KBT
K3 BUSINESS TECHNOLOGY GROUP PLC
("K3" or "the Group" or "the Company")
Unaudited Half-yearly Report
Six months to 31 December 2013
KEY POINTS
|
Six months to 31 Dec 2013 |
Six months to 31 Dec 2012 |
% change |
Year to 30 June 2013 |
Revenue |
£34.47m |
£31.55m |
9% |
£63.51m |
Recurring income |
£17.91m |
£17.60m |
2% |
£34.51m |
Adj. profit before tax* |
£3.16m |
£2.51m |
26% |
£4.37m |
Profit before tax |
£0.88m |
£0.19m |
363% |
£0.46m |
Adj. earnings per share** |
7.7p |
6.5p |
18% |
14.0p |
Basic earnings per share |
2.9p |
0.8p |
263% |
4.3p |
Dividend |
nil |
nil |
- |
1.0p |
Operating cash generation |
£5.85m |
£6.92m |
(15%) |
£8.02m |
Net debt |
£9.91m |
£12.32m |
(20%) |
£13.81m |
· Significant turnaround in performance - driven by the first sales of our new Microsoft Dynamics AX solution, "ax|is" (developed under the project name "Gemstone") together with improving retail sentiment
· Major new contracts signed totalled £12.7m (2012: £3.1m) - matching the total won in the last full financial year
- £8.3m of new contracts secured for Microsoft Dynamics AX (65% of total) - including a number of high profile retailers
· SYSPRO and Sage Division delivered high levels of recurring income and good cash flows
· Managed Services Division showed good growth and moved into profitability
· Next steps for "axHTMLPIPESYMBOLis":
- major programme underway to invest in AX resource to capture the significant growth potential for K3 axHTMLPIPESYMBOLis solutions
- further product releases planned
- broadening international channel to market
· Continuing momentum in the Microsoft UK Division and sales of ax class="lz">Commenting on the results, Tom Milne, Chairman of K3, said,
"The most important feature of these results is the early success we can now demonstrate with our new "axHTMLPIPESYMBOLis" solution, which has been under development over the last 18 months. Sentiment in the retail sector is improving and we are encouraged both by the new orders we closed and by the level of interest in our solution.
Our SYSPRO and Sage Division also continued to perform robustly providing high levels of recurring income and cash, together with a good level of new business wins. Our Managed Services Division moved into profitability and will continue to benefit from the upturn in new orders across the Group, particularly for Microsoft AX and SYSPRO systems.
Looking ahead, K3 axHTMLPIPESYMBOLis solutions have the potential to be a significant growth driver and our next steps are focused on launching new products tailored to specific retail market segments and widening our channels to market.
Continuing momentum with our Microsoft Dynamics axHTMLPIPESYMBOLis sales, together with the improving performance of the Managed Services Division, will help to underpin forecast results for the full financial year."
Notes:
*
|
Adjusted profit from operations and adjusted profit before tax for the six months ended 31 December 2013 is calculated before amortisation of acquired intangibles of £1.71m (2012: £1.82m), acquisition costs of £nil (2012: £0.03m) and exceptional reorganisation costs of £0.58m (2012: £0.48m).
