TIDMKBT
RNS Number : 6962U
K3 Business Technology Group PLC
30 March 2023
AIM: KBT
K3 BUSINESS TECHNOLOGY GROUP PLC
("K3" or "the Group" or "the Company")
Provider of business-critical software solutions focused on
fashion and apparel brands.
Final results for the 12 months to 30 November 2022
Key Points
12 months 12 months Change
to 30 Nov to 30 Nov
2022 2021
Revenue from continuing operations GBP47.5m GBP45.3m +5%
------------ ------------ -----------
Recurring or predictable revenue(1) GBP37.6m GBP33.9m +11%
------------ ------------ -----------
as a percentage of total
- revenue 79% 76% +300bps
----------------------------------- ------------ ------------ -----------
Gross margin 59.2% 59.3% -0.1%-
------------ ------------ -----------
Adjusted EBITDA(1) GBP5.1m GBP4.4m +16%
------------ ------------ -----------
Loss before tax from continuing
operations, including exceptionals(2) GBP(3.8)m GBP(7.8)m +GBP4.0m
------------ ------------ -----------
Net cash(1) GBP7.1m GBP9.0m -GBP1.9m
------------ ------------ -----------
Reported gain / (loss) per share (9.0)p 8.0p -17.0p
------------ ------------ -----------
Adjusted (loss) / earnings per
share for continuing operations(1) (2.6)p (13.6)p +11.0p
------------ ------------ -----------
(1) Refer to note 12 for definitions
(2) Exceptionals include an impairment charge of GBP1.6m (2021:
GBP1.4m) and reorganisation costs of GBP0.70m (2021: GBP1.5m)
Financial
-- Revenue increase driven by strong growth in Third-party
Solutions division and higher contribution from strategic products
in K3 Products division
-- Recurring and predictable income now accounts for 79% of Group revenue (2021: 76%)
o Group Annualised Recurring Contracts ("ARC") at year-end up
11% to GBP22.9m (2021: GBP20.7m)
o Strategic products ARC at year-end up 32% to GBP5.7m (2021:
GBP4.3m), with the K3 fashion Enterprise product up 55%
-- Adjusted EBITDA from continuing activities up 16% to GBP5.1m (2021: GBP4.4m)
-- Healthy net cash of GBP7.1m (2021: GBP9.0m), and Group is
expected to generate net cash in FY 2023
Operational
-- K3 Products division - encouraging underlying performance;
good progress across our fashion and apparel offering (strategic
products) masked by managed run-off of legacy products
o Divisional revenue decreased by GBP1.3m to GBP13.5m (2021:
14.8m); adjusted EBITDA at GBP0.7m (2021: GBP1.1m)
o Gross profit margin up to 78.3% (2021: 75.3%)
o Managed run-off of legacy products customer base in line with
management expectations
o Strategic products' ARC up 32% to GBP5.7m, with new customer
wins and existing customers increasing contracted software
licences
o Viji acquisition is integrating well and has enhanced
sustainability offering
o Largest software licence contract for flagship strategic
product (K3 fashion) signed post period.
-- Third-party Solutions division - strong growth and highly cash generative
o Divisional re venue up 1 1 % to GBP34.0m (2021: 30.5m) and
adjusted EBITDA up 12% to GBP12.8m (2021: GBP11.4m)
o Gross profit margin constant at 51.6%
o Aggregate ARC growth of 8.4%
o NexSys software licence and maintenance contract renewals
remained high at 98% (2021: 98%)
Prospects
-- Encouraging start to trading in FY 2023 with good fashion product ARC growth
-- Board expects continued improvement across both divisions
Marco Vergani, Chief Executive Officer of K3 Business Technology
Group plc, said:
"K3 has made very encouraging progress in its first full year of
executing its new growth plan. Against a challenging trading
backdrop, we have delivered good growth in revenue, recurring
income and profitability, and cash generation is on an upward
trend.
