Interim Results
K3 Business Technology Group PLC
7 September 2001
K3 BUSINESS TECHNOLOGY GROUP PLC
ANNOUNCEMENT OF INTERIM RESULTS
Chairman's Statement
OVERVIEW
The newly acquired IT businesses have performed well generating steady profits
in a very difficult marketplace. However the profitability of these businesses
and Touchline, which together comprise our core operations going forward, was
offset by the losses incurred by the remaining RAP hardware businesses which
were not sold until March this year. Following their disposal, K3 Business
Technology Group has become a pure technology company whose business units
have a proven track record of sustained profitability.
BACKGROUND
In March 2001, the Group completed its restructuring, with the disposal of the
remaining hardware businesses, Harwood Hardware Limited, Welpac Hardware
Limited and Anderson and Firmin Limited. At the same time, the Group acquired
two enterprise resource planning ('ERP') software businesses, K3 Business
Technology Group Limited and K3 Business Technology Software Limited. On
completion of the restructuring, the Company changed its name from RAP Group
plc to K3 Business Technology Group plc in order to reflect the Group's new
focus. The results for the half year to 30 June 2001, therefore, reflect three
months contribution from the hardware businesses, including the write off of
the goodwill arising on their acquisition in 1995, and three months
contribution from the new ERP businesses and six months contribution from
Touchline.
FINANCIAL RESULTS
The results for the half year to June 2001 show sales of £3.45m (2000: £
8.73m). This comprises three months turnover of the hardware businesses, for
the period January to March 2001, of £1.16m and three months turnover of the
ERP businesses, for the period April to June 2001, of £2.10m. Also included
are six months turnover of Touchline of £0.19m.
Sales for the equivalent six months last year comprised those for the
hardware businesses (£2.06m) and the activities of the rubber, safety
products, gloves and conveyor belting divisions which were sold during 2000 (£
6.67m).
The operating loss of £0.08m before goodwill amortisation (2000: £1.31m loss)
recognises the operating losses of £0.31m in the hardware businesses prior to
sale and an operating profit of £0.55m from the ERP businesses for the three
month period to June. The loss on continuing activities of £0.32m includes
central costs for the Group for the six months to June 2001 of £0.29m (2000: £
0.27m). The loss on disposal of £0.66m relates purely to the write off of
goodwill which arose on the original acquisition of the hardware businesses
which had previously been written off to reserves.
The loss for the six months to 30 June 2001 was £0.88m (2000: £1.46m).
At 30 June 2001, the Group held positive cash balances of £0.25m compared with
bank loans and overdrafts of £3.42m at 30 June 2000 and £0.34m at 31 December
2000. The increase in cash in the six month period to 30 June 2001 was £
0.60m.
The directors do not propose to pay an interim dividend (2000: nil).
OPERATIONAL REVIEW
On 28 March 2001, the hardware businesses of Welpac, Harwood, and Anderson and
Firmin were sold and two ERP businesses were acquired. The results for the six
months to June reflect the contribution of both these businesses and
Touchline:
Hardware businesses
Revenues from the hardware businesses were substantially higher in the three
months to March 2001 compared with the same period last year as the fixings
business benefited from a major new contract and the decline in gardening
products sales was reversed. However, the businesses continued to report
losses of £0.31m. This reflected the costs of mobilising the new contract and
the recharge of central support costs previously not recharged. The Company
continues to hold an investment in the hardware businesses which will be
realised on their eventual disposal by the current owner, and hence we remain
interested in the performance of these businesses. Sales have been maintained
in the second quarter of 2001, indicating that the businesses should become
profitable in the medium term.
ERP businesses
The ERP businesses produced encouraging revenues in the three months to 30
June 2001 with both divisions outperforming management's expectations against
the backdrop of a stagnant market place.
The large-systems division continued to expand its customer base with the
announcement of two major new orders during the period. The contracts, which
together are worth over £1m, are to supply IT business management solutions to
a major international aerospace engineering group and to Advanced Composites
Group, a designer and manufacturer of composite materials. K3 also announced
a £1.4 million strategic partnership with John Dickinson Stationery Limited
('JDSL'), under which the Company will provide electronic management of JDSL's
supply chain.
The small-systems division increased its focus on customer support and product
development, thereby both improving the service provided to its substantial
client base and securing its recurring income from support and maintenance
contracts.
Touchline
In May 2001, Touchline, which specialises in multimedia and e-commerce
development, acquired the business of Subnet, a highly regarded web
development business. This acquisition strengthens Touchline's ability to
respond to the e-business requirements of the Group's ERP customers and
supports the continued development of its sports related internet activities.
