Last checked at 13 Sep 2010 07:00
KBT
13 September 2010
K3 BUSINESS TECHNOLOGY GROUP PLC
("K3" or "the Group")
IT solutions supplier to the supply chain industry
Announces
Final results for the 18 months to 30 June 2010
and
Financial information for the year to 30 June 2010 and the year to 30 June 2009
Highlights
Following the change of accounting year end, from 31 December to 30 June, K3 is issuing the announcement of audited final results for the 18 months ended 30 June 2010. The statement also provides unaudited financial information for the 12 months ended 30 June 2010 and for the 12 months ended 30 June 2009 as a guide to the underlying performance of the business.
Financial Key Points
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| Audited 18 mths to 30 June 2010 | Audited Year to 31 Dec 2008 | Unaudited Year to 30 June 2010 | % increase Y.O.Y to June 2010 | Unaudited Year to 30 June 2009 |
| Revenue | £59.78m | £37.62m | £43.84m | 20% | £36.44m |
| Adj. profit from operations* | £9.01m | £7.35m | £7.48m | 14% | £6.57m |
| Profit from operations | £6.16m | £5.37m | £5.49m | 20% | £4.59m |
| Adj. profit before tax* | £7.62m | £5.92m | £6.63m | 28% | £5.17m |
| Profit before tax | £4.77m | £3.94m | £4.64m | 45% | £3.20m |
| Adj. earnings per share** | 23.5p | 18.2p | 20.1p | 29% | 15.6p |
| Basic earnings per share | 15.2p | 11.8p | 14.6p | 52% | 9.6p |
| Dividend | 0.75p | 0.5p | 0.5p |
| 0.5p |
*Adjusted profit from operations and adjusted profit before tax is calculated after adding back the impact of amortisation of acquired intangibles and share based payments charges. See notes 1 and 3.
** Adjusted earnings per share is calculated by adjusting basic earnings per share for the impact of amortisation of acquired intangibles and share based payments charges and related tax charges thereon. See notes 2 and 4.
·; Excellent results against a challenging economic environment
·; Audited results for the 18 months to 30 June 2010 show:
Revenue of £59.78m
Adjusted profit from operations of £9.01m (note 1)
Adjusted profit before tax of £7.62m (note 1)
Adjusted earnings per share of 23.5p (note 2)
Good operating cash generation - £7.33m
Net debt at 30 June 2010 at £10.98m (31 December 2008: £13.01m)
·; Unaudited results for the 12 months to 30 June 2010 show:
Revenue up 20% to £43.84m
- includes organic growth and partial contribution from acquisitions of £1.37m
Adjusted profit from operations of £7.48m (note 3)
Adjusted profit before tax up 28% to £6.63m (note 3)
Adjusted earnings per share up 29% to 20.1p (note 4)
Net debt at 30 June 2010 of £10.98m (30 June 2009: £15.84m)
·; Proposed final dividend of 0.25p
Operational Key Points
·; Three strategically key acquisitions made in March - June 2010 (DigiMIS, Pebblestone Netherlands and Pebblestone IP)
- significantly enhanced growth opportunities
- managed services capability transformed
- global reseller network added and market-leading IP secured
·; Record level of major new deals signed in the last 12 months to 30 June 2010 - £11.2m against £7.8m same period in 2009. Takes total for 18 month period to £20.6m.
·; Recurring annual income (from software licence fee renewals and associated support) increased to £17.37m (2008: £15.6m), representing c.40% of annual revenues
·; Managed Services activities growing rapidly
·; Intellectual Property portfolio expanded, benefiting both margins and competitive position
·; New business pipeline remains encouraging
·; Board believes strong performance will continue, with acquisitions expected to boost growth opportunities
Tom Milne, Chairman, commented,
"Our encouraging results demonstrate the robustness of K3's business model. Some 40% of the Group's annual revenue is underpinned by income from software licence renewals. In addition, typically, a further 35% of Group sales is derived from existing customers purchasing additional services or products. The value of our new business wins reached a record high, at £11.2m in the last 12 months.
Strategically, we see this period as having been very significant for us. The three acquisitions we made move the business forward in new ways, opening up additional growth opportunities.
Looking ahead, we remain focused on our plans to develop the business, which include further complementary acquisitions. We believe that our high levels of predictable income and cash generative model position K3 very well for continuing growth. We therefore remain confident about prospects both short and longer term."
Notes:
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| Note 1 | Calculated before amortisation of acquired intangibles of £2.89m (2008: £1.88m) and share-based payment credit of £0.04m (2008: charge of £0.10m).
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| Note 2 | Calculated before amortisation of acquired intangibles and related tax charge of £2.08m (2008:£1.37m) and share-based payment credit and related tax credit of £0.06m (2008: charge of £0.13m).
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| Note 3 | Calculated before amortisation of acquired intangibles of £2.08m (year ended 30 June 2009: £1.88m) and share-based payment credit of £0.09m (12 months ended 30 June 2009: charge of £0.10m).
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| Note 4 | Calculated before amortisation of acquired intangibles and related tax charge of £1.57m (12 months ended 30 June 2009: £1.35m) and share-based payment credit and related tax credit of £0.01m (12 months ended 30 June 2009: charge of £0.07m).
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Enquiries
| K3 Business Technology Group plc | Andy Makeham (CEO) | T: 020 7448 1000 (today) |
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| David Bolton (CFO) | Thereafter: 0161 876 4498 |
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| Canaccord Genuity Limited (NOMAD) | Simon Bridges | T: 020 7050 6500 |
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| Biddicks | Katie Tzouliadis / Sophie Lane | T: 020 7448 1000 |
CHAIRMAN'S sTATEMENT
Overview
In December 2009, we changed our financial year end to 30 June from 31 December. This report therefore provides audited figures for the 18 month period to 30 June 2010. However, for clarity, we are also providing unaudited financial information for the year to 30 June 2010 and the year to 30 June 2009.
Against a continuing difficult economic backdrop, K3's results for the 18 month period, and in particular for the year to 30 June 2010 (where revenues rose by 20% and adjusted profit from operations*1 by 14% year on year), represent a very good performance. I am also pleased to report that the value of our new business wins reached a record high, at £11.2m in the last 12 months. The full benefit of these wins is not yet fully reflected in our results. Strategically, we also made some important steps forward in the last four months of the financial period, completing three acquisitions, which should fundamentally enhance growth prospects for the Group.
Our encouraging results demonstrate the robustness of K3's business model. Some 40% of the Group's annual revenue is underpinned by income from software licence renewals. In addition, typically, a further 35% of Group sales is derived from existing customers purchasing additional services or products, including extended duration licence deals. More broadly, these results demonstrate the increasing success of our approach in taking core business software products from Microsoft and enriching and tailoring them with our own Intellectual Property ("IP") for the specific market sectors we serve. In recent years, we have become increasingly focused on developing our library of IP to build competitive advantage in our markets. In addition to the commercial advantages this gives us, there are also significant margin benefits for the Group.
Strategically, we see this period as having been very significant for us. The three acquisitions we made, DigiMIS Limited ("DigiMIS"), Pebblestone Netherlands and Pebblestone IP, are all highly complementary but, more critically, they move the business forward in new ways, opening up additional growth opportunities. The addition of UK-based hosting and managed services business, DigiMIS, in March 2010, was important to us as we seek to develop our managed services activities. Most significantly, DigiMIS has provided us with the ability to deliver Cloud Computing solutions and 'Software as a Service'. Pebblestone IP has not only added valuable market-leading retail software IP but has also opened up a global distribution network. We see this as an attractive route-to-market to sell more of our IP and services.