"Our focus on driving the growth of our strategic fashion
products is yielding very encouraging results and we have enhanced
our sustainability offering. This is an increasingly important area
for the fashion and apparel sector, with legislation also driving
the adoption of sustainability solutions. Our Third-party Solutions
division grew strongly and continues to generate high cash
flows.
"The new financial year has started encouragingly, with our
largest ever software licence contract for our flagship fashion
product. The Board is confident that this progress will continue
and expects the Group to become cash generative this year."
Enquiries:
K3 Business Technology Marco Vergani (CEO)
Group plc
www.k3btg.com Tom Crawford (Chairman) T: 0161 876 4498
finnCap Limited Julian Blunt/ Milesh Hindocha T: 020 7220 0500
(NOMAD & Broker) (Corporate Finance)
Richard Chambers, Sunila
De Silva
(Corporate Broking)
KTZ Communications Katie Tzouliadis/ Robert T: 020 3178 6378
Morton
CHAIRMAN'S STATEMENT
Overview
In the previous financial year, the Board reviewed market
opportunities for the Group and established a new growth plan for
the business. This has sharpened our focus on our products for the
fashion and apparel sectors. At the same time, we have identified
new growth opportunities for our Third-party Solutions business. We
also restructured significantly by selling two businesses,
reallocated investment and made organisational changes. We
therefore started the financial year under review with a
strengthened balance sheet, reduced costs and a better focus on our
core strengths.
The trading backdrop continued to be challenging, nonetheless I
am pleased to report that the Group has made encouraging progress
over the year, strategically, financially, and operationally.
Revenue from continuing operations is up by 5% to GBP47.5m (2021:
GBP45.3m), with recurring and predictable revenue up 9% to GBP37.6m
(2021: GBP34.5m). Adjusted EBITDA from continuing activities has
increased by 16% to GBP5.1m (2021: GBP4.3m). The Group's net cash
position at the year-end stood at GBP7.1m (2021: GBP9.0m), after
making strategic investments. Underlying cash generation improved
and this trend is expected to continue.
The Third-party Solutions division continues to generate high
levels of recurring and predictable revenue, as well as strong
levels of cash, from its large customer base. This includes IKEA
Concept franchisees globally and UK manufacturers and distributors.
Software licence and support and maintenance contract renewals
generated by our UK manufacturing customer base, which drive the
division's significant cash generation, remained very high at 98%
(2021: 98%). The division's gross margin was steady at 51.6% (2021:
51.5%).
The K3 Products division, which includes both our strategic and
legacy products, continues to focus on building recurring cash
flows. Recurring contracted revenue from our strategic products,
which serve the fashion and apparel markets, grew strongly, with
the annualised contract value up by 32% to GBP5.7m year-on-year.
This reflected increased uptake of software licences by existing
customers and new customer wins. We expect strategic products to
continue to grow strongly in the new financial year. At the same
time, the division is managing the ongoing decline in the legacy
product customer base. This managed run-off mainly accounted for
the reduction in the division's revenue, though gross margin
increased significantly to 78.5% (2021: 75.3%). The improvement in
gross margin reflected increased income from strategic products,
price increases and cost reduction. The division's EBITDA continued
to improve, moving to GBP(0.7)m (2021: GBP(1.7)m) with
significantly less cash spend on capitalised development. The
acquisition in January 2022 of Viji, a software developer with
proven sustainability software solutions for fashion retailers, has
added valuable new IP in an important area for us. This new IP now
operates alongside our fashion products and will be more deeply
integrated in 2023.
Financial Results
Total revenue from continuing operations for the 12 months ended
30 November 2022 increased by 5% to GBP47.5m (2021: GBP45.3m). On a
constant currency basis, revenue was up by 6%. Recurring and
predictable revenue rose by 9% to GBP37.6m (2021: GBP34.5m), and
accounted for 79% of Group revenue (2021: 76%). Third-party
Products continued to generate a significant proportion of
recurring and predictable revenue at GBP28.0m (2021: GBP25.4m).
