K3 Business Technology Group Regulatory News (KBT)

25 Sep 2006 07:01

K3 Business Technology Group PLC25 September 2006 KBT.L ("K3" or the "Group" or the "Company") INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2006 Key Points • Benefits of business transformation showing through • All divisions making excellent progress: - Retail Software Division performed strongly with sales up 23% - Information Engineering acquisition successfully integrated into Manufacturing Software Division - Benefits of reorganisation showing through in Distribution Software Division with new contract wins • Turnover up 36% to £12.73m (2005: £9.34m) • Adjusted operating profit*1 rose by 54% to £1.30m (2005: £0.84m) • Operating profit, after amortisation of goodwill of £1.11m (2005: £0.68m), was £0.19m (2005: £0.17m) • Adjusted earnings per share*1 were 4.5p (2005: 3.8p), a rise of 18%. Loss per share was 1.7p (2005: 1.2p) • Opportunities to accelerate new licence sales especially good within Retail and Distribution sectors • Group is well positioned to achieve full year expectations Commenting on results, Tom Milne, Chairman of K3, said, "The Group is at an exciting stage in its development. Over the past two years,the business has been fundamentally transformed through acquisition. K3 nowdistributes market-leading, Microsoft-based software in three sectors: retail,distribution and manufacturing. Results for the first half demonstratecontinuing strong progress in our core retail software operation and we arepleased with the performances of our distribution and manufacturing softwaredivisions. The pipeline across all three business units remains encouraging andwe believe the Group is well positioned to achieve market expectations for thefull year. We are actively engaged in seeking appropriate acquisition opportunities tocomplement our existing business activities and continue to view the Group'sprospects with confidence." Enquiries: K3 Business Technology Group plc Andy Makeham, Chief Executive T: 01282 864111 David Bolton, Chief Finance Officer T: 01282 864111 Biddicks Katie Tzouliadis T: 020 7448 1000 *1 Calculated before amortisation of goodwill of £1.11m (2005: £0.68m). OVERVIEW This is my first statement as Chairman of K3, having joined the Board in May2006, and I am pleased to report very good progress. The Group is at an excitingstage in its development. Over the past two years, the business has beenfundamentally transformed through acquisition. K3 now distributesmarket-leading, Microsoft-based software in three sectors: retail, distributionand manufacturing. The Group's earnings comprise a mix of new licence sales fromthe rapidly growing Retail and Distribution Divisions, supported by recurringlicence fee income, a large proportion of which is generated by K3's dominantposition within the SME manufacturing sector. Opportunities to accelerate thegrowth of new licence sales are especially good within our retail anddistribution marketplaces. Results for the first six months of the year are encouraging, with our coreRetail Software Division continuing to trade strongly. Information Engineering,the manufacturing software business we acquired in June 2005, has beensuccessfully integrated within the Group and is performing well. We expect torecognise the major part of its profits in the second half of the year since ahigh level of annual licence billings are made in the last quarter of the year. Demonstrating the strength of our retail product offering, I am pleased toreport that K3 has been appointed to Microsoft's Inner Circle, which is reservedfor its top 50 partners worldwide, and that the Company has also been recognisedas a member of Microsoft's President's Club for top sales generators. Financial Results For the six month period, Group turnover rose by 36% to £12.73m from £9.34m.This reflected a full six months' revenue contribution of £2.20m fromInformation Engineering acquired in June 2005 and strong growth in both theRetail and Distribution Software Divisions. Excluding Information Engineering,Group turnover increased by 16% year on year. Adjusted operating profit*1 rose by 54% to £1.30m (2005: £0.84m) reflectinggrowth in both sales and margins in the Retail and Distribution SoftwareDivisions. After amortisation of goodwill of £1.11m (2005: £0.68m), theoperating profit was £0.19m (2005: £0.17m). Adjusted profit before tax*1 showed an increase of 57% to £1.16m from £0.74mlast year and adjusted earnings per share*1 were 4.5p (2005: 3.8p), a rise of18%. After taking into account amortisation of goodwill and intangibles of£1.11m (2005: £0.68m), profit before taxation was £0.05m (2005: £0.06m) and lossper share was 1.7p (2005: 1. 