After the period end, in July 2010, we were pleased to announce the formation of a strategic partnership with Omnica Ltd, the UK-based specialist in multi-channel retail software. The partnership provides us with enhanced expertise and capability in providing solutions for the online retail sector and will help to keep our product offering at the forefront of this high growth sector.
Looking ahead, we remain focused on our plans to develop the business and continue to seek further complementary acquisitions, in line with our growth strategy. We believe that our high levels of predictable income and cash generative model position K3 very well for continuing growth. More generally, as a result of the acquisitions we have made, we have widened the scope of the Group's growth opportunities. We therefore remain confident about prospects both short and longer term.
Financial Results
Change of Year End
The change of financial year end to 30 June aligns K3's year end to the financial year end of Microsoft Corporation, with whom K3 has a strong trading relationship as its largest Dynamics partner in the UK. As, historically, K3 has generated the greater proportion of its revenue in the latter half of the calendar year, the change of date also provides shareholders with greater visibility on likely year end results.
Results for the 18 months to 30 June 2010 (audited)
\* The comparative figures for 2008 refer to the audited 12 month period to 31 December 2008.
Group revenues for the 18 months to 30 June 2010 increased to £59.78m (2008*: £37.62m), with acquisitions contributing £1.37m to sales. Adjusted profit from operations*2 for the 18 months lifted to £9.01m (2008*: £7.35m). The profit from operations for the same period increased to £6.16m (2008*: £5.37m), after amortisation of acquired intangible assets of £2.89m (2008*: £1.88m) and share-based payment credit of £0.04m (2008*: charge of £0.10m).
Adjusted profit before tax*2 for the 18 months to 30 June 2010 increased to £7.62m (2008*: £5.92m). After taking into account amortisation of acquired intangibles and share-based payment costs, profit before taxation rose to £4.77m (2008*: £3.94m).
The tax charge for the 18 months ended 30 June 2010 was £1.02m (2008*: £1.14m) reflecting a greater proportion of earnings in Ireland and the Netherlands where tax rates are lower than in the UK, together with tax credits arising from prior years.
Adjusted earnings per share*3 increased to 23.5p (2008*: 18.2p) and basic earnings per share, impacted by the increase in amortisation of intangibles noted above and the extended accounting period, increased to 15.2p (2008*: 11.8p).
Results for the 12 months to 30 June 2010 (unaudited)
The comparative figures for 2009 refer to the unaudited 12 months to 30 June 2009.
For the year ended 30 June 2010, revenues increased by 20% year on year to £43.84m (2009: £36.44m), with acquisitions contributing £1.37m. Recurring income, from software licence fee renewals and associated support, rose by 13% to £17.6m from £15.6m in 2009 and accounts for 40% of K3's revenues. Adjusted profit from operations*1 for the year rose by 14% to £7.48m (2009: £6.57m). After amortisation of acquired intangible assets of £2.08m (2009: £1.88m) and share-based payment credit of £0.09m (2009: charge of £0.10m), the profit from operations for the year ended 30 June 2010 increased by 20% to £5.49m (2009: £4.59m).
Adjusted profit before tax*1 for the 12 months to 30 June 2010 was £6.63m (2009: £5.17m). After taking into account amortisation of acquired intangibles and share-based payment costs, profit before taxation was £4.64m (2009: £3.20m). Adjusted earnings per share*4 was 20.1p (2009: 15.6p) and basic earnings per share, impacted by the increase in amortisation of intangibles noted above and the extended accounting period, was 14.6p (2009: 9.6p).
Cash flow and banking
K3 generates good cash flows, with a seasonal weighting in October-December. During the 18 month period, the Group made debt repayments of £5.80m, paid £1.33m of interest and received proceeds from share issues of £1.43m. During the 12 months to 30 June 2010, debt repayments of £3.65m and interest payments of £0.79m were made. In addition, approximately £2.85m was paid for the three cash-based acquisitions completed between March and the end of June 2010. Notwithstanding these payments, net debt at 30 June 2010 has reduced by £2.55m year on year to stand at £10.98m (30 June 2009: £13.53m). Net debt at 31 December 2008 was £13.01m.
We have recently negotiated bank facilities running through to December 2012, including £5.0m of revolving credit facilities ("RCF") for working capital purposes and a further £7.5m RCF available to fund acquisitions.
Acquisitions
Acquisitions made a partial contribution of £1.37m to revenue and £0.3m to adjusted operating profit, having been purchased over the last four months to 30 June 2010.
In March 2010, we acquired DigiMIS, the provider of Cloud Computing services, for an initial consideration of £0.54m with further consideration of up to £1.09m to be paid through an earn out arrangement linked to future performance in the two years to March 2012.
In March 2010, we also acquired the trade and certain assets of Pebblestone Netherlands, a leading European provider of Microsoft Dynamics ERP solutions for the fashion industry for an initial consideration of €1.41m, with deferred consideration of €0.60m payable over the next five years.
In June 2010, we acquired Pebblestone IP, comprising the intellectual property and international sales channel and customers of Pebblestone Group, for an initial consideration of €0.85m, with contingent consideration of up to €0.4m dependent on an increase in 2011 year end licence sales over 2009 levels.
Dividend
A dividend of 0.5p per share was paid on 25 June 2010 and the Board is now pleased to propose a final dividend of 0.25p per share, to be paid on 6 January 2011 to shareholders on the register at the close of business on 3 December 2010, subject to shareholder approval at a General Meeting. With this payment, the total dividend relating to the 12 months to 30 June 2010 is 0.5p per share (12 months to 30 June 2009: 0.5p per share). The total dividend for the 18 month period is 0.75p per share (year ended 31 December 2008: 0.5p per share).
The General Meeting is to be held at K3's head office at Baltimore House, 50 Kansas Avenue, Manchester M50 2GL on 24 November 2010 at 10.30 am.
Review of Operations
Due to the change in year end, audited results cover the 18 month period to 30 June 2010, with the comparative data being the audited results for the year to 31 December 2008. For clarity, unaudited financial information for the 12 months to 30 June 2010 and the 12 months to 30 June 2009 is also being provided.
Retail Software Division
The Retail Software Division, comprising our UK, Ireland and Holland-based businesses supplying Microsoft Dynamics software, generated total revenues of £36.79m for the 18 month period to 30 June 2010 (2008*: £22.18m) and an adjusted profit from operations*5 of £4.92m (2008*: £3.96m). For the 12 months to 30 June 2010, the Division generated total revenues of £26.96m, showing a year on year increase of 25% (2009: £21.55m) and the adjusted profit from operations*6 was up by 7% year on year to £3.76m (2009: £3.51m). The Division made very strong progress over the 18 months to 30 June 2010, securing £9.3m of major new orders of which £7.7m were in the final 12 months. This £7.7m represents a 75% increase over the £4.4m of major new order wins secured in the year to 30 June 2009 (12 months to 31 December 2008: 11 wins worth £3.9m) and was led by K3's multi-channel retail offering, which incorporates our own specialist IP. Within the total, there were some very large order wins, including substantial orders from Dublin Airport Authority, White Stuff, DNA Lingerie and Buy as you View. We completed two very notable acquisitions in the period; Pebblestone Netherlands in March 2010 and Pebblestone IP in June 2010. Both acquisitions are highly complementary and synergistic. Pebblestone Netherlands doubles the scale of our Dutch operations and significantly enhances our presence in the fashion retail sector. Pebblestone IP brings us ownership of IP for market-leading software modules, designed specifically for the fashion sector, and a wide reseller distributor network. This is strategically important, offering us, for the first time, a reseller network through which we can distribute our own extensive library of IP.
