K3 Business Technology Group Regulatory News (KBT)

14 Sep 2005 07:01

K3 Business Technology Group PLC14 September 2005 K3 BUSINESS TECHNOLOGY GROUP PLC INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2005 & PLACING Key Points • Fundamental transformation of K3 in 2004 - benefits of two acquisitions showing through in first half • Turnover on continuing operations of £9.08m (2004: £2.38m) • Adjusted operating profit*1 of £0.86m (2004: £0.13m) • Operating profit of £0.18m (2004: loss of £0.12m) • Strong overall performance - retail division substantially ahead of expectations • Acquisition of IEG, UK distributors of the SYSPRO range of ERP software for SME manufacturers in June - complements group's existing manufacturing offering - provides significant cost savings and cross-selling opportunities to come • Today's announced placing will raise £1.4 million gross from institutions to repay shareholder loans and provide additional working capital to the Group Commenting, Chairman, George Matthews, said, "K3 commenced the new financialyear fundamentally transformed following two acquisitions and a disposal in thelast financial year and our results reflect this. In June, we completed a thirdacquisition which significantly enhances our manufacturing software operation.We are particularly encouraged by the performance of our retail andmanufacturing divisions and view prospects for the group overall with optimism." 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 Robert W. Baird Limited Shaun Dobson T: 020 7488 1212 Nick Tulloch *1 Calculated before amortisation of goodwill of £0.68m (2004: £0.26m). OVERVIEW Over the course of 2004, K3 was fundamentally transformed, with two acquisitionsand the disposal of a non-core operation. The acquisitions in 2004 extended the business into higher growth areas ofretail and distribution within the supply chain software sector. Our thirdacquisition in June 2005, Information Engineering Group ("IEG"), complements ourexisting manufacturing software activities and we see significant synergiesbetween the two businesses. As we stated in the Annual Report, all our softwareproducts are now Microsoft-based and we have in place a firm foundation forfuture growth. The Group's results for the first half of the year are very encouraging andreflect full contributions from the two acquisitions made in 2004 and a partialcontribution from IEG which was acquired in the second quarter of the currentfinancial year. Financial Results Group turnover on continuing activities rose nearly four-fold to £9.08m from£2.38m. This reflected a full six months contribution from our acquisitions, K3Landsteinar and K3 Elucid, as well as turnover generated by our existingmanufacturing software business in Walton. Including a partial contribution of£0.26m from IEG, which we acquired in June 2005, the total turnover was £9.34m,against £2.79m last year. Costs of £0.09m (2004: £0.24m) relating to the development of our SmartVisionCRMbusiness application reflected the early completion of this project. Overall, the adjusted operating profit*2 of the Group of £0.86m (2004: £0.13m)was significantly better than expectations reflecting the contribution of theacquisitions since 2004. Our new acquisition, IEG, contributed an adjustedoperating profit*3 of £0.14m. Profit on ordinary activities before taxation was £0.07m (2004: profit of £1.17mincluding profit on disposal of operations of £1.30m). Adjusted earnings pershare*4 were 3.9p (2004: 0.9p) and, after taking into account goodwillamortisation of £0.68m (2004: £0.26m) and exceptional items of nil (2004:£1.09m), loss per share was 1.1p (2004: earnings per share of 9.0p). At 30 June 2005, the Group's net cash position was £1.19m overdrawn comparedwith cash balances of £3.05m at 30 June 2004 and £0.40 at 31 December 2004. The Directors do not propose to pay a dividend (2004: nil). *2 Calculated before amortisation of goodwill of £0.68m (2004: £0.26m).*3 Calculated before amortisation of goodwill of £0.02m.*4 Calculated before amortisation of goodwill of £0.68m and exceptional items of£nil (2004: amortisation of goodwill of £0.26m and exceptional items of £1.09m). OPERATIONAL REVIEW Retail Division The acquisition of K3 Landsteinar in October 2004 underpinned the Group'sexpansion into the retail sector and its operations now comprise our retaildivision. We are delighted with K3 Landsteinar's performance to date. Over thefirst half, it secured seven new contracts worth £6.7m, the most notable beingagreements with Carpetright plc and Moss Pharmacy. The Carpetright contract supported significant growth in consultancy serviceswhich grew to £2.95m in the period and contributed to total revenues of £6.30mand an adjusted operating profit*5 of £0.61m. In the nine months of ownership K3Landsteinar has delivered revenues of £9.23m and adjusted operating profits*6 of£1.05m. These are well in excess of our expectations and whilst we areparticularly encouraged by the strength of these results, they also reflect