BOARD CHANGES
As previously reported, Andy Makeham became Chief Executive on 28 March 2001.
On the same date, John Griffith, Managing Director of Intershop (UK) Limited,
was appointed 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.
With the transfer of the RAP hardware businesses to Silverslaggan now
complete, Brian Shaw, one of the original RAP directors, has resigned from the
Company with immediate effect. The half year results include the costs of
settlement with Mr Shaw.
PROSPECTS
Whilst market conditions remain challenging, given the current strength of
order intake in the large-systems division and the continuing recovery in the
smaller-systems division, the Directors remain confident of the Group's
performance for the year as a whole.
Touchline, with its recently acquired web resource, is well placed to increase
its revenues and in particular to develop its filming and media activities
with premiership football clubs.
The Directors continue to view prospects for future growth with confidence and
will continue to seek suitable IT acquisition opportunities as and when they
arise.
Johan Claesson
Chairman
Consolidated Profit and Loss Account
For the six months ended 30 June 2001
Unaudited six Unaudited six Audited year to
months to 30 months to 30 31 December
June 2001 June 2000 2000
Notes
£'000 £'000 £'000
Turnover
Acquisitions 2,105 - -
Continuing 189 - 305
Discontinued 1,155 8,729 13,945
Total 3,449 8,729 14,250
Operating profit (loss)
before goodwill
amortisation
Acquisitions 551 - -
Continuing* (317) (265) (433)
Discontinued (309) (1,040) (3,113)
Total (75) (1,305) (3,546)
Goodwill amortisation (122) - (12)
Operating loss (197) (1,305) (3,558)
Loss on disposal of (659) - (1,667)
operations
Profit on disposal of - - 305
property
Interest payable and (25) (158) (271)
similar charges
Loss on ordinary (881) (1,463) (5,191)
activities before
taxation
Tax on loss on ordinary - - -
activities
Loss for the financial (881) (1,463) (5,191)
period
* Continuing operations include central management costs of £294,000 (30 June
2000: £265,000; 31 December 2000: £530,000).
Loss per share
Basic 5 (2.3p) (11.9p) (29.2p)
Diluted 5 (2.3p) (11.9p) (29.2p)
Basic before exceptional items 5 (0.3p) (5.5p) (19.7p)
The group has no recognised gains or losses in any of the above periods other
than the loss for that period.
Consolidated Balance Sheet
As at 30 June 2001
Unaudited Unaudited Audited
as at as at as at 31
30 June 30 June December 2000
2001 2000
Notes
£'000 £'000 £'000
Fixed assets
Goodwill 4,824 96 141
Tangible assets 366 2,577 235
Other investments 1,045 - 7
6,235 2,673 383
Current assets
Properties for resale 145 75 260
Stock - 3,170 1,071
Debtors 2,363 4,177 1,088
Cash at bank and in hand 253 - -
2,761 7,422 2,419
Creditors: amounts falling due 6 (4,655) (7,594) (2,071)
within one year
Net current (liabilities) assets (1,894) (172) 348
Total assets less current 4,341 2,501 731
(liabilities) assets
Creditors: amounts falling due after
more than one year (400) (55) -
Provisions for liabilities and (202) (473) (243)
charges
Net assets 3,739 1,973 488
Capital and reserves
Called up share capital 2,536 641 1,283
Shares to be issued 73 - 73
Share premium account 7 6,501 5,344 6,516
Other reserve 7 2,320 - 85
Revaluation reserve 7 - 457 41
Profit and loss account 7 (7,691) (4,469) (7,510)
Equity shareholders' funds 3,739 1,973 488
Consolidated cash flow statement
For the period ended 30 June 2001
Unaudited six Unaudited six Audited year to
months to 30 June months to 30 June 31 December
2001 2000 2000
Notes
£'000 £'000 £'000
Net cash outflow from 8 (292) (18) (1,595)
operating activities
Returns on (25) (158) (271)
investments and
servicing of finance
Taxation (11) - -
Capital expenditure (44) (23) 288
and financial
investment
Acquisitions and 891 390 3,100
disposals
Cash inflow before 519 191 1,522
financing
Financing 8 78 (683) 1,064
Increase (decrease) 597 (492) 2,586
in cash in the period
Notes to the accounts
1. The summarised results for the six months ended 30 June 2001, which are
unaudited, have been prepared in accordance with the accounting policies
adopted in the accounts for the year ended 31 December 2000.