UK
Our operations in the UK and Ireland ("UK") contributed revenues for the 18 months totalling £29.43m (2008*: £17.71m) and adjusted operating profits*7 of £3.70m (2008*: £2.63m) to the Division's results. For the 12 months to 30 June 2010, UK operations contributed revenues of £21.63m. This represents a rise of 24% compared to £17.49m in the year to 30 June 2009. The adjusted operating profit*8 for the 12 months to 30 June 2010 rose by 6% year on year to £2.85m (2009: £2.70m). The UK business also made significant investment in Microsoft's new generation product, Microsoft Dynamics AX, and is now established as Microsoft's "go-to" partner for retail contracts deploying this product. The strategic partnership we signed in early July 2010, with Omnica Ltd, the multi-channel software specialist, further extends our AX capability in the retail sector, giving us modules specifically tailored for multi-channel retailers. Our UK pipeline of enquiries remains healthy and several deals are at an advanced stage of negotiation.
Europe
Our Dutch operations contributed revenues for the 18 months to 30 June 2010 of £7.36m (2008*: £4.47m) and an adjusted operating profit*9 of £1.21m (2008*: £1.33m) to the Division's results. For the 12 months to 30 June 2010, the revenue contribution totalled £5.34m, representing a rise of 31%, from £4.06m in the year to 30 June 2009. The adjusted operating profit*10 for the year to June 2010 was £0.90m, representing an increase of 11% year on year (2009: £0.81m). These results included a four month contribution from Pebblestone Netherlands, of £0.98m and £0.19m respectively to revenues and adjusted profit from operations*11. The benefit from the changes we made to the senior management team in mid 2009 and our investment in sales, delivery resource and IP are becoming increasingly apparent. In addition, our relationship with Inter IKEA System B.V. remains strong and we experienced an increase in demand for products and services at the period end following deferral from earlier months. This is a trend that we now expect to continue in the coming year. This, together with the addition of Pebblestone Netherlands and Pebblestone IP, means that we believe that our Dutch operations are excellently positioned for ongoing growth.
Manufacturing Software Division
The Manufacturing Software Division comprises three business units, K3 Supply Chain Solutions ("SCS"), K3 AX (specialising in process manufacturing) and our Chertsey-based small systems business (formerly based in Walton-upon-Thames). Together these operations generated revenues for the 18 months of £21.32m (2008*: £14.86m and adjusted profits from operations*12 of £4.47m (2008*: £3.44m). For the year to 30 June 2010, revenues rose by 9% year on year to £15.58m (2009: £14.29m) and adjusted profits from operations*13 increased by 38% to £4.06m (2009: £2.94m).
The Manufacturing Software Division now has over 1,000 customers and generates recurring revenues from annual software licence renewals of £9.2m. This income stream is very stable and predictable, reflecting the business critical nature of the software we sell and maintain.
SCS
SCS contributed revenues for the 18 months of £14.08m (2008*: £10.15m) and adjusted profit from operations*14 of £3.37m (2008*: £2.31m). For the 12 months to 30 June 2010, revenues saw a 3% increase year on year to £10.40m from £10.11m and adjusted profit from operations*15 rose by 29% to £3.10m from £2.41m in 2009, supported by steady levels of additional services income from the customer base and innovative marketing to mid-range customers and extended licence deals. We continue to focus on delivering new contract wins as well as developing our relationships with existing customers.
K3 AX
Our K3 AX unit, which addresses the process manufacturing marketplace with product specialisation in fresh food and steel processing, improved markedly year on year, with the benefits of the re-organisation completed in 2009 coming through. For the 18 months to 30 June, revenue was £3.34m (2008*: £2.01m) and adjusted loss from operations*16 was £0.18m (2008*: profit of £0.08m). For the year to 30 June 2010, revenue showed a 53% rise year on year to £2.54m (2009: £1.66m). The adjusted profit from operations*17 was £0.13m compared to a loss £0.41m in the previous year. We closed two deals in the last six months of the year and the business is currently operating at close to full capacity with an improving lead intake and a growing pipeline of new business.
Small systems division, Chertsey (formerly in Walton-on-Thames)
Our small systems business based in Chertsey (formerly in Walton-on-Thames), for the 18 months to 30 June 2010, contributed revenues and adjusted profits from operations*18 of £3.91m and £1.28m respectively (2008*: £2.70m and £1.05m). For the 12 months to 30 June 2010, revenues were broadly flat at £2.65m (2009: £2.52m) while adjusted profits from operations*19 showed a small decrease to £0.83m (2009: £0.94m). We expect to continue to see a gradual attrition of income from this business unit, which comprises a customer base running smaller ERP systems and related functionality we support. In the meantime, upgrade opportunities remain.
Managed Services Division
While still relatively small, we are reporting the income generated from our managed services activities separately for the first time. This reflects our ambitions to build our managed services income and the substantial growth opportunities we see.
We originally established a network infrastructure services business unit in November 2007, offering these services only to existing customers. The acquisition of DigiMIS now enables us to offer a full range of application solutions either on-premises, hosted or via Software as a Service.
For the 18 months to June 2010, the Managed Services Division generated revenues of £1.60m (2008*: £0.58m) and adjusted profits from operations*20 of £0.41m (2008*: £0.22m). For the 12 months to 30 June 2010, revenue was £1.23m (2009: £0.60m) and adjusted profit from operations*21 was £0.30m (2009: £0.22m). The current run rate of turnover and adjusted operating profit*22 is £2.33m and £0.72m respectively.
The Division is growing rapidly, with the lead time in closing some contracts as short as six weeks. Our pipeline of new business currently stands at in excess of £2.1m, demonstrating the interest in the product offering in the mid-tier market.
Outlook
There is a high degree of robustness to the business, as our results demonstrate. With c.40% of the Group's income recurring and the customer base typically accounting for some 35% of new sales annually, K3 enjoys significant visibility over its revenues. In addition, the Group generates strong cash flows and this, in turn, supports our product innovation and acquisition strategy.
The strength of our offering, which comprises market-leading software solutions enhanced by our own IP, is proving increasingly effective in winning business and we expect to continue to bolster our offering with strategic acquisitions and alliances. The acquisitions we made in the last four months of the financial period open up additional growth opportunities. Especially promising is the growth in our Managed Services business and the addition of a global distribution network. We see both areas as having significant potential for K3's future operating performance.
We continue to view prospects for the Group very positively.