theearlier than expected receipt of revenues previously expected to fall in thesecond half of 2005. Distribution DivisionOrder intake in the first half of 2005 was slower than expected. Nevertheless,the business demonstrated its ability to win larger opportunities with the awardof the Scotts of Stow contract worth £0.30m at the beginning of 2005. Resultsduring the first half were also depressed by the investment the division made ina significant upgrade to its core Warehouse Management module. Looking forward,there is an encouraging sales pipeline and therefore we believe order intake forthe second half of the year should improve significantly.First half revenues of £0.81m reflected a full six months contribution (2004:£0.46m for three months). The adjusted operating loss*7 was £0.12m (2004: profitfor three months of £0.08m). Manufacturing Division The acquisition of IEG in June 2005 transforms this division. Since thetransaction was only completed just prior to the half year end, IEG made only apartial contribution to the division's results. During the period to 30 June2005, IEG contributed an adjusted operating profit*8 of £0.14m. The Group's existing manufacturing software operation, based inWalton-on-Thames, turned in another good performance. Sales of Sigma, Omnis,JobBOSS and SmartVision together with SmartVisionCRM continued to proveattractive offerings to our customer base and first half revenues of £1.93m weremarginally ahead of 2004 levels (£1.92m). Cost savings and lower central costsallocated against the business saw operating profits rise to £0.23m (2004:operating loss of £0.01m).Founded in 1986, IEG is one of two UK distributors of SYSPRO Enterprise ResourcePlanning software for the manufacturing sector. Targeting mid-rangemanufacturers, the software is entirely complementary to the division's existingproducts and offers a natural upgrade path for K3 customers. We see tremendousscope for both cost savings and cross-selling and, with the introduction ofSYSPRO in June, we have already seen a boost to sales. There is an encouraging sales pipeline for both businesses and we expect a goodperformance from the division in the second half. PLACING We also today announce that the Company is raising approximately £1.4 milliongross by means of a placing of 1,555,555 new ordinary shares of 25p each (" NewOrdinary Shares") with institutional investors at a price of 90p per share (the"Placing"). The Placing is being undertaken to repay shareholder loans andprovide additional working capital for the Group. The New Ordinary Shares, which represent 9.6% of the Group's issued sharecapital prior to the Placing, have been placed with institutional investors byRobert W. Baird Limited. Application will be made for the New Ordinary Shares to be admitted to theAlternative Investment Market and to trading on the London Stock Exchange. ThePlacing is conditional on admission, which is expected to become effective on 28September 2005. When issued, the New Ordinary Shares will rank pari passu in allrespects with the existing Ordinary Shares. Following the Placing, K3 will havea total of 17,740,719 Ordinary Shares in issue. OUTLOOK While the retail division has seen the timing of some revenue fall into thefirst half rather than the second half of the year as originally anticipated, webelieve growth prospects remain encouraging. Market conditions within themanufacturing sector are likely to remain challenging. However, the addition ofIEG significantly strengthens our existing manufacturing software portfolio andwe believe there are considerable synergies to be gained. Within ourdistribution software division, the sales pipeline is strong and we thereforeexpect the second half to show a stronger trading performance than the firsthalf. Overall, we continue to view the Group's prospects very positively. George MatthewsChairman 13 September 2005 *5 Calculated before amortisation of goodwill of £0.47m.*6 Calculated before amortisation of goodwill of £0.70m.*7 Calculated before amortisation of goodwill of £0.05m (2004: £0.02m).*8 Calculated before amortisation of goodwill of £0.02m. K3 BUSINESS TECHNOLOGY GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNTFor the six months ended 30 June 2005 Notes Unaudited Unaudited Audited Six months Six months Year to 31 to 30 June to 30 June December 2004 2005 2004 £'000 £'000 £'000TurnoverContinuing 9,081 2,377 8,116Acquisitions 263 - -Discontinued - 413 413---------------------- ------ --------- --------- --------- Total 9,344 2,790 8,529---------------------- ------ --------- --------- ------------------------------- ------ --------- --------- ---------Operating profitbefore goodwillamortisation andexceptional write down 857 132 603Goodwill amortisation (679) (255) (636)---------------------- ------ --------- --------- ---------Continuing 59 (104) (10) Acquisitions 119 52 - Discontinued - (71) (23)---------------------- ------ --------- --------- --------- Operating profit(loss) 3 178 (123) (33) Profit on disposal