Recurring and predictable income from strategic products (in the K3
Products division) is growing fast, with annualised recurring
contracts ("ARC") up 32% to GBP5.7m.
The Group generated a gross profit for the financial year of
GBP28.1m (2021: GBP26.8m), and Group gross margin was constant at
59.2% (2021: 59.3%). This reflected the balance of contributions
from lower-margin Third-party Products and higher-margin K3
products.
Support/administrative expenses rose to GBP23.0m (2021:
GBP22.3m), with a further of GBP1.7m of capitalised development
costs, reduced by GBP1.1m as a result of streamlining operations.
Adjusted EBITDA(1) from continuing activities rose by 16% to
GBP5.1m (2021: GBP4.3m), with the main driver being Third-party
Solutions gross profit. The loss before tax from continuing
activities reduced by GBP4.0m to GBP3.8m, (2021: loss of GBP7.8m)
and adjusted loss per share from continuing operations reduced by
10.8p per share to 2.6p (2021: loss of 13.6p).
Net cash at 30 November 2022 stood at GBP7.1m (2021: GBP9.0m).
This is after Viji acquisition costs and software and systems
investment. Operating cashflow from continuing operations
normalised for Government coronavirus support was GBP3.0m (2021:
GBP3.2m).
Growth Strategy
Third-party Solutions contributes significantly to the Group's
recurring income and cash flows. The division has a
well-established track record in SYSPRO ERP solutions for
manufacturers and distributors in the UK, and our objective is to
secure higher-value projects and to address adjacent verticals. The
Global Accounts business remains a critical partner in the support
and ongoing international expansion of the Inter IKEA Concept via
its franchisees.
The K3 Products division offers significantly higher-margin
growth potential. This reflects the fact that its solutions are
based on K3 intellectual property ("IP"). We believe that there are
substantial growth prospects for the Group's core strategic fashion
products , which offer a powerful set of solutions for fashion and
apparel brands. We have further enhanced these products with the
introduction of Viji IP for supply chain traceability, which
supports customers' sustainability objectives. Sustainability and e
nvironmental considerations have become greater priorities for
customers, and EU and national legislation is also driving this
trend. However, the area remains underserved, and we believe there
is a significant opportunity for us to assist brands in addressing
their sustainability issues.
Legacy solutions, which are also part of the K3 Products
division, are mostly point-of-sale ("POS") products. Our focus is
on providing key accounts with a migration pathway to other K3
products, while managing the ongoing decrease in revenue from these
POS solutions.
People
Jonathan Manley, Non-Executive Director, retired from the Group
at the AGM in May 2022, and we take this opportunity to thank him
again for his contribution to K3 during his six years on the Board.
In July 2022, we were delighted to appoint Pernille Fabricius, ACA,
as Jonathan's successor. She also now heads the Company's Audit
Committee. Pernille has extensive board and senior-level financial
and commercial experience across a number of sectors, including IT
services. She is currently Chief Financial Officer and Executive
Vice President of NNIT A/S, one of Denmark's leading IT and
consulting services providers, and Non-executive director of
Gabriel Holding A/S, the fabrics manufacturer, and of Brødrene
Hartmann A/S, the packaging manufacturer.
Summary and Outlook
We have made encouraging progress under the new growth plan.
Contracted revenue from strategic fashion products is growing
strongly and contributing to the overall increase in recurring or
predictable income. The new financial year has started well with
strategic fashion products significantly expanding software licence
income, which further increases ARC growth. Third-party Solutions
has a solid order book from existing clients and is focused on
margin improvement for new projects and upgrades.
The Group had net cash balances of GBP7.1m at the financial
year-end and the first quarter of the new financial year shows a
further material improvement in cash generation. We expects the
business to generate net cash in the current financial year.
The Board remains confident that the Group will make further
progress over the current financial year and beyond.