Tom Milne
Chairman
| *1 | Calculated before amortisation of acquired intangibles of £2.08m (2009: £1.88m) and share-based payment credit of £0.09m (2009: charge of £0.10m). |
| *2 | Calculated before amortisation of acquired intangibles of £2.89m (2008*: £1.88m) and share-based payment credit of £0.04m (2008*: charge of £0.10m). |
| *3 | Calculated before amortisation of acquired intangibles of £2.08m (2008*: £1.37m) and share-based payment credit of £0.06m (2008*: charge of £0.13m). |
| *4 | Calculated before amortisation of acquired intangibles of £1.57m (2009: £1.35m) and share-based payment credit of £0.01m (2009: charge of £0.07m). |
| *5 | Calculated before amortisation of acquired intangibles of £1.28m (2008*: £0.77m) and share-based payment credit of £0.02m (2008*: charge of £0.05m). |
| *6 | Calculated before amortisation of acquired intangibles of £0.97m (2009: £0.77m) and share-based payment credit of £0.04m (2009: charge of £0.05m). |
| *7 | Calculated before share-based payment credit of £0.02m (2008*: charge of £0.05m). |
| *8 | Calculated before share-based payment credit of £0.04m (2009: charge of £0.05m). |
| *9 | Calculated before amortisation of acquired intangibles of £1.28m (2008*: £0.77m). |
| *10 | Calculated before amortisation of acquired intangibles of £0.97m (2009: £0.77m). |
| *11 | Calculated before amortisation of acquired intangibles of £0.06m. |
| *12 | Calculated before amortisation of acquired intangibles of £1.49m (2008*: £1.11m) and share-based payment credit of £0.02m (2008*: charge of £0.06m). |
| *13 | Calculated before amortisation of acquired intangibles of £1.11m (2009: £1.11m) and share-based payment credit of £0.05m (2009: charge of £0.05m). |
| *14 | Calculated before amortisation of acquired intangibles of £1.12m (2008*: £0.86m) and share-based payment credit of £0.01m (2008*: charge of £0.03m). |
| *15 | Calculated before amortisation of acquired intangibles of £0.86m (2009: £0.86m) and share-based payment credit of £0.03m (2009: charge of £0.03m). |
| *16 | Calculated before amortisation of acquired intangibles of £0.37m (2008*: £0.24m). |
| *17 | Calculated before amortisation of acquired intangibles of £0.24m (2009: £0.24m). |
| *18 | Calculated before share-based payment credit of £0.01m (2008*: charge of £0.02m). |
| *19 | Calculated before share-based payment credit of £0.02m (2009: charge of £0.02m). |
| *20 | Calculated before amortisation of acquired intangibles of £0.06m (2008*: nil). |
| *21 | Calculated before amortisation of acquired intangibles of nil (2009: nil). |
| *22 | Calculated before amortisation of acquired intangibles of £0.19m. |
BUSINESS REVIEW
OPERATIONS SUMMARY
Analysis of Revenue and Adjusted Profit from Operations
References within the Business Review to results for 2008 refer to the audited 12 month period to 31 December 2008. All references to results for 2009 refer to the unaudited 12 month period to 30 June 2009. Results stated for the 12 months to 30 June are unaudited. Results for the 18 month period to 30 June 2010 are audited.
The Board considers the key performance indicators by which it measures the performance of the Group to be revenue, gross margin and profit from operations, adjusted for amortisation of acquired intangibles and share-based payment costs. The performance indicators used by the Group are summarised below:
| Audited | Audited | |
| 18 mths to 30 June 2010 | Year to 31 Dec 2008 | |
| Revenue (£000) | 59,783 | 37,619 |
| Gross margin percentage | 62% | 70% |
| Adjusted profit from operations*2 (£000) | 9,013 | 7,348 |
| Operating cash percentage | 81% | 87% |
| Adjusted EPS (pence)* | 23.5p | 18.2p |
| Percentage of recurring revenue | 40% | 41% |
*Adjusted earnings per share is calculated by adjusting basic earnings per share for the impact of amortisation of acquired intangibles and share based payments charges and related tax charges thereon.
K3's results for the 18 months to 30 June 2010 have been strong despite tough market conditions. We took early action in 2009 to reduce the Group's cost base and our strategic focus on developing of own Intellectual Property, moving into new channels to market and building account management sales from our large customer base has stood the business in good stead. We have focused on our core sectors where our in-depth knowledge and innovative products with additional functionality 'wrapped around' core Microsoft-based business solutions make us highly competitive. K3 remains a member of Microsoft's Inner Circle, reserved for its top partners worldwide, and we continue to pursue our goal to become the UK's market-leading supplier of Microsoft-based supply chain management solutions to small and medium-sized companies.
Unaudited results for the year to 30 June 2010 are especially pleasing since they show a record level of large contract wins. Major new wins in the year totalled £11.2m against £7.8m last year and some of these wins were secured against SAP and Oracle, demonstrating the scalability of our product set and pointing to demand for more cost effective solutions.
The final six months of the financial period saw revenues rise by 27% to £20.32m, from £15.94m in the same period in 2009 and adjusted operating profit*23 increased by 31% to £2.02m against £1.54m in 2009. Whilst these results included a benefit from acquisitions of £1.37m to revenue and £0.30m to adjusted operating profit*24, they reflect strong progress across the Group.
Gross margins between 2008 and the 18 months to 30 June 2010 show a decline. During 2009, we implemented further refinements to our project costing systems within our businesses. As a result additional costs have been allocated against projects from overheads, resulting in a significant decline in reported margins. Gross margin was additionally adversely affected by higher discounts on Microsoft enhancements and lower consultancy utilisation. In March 2010, we reported that income from consultancy services was adversely affected by low utilisation levels in early 2009. While these have recovered, margins are still affected by ongoing investment in product as it is delivered to customers.
DIVISIONAL REVIEW
Retail Software Division
| Audited | Audited | |
| 18 mths to 30 June 2010 | Year to 31 Dec 2008 | |
| Revenue (£000) | 36,789 | 22,176 |
| Gross margin percentage | 56% | 60% |
| Adjusted profit from operations*25 (£000) | 4,916 | 3,955 |
| Percentage of recurring revenue | 31% | 33% |
For the 18 months to 30 June 2010, revenues at the Retail Software Division, which comprises our UK and Ireland, and Holland-based businesses supplying Microsoft Dynamics software, increased to £36.79m (2008*: £22.18m). In the 12 months to 30 June 2010, revenue rose by 25% to £26.96m (2009: £21.55m) and adjusted profit from operations*26 increased by 7% to £3.76m (2009: £3.51m). In the six months to 30 June 2010, revenue showed a 39% uplift to £13.71m (2009: £9.83m) and adjusted operating profit*27 increased by 53% to £1.77m (2009: £1.16m).
As a result of the refinements to our project costing systems noted above, additional costs have been allocated from overheads against projects in this Division, resulting in gross margins declining between 2008 and the 18 months to 30 June 2010. Gross margins were also reduced as a result of lower consultancy utilisation as previously referenced. In March 2010, we reported that income from consultancy services was adversely affected by low utilisation levels in early 2009. While these have recovered, margins are still affected by ongoing investment in product as it is delivered to customers.
Our library of IP in the Retail Software Division continues to grow, with the acquisition of Pebblestone IP in June 2010 adding a valuable suite of software modules. The Division's own IP now includes multi-channel specialist modules (call centre, kiosk, retail store hospitality, Web linkages), fashion retail and wholesale modules.
UK
The UK Retail Software business secured 13 major new wins over the 18 months to 30 June 2010 , worth a total of £9.33m (2008*: 11 wins at £3.9m). For the 12 months to 30 June 2010, 11 major new wins were secured, worth £7.5m. This compares to 9 wins, worth £4.5m over the same period in 2009. Providing a mixture of consultancy, software, enhancement and hardware revenues, these major orders were largely driven by our full multi-channel offering, which provides retailers with an integrated retail solution, encompassing online ordering, call centre management, internet kiosks, point of sale functionality and full 'back office' capability.