ofoperations - 1,303 1,248Net interest payableand similar charges (106) (6) (55)---------------------- ------ --------- --------- ---------Profit on ordinaryactivities beforetaxation 72 1,174 1,160Tax on profit onordinary activities (225) (256) (59)---------------------- ------ --------- --------- ---------(Loss) profit for thefinancial period (153) 918 1,101---------------------- ------ --------- --------- --------- (Loss) earnings per share Basic 5 (1.1)p 9.0p 10.0pDiluted 5 (1.1)p 9.0p 10.0pBasic before amortisation of goodwill 5 3.9p 11.5p 15.8pBasic before amortisation of goodwill and exceptionalitems 5 3.9p 0.9p 4.5p The group has no recognised gains or losses in any of the above periods otherthan the (loss) profit for that period. K3 BUSINESS TECHNOLOGY GROUP PLC CONSOLIDATED BALANCE SHEETAs at 30 June 2005 Notes Unaudited Unaudited Audited As at As at As at 31 30 June 30 June December 2005 2004 2004 £'000 £'000 £'000 Fixed assets Goodwill 16,394 2,919 9,919 Tangible assets 685 317 570 Investments 17 - 17---------------------- ------ --------- --------- --------- 17,096 3,236 10,506---------------------- ------ --------- --------- --------- Current assets Debtors 6,889 1,564 6,268 Cash at bank and in hand 56 3,045 403---------------------- ------ --------- --------- --------- 6,945 4,609 6,671---------------------- ------ --------- --------- --------- Creditors: amountsfalling due withinone year Convertible debt (523) - (500) Other creditors 6 (11,481) (3,921) (9,345)---------------------- ------ --------- --------- --------- (12,004) (3,921) (9,845)---------------------- ------ --------- --------- --------- Net current (liabilities) assets (5,059) 688 (3,174) ---------------------- ------ --------- --------- --------- Total assets less currentliabilities 12,037 3,924 7,332 Creditors: amountsfalling due 7 (3,045) (12) (337)after more than one year Provisions for liabilities and charges - - ----------------------- ------ --------- --------- --------- Net assets 8,992 3,912 6,995---------------------- ------ --------- --------- --------- Capital and reserves Called-up share capital 3,895 2,548 3,329 Shares to be issued 8 - 30 - Share premium account 8 6,463 6,441 6,463 Other reserve 8 6,070 2,359 4,486 Profit and loss account 8 (7,436) (7,466) (7,283)---------------------- ------ --------- --------- --------- Equity shareholders' funds 8,992 3,912 6,995---------------------- ------ --------- --------- --------- K3 BUSINESS TECHNOLOGY GROUP PLC CONSOLIDATED CASH FLOW STATEMENTFor the six months ended 30 June 2005 Notes Unaudited Unaudited Audited Six months Six months Year to 31 to 30 June to 30 June December 2005 2004 2004 £'000 £'000 £'000Net cash inflow fromoperating activities 9 1,980 703 1,633Returns on investments andservicing of finance (89) (6) 24Taxation - - (76)Capital expenditure andfinancial investment (87) (25) (12)Acquisitions and disposals (3,217) 1,131 (2,331)---------------------- ------ --------- --------- ---------Cash (outflow) inflowbefore financing (1,413) 1,803 (762)Financing (177) 16 (61)---------------------- ------ --------- --------- ---------(Decrease) increase in cashin the period (1,590) 1,819 (823)---------------------- ------ --------- --------- --------- K3 BUSINESS TECHNOLOGY GROUP PLC NOTES TO THE FINANCIAL STATEMENTS 1. The interim financial information has been prepared inaccordance with the accounting policies adopted in the accounts for the yearended 31 December 2004. 2. The financial information in this statement relating to thesix months ended 30 June 2005 and the six months ended 30 June 2004 is unauditedand does not constitute full statutory accounts within the meaning of Section240 of the Companies Act 1985. The figures for the year ended 31 December 2004have been extracted from the statutory accounts which have been filed with theRegistrar of Companies. The audit report was unqualified and did not contain anystatement under section 237 (2) and (3) of the Companies Act 1985. 3. Operating profit (loss) The operating loss for the six months ended 30 June 2005 is stated aftercharging £0.09m (2004: £0.24m) for development costs relating to theSmartVisionCRM project. The charge for the year ended 31 December 2004 was£0.47m. 4. Acquisition of subsidiary undertaking On 23 June 2005 the company acquired the entire issued share capital ofInformation Engineering Group Limited ("IEG"). The total initial considerationwas £4.46m of which £2.31m was in cash with £2.15m in shares. £1.66m of cash waspaid on completion with a further £0.55m payable on 30 November 2005 and £0.10mpayable on 30 November 2006. Further consideration of up to £1.6m is payablebased on IEG's profits during the two years ending 31 May 2007. The fair valueof the total consideration is estimated to be £5.61m. The following table sets out the book values of the identifiable assets andliabilities acquired and their fair value to the group: Book value Fair value Fair value to adjustments the group £000 £000 £000Fixed assetsTangible 201 - 201Current