T Crawford
Chairman
CHIEF EXECUTIVE OFFICER'S Review
Introduction
Last year's review of Group strategy and addressable markets
identified growth opportunities across all core activities. Our
Third-party Solutions division is an important engine of recurring
income and generates high levels of cash, and we are now focusing
on enhancing margins. However, there is even greater scope to drive
the quality of the Group's income by leveraging the growth of K3
Products. The opportunities for K3's high-margin products in
fashion and apparel brands are extremely attractive, and their
growth will drive recurring revenues, profitability and cash
flows.
We have made very encouraging progress with our strategy and
growth plans although the financial benefits are not yet fully
apparent in these results. At the same time, over the course of the
financial year, we continued to streamline operations and to invest
in our central systems and software products.
Strategic Direction
K3 Products - Focus on Fashion & Apparel
K3 has a well-established track record in the delivery of
Enterprise Resource Planning ("ERP") and Point of Sales ("POS")
solutions for retail businesses. Our expertise extends across all
the core "concept-to-consumer" processes. This includes product
design, product manufacturing, and product supply and returns. We
also understand the challenges that our customers are contending
with, including new regulations, changing consumer behaviour and
technological innovation. The adoption of digital technology is
driving the need for solutions that support strong supply chain
collaboration and smarter, more integrated sales engagement with
customers. New products are data-led and cloud-based
Software-as-a-Service ("SaaS") solutions.
Our focus is now on capitalising on our existing position and
reputation in the fashion and apparel and related large retail
markets, which includes brands that are developing their
direct-to-consumer routes to market.
'Transforming retail for good' summarises the direction we are
taking; that is to provide solutions that support innovation and
transformation of core business processes, including in relation to
environmental and ethical priorities. The growth areas we are
focusing on are:
-- Sustainability - in particular supply chain traceability,
which is now subject to new legislation;
-- Omni-channel and 'unified commerce' - which encompasses
managing effectively both B2B and B2C channels, supporting
a unified view of inventory across all channels, as well
as creating a seamless shopping experience for consumers
as they engage digitally and physically with brands, from
the discovery stage to checkout and returns; and
-- Business Insight - enabling brands to gather actionable
intelligence from data collected via our products to optimise
inventory, maximise profitability, reduce wastage and
inefficiencies, and engage with consumers in a more personalised
way.
The addition of Viji, the sustainability-focused software
developer, has extended our existing sustainability offering with
products that address supply chain transparency. This is a growth
area, which is now subject to increasing regulation and consumer
awareness.
Third-party Solutions
NexSys (previously called SYSPRO)
Customers in manufacturing and distribution are embracing
digital transformation, smart manufacturing and direct machine
integration, and moving away from first-generation, monolithic ERPs
or legacy applications, which are often not integrated. This shift
provides us with significant growth opportunities, and we are
targeting larger-scale projects for customers in growth
sectors.
We continue to invest in our relationship with SYSPRO as well as
in software development to enrich the SYSPRO offering with our own
modules, capabilities and add-ons. We are also strongly focused on
customer support and our end-to-end support service remains
unrivalled in the marketplace. In the period, we rebranded this
operation in order to position our capabilities more
effectively.
Global Accounts
The Global Accounts unit includes our relationship with Inter
IKEA Systems B.V. (the owner and franchisor of the IKEA concept)
and the Inter IKEA Concept franchisees. The backbone of our
activity is the development, enhancement and maintenance of the
core IKEA solution for franchisees as well as integrations,
software customisation and support. This support encompasses the
core infrastructure behind IKEA franchisee stores and back-office
solutions. We also develop and implement complementary new
solutions such as our 'Mobile Goods Flow' and 'Self-ordering Kiosk'
applications, to extend the core IKEA solution.
The IKEA Concept and IKEA stores continued to expand rapidly in
2022, with new store openings in Chile, Indonesia, Taiwan and other
locations. We maintain a solid backlog of enhancement projects
although fewer new IKEA stores are planned in 2023 than in
2022.