Revenues for the 18 months to 30 June 2010 increased to £29.43m (2008*: £17.71m) and in the six months to 30 June 2010 showed a 32% increase on the same period last year, at £10.30m (six months to 30 June 2009: £7.80m). The end of the period saw a significant uptake in sales of our own IP modules to our existing customer base. This partially offset the impact of lower margins on consultancy, with low utilisation at the beginning of 2009 and ongoing investment in new product as it is delivered to customers in 2010, together with reduced margins arising from Microsoft offering bigger discounts on extended duration enhancement deals. As we move through the new financial year, the pipeline of new opportunities is at an encouraging level. We will continue to invest heavily in our IP, with a focus on developing our Microsoft Dynamics AX offering, which we see as our new generation product and which is receiving major ongoing investment by Microsoft. Our recently formed strategic partnership with Omnica, specialists in the new generation multi-channel AX platform, will significantly support our efforts here.
Europe
Our Netherlands-based business, K3 Business Solutions, closed four major deals and generated revenues in the 18 months to 30 June 2010 of £7.36m (2008*: £4.47m) and the adjusted operating profit*28 was £1.21m (2008*: £1.33m). Results for the year to 30 June 2010 showed a 32% rise in revenues to £5.34m and an 11% rise in adjusted operating profits*29, to £0.90m over last year (2009: £4.06m and £0.81m respectively). The last six months of the period saw revenues increase by 69% to £3.41m (six months to 30 June 2009: £2.02m) and adjusted operating profit*30 increase by 94% to £0.60m (six months to 30 June 2009: £0.31m). These results included a first time, four month revenue contribution from the Pebblestone acquisition of £0.97m and an adjusted operating profit*31 of £0.19m. The Dutch business has been strengthened significantly, with investment in new sales personnel and senior management team and, more recently, with the addition of the Pebblestone operations which have now been fully integrated. In addition, our relationship with Inter IKEA Systems remains strong and towards the period end we started to experience increasing demand for products and services deferred from earlier months. The acquisition of the Pebblestone reseller channel and the intellectual property has further enhanced our presence in fashion retailing ERP. Further investment in this product and our new channel to market will increase our presence worldwide.
Manufacturing Software Division
| Audited | Audited | |
| 18 mths to 30 June 2010 | Year to 31 Dec 2008 | |
| Revenue (£000) | 21,323 | 14,856* |
| Gross margin percentage | 74% | 85% |
| Adjusted profit from operations*3 (£000) | 4,470 | 3,436* |
| Percentage of recurring revenue | 54% | 54% |
For the 18 months to 30 June 2010, the Manufacturing Software Division generated revenues of £21.32m (2008*: £14.86m) and adjusted operating profit*32 of £4.47m (2008*: £3.44m). In the 12 months to 30 June 2010, revenue increased by 9% to £15.58m (2009: £14.29m) and adjusted profit from operations*33 by 38% to £4.06m (2009: £2.94m). In the six months to 30 June 2010, revenue at £5.67m was in line with prior period (2009: £5.74m) and adjusted profit from operations*34 of £0.42m was also in line (2009: £0.41m). As a result of the refinements to our project costing systems previously referred to, additional costs have been allocated from overheads against projects in this Division, resulting in gross margins declining between 2008 and the 18 months to 30 June 2010.
The above sales and profit profile illustrate the strong seasonality in the Division's income. This seasonality is driven by the timing of Syspro software licence fee and support renewals, which are billed in October and are realised in cash during October to December, from our Syspro customer base. The value of this recurring income in the year to 30 June 2010 was at £9.2m. This income stream continues to be very stable and therefore highly predictable, reflecting the business critical nature of the systems we implement and support.
Our library of IP in the Manufacturing Software Division is also growing and now includes software for advanced planning and scheduling, warehouse management, delivery route planning, recipe management, personnel, and time and attendance systems.
SCS
K3 Supply Chain Solutions ("SCS"), which supplies Syspro ERP solutions, saw revenues for the 18 months to 30 June 2010 increase to £14.08m (2008*: £10.15m) and the adjusted profit from operations *35 rise to £3.37m (2008*: £2.31m). Over the year to 30 June 2010, revenues increased by 3% to £10.40m and adjusted profit from operations*36 by 29% to £3.10m, against £10.11m and £2.41m respectively last year. Having enjoyed a very strong first half, the new order intake in SCS has slowed in the last six months of the financial period, with a decline in the larger (£0.2m plus) deals. The impact of this is evident in the six months figures to 30 June 2010, with revenues at £3.45m (six months ended 30 June 2009: £3.68m) and the adjusted profit from operations*37 at £0.15m (six months ended 30 June 2009: £0.27m). June 2010 saw us win a number of mid-size deals and we remain focused on increasing software income over the current financial year.
K3 AX
K3 AX, our Microsoft Dynamics AX business (specialising in process manufacturing), closed five major deals in the 18 month period of which four have been in the last 12 months. These deals are substantial and we are particularly pleased with the strong turnaround in performance since the reorganisation we undertook in 2009. Revenue for the 18 months to 30 June 2010 was £3.34m (2008*: £2.01m) and the adjusted loss from operations*38 was £0.18m (2008*: profit of £0.08m). For the year to 30 June, revenue was £2.54m (2009: £1.66m) and the adjusted profit from operations*39 was £0.13m (2009: loss of £0.41m). The second half of that period shows revenues at £1.11m (six months ended 30 June 2009: £0.80m) and an adjusted operating loss*40 of £0.07m (six months ended 30 June 2009: loss of £0.31m). The business has a strong pipeline of qualified new business, a growing lead intake and a much stronger sales team than a year ago. The business is focused on the fresh food processing and steel sectors and we plan to develop further IP for these sectors to enhance our offering over the next year.
Small systems division, Chertsey (formerly in Walton-upon-Thames)
Our Chertsey-based small systems division generated sales in the 18 months period to 30 June 2010 of £3.91m (2008*: £2.70m) and the adjusted profit from operations*41 was £1.28m (2008*: £1.05m). For the 12 months to 30 June 2010, revenues were £2.65m against £2.52m last year and the adjusted profit from operations*42 was £0.83m against £0.94m in 2009. The second half of that financial period shows revenue of £1.12m (six months ended 30 June 2009: £1.26m) and an adjusted profit from operations*43 of £0.34m (six months ended 30 June 2009: £0.45m). As expected, revenues generated by this division have continued to decay gently although the impact of this has been partly mitigated by selling CRM across the customer base (albeit at lower margins) and upgrade opportunities still remain.
Managed Services Division
| Audited | Audited | |
| 18 mths to 30 June 2010 | Year to 31 Dec 2008 | |
| Revenue (£000) | 1,604 | 577 |
| Gross margin percentage | 58% | 54% |
| Adjusted profit from operations*44 (£000) | 408 | 218 |
| Percentage of recurring revenue | 65% | 50% |
For the 18 months to 30 June 2010, the Managed Services Division generated revenues of £1.60m (2008*: £0.58m) and an adjusted profit from operations *44 of £0.41m (2008*: £0.22m). For the 12 months to 30 June 2010, revenues more than doubled to £1.23m (2009: £0.60m) with the adjusted profit from operations*45 rising by 36% to £0.30m (2009: £0.22m). In the six months to 30 June 2010, revenue more than doubled to £0.87m over the prior period (2009: £0.37m) and adjusted profit from operations*46 of £0.21m was also approximately double that of a year ago (2009: £0.11m).
The acquisition of the hosting and managed services business, DigiMIS, in March 2010, had a significant impact on revenues and profits. With its integration, K3 now has the capability to offer its products via 'Cloud'. This opens up a new delivery mechanism for us, with significant growth potential. DigiMIS was well known to us before its acquisition as we had been partnering in recent years, delivering international solutions to Doncasters Group, Gooch & Housego and other customers. K3's strategy of partnering before acquiring has proven to be very effective, helping to cement relationships and limiting risks.
