Trading Update

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF EU REGULATION 596/2014

12 December 2017

AIM: KBT

K3 BUSINESS TECHNOLOGY GROUP PLC

("K3" or "the Group" or "the Company")

Trading update

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Results of operational resource review

K3, which provides mission-critical business software, cloud solutions and managed services to the retail, manufacturing and distribution sectors, is pleased to provide an update on trading for the 17 month period to 30 November 2017, and the results of its operational resource review. 

The Board of K3 is pleased to confirm that trading over the remainder of the financial period to 30 November 2017 has been in line with management expectations. New customers signed since the 30 June 2017 included Barratts, Eton Shirts, Lifestyle Sports and Littlewoods, and there was encouraging growth in the Global Accounts division. Consequently, results for the period are anticipated to be in line with management expectations. Net debt at 30 November 2017 is expected to be much improved at approximately £4.7m, reflecting initiatives put in place to improve cash generation.

The Board has also completed its operational resource review. The key outcome of this review is the integration of the Microsoft Dynamics businesses (AX, NAV and CRM) into a single unit to create a unified operation, with enhanced and streamlined customer delivery capability. This integration, together with a review of K3's IP development strategy, will result in additional reorganisation costs in FY2018 and a non-cash write-down relating to deferred capitalised development costs of up to £2.5m. Further information on both will be provided with the announcement of results.

Other changes resulting from the review include: the integration of software product development and own IP management functions into a single Group-level IP unit; the creation of a single unit focusing on driving sales and support of K3's own Software-as-a-Service offering; and an increased focus on strategic co-operation with global System Integrators in the Enterprise market for delivery services and support, with K3 providing IP and industry expertise. These changes will support the Board's plans to increase own IP sales and drive recurring revenues.

The Board anticipates some associated cost savings as a result of the streamlining of certain operations but, given its ongoing investment plans for its own IP and sales, it does not anticipate a net reduction in the Group's cost base beyond what has been previously communicated.

K3's own IP strategy includes its easy-to-integrate NextGen platform and accompanying market-leading modules (together, "Imagine"), including Imagine POS (Point of Sale). Management is pleased to report that Imagine POS has now been sold to 12 customers, with the pipeline of opportunities continuing to grow.

K3 is also pleased to confirm that Stuart Darling, who became interim Chairman of the Company in early July 2017, has been appointed as Chairman on a permanent basis.

The Board looks forward to providing a further update on trading towards the end of March with the announcement of results for the 17 month period. It remains confident of the Group's continued progress in 2018.

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