|
** |
Adjusted basic EPS for the six months ended 31 December 2013 is calculated before amortisation of acquired intangibles (net of tax) of £1.05m (2012: £1.22m), acquisition costs (net of tax) of £nil (2012: £0.03m) and exceptional reorganisation costs (net of tax) of £0.45m (2012: £0.36m). |
Enquiries:
K3 Business Technology Group plc |
David Bolton (CEO) |
T: 020 3178 6378 (today) |
|
Brian Davis (CFO) |
Thereafter 0161 876 4498
|
FinnCap Limited (NOMAD) |
Julian Blunt/Henrik Persson |
T: 020 7220 0500 |
|
|
|
KTZ Communications |
Katie Tzouliadis/Deborah Walter |
T: 020 3178 6378 |
CHAIRMAN'S STATEMENT
OVERVIEW
Results for the first six months to 31 December 2013 show a major turnaround in the performance of the business, with revenue up by 9% to £34.47m and adjusted profit before tax*1 up by 26% to £3.16m. These encouraging results largely reflect the early progress we are making with our new Microsoft Dynamics AX solution, "axHTMLPIPESYMBOLis" (developed under the project name "Gemstone"). We are enriching Microsoft's Dynamics AX solution with our own IP for those specific market segments within the retail sector where we already have significant expertise. Our flagship software product is "ax
There is further investment in software development to come in the second half and one of our next major objectives is to widen our channel to market so that we sell "axHTMLPIPESYMBOLis" internationally, maximising the value of our IP via a strategic partner channel. We already have an international partner channel for our Pebblestone Microsoft Dynamics product, which gives us access to approximately 27 countries, and believe there is significant scope to extend this. At the same time, we also intend to develop strategic partnerships with large systems integrators and other Microsoft Dynamics partners. Our investment in widening our channel to market has already started and will continue in the second half and beyond. We are also investing in a programme of global recruitment and training to ensure that we have skilled AX resource as we increase sales. Demand is currently high for this skill set. Our established Microsoft Dynamics NAV retail solution is continuing to see some recovery in demand, reflecting the improving conditions in the retail sector. Having closed two large deals at the end of the last financial year, we closed a further significant deal in the first half and have further deals we would hope to close in the second half. The contracts we secured for our Dynamics AX and Dynamics NAV solutions meant that the Microsoft UK Division closed £9.3m of new order wins compared to £0.6m in the same period last year, with £8.3m of this total representing orders for "axHTMLPIPESYMBOLis". Total major new orders won across the Group in the first half was £12.7m (2012: £3.1m). This matches the total secured across the whole of the last financial year. Our SYSPRO and Sage Division continues to deliver high levels of recurring income and good cash flows, with c. £5.5m of SYSPRO annual maintenance and support income benefiting the first half. New deals signed across the SYSPRO and Sage Division in the first half were up 29% to £2.64m helped by SYSPRO upgrades and Sage's X3 product. The disposal of a small non-core Sage business segment in May 2013 impacted reported revenue, and additional investment in resources also reduced profitability. It is worth noting that we are now delivering most new SYSPRO systems as part of a hosted cloud offering, with the hosting element of the sales being reported within Managed Services. Our Managed Services Division benefited from the improved performance of our Microsoft UK Division and new SYSPRO sales, together with the recruitment of a small "operating system" team who have moved a legacy product offering into managed services. Revenues were up 15% over the prior year to £3.93m and the Division moved into profitability. As we have previously reported, the Division can now provide hosting solutions across all our major products and we have tailored our offering so that it is suitable for the needs of both large and small enterprises. This Division remains well positioned to benefit from further improvement in demand for our Microsoft and SYSPRO based solutions. The Group continues to generate high levels of recurring revenues, from software licence renewals and support contracts, with recurring revenues increasing by 2% over the first half to £17.9m, which represented 52% of total revenues. Cash generation also remained robust and helped to support a 20% reduction in net debt at the period end to £9.91m compared to the same time in the prior year. This was after product investment of £1.95m and £0.58m of exceptional costs. As we enter the second half year we continue to be encouraged by the Group's strong growth opportunities especially with our new Microsoft Dynamics AX based solution. The success we are having requires a major focus on the recruitment of quality resources, but we believe that our offering has