K3 Business Technology Group Regulatory News (KBT)

KBT

K3 BUSINESS TECHNOLOGY GROUP PLC

("K3" or "the Group")

IT solutions supplier to the supply chain industry

Trading Update

K3, which supplies and supports Enterprise Resource Planning software to the supply chain industry, is pleased to announce the following update on trading for the six months ended 31 December 2010.

Results for the six months are expected to show an improvement in the underlying profitability of the business and, including acquisitions, adjusted operating profits* are anticipated to be materially ahead of the comparable period in 2009. The Group's ongoing pipeline of new business opportunities remains good and revenues in the second half of the year should stand to benefit from the anticipated closure of certain major new contracts which are currently in negotiation. K3 continues to generate good cash flows and the extension of banking facilities in the period, as previously announced, will help to support growth. Net debt at 31 December 2010 is expected to stand at £11.6m reflecting loan draw downs to fund acquisitions in the period.

The Group continues to make strategically important progress, especially in the development of its rapidly growing managed services and hosting activities. The two acquisitions completed in the first half of the year (in November and December) represent significant moves forward in the Board's objective to build these revenues streams. The addition of Panacea Ltd, in November, extends the Group's managed services and hosting expertise to support Sage as well as Microsoft Dynamics software applications. The acquisition of certain assets of FD Systems Ltd, completed at the end of December, brings a valuable contracted customer base. This new customer base not only increases the Group's annual recurring income but also opens up the opportunity for us to offer our hosting and managed service solutions.

As stated in September 2010, we believe that the scope of the Group's growth opportunities has widened with the strategic moves we have made since March 2010. We are encouraged by the progress that we have already made in developing these opportunities and believe that they have significant potential to drive long term contracted income and cash generation. With some 40% of annual revenues supported by annual software licence renewals and typically a further 35% of revenues generated by new sales to existing customers, the Board continues to view prospects for the current year and beyond very positively.

*adjusted operating profit is calculated after adding back the impact of amortisation of goodwill, share option and acquisition costs.

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