2. The figures for the year ended 31 December 2000 have been extracted from
the statutory accounts which have been filed with the Registrar of
Companies. The audit report was unqualified and did not contain any
statement under section 237 (2) and (3) of the Companies Act 1985.
3. Acquisition of subsidiary undertakings
On 28 March 2001 the company acquired the entire issued share capital of K3
Business Technology Group Limited ('K3 Technology') and of K3 Business
Technology Software Limited ('K3 Software') from Silverslaggan Ab ('
Silverslaggan'). The combined consideration was £3,742,000 satisfied by the
issue of £3,352,000 in shares on completion with the balance of £390,000
payable in instalments over the next twenty-one months. In addition, warrants
to subscribe for a further eighteen 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 £3,742,000.
The following table sets out the book values of the identifiable assets and
liabilities acquired and their fair value to the group:
Book value K3 Book value K3 Fair value to
Technology Software group
£000 £000 £000
Fixed assets
Tangible 36 81 117
Current assets
Debtors 1,062 1,466 2,528
Cash 223 276 499
Total assets 1,321 1,823 3,144
Creditors
Trade creditors (283) (102) (385)
Other creditors (520) (696) (1,216)
Accruals and deferred income (951) (1,657) (2,608)
Total liabilities (1,754) (2,455) (4,209)
Net liabilities (433) (632) (1,065)
Goodwill 1,595 3,212 4,807
Consideration 1,162 2,580 3,742
Satisfied by:
Shares issued 772 2,580 3,352
Deferred consideration to be 390 - 390
satisfied in cash
1,162 2,580 3,742
No fair value adjustments were made.
£000
Net cash inflows in respect of the acquisition comprised:
Cash at bank and in hand acquired 499
K3 Technology earned a profit after taxation of £177,000 in the three months
ended 30 June 2001.
K3 Software earned a profit after taxation of £374,000 in the three months
ended 30 June 2001.
4. 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 £200,000.
Net assets disposed of and the related sales proceeds were as follows:
£000
Fixed assets 35
Current assets 2,403
Creditors (1,393)
Net assets 1,045
Related goodwill previously written off to reserves 659
Loss on sale (659)
Estimated deferred sales proceeds 1,045
Satisfied by:
Deferred consideration to be satisfied by cash 1,045
£000
Net cash inflows in respect of the sale comprised:
Bank overdrafts sold 392
5. Loss per share
Loss per share for the six months ended 30 June 2001 is calculated by dividing
the loss attributable to ordinary shareholders of £881,000 by the weighted
average of the number of ordinary shares in issue during the period of
38,875,933. (For the six months ended 30 June 2000, the loss attributable to
shareholders was £1,463,000 and the number of ordinary shares in issue was
12,329,577. For the year ended 31 December 2000, the loss was £5,191,000 and
the weighted average number of ordinary shares in issue was 17,805,487.)
6. Creditors: amounts falling due within one year
Included in creditors due within one year is deferred income of £2,653,000
(2000: £nil) relating to income from support which is generally invoiced in
advance and taken to income in equal monthly instalments over the relevant
periods.
7. Reserves
Share Other Revaluation Profit and Total
premium reserve reserve loss account
account
£'000 £'000 £'000 £'000 £'000
At 1 January 2001 6,516 85 41 (7,510) (868)
Retained loss for the - - - (881) (881)
period
Disposal of revalued - - (41) 41 -
property
Goodwill previously - - - 659 659
written off to reserves
Share capital issued 273 2,235 - - 2,508
Expenses of equity share (288) - - - (288)
issue
At 30 June 2001 6,501 2,320 - (7,691) 1,130
8. Cash flow statement
Reconciliation of operating loss to operating cash flows
Unaudited six Unaudited six Audited year to
months to 30 June months to 30 June 31 December 2000
2001 2000
£000 £000 £000
Operating loss (197) (1,305) (3,558)
Depreciation and 110 197 683
fixed asset
impairment
Write down of - - 28
property held for
resale
Amortisation of 122 - 12
goodwill
(Increase) decrease (62) 849 1,277
in stocks
(Increase) decrease (570) 93 1,062
in debtors
Increase (decrease) 346 (65) (860)
in creditors
Decrease in (41) (9) (239)
provisions
Loss on disposal of - 222 -
subsidiary
(292) (18) (1,595)
Financing
Issue of ordinary share capital 121 110 1,899
Repayment of secured loan - (687) (687)
Capital element of finance lease rental payments (43) (106) (148)
78 (683) 1,064
9. The above information is being sent to the shareholders and is available
from the company's registered office: RAP House, Harrison Street,
Briercliffe, Burnley, Lancashire, BB10 2HP.