assetsDebtors 2,290 2,290Cash 74 - 74 --------- --------- ---------Total assets 2,565 - 2,565 --------- --------- ---------CreditorsBankoverdrafts (1,064) - (1,064)Trade (371) - (371)Other (543) - (543)Accruals anddeferredincome (1,548) - (1,548) --------- --------- ---------Totalliabilities (3,526) - (3,526) --------- --------- ---------Netliabilities (961) - (961) --------- ---------Goodwill 7,138Costs ofacquisition (564) ---------Consideration 5,613 ---------Satisfied byCashconsideration 1,663Shares issued 2,150Deferred cashconsideration 650Furtherdeferred cashconsideration 1,150 --------- 5,613 --------- Net cash outflows in respect of the acquisition comprised: £000Net bank overdrafts acquired 990 -------- IEG earned a profit after taxation of £92k in the one month ended 30 June 2005. 5. (Loss) earnings per share The calculations of (loss) earnings per share are based on the following(losses) earnings and numbers of shares: Unaudited six months Unaudited six months to 30 June 2004 Audited year to 30 June 2005 to 31 December 2004 Earnings Per share Earnings Per share Earnings Per share Per share (losses) amount (losses) amount (losses) amount amount Basic and Basic and Basic Diluted Diluted Diluted £'000 p £'000 p £'000 p p(Loss)earnings pershare (eps) (153) (1.1) 918 9.0 1,101 10.0 10.0Effect ofgoodwillamortisation 679 5.0 255 2.5 636 5.8 5.8----------------- ------- ------ ------- ------ -------- ------ ------Eps beforeamortisationof goodwill 526 3.9 1,173 11.5 1,737 15.8 15.8Exceptionalitems (net oftax) - - *1(1,085) (10.6) *1(1,248) (11.3) (11.4)----------------- ------- ------ ------- ------ -------- ------ ------Eps beforeamortisationof goodwillandexceptionalitems 526 3.9 88 0.9 489 4.5 4.4----------------- ------- ------ ------- ------ -------- ------ ------ Unaudited six Unaudited six Audited year to months to 30 months to 30 31 December June 2005 June 2004 2004 Number of shares Number of shares Number of shares Weighted average number of shares: For basicearnings pershare 13,416,215 10,192,428 10,980,489Exercise ofshare options 27,196 - 40,264----------------- ------------ ----------- ---------------For dilutedearnings pershare 13,443,411 10,192,428 11,020,753----------------- ------------ ----------- --------------- *1 Exceptional item in six months to 30 June 2004 and in year to 31 December2004 relates to profit on disposal of the manufacturing software operation basedin Crewe of £1.25m on which there was no tax charge due to the availability ofcapital losses (at 30 June 2004 the profit on disposal was estimated at £1.30mless tax of £0.22m). 6. Creditors: amounts falling due within one year Unaudited Unaudited Audited As at 30 June As at 30 June As at 31 December 2005 2004 2004 Convertible debt6% convertible loan notes 523 - 500--------------------------- -------- -------- --------Other creditorsBank loans and overdrafts 1,243 - -Obligations under finance leasesand hire purchase contracts 312 55 330Other loans 550 - -Other loans due to related parties 827 537 1,303Trade creditors 1,849 257 1,071Corporation tax 204 339 -Taxation and social security 1,188 302 1,032Other creditors 185 531 799Accruals and deferred income 5,123 1,900 4,810--------------------------- -------- -------- -------- 11,481 3,921 9,345--------------------------- -------- -------- -------- 7. Creditors: amounts falling due after more than one year Unaudited Unaudited Audited As at As at As at 30 June 30 June 31 December 2005 2004 2004 Obligations under finance leasesand hire purchase contracts 187 12 337Other loans 100 - -Other loans due to related parties 1,458 - -Accruals and deferred income 1,300 - ---------------------------- -------- -------- -------- 3,045 12 337--------------------------- -------- -------- -------- 8. Reserves Share premium Other reserve Profit and loss account account £'000 £'000 £'000 At 1 January 2005 6,463 4,486 (7,283)Shares issued in relation toacquisition of InformationEngineering Group Limited - 1,584 -Retained loss for the period - - (153)---------------------------- -------- -------- --------At 30 June2005 6,463 6,070 (7,436)---------------------------- -------- -------- -------- 9. Cash flow statement Reconciliation of operating profit (loss) to operating cash flows Unaudited Unaudited Audited Year Six months to Six months to to to 30 Jun 2005 30 June 2004 31 Dec 2004 £000 £000 £000 Operating profit (loss) 178 (123) (33)Depreciation and fixedasset impairment 146 79 215Loss on sale of tangiblefixed assets 27 - 24Amortisation of goodwill 679 255 636Decrease (increase) indebtors 1,533 1,247 (445)(Decrease) increase increditors (583) (755) 1,236--------------------- --------- --------- -------- 1,980 703 1,633--------------------- --------- --------- -------- 10. The above information is being sent to the shareholders and isavailable from the Company's registered office: Linden Business Centre, LindenRoad, Colne, Lancashire, BB8 9BA. This information is provided by RNS The company news service from the London Stock Exchange