We have completed the merger of the DigiMIS business, which operates hosting centres in New York, London and Edinburgh, with our existing managed services business. With new management, the combined business is expanding rapidly and there is a very strong pipeline of opportunities. The closing run rate of revenue and adjusted operating profit*47 was £2.33m and £0.72m respectively.
Central Division
Central costs for the 18 month period were £0.78m (2008*: £0.26m) and for the 12 months to 30 June 2010 were £0.26m. Central costs include Directors' costs, group human resources and accounting personnel, legal department and costs associated with the Plc. Having undergone a reorganisation and relocation in the period, the current run rate of these costs, after recovery of elements recharged to the operating units, is £0.47m but varies subject to the operational performance of the Group.
Our share of associated company losses in the 18 months to 30 June 2010 was £0.03m (2008*: £0.01m). This reflects the change in ownership structure of the underlying investment, which is now treated as an available-for-sale investment.
Intellectual Property
The benefit of our library of Intellectual property ("IP") is becoming increasingly evident on the results of the Group, helping to enhance margins as well as sales.
We are continuing to expand our library of IP and are investing, in particular, in Retail AX, mirroring the recent strategic investments made by Microsoft. We can begin to see the results of the 'wrap around' strategy that we have been accelerating in the last year. The strategy involves developing additional functionality for the market-leading MS Dynamics suite of business software we sell. This process, of enriching and enhancing the core Microsoft product, results in software solutions which are more attractive to the supply chain markets we address. K3's sector specific solutions are therefore more effective and more competitive.
As well as developing our own new products to extend our own library of IP, we have also been acquiring IP. In this last year, we have acquired the IP and business of Pebblestone, one of the market-leading fashion retail and wholesale distribution products.
Our IP development hub is now based in Ireland. We utilise expertise across the Group to highlight particular areas for the development and use external resources where required. These include lower cost, high quality resources from Eastern Europe and we expect to increase our use of offshore partners in the future.
Outlook
We are very satisfied with the progress K3 has made over the periods under review and results illustrate a high degree of robustness to our earnings. A very high level of the Group's income is recurring, derived from K3's substantial customer base, which now numbers in excess of 1,500 customers.
The Group also continues to generate good cash flows and the very high level of major new order wins is also pleasing, pointing to the strength of our product offering in the markets we address.
We have ambitions to grow significantly in the medium term and the three acquisitions we completed between March and the end of June are exciting, opening up new and potentially very considerable growth opportunities for K3. We are actively seeking further complementary and synergistic acquisitions, which will enhance and strengthen our existing offering. Our careful investments in IP and our focus on developing our managed services capabilities should also help us to keep us ahead of the competition and enhance the returns we make.
As we move through the new financial year, we believe that K3 is well placed to deliver a strong performance.
Andy Makeham
Chief Executive
| *23 | Calculated before amortisation of acquired intangibles of £0.93m (2009: £0.81m) and share-based payment credit of £0.07m (2009: charge of £0.06m). |
| *24 | Calculated before amortisation of acquired intangibles of £0.93m (2009: £0.81m). |
| *25 | Calculated before amortisation of acquired intangibles of £1.28m (2008*: £0.77m) and share-based payment credit of £0.02m (2008*: charge of £0.05m). |
| *26 | Calculated before amortisation of acquired intangibles of £0.97m (2009: £0.77m) and share-based payment credit of £0.04m (2009: charge of £0.05m). |
| *27 | Calculated before amortisation of acquired intangibles of £0.43m (2009: £0.43m) and share-based payment credit of £0.04m (2009: charge of £0.03m). |
| *28 | Calculated before amortisation of acquired intangibles of £1.28m (2008*: £0.77m). |
| *29 | Calculated before amortisation of acquired intangibles of £0.97m (2009: £0.77m). |
| *30 | Calculated before amortisation of acquired intangibles of £0.43m (2009: £0.43m). |
| *31 | Calculated before amortisation of acquired intangibles of £0.06m. |
| *32 | Calculated before amortisation of acquired intangibles of £1.49m (2008*: £1.11m) and share-based payment credit of £0.02m (2008*: charge of £0.06m). |
| *33 | Calculated before amortisation of acquired intangibles of £1.11m (2009: £1.11m) and share-based payment credit of £0.05m (2009: charge of £0.05m). |
| *34 | Calculated before amortisation of acquired intangibles of £0.38m (2009: £0.38m). |
| *35 | Calculated before amortisation of acquired intangibles of £1.12m (2008*: £0.86m) and share-based payment credit of £0.01m (2008*: charge of £0.03m). |
| *36 | Calculated before amortisation of acquired intangibles of £0.86m (2009: £0.86m) and share-based payment credit of £0.03m (2009: charge of £0.03m). |
| *37 | Calculated before amortisation of acquired intangibles of £0.26m (2009: £0.26m) and share-based payment credit of £0.02m (2009: charge of £0.02m). |
| *38 | Calculated before amortisation of acquired intangibles of £0.37m (2008*: £0.24m). |
| *39 | Calculated before amortisation of acquired intangibles of £0.24m (2009: £0.24m). |
| *40 | Calculated before amortisation of acquired intangibles of £0.12m (2009: £0.12m). |
| *41 | Calculated before share-based payment credit of £0.01m (2008*: charge of £0.02m). |
| *42 | Calculated before share-based payment credit of £0.02m (2009: charge of £0.02m). |
| *43 | Calculated before share-based payment credit of £0.02m (2009: charge of £0.01m). |
| *44 | Calculated before amortisation of acquired intangibles of £0.06m (2008*: nil). |
| *45 | Calculated before amortisation of acquired intangibles of £0.06m (2009: nil). |
| *46 | Calculated before amortisation of acquired intangibles of £0.06m (2009: nil). |
| *47 | Calculated before amortisation of acquired intangibles of £0.19m. |
CONSOLIDATED INCOME STATEMENT
For the 18 month period ended 30 June 2010
|
| Notes | 18 month period ended 30 June 2010 | Year ended 31 December 2008 |
|
|
| £'000 | £'000 |
|
|
|
|
|
| Revenue |
| 59,783 | 37,619 |
| Cost of sales |
| (22,460) | (11,278) |
| Gross profit
|
| 37,323 | 26,341 |
| Administrative expenses |
| (31,163) | (20,971) |
|
|
|
|
|
| Profit from operations before amortisation of acquired intangibles and cost of share-based payments |
| 9,013 | 7,348 |
| Amortisation of acquired intangibles |
| (2,892) | (1,875) |
| Cost of share-based payments |
| 39 | (103) |
|
|
|
|
|
| Profit from operations |
| 6,160 | 5,370 |
| Finance income |
| 28 | 14 |
| Finance expense |
| (1,393) | (1,430) |
| Share of loss of associates |
| (28) | (12) |
| Profit before taxation |
| 4,767 | 3,942 |
| Tax expense | 1 | (1,018) | (1,137) |
| Profit for the period |
| 3,749 | 2,805 |
All of the profit for the period is attributable to equity shareholders of the parent.