the capability of becoming the "go-to" solution for retailers seeking a Microsoft AX solution and we are pleased to have Microsoft's support as we continue with our strategy to develop global channels to market. FINANCIAL RESULTS For the first six months to 31 December 2013, the Group generated revenues of £34.47m (2012: £31.55m), up by 9% on the prior period. Recurring revenues from software licence renewals and support contracts in the half year increased to £17.91m (2012: £17.60m) representing 52% (2012: 56%) of Group income. The growth of £0.3m was net of a disposal of £0.4m of non-core maintenance, indicating that the underlying growth in recurring revenue was 4%. Software sales increased by 53% to £5.69m (2012: £3.72m). Adjusted profit from operations*2 increased by 23% to £3.61m (2012: £2.94m). We incurred £0.58m (2012: £0.48m) of exceptional costs in relation to reorganisations in our Managed Services, Dynamics UK and Sage businesses. Further exceptional costs are expected in the second half relating to management changes since the period end. The charge for amortisation of intangibles was £1.71m (2012: £1.82m) with the reduction in charge due to certain acquisitions now being fully amortised. Adjusted profit before tax*3 rose by 26% to £3.16m (2012: £2.51m). Profit before tax increased to £0.88m (2012: £0.19m) reflecting the improvement in profit from operations and a broadly static finance cost year-on-year. Adjusted earnings per share*4 rose by 18% to 7.7p (2012: 6.5p) with basic earnings per share increasing to 2.9p (2012: 0.8p). Adjusted earnings per share*4 is stated after amortisation of intangibles (net of tax) of £1.05m (2012: £1.22m), acquisition costs of £nil (2012: £0.03m) and reorganisation costs (net of tax) of £0.45m (2012: £0.36m). There was a net tax credit for the period of £0.02m (2012: £0.03m credit) after the benefit of a £0.45m deferred tax credit (2012: £0.34m) arising on the reversal of temporary tax timing differences and the reduction of tax rates in the UK. Cash flow and banking Net debt at the period end reduced by 20% to £9.91m (2012: £12.32m) reflecting the Group's commitment to reduce borrowings. Operating cash flow in the first half was £5.85m representing 162% of adjusted profit from operations*5 (2012: £6.92m, representing 235%). The cash generation in the first half year is boosted by the SYSPRO licence and support contract renewals. The expenditure on capitalised development increased to £1.95m (2012: £1.37m) but was in line with the expenditure in the second half of the year ended 30 June 2013 as the commitment to "axHTMLPIPESYMBOLis" continued ahead of the launch of the first variant of the solution, "axreign exchange movements, the Group benefited from £0.51m of tax repayments (2012: payments of £0.06m). Dividend In line with the Group's dividend policy, no interim dividend will be declared but the Directors intend to propose an increased final dividend with results for the full financial year, subject to the Group's trading performance. Operational Review The financial results by operating division are summarised in the table below: Revenue Revenue Adjusted profit Adjusted profit six months six months six months six months to 31 Dec to 31 Dec to 31 Dec to 31 Dec 2013 2012 2013 2012 £m £m £m £m Microsoft UK Division 10.98 8.47 (0.18) (1.26) International Division 5.44 5.39 0.40 0.47 Total Microsoft 16.42 13.86 0.22 (0.79) SYSPRO and Sage Division 14.12 14.60 3.67 4.11 Managed Services Division 3.93 3.09 0.10 (0.16) Head office costs - - (0.38) (0.22) Total 34.47 31.55 3.61 2.94 Microsoft-based activities The K3 Microsoft business, comprising our Microsoft UK Division and International Division, is working together on global initiatives to generate additional intellectual property, cost effective resourcing and improved channels to market. Revenue for the total Microsoft business has increased by 18% year-on-year to £16.42m (2012: £13.86m) and returned to profit, delivering £0.22m of adjusted profit from operations*6 (2012: adjusted loss from operations*6 of £0.79m). Microsoft UK Division The Division's performance recovered very strongly over the first half, fuelled by "axHTMLPIPESYMBOLis" and improving retail sentiment. Divisional revenue increased by 30% to £10.98m (2012: £8.47m) and adjusted loss from operations*7 reduced by 86% to £0.18m (2012: £1.26m). Having secured a number of pilot orders for our "axHTMLPIPESYMBOLis" product at the end of the last financial year, the Division signed four major orders worth a combined £8.3m in the period, in both "axing orders for our traditional NAV solution) for the first half amounted to £9.3m - a significant increase on the prior year (2012: £0.6m). What has helped to drive our new AX orders is our IP, which has created a richer more enhanced enterprise resource planning ("ERP") solution for retailers. The product's excellent reception at the Microsoft Convergence conference in Barcelona in November 2013 was encouraging and helps our ongoing marketing