2p). At 30 June 2006, the Group held a cash balance of £0.06m compared with a netoverdrawn position of £1.19m at 30 June 2005 and cash in hand of £0.87m at 31December 2005. We expect to generate good cash inflows during the second half ofthe year from the strong sales incurred in the latter part of the first half andthe annual licence billings at Information Engineering which occur during thelast quarter of the year. In December 2005, the Group negotiated a bank loan of£1m, of which £0.85m was outstanding at 30 June 2006 (2005: £nil). Dividend The Directors do not propose to pay a dividend (2005: £nil). However, followingthe Company's successful application to the High Court for the requisiteconfirmation of the cancellation of the share premium account in July 2006, theDirectors are in a position to consider the introduction of progressive dividendpolicy from 2007. International Financial Reporting Standards The Group is required to adopt International Financial Reporting Standards(IFRS) for the year ended 31 December 2007. A project is currently in progressto identify the likely impact of IFRS upon the Group results. It is envisagedthat this project, including financial restatement of previously reportedresults, will not be completed in full until 2007. One notable impact will bethe removal of the requirement to systematically amortise goodwill held withinthe balance sheet which will instead be subject to an annual impairment review. OPERATIONAL REVIEW Retail Software Division The Retail Software Division continues to perform strongly, with salesincreasing by 23% to £7.78m from £6.30m last year. Adjusted operating profit*2more than doubled to £1.00m against £0.45m in 2005. These excellent results weresupported by five new contracts wins worth a total of £2.92m as well as ourCarpetright contract, agreed in May 2005. Over the period, we made an important operational change within this division.We re-focused our activities to concentrate on sectors where we can build asignificant presence. This 'verticalisation' policy is working very well and wehave created sector specific business units in Breweries/Drinks, Food, HouseholdGoods and Fashion. Our ability to demonstrate specialist sector knowledge aswell as reference customers aided new business wins with Frederick Robinson(breweries), Admiral Taverns (breweries), Beales plc (department stores) andFultons (home furnishings). We also increased our penetration into the FoodSector with a substantial EPOS order with Booths Supermarkets, an existingcustomer. This EPOS order demonstrates the strength of the functionality of oursoftware and we believe there is scope to make further EPOS-only sales. The pipeline for the division remains strong and we remain confident ofdelivering full year expectations. Distribution Software Division In the second half of last year, we reorganised this division and I am pleasedto report that the benefits showed through in the first half year of this year.Revenues grew by 24% to £1.00m, from £0.81m in 2005, and the division returnedto profitability, with an adjusted operating profit*3 of £0.01m (2005: adjustedoperating loss*3 of £0.12m). New business order values have increased togetherwith margins and we secured five major new business deals worth a total of£0.42m over the six month period. These were with Ardington Fulfilment(fulfilment house), Haddon House (conservatory furniture), House of Bruar(department store), Sofa.Com (furniture) and Aspinals (luxury leather goods). In May, our contract with Scotts of Stow, the mail order catalogue specialists,went 'live' smoothly. The Scotts of Stow contract was our largest contract todate for the Distribution Software Division and the success of this majorsoftware implementation is most encouraging. Scotts of Stow will be an importantreference customer for the division. Looking forward, the pipeline has somelarge opportunities for the second half year and with our reinvigorated salesteam, we remain encouraged about prospects for the remainder of the year. Manufacturing Software Division Information Engineering, one of only two Syspro distributors in