Organisational and operational changes
We continued to streamline the Group and to strengthen our sales
approach. In allocating investment, we have prioritised our
strategic partnerships. These include Microsoft and channel
partners responsible for reselling our fashion offerings. Our
relationship with Microsoft remains close, and K3's inclusion as
part of Microsoft Retail Cloud is testimony to the strength of our
products in the fashion and apparel sector. Our K3 fashion product
remains Microsoft's recommended 'add-on' solution for the fashion
and apparel sector globally.
During the financial year, we invested in enhancing channel
partner sales support, and in delivery and customer support as well
as in knowledge management practices We have also developed the new
sales team in North America, which is an important region for us,
working in conjunction with Microsoft.
Review of Performance
K3 Products
K3 Products provides software products and solutions that are
powered by our own IP. They comprise:
-- strategic products focused on the fashion and apparel
markets, including K3 fashion and K3 pebblestone, K3 Viji and K3
Imagine;
-- solutions for the visitor attraction market; and
-- stand-alone point solutions, which are mainly our legacy point-of-sale ("POS") products.
GBPm 2022 2021*
--------------------------------- ----------- -----------
Revenue 13.5 14.8
Gross profit 10.5 11.1
Gross margin (%) 78.3% 75.3%
Adjusted EBITDA 0.7 (1.7)
--------------------------------- ----------- -----------
*FY2021 restated to reflect latest segment reporting,
in which Revenue and Gross profit from "mobile
goods flow" and "make tax digital" are reclassified
from K3 Products to Third-party Solutions.
Divisional revenue decreased by GBP1.3m to GBP13.5m (2021:
GBP14.8m). Approximately GBP1.1m of this reduction reflected
continued managed run-off of from legacy products, which was in
line with management expectations. However, it masks the very good
progress made with strategic fashion products, especially K3
fashion. By the financial year end, the annualised value of
recurring revenue (or Annualised Recurring Contracts ("ARC")) from
strategic product software licences had increased significantly,
driven both by new customer additions and increased software
licence sales to existing customers.
ARC is a key measure of our strategic products (including K3
fashion and K3 pebblestone, which are focused on the fashion and
apparel brands). This metric does not use IFRS15's 'point-in-time'
revenue recognition approach to term contracts, but instead
recognises revenue over the term of the contract. ARC from our
strategic products increased by 32% to GBP5.7m, with 25% of this
driven by existing customers taking up further software licences.
Importantly, ARC from our flagship product, K3 fashion, increased
by 55%.
Legacy product managed run-off impacted the division's overall
gross profit, which was down by GBP0.6m to GBP10.5m. However, gross
margin improved significantly to 78.3%, from 75.3% in the prior
year. This reflected the change in revenue mix, increased pricing,
as well as cost reductions.
A total of GBP2.1m of major new contracts were secured for K3
fashion and K3 pebblestone, with a strong close at the end of the
financial year (2021: GBP3.1m, which included a number of
multi-year contracts). The GBP2.1m of new contracts signed in 2022
were mostly one-year contracts, which typical roll-on and expand
significantly, driving growth in ARC. As an illustration, a major
new customer signed in 2020 implemented c. GBP0.02m of software in
its first year. Since then, its software contract value has grown
more than ten-fold to c. GBP0.25m per annum. New contracts included
eight major new customer wins as well as increased software licence
sales to existing customers. The major new customers included a
premium outdoor-clothing company, a luxury Swiss watch brand, a
leading French youth-fashion brand, a Spanish fashion brand, a
large UK clothing & footwear brand and a major Nordics fashion
and apparel brand.
We were pleased with the expansion in revenues from existing
clients, which demonstrates the continuing success of our 'land and
expand' strategy. Typically customers use our fashion products for
their centralised functions (including purchasing, catalogue
management, and pricing) and then adopt it across the rest of their
operations (particularly with increasing use of hand-held devices
in distribution centres and stores).
