash resources (227) 265 - 38 2002 2001 Â£000 Â£000 Increase in cash in the year 186 281 Cash outflow from decrease in debt and lease financing 79 124 Change in net debt/cash resulting from cash flows 265 405 New finance leases - (233) Movement in net debt in year 265 172 Net debt at 1 January 2002 (227) (399) Cash resources (net debt) at 31 December 2002 38 (227) 5. Reserves Share Other Profit and Total premium reserve loss account account Â£000 Â£000 Â£000 Â£000 At 1 January 2002 6,441 2,320 (8,429) 332 Retained profit for the year - - 374 374 Share capital issued - 39 - 39 At 31 December 2002 6,441 2,359 (8,055) 745 Notes (continued) 6. The calculations of earnings (loss) per share are based on the following profits (losses) and numbers of shares. Basic and diluted 2002 2001 Earnings Per share Earnings Per share (losses) amount (losses) amount Â£000 p Â£000 P Basic earnings per share (eps) 374 0.7 (1,619) (3.6) Effect of goodwill amortisation 463 0.9 534 1.2 Basic eps before amortisation of goodwill 837 1.6 (1,085) (2.4) Exceptional items (net of tax) 173 0.4 1,463 3.3 Basic eps before amortisation of goodwill and exceptional items 1,010 2.0 378 0.9 The alternative earnings (loss) per share calculations have been computed because the directors consider that they are useful to shareholders and investors. Number of shares Number of shares Weighted average number of shares: For basic earnings per share 50,844,943 44,957,508 Exercise of share options - - For diluted earnings per share 50,844,943 44,957,508 7. The directors do not recommend the payment of a final dividend and the dividend for the year is therefore Â£nil (2001: Â£nil). 8. The results have been prepared under the historical cost convention and in accordance with applicable accounting standards. The accounting policies have been applied consistently with those stated in the previous accounts, with the exception of the policy for deferred taxation which has been changed in order to comply with FRS19, however this has not had an effect on the prior year comparatives. 9. The financial information set out above does not comprise the Company's statutory accounts. Statutory accounts for the previous financial year ended 31 December 2001 have been delivered to the Registrar 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 2002 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. 10. This preliminary announcement was approved by the Board of directors on 7 March 2003. 11. The full financial statements will be posted to shareholders on or around 31 March 2003. Further copies will also be available from the Company's registered office at RAP House, Harrison Street, Briercliffe, Burnley, BB10 2HP from that date. This information is provided by RNS The company news service from the London Stock Exchange

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