the UK, which weacquired in June last year, has integrated well. Reflecting the impact of theInformation Engineering acquisition, revenues for the manufacturing softwaredivision as a whole increased to £3.95m from £2.23m in the first half of 2005.Adjusted operating profit*4 is £0.30m compared to £0.52m for the same period in2005. However, last year's profit includes a proportion of profit arising fromthe major contract Information Engineering signed with Doncaster Group in Junelast year. This year, we expect the bulk of Information Engineering's profits tofall in the second half of the year, when annual licence income is billed. The Doncaster Group contract progressed well with twelve of the thirteen sitesnow live and the prospect of further business remains high. We are encouraged bythe further ten Syspro deals won by the Manufacturing Software Division worth atotal of £1.07m and the pipeline for the second half is encouraging. OUTLOOK Results for the first half demonstrate continuing strong progress in our coreretail software operation and we are pleased with the performances of ourDistribution and Manufacturing Software Divisions. The pipeline across all threebusiness units remains encouraging and, with the impact of the InformationEngineering licence income in the second half, we believe the Group is wellpositioned to achieve market expectations for the full year. We are actively engaged in seeking appropriate acquisition opportunities tocomplement our existing business activities and continue to view the Group'sprospects with confidence. Tom MilneChairman 25 September 2006 *1 Calculated before amortisation of goodwill and intangibles of £1.11m (2005:£0.68m)*2 Calculated before amortisation of goodwill and intangibles of £0.47m (2005;£0.47m)*3 Calculated before amortisation of goodwill and intangibles of £0.04m (2005;£0.05m)*4 Calculated before amortisation of goodwill and intangibles of £0.60m (2005;£0.17m) K3 BUSINESS TECHNOLOGY GROUP PLCCONSOLIDATED PROFIT AND LOSS ACCOUNTFor the six months ended 30 June 2006 Unaudited Unaudited Audited Six months Six months Year to 31 to 30 June to 30 June December Notes 2006 2005 2005 As restated As restated £'000 £'000 £'000TurnoverContinuing 12,733 9,344 22,029Discontinued - - - -----------------------------------Total 12,733 9,344 22,029 ----------------------------------- Operating profit before goodwillamortisation 1,296 844 2,356Goodwill amortisation (1,106) (679) (1,752) ----------------------------------- Continuing 190 165 604Discontinued - - - -----------------------------------Operating profit 3 190 165 604 Loss on disposal of operations - - (90)Net interest payable and similar charges (140) (106) (287) -----------------------------------Profit on ordinary activities before taxation 50 59 227Tax on profit on ordinary activities (354) (225) (493) -----------------------------------Loss for the financial period (304) (166) (266) ----------------------------------- (Loss) earnings per share 4 Basic:Continuing (1.7p) (1.2p) (0.9p)Discontinued - - (0.9p) ----------------------------------- (1.7p) (1.2p) (1.8p) -----------------------------------Diluted:Continuing (1.7p) (1.2p) (0.9p)Discontinued - - (0.9p) ----------------------------------- (1.7p) (1.2p) (1.8p) ----------------------------------- The group has no recognised gains or losses in any of the above periods otherthan the loss for that period other than the prior year adjustment as explainedin note 7. K3 BUSINESS TECHNOLOGY GROUP PLCCONSOLIDATED BALANCE SHEETAs at 30 June 2006 Unaudited Unaudited Audited As at As at As at 31 30 June 30 June December 2006 2005 2005 Notes As restated As restated £'000 £'000 £'000 Fixed assets Development costs and intellectual property 239 125 162Goodwill 14,656 16,269 15,682 -----------------------------------Intangible fixed assets 14,895 16,394 15,844Tangible assets 484 685 508Investments - 17 - ----------------------------------- 15,379 17,096 16,352 ----------------------------------- Current assetsDebtors 7,725 6,889 6,596Cash at bank and in hand 64 56 874 7,789 6,945 7,470 -----------------------------------Creditors: amounts falling duewithin one yearConvertible debt - (523) -Other creditors 5 (10,448) (11,481) (10,583) ----------------------------------- (10,448) (12,004) (10,583) -----------------------------------Net current liabilities (2,659) (5,059) (3,113) -----------------------------------Total