efforts. It is worth noting that the average size of AX orders is significantly larger than for our traditional Microsoft Dynamics NAV business and that delivery is also over a more extended period. We are working closely with Microsoft on product releases and this relationship on product development is benefiting our overall stance in the marketplace. Whilst our focus has been on the AX proposition, our traditional Dynamics NAV business has also recovered with a major £0.5m contract secured at the end of the half year, and with our NAV pipeline containing further significant deals. We are also investing in a product upgrade path for existing customers to provide additional functionality for solutions purchased in previous years. Software recognised in H1 of £2.75m compared to £0.97m in the prior period. These sales are from a mix of traditionally structured deals and Microsoft Enterprise Agreements. Enterprise Agreements are used by Microsoft on larger contracts and under these agreements K3 receives a "commission" for the software delivered to the customer combined with follow-on services. We estimate that the software value would have been £3.34m without Enterprise Agreements. Services revenue has been growing steadily, with a monthly run rate at 31 December 2013 of £0.7m which was 75% or £0.3m higher than at the same point in 2012. The first half year has seen a significant increase in demand for AX which has in turn created a surge in demand for skilled AX resource. We have initiatives in place to meet the needs arising from our business growth. These will involve significant short term investment as we embark on an accelerated programme of global recruitment, including offshoring and near-shoring, and training to equip our staff. Recurring maintenance income of £3.89m is up 8% over the period (2012: £3.59m) reflecting the impact of new deals and initiatives to encourage customer retention. At 31 December 2013, the pipeline for the Division was at £40.2m (2012: £36.0m). This includes £4.8m from recent wins which have yet to be delivered. The smaller units in the Division, which sell a mixture of non-retail NAV and non-retail AX, performed in line with expectations with some growth being seen in the RSG business that focuses on the "events sector", utilising the Microsoft RMS product. International Division The International Division includes our Dutch Microsoft Dynamics reseller business, our Point of Sale business focussed on smaller retailers, and our ISV (software author and channel management company). It has been a challenging half year as the Dutch economy is still coming out of recession and small retailers, which represent the majority of the local customer base in our Dutch reseller business, are reluctant to commit to new deals. Our Inter IKEA Systems B.V. (the owner and franchisor of the IKEA concept and the largest customer in the Group) business however has been encouraging with good levels of services income on store openings and projects, with further potential business to come. We have retrained a number of our staff so that they can be deployed on Inter IKEA Systems-related work, anticipating continued strong demand in the next six months. Revenues at £5.44m were marginally ahead of the prior year (2012: £5.39m) however adjusted profit from operations*8 at £0.40m was slightly down (2012: £0.47m). This reflected our investment in Dynamics AX resource as well as the recruitment of two senior executives (both previously at Microsoft). Software levels were up 14% or £0.1m at £0.8m although services revenues were flat at £2.4m. Reductions in the cost of service delivery together with higher sales of our own intellectual property improved margin to 49.5% from 45.3%. Overhead costs increased by £0.3m to £2.3m due to investment in sales and marketing personnel to build our channel team, together with higher development amortisation. The Division secured a total of £0.79m major order wins (2012: £0.53m). The prospects pipeline, excluding potential business anticipated in a long term plan with Inter IKEA Systems B.V., currently amounts to £5.2m of orders (2012: £7.1m). The reduction year-on-year reflects the delivery of projects and a heavily qualified pipeline. The ISV performed in line with the prior period, focusing on its traditional "Pebblestone" Microsoft Dynamics product set. However, more importantly, it continued to work closely with our UK Division on our "axHTMLPIPESYMBOLis" product. The business is also progressing on the further development of an International distribution channel via partners for the product, as we believe that this represents a significant opportunity for K3. Investment here will be ongoing. The Unisoft business is performing in line with our expectations with its RVE Point of Sale product gaining traction, especially in the area of subscription-based licences and solutions, whilst the market remains difficult. We are looking at the wider potential sales opportunities for this product. SYSPRO and Sage Division