K3 enjoys repeat custom

Recurring revenue was the recurring theme for enterprise resource software firm K3 Business Technology as it unveiled its interim results.Revenue in the six months to 31 December was up 5% at £24.67m from £23.52m in the second half of 2009, though this included a contribution of £1.22m from two acquisitions made in the group's second quarter, and contributions from acquisitions made earlier in 2010.The group reported strong sales to existing customers, to the benefit of its margins, while the K3 customer base expanded to around 1,800 from about 1,500 at the end of 2009. Recurring revenues account for around 44% of the total sales for calendar 2010.Profit before tax rose 8% to £4.23m from £3.91m the year before. "Results were supported by the high levels of recurring income the group enjoys from annual software licence and support renewals across our very large customer base," said Tom Milne, chairman of K3. "We made good progress in the first half with our Managed Services Division and, as we continue to expand, the development of our Managed Services activities will remain a major focus. We believe that there is large untapped demand across our customer base for these services and, as we add new customers across the group, we are finding there is a ready opportunity to sell our Hosting and Managed Services offering," Milne added. Having highlighted the contribution made by recent acquisitions, the company said it has flashed the cash again and bought Sense Limited, a provider of Microsoft Dynamics AX enterprise resource planning solutions to the manufacturing and distribution markets.The total initial consideration for the acquisition is £1.2m in cash. In addition, a payment of £350,000 is being made in respect of surplus cash in the business at completion. Further consideration of up to £0.9m is payable dependent on certain performance criteria. For the year to 31 December 2010, Sense generated sales of £1.8m, of which around 33% are recurring revenues, and an underlying operating profit of £0.3m.K3 has not declared an interim dividend but the board expects to make a pay-out in respect of the full year.