assets less current liabilities 12,720 12,037 13,239Creditors: amounts falling dueafter more than one year 6 (2,186) (3,045) (2,439)Provisions for liabilities and charges - - - -----------------------------------Net assets 10,534 8,992 10,800 ----------------------------------- Capital and reservesCalled-up share capital 4,435 3,895 4,435Share premium account 7 7,813 6,463 7,813Other reserve 7 6,070 6,070 6,070Share option reserve 7 122 44 83Treasury shares 7 (21) - (20)Profit and loss account 7 (7,885) (7,480) (7,581) ---------------------------------- Equity shareholders' funds 10,534 8,992 10,800 ---------------------------------- K3 BUSINESS TECHNOLOGY GROUP PLCCONSOLIDATED CASH FLOW STATEMENTFor the six months ended 30 June 2006 Unaudited Unaudited Audited Six months Six months Year to 31 to 30 June to 30 June December 2006 2005 2005 Notes As As restated restated £'000 £'000 £'000 Net cash (outflow) inflow from 8 operating activities (159) 1,507 4,267Returns on investments andservicing of finance (118) (107) (279)Taxation 45 - (80)Capital expenditure and financial investment (119) (87) (106)Acquisitions and disposals (94) (3,726) (5,153) ---------------------------------Cash (outflow) inflow before financing (445) (2,413) (1,351)Financing (365) 823 1,822 ---------------------------------(Decrease) increase in cash in the period (810) (1,590) 471 --------------------------------- The comparative amounts for 30 June 2005 have been restated as explained in note8. K3 BUSINESS TECHNOLOGY GROUP PLCNOTES TO THE INTERIM STATEMENTS 1. The interim financial information has been prepared consistently in accordance with the accounting policies adopted in the accounts for the year ended 31 December 2005, with the exception of the adoption of FRS20, Share-based payments, which was adopted on 1 January 2006. 2. The financial information in this statement relating to the six months ended 30 June 2006 and the six months ended 30 June 2005 is unaudited and does not constitute full statutory accounts within the meaning of Section 240 of the Companies Act 1985. The figures for the year ended 31 December 2005 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. Operating profit The operating profit for the six months ended 30 June 2006 is stated aftercharging £0.04m for share options (2005: £0.01m). The group has capitaliseddevelopment costs during the period of £0.08m (2005: £nil). 4. (Loss) earnings per share The calculations of (loss) earnings per share are based on the (loss) profit forthe financial year and the following numbers of shares: Unaudited six Unaudited six Audited year months to 30 months to 31 December June 2006 to 30 June 2005 2005 Number of shares Number of shares Number of shares Weighted averagenumber of shares:For basic earnings per share 17,715,039 13,416,215 14,999,027Exercise of share options 17,569 27,196 154,501 ---------------------------------------------------For diluted earnings per share 17,732,608 13,443,411 15,153,528 --------------------------------------------------- The alternative earnings per share calculations have been computed because thedirectors consider that they are useful to shareholders and investors. These arebased on the following (losses) profits and the above number of shares: Unaudited six Unaudited six Audited year months months to 30 June to 31 December 2005 to 30 June 2006 2005 Earnings Per Earnings Per Earnings Per Per (losses) share (losses) share (losses) share share amount amount amount amount Basic As restated Basic As restated Basic Diluted and and Diluted Diluted As As As restated restated restated £'000 p £'000 p £'000 p p (Loss) earnings per share (eps) (304) (1.7) (166) (1.2) (266) (1.8) (1.8)Effect of goodwill amortisation 1,106 6.2 679 5.0 1,752 11.7 11.6 ------------------------------------------------------------------------Eps before amortisation of goodwill and intangibles 802 4.5 513 3.8 1,486 9.9 9.8Exceptional items (net of tax) - - - - *1 140 0.9 0.9 ------------------------------------------------------------------------Eps before amortisation of goodwill and intangibles andexceptional items 802 4.5 513 3.8 1,626 10.8 10.7 ------------------------------------------------------------------------ *1 Relates to loss on disposal of the manufacturing software operation based atCrewe of £0.09m on which there was a tax charge of only £0.05m due to theavailability of capital losses. 