Revenue reduced by £0.5m to £14.12m (2012: £14.60m), with the reduction reflecting the disposal of a small non-core Sage business in May 2013. Excluding this disposal, like-for-like sales increased by 5%. Adjusted profit from operations*9 decreased by 11% to £3.67m (2012: £4.11m), reflecting the increased cost base as we invested in sales, marketing and finance resource in the Sage business. Software sales remained robust at £1.93m (2012: £1.92m) and services increased by £0.1m to £2.62m (2012: £2.52m). Maintenance and support revenues reduced by £0.56m to £9.4m with a margin impact of £0.2m. The reduction primarily reflected the disposal of the Sage business referenced above. SYSPRO maintenance and support levels remained strong with a 97% renewal rate (2012: 98%). Approximately £5.5m of SYSPRO maintenance income is recognised in the first half year from 430 customers. This results in significant cash inflows before the half year end (together with annual customer support billings) which helps to underpin the Group's overall cash performance for the half year. Overhead costs of £5.4m were up £0.3m (2012: £5.1m) due to the recruitment noted above. The pipeline of prospects for the Division totalled £14.8m (2012: £14.0m). The SYSPRO operation is the exclusive UK and sole European SYSPRO partner with a rolling 5 year distribution agreement. It has over £1.0m of income from own IP products covering functional requirements which are usually found only in significantly more expensive software. The business remains strong with high levels of recurring income, excellent management of opportunities and encouraging levels of new business wins. These increasingly involve elements of hosted services. SYSPRO order wins totalled £1.44m, a rise of 20% on the prior period (2012: £1.2m). Our Sage operation reorganised its delivery and support operations at the beginning of the year and is now moving forward. In October 2013 we recruited a new Sales Director (ex Sage) and we are starting to see more order wins and stronger monthly services revenues. Total order wins were £1.2m (2012: £0.84m). The business has a higher profile in the market, having been recently named as Sage CRM Business Partner of the Year, Sage ERP X3 Business Partner of the Year, and Sage Mid-Market Europe Business Partner of the Year. The X3 award is particularly significant as this is the product around which Sage is building its Enterprise ERP strategy. Managed Services Division Managed Services revenues rose by £0.5m to £3.93m (2012: £3.43m) and made an adjusted profit from operations*10 of £0.1m (2012: loss of £0.06m) having incurred losses of £0.5m in the second half of the prior financial year. The elimination of these losses was a key objective for the business and we are delighted that this has been achieved quickly through a combination of increased recurring revenues and lower operating costs. At the beginning of the year we recruited a small team of "operating system" consultants, who are delivering managed services for a number of our retail clients who were reported in our Microsoft UK division. Prior year comparatives for divisional results have not been restated as the impact is not material to the Group. The hosting business has started to benefit from the input of new management and a significantly reduced cost base following a reorganisation in the first quarter, together with a review of all aspects of the business model. We have focused very strongly on widening the product offering to include "network as a service", "platform as a service" and "infrastructure as a service", in addition to our traditional "ERP as a service" model. Our ability to host multi-site overseas customers offers significant growth opportunities with deal wins of this nature in both AX and SYSPRO in the last six months. Head Office Head office costs*11 have increased by £0.16m due to consultancy costs incurred on product strategy and increased payroll costs. THE BOARD In January 2014, we announced that after nearly 14 years as Chief Executive, Andy Makeham was leaving the Group and that Chief Finance Officer David Bolton, who had led the Group's expansion with Andy, was assuming the role of Chief Executive. I would like now, on behalf of K3, to formally welcome David to his new position and to thank Andy for his substantial contribution to K3. Andy played a significant role in the successful development and expansion of the business, and we wish him well in his future ventures. David, who has previously been Chief Finance Officer at K3 for over 15 years, is supported by the senior management team, which includes the heads of the Group's major operating businesses and the Group Operations Director, a newly created role. Brian Davis, who has worked for six years as Head of Finance, has assumed the role of Chief Financial Officer. We welcome Brian to his new role. OUTLOOK The investments we made over the last 18 months in Microsoft technology are starting to yield real benefits for the Group. We