| Earnings per share
|
|
|
|
| Basic | 2 | 15.2p | 11.8p |
|
|
|
|
|
| Diluted | 2 | 15.2p | 11.7p |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 18 month period ended 30 June 2010
|
|
| 18 month period ended 30 June 2010 | Year ended 31 December 2008 |
|
|
| £'000 | £'000 |
|
|
|
|
|
| Profit for the period |
| 3,749 | 2,805 |
| Other comprehensive income (expense) |
|
|
|
| Exchange differences on translation of foreign operations |
| (2,327) | 3,678 |
| Net investment hedge |
| 797 | (1,956) |
| Cash flow hedges: |
|
|
|
| Losses recognised on hedging instruments |
| (170) | (271) |
| Transferred to income statement |
| 259 | 6 |
| Other comprehensive (expense) income, net of tax |
| (1,441) | 1,457 |
|
Total comprehensive income for the period |
|
2,308 |
4,262 |
All of the total comprehensive income is attributable to equity holders of the parent.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2010
|
| Notes | At 30 June 2010 | At 31 December 2008 |
|
|
| £'000 | £'000 |
| ASSETS |
|
|
|
| Non-current assets |
|
|
|
| Property, plant and equipment |
| 1,393 | 1,333 |
| Goodwill |
| 33,467 | 33,225 |
| Other intangible assets |
| 13,176 | 12,075 |
| Deferred tax assets |
| 370 | 244 |
| Investment in associates |
| - | 222 |
| Available-for-sale investments |
| 196 | - |
| Total non-current assets |
| 48,602 | 47,099 |
| Current assets |
|
|
|
| Trade and other receivables |
| 14,439 | 10,690 |
| Cash and cash equivalents |
| 369 | 2,828 |
| Total current assets |
| 14,808 | 13,518 |
| Total assets |
| 63,410 | 60,617 |
|
LIABILITIES |
|
|
|
| Non-current liabilities |
|
|
|
| Long-term borrowings | 3 | 7,051 | 10,346 |
| Other non-current liabilities | 4 | 1,761 | 25 |
| Deferred tax liabilities |
| 3,645 | 3,343 |
| Total non-current liabilities |
| 12,457 | 13,714 |
| Current liabilities |
|
|
|
| Trade and other payables | 5 | 14,728 | 13,229 |
| Current tax liabilities |
| 482 | 312 |
| Short-term borrowings | 3 | 4,300 | 5,494 |
| Total current liabilities |
| 19,510 | 19,035 |
| Total liabilities |
| 31,967 | 32,749 |
|
EQUITY |
|
|
|
| Share capital |
| 6,411 | 5,939 |
| Share premium account |
| 2,711 | 1,619 |
| Other reserves |
| 10,448 | 10,448 |
| Cashflow hedging reserve |
| (176) | (265) |
| Translation reserve |
| 723 | 2,253 |
| Retained earnings |
| 11,326 | 7,874 |
| Total equity attributable to equity holders of the parent |
| 31,443 | 27,868 |
| Total equity and liabilities |
| 63,410 | 60,617 |
CONSOLIDATED STATEMENT OF CASHFLOWS
For the 18 month period ended 30 June 2010
|
|
| 18 month period ended 30 June 2010 | Year ended 31 December 2008 |
|
|
| £'000 | £'000 |
| Cash flows from operating activities |
|
|
|
| Profit before tax |
| 4,767 | 3,942 |
| Adjustments for: |
|
|
|
| Share-based payments (credit) charge |
| (39) | 103 |
| Depreciation of property, plant and equipment |
| 418 | 323 |
| Amortisation of intangible assets and development expenditure |
| 3,788 | 2,135 |
| Profit on sale of property, plant and equipment |
| (1) | (11) |
| Interest received |
| (28) | (14) |
| Interest expense |
| 1,393 | 1,430 |
| Share of losses of associates |
| 28 | 12 |
| (Increase) decrease in trade and other receivables |
| (4,022) | 153 |
| Increase (decrease) in trade and other payables |
| 1,027 | (1,698) |
| Cash generated from operations |
| 7,331 | 6,375 |
| Interest paid |
| (1,331) | (1,323) |
| Income taxes paid |
| (1,637) | (1,614) |
| Net cash generated from operating activities |
| 4,363 | 3,438 |
| Cash flows from investing activities |
|
|
|
| Acquisition of subsidiaries, net of cash acquired |
| (424) | (58) |
| Acquisition of other business units |
| (2,431) | - |
| Acquisition of associates |
| - | (234) |
| Acquisition of available-for-sale investments |
| (2) | - |
| Development expenditure capitalised |
| (1,195) | (1,004) |
| Purchase of property, plant and equipment |
| (393) | (330) |
| Proceeds from sale of property, plant and equipment |
| 5 | 19 |
| Purchase of intangibles |
| (50) | - |
| Interest received |
| 28 | 14 |
| Net cash absorbed by investing activities |
| (4,462) | (1,593) |
| Cash flows from financing activities |
|
|
|
| Proceeds from issue of share capital |
| 1,431 | 24 |
| Proceeds from long-term borrowings |
| 1,474 | - |
| Proceeds from loans from related parties |
| - | 1,000 |
| Payment of long-term borrowings |
| (4,752) | (3,591) |
| Payment of loans from related parties |
| (1,000) | - |
| Payment of finance lease liabilities |
| (47) | (43) |
| Dividends paid |
| (247) | (119) |
| Net cash (absorbed) generated from financing activities |
| (3,141) | (2,729) |
| Net change in cash and cash equivalents |
| (3,240) | (884) |
| Cash and cash equivalents at start of period |
| 2,828 | 3,085 |
| Exchange gains on cash and cash equivalents |
| (159) | 627 |
| Cash and cash equivalents at end of period |
| (571) | 2,828 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the 18 month period ended 30 June 2010
|
| Share capital | Share premium | Other reserve | Cashflow hedging reserve | Translation reserve | Retained earnings | Total equity |
|
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| At 1 January 2008 | 5,926 | 1,588 | 10,448 | - | 531 | 5,228 | 23,721 |
| Changes in equity for year ended 31 December 2008 |
|
|
|
|
|
|
|
| Share-based payment debit | - | - | - | - | - | (20) | (20) |
| Options exercised | 13 | 31 | - | - | - | - | 44 |
| Own shares acquired | - | - | - | - | - | (20) | (20) |
| Dividends to equity holders | - | - | - | - | - | (119) | (119) |
| Total comprehensive income for the year | - | - | - | (265) | 1,722 | 2,805 | 4,262 |
| At 31 December 2008 | 5,939 | 1,619 | 10,448 | (265) | 2,253 | 7,874 | 27,868 |
| Changes in equity for 18 months ended 30 June 2010 |
|
|
|
|
|
|
|
| Share-based payment credit | - | - | - | - | - | (17) | (17) |
| Issue of share capital | 472 | 1,092 | - | - | - | - | 1,564 |
| Own shares acquired | - | - | - | - | - | (33) | (33) |
| Dividends to equity holders | - | - | - | - | - | (247) | (247) |
| Total comprehensive income for the period | - | - | - | 89 | (1,530) | 3,749 | 2,308 |
| At 30 June 2010 | 6,411 | 2,711 | 10,448 | (176) | 723 | 11,326 | 31,443 |
The amount included in retained earnings of £3.75m (year ended 31 December 2008: £2.81m) represents profit attributable to the owners of the parent company. The amount included in the cash flow hedging reserve and the translation reserve represent other comprehensive income for each component, net of tax of £nil (year ended 31 December 2008: £nil) .