5. Creditors: amounts falling due within one year Unaudited Unaudited Audited As at As at As at 31 30 June 30 June December 2006 2005 2005 £'000 £'000 £'000Convertible debt6% convertible loan notes - 523 - -----------------------------Other creditorsBank loans and overdrafts 322 1,243 311Obligations under finance leases and hirepurchase contracts 177 312 249Other loans - 550 -Other loans due to related parties 283 827 229Trade creditors 2,184 1,849 1,221Corporation tax 622 204 223Taxation and social security 1,380 1,188 1,536Other creditors 170 95 262Deferred consideration 70 90 70Accruals 1,638 967 2,308Deferred income 3,602 4,156 4,174 ----------------------------- 10,448 11,481 10,583 ----------------------------- 6. Creditors: amounts falling due after more than one year Unaudited Unaudited Audited As at As at As at 31 30 June 30 June December 2006 2005 2005 £'000 £'000 £'000Bank loans 526 - 689Obligations under finance leases and hirepurchase contracts 162 187 130Other loans 10 100 -Other loans due to related parties 385 1,458 513Deferred consideration 1,103 1,300 1,107 ------------------------------ 2,186 3,045 2,439 ------------------------------ 7. Reserves Share Other Share Treasury Profit premium reserve option shares and loss account reserve account £'000 £'000 £'000 £'000 £'000 At 1 January 2006 - as previously stated 7,813 6,070 - (20) (7,498)Prior year adjustment - see below 83 (83) ----------------------------------------------At 1 January 2006 - as restated 7,813 6,070 83 (20) (7,581)Retained loss for the period - - - (304)Cost of share options - - 39 - -Treasury shares acquired - - - (1) - ----------------------------------------------At 30 June 2006 7,813 6,070 122 (21) (7,885) ---------------------------------------------- The other reserve comprises a merger relief reserve. Following the Company's successful application to the High Court for therequisite confirmation of the cancellation of the share premium account in July2006, the balance on the share premium account is now £nil and the proformabalance on the profit and loss account at 30 June 2006 is a deficit of £72,000. In accordance with UK Generally Accepted Accounting Practice, the group hasadopted FRS20, Share-based payments, in 2006. This has resulted in a charge forthe current period of £39,000 and a prior year adjustment of £83,000 as follows: Share Profit option and loss reserve account £'000 £'000At 1 January 2005 - as previously stated - (7,283)Cost of share options to 31 December 2004 31 (31) -------------------At 1 January 2005 - as restated 31 (7,314)Loss for six months ended 30 June 2005 - as previously stated - (153)Cost of share options for six months ended 30 June 2005 13 (13) -------------------At 30 June 2005 - as restated 44 (7,480)Loss for six months ended 31 December 2005 - as previously stated - (61)Currency translation differences on foreign currency net investments - as previously stated - (1)Cost of share options for six months ended 31 December 2005 39 (39) -------------------At 31 December 2005 - as restated 83 (7,581) ------------------- 8. Cash flow statement Reconciliation of operating profit to operating cash flows Unaudited Unaudited Audited Six months Six months Year to 30 June to 30 June to 31 Dec 2006 2005 2005 As As restated restated £000 £000 £000 Operating profit 190 165 604Depreciation and fixed asset impairment 187 146 341(Profit) loss on sale of tangible fixed assets (25) 27 33Amortisation of goodwill and intangibles 1,106 679 1,752Share options 39 13 52Write down of investments - - 17(Increase) decrease in debtors (1,129) 1,533 1,372(Decrease) increase in creditors (527) (1,056) 96 -------------------------------- (159) 1,507 4,267 -------------------------------- The comparative amounts for 30 June 2005 have been restated to reflect loans dueto related parties as financing cash flows, and loan notes payable underacquisitions as cash flows in relation to acquisitions, not as movements inoperating cash flows. The comparative amounts for 30 June 2005 and 31 December2005 have been restated to reflect the prior year adjustment in relation to thecharge for share options. 9. The above information is being sent to the shareholders and is available from the Company's registered office: Linden Business Centre, Linden Road, Colne, Lancashire, BB8 9BA. This information is provided by RNS The company news service from the London Stock Exchange