believe that there is significant long term potential to accelerate and widen sales as we develop a global channel to market for our AX solutions and release new product, enriched with our own IP and tailored for specific retail market segments. We plan over the next year to invest across the Group to support wider growth opportunities over a 3-5 year timescale. Notwithstanding, continuing momentum with Microsoft Dynamics sales together with the improving performance of the Managed Services Division, will help to underpin forecasts for the full financial year. Tom Milne Chairman *1 Group adjusted profit before tax is calculated before amortisation of acquired intangibles of £1.71m (2012: £1.82m), acquisition costs of £nil (2012: £0.03m) and exceptional reorganisation costs of £0.58m (2012: £0.48m) *2 Group adjusted profit from operations is calculated before amortisation of acquired intangibles of £1.71m (2012: £1.82m), acquisition costs of £nil (2012: £0.03m) and exceptional reorganisation costs of £0.58m (2012: £0.48m) *3 Group adjusted profit before tax is calculated before amortisation of acquired intangibles of £1.71m (2012: £1.82m), acquisition costs of £nil (2012: £0.03m) and exceptional reorganisation costs of £0.58m (2012: £0.48m) *4 Group adjusted earnings per share is calculated before amortisation of acquired intangibles (net of tax) of £1.05m (2012: £1.22m), acquisition costs (net of tax) of £nil (2012: £0.03m) and exceptional reorganisation costs (net of tax) of £0.45m (2012: £0.36m) *5 Group adjusted profit from operations is calculated before amortisation of acquired intangibles of £1.71m (2012: £1.82m), acquisition costs of £nil (2012: £0.03m) and exceptional reorganisation costs of £0.58m (2012: £0.48m) *6 Microsoft Division adjusted profit from operations is calculated before amortisation of acquired intangibles of £0.49m (2012: £0.67m) and exceptional reorganisation costs of £0.24m (2012: £0.01m) *7 Microsoft UK Division adjusted profit from operations is calculated before amortisation of acquired intangibles of £0.24m (2012: £0.30m) and exceptional reorganisation costs of £0.03m (2012: £nil) *8 International Division adjusted profit from operations is calculated before amortisation of acquired intangibles of £0.25m (2012: £0.37m) and exceptional reorganisation costs of £0.21m (2012: £0.01m) *9 SYSPRO and Sage Division adjusted profit from operations is calculated before amortisation of acquired intangibles of £1.07m (2012: £1.07m) and exceptional reorganisation costs of £0.01m (2012: £0.15m) *10 Managed Services Division adjusted profit from operations is calculated before amortisation of acquired intangibles of £0.15m (2012: £0.08m) and exceptional reorganisation costs of £0.18m (2012: £nil) *11 Head office costs are calculated before acquisition costs of £nil (2012: £0.03m) and exceptional reorganisation costs of £0.15m (2012: £0.31m) Notes Unaudited Six months to 31 Dec 2013 Unaudited Six months to 31 Dec 2012 Audited Year to to 30 June 2013 £'000 £'000 £'000 Revenue 34,469 31,547 63,513 Profit from operations before amortisation of acquired intangibles, acquisition costs and exceptional items 3,608 2,940 5,094 Amortisation of acquired intangibles (1,708) (1,817) (3,182) Acquisition costs - (27) - Exceptional reorganisation costs (581) (476) (727) 1,319 620 1,185 Finance income 2 2 2 Finance expense (446) (437) (725) Profit before taxation 875 185 462 Tax income 2 19 31 780 Profit for the period 894 216 1,242 All of the profit for the period is attributable to equity holders of the parent. 3 Basic 2.9p 0.8p 4.3p Diluted 2.8p 0.7p 4.2p Unaudited Six months to 31 Dec 2013 Unaudited Six months to 31 Dec 2012 Audited Year to 30 June 2013 Items that may be reclassified into profit or loss (409) Other comprehensive (expense) income, net of tax (385) 509 394 All of the total comprehensive income for the period is attributable to equity holders of the parent. As at 31 December 2013 Total non-current assets EQUITY 7,891 7,146 7,859 9,281 7,286 9,183 10,448 10,448 10,448 912 931 1,297 23,219 21,582 22,338 51,751 95,567 95,461 94,921 For the six months ended 31 December 2013 Notes Unaudited Six months to 31 Dec 2013 Unaudited Six months to 31 Dec 2012 Audited Year to 30 June 2013 Cash flows from operating activities Profit for the period 894 216 1,242 Adjustments for: Share based payments charge 14 36 70 Depreciation of property, plant and equipment 468 400 932 Amortisation of intangible assets and development expenditure 2,458 2,351 Loss on sale of property, plant and equipment - - (19) Finance income (2) (2) (2) Finance expense 446 437 725 Tax income (19) (31) (780) (Increase) decrease in trade and other receivables (2,065) 5,483 6,395 Increase (decrease) in trade and other payables 3,660 (1,972) (4,888) Cash generated from operations 7 5,854 6,918 8,022 Finance expense paid (533) (515) (822) Income taxes received (paid) 511 (62) (1,217) Net cash generated from operating activities 5,832 6,341 5,983 Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired 7 - (195) (531) Acquisition of other business units 7 - (1,089) (1,410) Development expenditure capitalised (1,951) (1,371) (3,563) Purchase of property, plant and equipment (229) (528) (1,050) Proceeds from sale of property, plant and equipment - - 24 Finance income received 2 2 2 Net cash absorbed by investing activities (2,178) (3,181) (6,528) Cash flows from financing activities Net proceeds from issue of share capital 103 83 2,677 Proceeds from long-term borrowings - 866 842 Payment of long-term borrowings (1,673) (1,902) (3,641) Payment of finance lease liabilities (8) (26) (35) Dividends paid - - (286) Net cash absorbed from financing activities (1,578) (979) (443) Net change in cash and cash equivalents 2,076 2,181 (988) Cash and cash equivalents at start of period (833) 21 21 Exchange gains on cash and cash equivalents 1 34 134 Cash and cash equivalents at end of period 1,244 2,236 (833) K3 BUSINESS TECHNOLOGY GROUP PLC Share capital Share premium Other reserve Translation reserve Retained earnings Total equity £'000 £'000 £'000 £'000 £'000 £'000 At 1 July 2012 7,120 7,239 10,448 753 21,345 46,905 Changes in equity for six months ended 31 December 2012 Share-based payment credit - - - - 11 11 Options exercised 26 47 - - - 73 Movement in own shares held - - - - 10 10 Profit for the period - - - - 216 216 Other comprehensive income for the period - - - 178 - 178 At 31 December 2012 7,146 7,286 10,448 931 21,582 47,393 Changes in equity for six months ended 30 June 2013 Share-based payment credit - - - - 32 32 Issue of shares for cash 713 1,897 - - - 2,610 Movement in own shares held - - - - (16) (16) Dividends to equity holders - - - - (286) (286) Profit for the period - - - - 1,026 1,026 Other comprehensive income for the period - - - 366 - 366 At 30 June 2013 7,859 9,183 10,448 1,297 22,338 51,125 Changes in equity for six months ended 31 December 2013 Share-based payment credit - - - - 14 14 Options exercised 32 98 - - - 130 Movement in own shares held - - - - (27) (27) Profit for the period - - - - 894 894 Other comprehensive income for the period - - - (385) - (385) At 31 December 2013 7,891 9,281 10,448 912 23,219 51,751 K3 BUSINESS TECHNOLOGY GROUP PLC NOTES TO THE UNAUDITED INTERIM STATEMENT 1. Basis of preparation The consolidated interim financial information has been prepared in accordance with the accounting policies that are expected to be adopted in the Group's full financial statements for the year ending 30 June 2014 which are not expected to be significantly different to those set out in Note 1 of the Group's audited financial statements for the year ended 30 June 2013. These are based on the recognition and measurement principles of IFRS in issue as adopted by the European Union (EU) and are effective at 30 June 2014 or are expected to be adopted and effective at 30 June 2014. The financial information has not been prepared (and is not required to be prepared) in accordance with IAS 34. The accounting policies have been applied consistently throughout the Group for the purposes of preparation of this financial information. The financial information in this statement relating to the six months ended 31 December 2013 and the six months ended 31 December 2012 has neither been audited nor reviewed pursuant to guidance issued by the Auditing Practices Board. The financial information for the year ended 30 June 2013 does not constitute the full statutory accounts for that period. The Annual Report and Financial Statements for the year ended 30 June 2013 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statement for the year ended 30 June 2013 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. 2. Tax expense (income) £'000 £'000 £'000 Current tax expense (income) UK corporation tax and income tax of overseas operations on profits for the period 463 311 346 Adjustment in respect of prior periods (35) - (478) Total current tax expense (income) 428 311 (132) Deferred tax expense Origination and reversal of temporary differences (182) (183) (465) Effect of change in rate of deferred tax (265) (159) (183) Total deferred tax income (447) (342) (648) Total tax income (19) (31) (780) 3. Earnings per share The calculations of earnings per share are based on the profit for the financial period and the following numbers of shares: Number of Shares Number of Shares Number of Shares Weighted average number of shares: For basic earnings per share 31,317,823 28,403,955 29,216,238 Effects of employee share options and warrants 234,925 503,263 312,488 For diluted earnings per share 31,552,748 28,907,218 29,528,726 Adjusted 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 and the above number of shares: Unaudited six months to 31 Dec 2013 Unaudited six months to 31 Dec 2012 Audited Year to 30 June 2013 Earnings Per share amount Basic Per share amount Diluted Earnings Per share amount Basic Per share amount Diluted Earnings Per share amount Basic Per share amount Diluted £'000 p p £'000 p p £'000 P p Earnings per share (eps) 894 2.9 2.8 216 0.8 0.7 1,242 4.3 4.2 Amortisation of acquired intangibles (net of tax) 1,051 3.4 3.3 1,221 4.3 4.2 2,273 7.7 7.7 Acquisition costs (net of tax) - - - 27 0.1 0.1 - - - Exceptional reorganisation costs (net of tax) 450 1.4 1.4 363 1.3 1.3 580 2.0 2.0 Adjusted eps 2,395 7.7 7.5 1,827 6.5 6.3 4,095 14.0 13.9 4. Loans and borrowings 31 Dec 2012 £'000 £'000 £'000 Non-current Finance lease creditors 23 19 32 23 19 32 Current Bank overdrafts - - 1,105 Bank loans (secured) 10,470 13,885 12,290 Finance lease creditors 17 14 16 Loans from related parties 640 640 640 11,127 14,539 14,051 Total borrowings 11,150 14,558 The bank loans and other facilities include a multi-option facility which expires in December 2014. 