NOTES
1. Tax expense
|
| 18 month period ended 30 June 2010 | Year ended 31 December 2008 |
|
| £'000 | £'000 |
| Current tax expense |
|
|
| UK corporation tax and income tax of overseas operations on profits for the period | 1,834 | 1,344 |
| Adjustment in respect of prior periods | (64) | 84 |
| Total current tax expense | 1,770 | 1,428 |
| Deferred tax expense |
|
|
| Origination and reversal of temporary differences | (752) | (280) |
| Effect of change in rate of deferred tax | - | (11) |
| Total deferred tax expense | (752) | (291) |
| Total tax expense | 1,018 | 1,137 |
2. Earnings per share
The calculations of earnings per share are based on the profit for the period and the following numbers of shares.
|
| 18 month period ended 30 June 2010 | Year ended 31 December 2008 |
|
| Number of shares | Number of shares |
| Denominator |
|
|
|
|
|
|
| Weighted average number of shares used in basic EPS | 24,599,450 | 23,675,195 |
|
|
|
|
| Effects of: |
|
|
| Employee share options and warrants | 48,517 | 339,517 |
|
|
|
|
| Weighted average number of shares used in diluted EPS | 24,647,967 | 24,014,712 |
Certain employee options and warrants have not been included in the calculation of diluted EPS because their exercise is contingent on the satisfaction of certain criteria that had not been met at the end of the period. In addition, certain employee options have also been excluded from the calculation of diluted EPS as their exercise price is greater than the weighted average share price during the period (i.e. they are out-of-the-money) and therefore would not be advantageous for the holders to exercise those options.
The alternative 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 (losses) and the above number of shares.
|
| 18 month period ended 30 June 2010 | Year ended 31 December 2008 | ||||
|
| Earnings | Per share amount Basic | Per share amount Diluted | Earnings | Per share amount Basic | Per share amount Diluted |
|
| £000 | p | p | £000 | p | p |
| Numerator |
|
|
|
|
|
|
| Profit for the period (for both basic and diluted EPS) | 3,749 | 15.2 | 15.2 | 2,805 | 11.8 | 11.7 |
| Add back: |
|
|
|
|
|
|
| Amortisation of acquired intangibles (net of tax) | 2,083 | 8.5 | 8.5 | 1,371 | 5.8 | 5.7 |
| Share-based payments (net of tax) | (62) | (0.2) | (0.3) | 128 | 0.6 | 0.5 |
|
|
|
|
|
|
|
|
| Adjusted EPS | 5,770 | 23.5 | 23.4 | 4,304 | 18.2 | 17.9 |
3. Loans and borrowings
|
| 30 June 2010 | 31 December 2008 |
|
| £'000 | £'000 |
| Non-current |
|
|
| Bank loans (secured) | 7,051 | 10,309 |
| Finance lease creditors | - | 37 |
|
| 7,051 | 10,346 |
| Current |
|
|
| Bank overdrafts | 940 | - |
| Bank loans (secured) | 2,672 | 3,818 |
| Finance lease creditors | 48 | 22 |
| Loans from related parties | 640 | 1,654 |
|
| 4,300 | 5,494 |
| Total borrowings | 11,351 | 15,840 |
4. Other non-current liabilities
|
| 30 June 2010 | 31 December 2008 |
|
| £'000 | £'000 |
| Contingent consideration | 787 | 25 |
| Deferred consideration | 365 | - |
| Other payables | 48 | - |
| Accruals | 561 | - |
|
| 1,761 | 25 |
5. Trade and other payables - current
|
| 30 June 2010 | 31 December 2008 |
|
| £'000 | £'000 |
| Trade payables | 3,345 | 2,106 |
| Other payables | 501 | 307 |
| Contingent consideration | 548 | 25 |
| Deferred consideration | 137 | - |
| Accruals | 4,032 | 2,651 |
| Total financial liabilities, excluding loan and borrowings, classified as financial liabilities measured at amortised cost | 8,563 | 5,089 |
| Derivative financial instruments | 199 | 325 |
| Other tax and social security taxes | 1,664 | 2,740 |
| Deferred revenue | 4,302 | 5,075 |
|
| 14,728 | 13,229 |
6. Proforma unaudited results for the year ended 30 June 2010
The group has changed its financial year end from 31 December to 30 June, with the objective of bringing its year end in line with that of Microsoft Corporation and providing shareholders with greater visibility on full year results since the majority of revenues typically fall in the second half of the calendar year. Below is a table of the proforma unaudited results for the twelve months ended 30 June 2010. The information has been compiled from the interim statements for the six months to 30 June 2008 and 2009 and those to 31 December 2009, together with the management accounts.
|
| 12 months ended 30 June 2010 | 12 months ended 30 June 2009 |
|
| £'000 | £'000 |
| Revenue |
|
|
| Retail UK and Ireland | 21,628 | 17,489 |
| Holland | 5,335 | 4,059 |
| Total Retail Software division | 26,963 | 21,548 |
|
|
|
|
| Walton-on-Thames | 2,645 | 2,517 |
| SCS | 10,396 | 10,112 |
| AX | 2,539 | 1,664 |
| Total Manufacturing Software division | 15,580 | 14,293 |
|
|
|
|
| Managed Services Division | 1,232 | 600 |
|
|
|
|
| Central division | 67 | - |
|
|
|
|
| Total revenue | 43,842 | 36,441 |
|
|
|
|
|
|
|
|
|
| 12 months ended 30 June 2010 | 12 months ended 30 June 2009 |
|
| £'000 | £'000 |
| Adjusted profit from operations* |
|
|
| Retail UK and Ireland | 2,853 | 2,702 |
| Holland | 903 | 805 |
| Total Retail Software division | 3,756 | 3,507 |
|
|
|
|
| Walton-on-Thames | 833 | 936 |
| SCS | 3,099 | 2,414 |
| AX | 125 | (406) |
| Total Manufacturing Software division | 4,057 | 2,944 |
|
|
|
|
| Managed Services Division | 302 | 218 |
|
|
|
|
| Central division | (637) | (100) |
|
|
|
|
| Total adjusted profit from operations | 7,478 | 6,569 |
|
Adjusted earnings per share* |
20.1p |
15.6p |
| Earnings per share | 14.6p | 9.6p |
*adjusted for amortisation of acquired intangibles and share-based payment costs.
7. Events after the reporting date
Since the end of the period, the group has negotiated bank facilities running through to December 2012, including £5.0m of revolving credit facilities ("RCF") for working capital purposes and a further £7.5m RCF available to fund acquisitions.
8. The Board recommends the payment of a dividend of 0.25p per share (year ended 31 December 2008: 0.5p) to be payable to shareholders on the register on 3 December 2010.
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 2008 have been delivered to the Registrar of Companies. The auditors have reported on those accounts; their report was unqualified and did not include references to any matters to which the auditors drew attention by way of emphasis of matter without qualifying their opinion 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 18 month period ended 30 June 2010; their report did not include references to any matters to which the auditors drew attention by way of emphasis of matter without qualifying their opinion and it did not contain any statement under section 498 (2) or (3) of the Companies Act 2006. These will be delivered to the Registrar of Companies following the annual general meeting.
10. The Group's full statutory financial statements for 30 June 2010 have been prepared in accordance with International Financial Reporting Standards (IFRSs and IFRIC interpretations) as endorsed by the European Union ("endorsed IFRS") and with those parts of the Companies Act 2006 applicable to companies preparing their accounts under endorsed IFRS.
11. This preliminary announcement was approved by the Board of directors on 13 September 2010.
12. The full financial statements will be posted to shareholders on or around 11 October 2010. Further copies will also be available on its website www.k3btg.com and from the Company's registered office at Baltimore House, 50 Kansas Avenue, Manchester, M50 2GL from that date.