5. Other non-current liabilities 31 Dec 2012 £'000 £'000 £'000 Contingent consideration - 421 - Deferred consideration - 191 - Accruals 257 248 225 257 860 225 6. Trade and other payables 31 Dec 2012 £'000 £'000 £'000 Trade payables 4,248 4,108 5,702 Other payables 584 433 555 Deferred consideration - 90 - Accruals 6,958 7,027 5,728 Total financial liabilities, excluding loans and borrowings, classified as financial liabilities measured at amortised cost 11,790 11,658 Contingent consideration 390 341 392 Other tax and social security taxes 4,149 3,977 2,135 Deferred revenue 12,188 11,308 10,569 28,517 27,284 25,081 7. Notes to the cash flow statement Cash generated from operations is stated after acquisition costs and exceptional reorganisation costs arising as a result of acquisitions in previous years. The adjusted cash generated from operations has been computed because the directors consider it more useful to shareholders and investors in assessing the underlying operating cash flow of the Group. The adjusted cash generated from operations is calculated as follows: Unaudited Six months ended 31 Dec 2013 Unaudited Six months ended 31 Dec 2012 Audited Year ended 30 June 2013 £'000 £'000 £'000 Cash generated from operating activities 5,854 6,918 8,022 Add: Acquisition costs - 27 - Exceptional reorganisation costs 511 318 637 Adjusted cash generated from operations 6,365 7,263 8,659 Acquisition of subsidiaries and other business units, net of cash acquired comprises: Unaudited Six months ended 31 Dec 2013 Unaudited Six months ended 31 Dec 2012 Audited Year ended 30 June 2013 £000 £000 £000 Initial consideration - - (10) Contingent and deferred consideration paid - (1,284) (1,931) - (1,284) (1,941) 8. The above information is being sent to the shareholders and is available from the Company's website, www.k3btg.com, and from its registered office: Baltimore House, 50 Kansas Avenue, Manchester M50 2GL.
K3 BUSINESS TECHNOLOGY GROUP PLC
CONSOLIDATED INCOME STATEMENT
For the six months ended 31 December 2013
Profit from operations
Earnings per share
K3 BUSINESS TECHNOLOGY GROUP PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 31 December 2013
Notes
£'000
£'000
£'000
Profit for the period
894
216
1,242
Other comprehensive (expense) income
Exchange differences on translation of foreign operations
218
692
Net investment hedge
24
(40)
(148)
178
544
Total comprehensive income for the period
1,786
K3 BUSINESS TECHNOLOGY GROUP PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Notes
Unaudited As at 31 December
2013
Unaudited As at 31 December
2012
Audited
As at 30 June
2013
£'000
£'000
£'000
ASSETS
Non-current assets
Property, plant and equipment
2,631
2,886
2,927
Goodwill
44,362
44,300
44,610
Other intangible assets
20,338
20,354
21,040
Deferred tax assets
648
702
723
Available-for-sale investments
98
98
98
68,077
68,340
69,398
Current assets
Trade and other receivables
26,246
24,885
25,251
Cash and cash equivalents
1,244
2,236
272
Total current assets
27,490
27,121
25,523
Total assets
95,567
95,461
94,921
LIABILITIES
Non-current liabilities
Long-term borrowings
4
23
19
32
Other non-current liabilities
5
257
860
225
Deferred tax liabilities
3,728
4,458
4,267
Total non-current liabilities
4,008
5,337
4,524
Current liabilities
Trade and other payables
6
28,517
27,284
25,081
Current tax liabilities
164
908
140
Short-term borrowings
4
11,127
14,539
14,051
Total current liabilities
39,808
42,731
39,272
Total liabilities
43,816
48,068
43,796
Share capital
Share premium account
Other reserves
Translation reserve
Retained earnings
Total equity attributable to equity holders of the parent
47,393
51,125
Total equity and liabilities
K3 BUSINESS TECHNOLOGY GROUP PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
£'000
£'000
£'000
4,347
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 31 December 2013
Unaudited Six months to 31 Dec
2013
Unaudited
Six months to 31 Dec 2012
Audited
Year to
30 June 2013
Unaudited Six months to 31 Dec
2013
Unaudited
Six months to 31 Dec 2012
Audited
Year to
30 June 2013
Unaudited As at
31 Dec
2013
Unaudited As at
Audited
As at
30 June 2013
14,083
Unaudited As at
31 Dec
2013
Unaudited As at
Audited
As at
30 June 2013
Unaudited As at
31 Dec
2013
Unaudited As at
Audited
As at
30 June 2013
11,985