We initiated the migration of our K3 pebblestone clients from an
existing 'on-premises' solution to a new cloud-based version, which
is sold on a subscription basis. This migration is underpinned by
Microsoft's push to move Dynamics Business Central clients to its
cloud versions, and we expect the migration to accelerate in 2023
and beyond.
The principal route to market for K3 fashion and K3 pebblestone
remains via selected Microsoft business partners. Microsoft's
global endorsement of K3 fashion as its recommended 'add-on'
solution for the fashion and apparel vertical continues to
underline the quality of our solution. Our channel partner
management team is working well with our business partners and will
continue to support channel sales, including opportunities for our
fashion products in the USA. Given the demand for our fashion
solutions, we have further expanded the number of our business
partners and created a team of experts to support them in initial
engagements and showcase our thought leadership and best
practices.
Our solutions for visitor attractions delivered an improved
performance. This was driven by a combination of recovery in the UK
visitor attractions segment after the coronavirus pandemic, but
also the improvements we made to our offering over the last
financial year. These included an enhanced reservation engine,
improved online ticketing capability, and an upgraded user
interface, all of which supported price increases to customers.
In January 2022, we made a strategic purchase of intellectual
property, acquiring Viji, an innovative French software developer.
Viji is wholly focused on enabling fashion retailers trace and
authenticate more easily the environmental and social credentials
of their supply chains. It has been developed as a fully-scalable
software solution, covering the collection, verification and
renewal of supplier certifications. It also includes a
consumer-facing component, which enables fashion retailers to
provide consumers with ethical and environmental information on
their products.
Viji's exciting new products complement our existing offering
and have accelerated the development of our sustainability
offering, in particular for supply chain transparency. We are in
the process of integrating the IP with our fashion products to
create a market-exclusive and highly valuable, end-to-end
sustainability solution, which covers supply chain transparency,
the production of automated ESG reports, compliance documentation
and authenticated information on customers' products. We
successfully deployed K3 Viji into a select number of customers and
are taking advantage of their input to prioritise new development.
In parallel, we have created a substantial pipeline of
opportunities, which reflects the increasing prioritisation of
sustainability issues by customers, accelerated by a number of
fast-approaching legislative deadlines and targets in Europe and
the USA.
Third-party Solutions
Third-party Solutions comprises NexSys (previously called
SYSPRO) and Global Accounts, which both resell Third-party
Solutions. These are typically 'on-premise', and revenues are
generated from implementation, software licence renewals, and
ongoing maintenance and support contracts.
GBPm 2022 2021*
-------------------------------- ------------ -----------
Revenue 34.0 30.5
Gross profit 17.6 15.7
Gross margin % 51.6% 51.5%
Adjusted EBITDA 12.8 11.4
-------------------------------- ------------ -----------
*FY2021 restated to reflect latest segment reporting,
in which Revenue and Gross profit from "mobile
goods flow" and "make tax digital" are reclassified
from K3 Products to Third-party Solutions.
The division performed well, with total revenue increasing by
11% to GBP34.0m (2021: GBP30.5m) and adjusted EBITDA 11% higher at
GBP12.8m (2021: GBP11.4m). Gross margin remained constant at 51.6%
(2021: 51.5%)
Building on last year's progress, NexSys, the new name for our
SYSPRO operations, which is focused on business-critical ERP for
the UK manufacturing and distribution markets, delivered a good
performance, implementing new software installations for new
customers and servicing the order book from existing customers.
Although a number of prospects delayed their purchasing decisions,
against the background of rising energy costs, we won several
important new customers. These included a distributor of
diagnostics tools, a well-known brand of home furniture, a leading
European manufacturer of axles and suspensions, and the Physics
Department of a leading UK university. We therefore entered the new
financial year with a good pipeline of projects. We have increased
resource to support new business wins and to take advantage of the
opportunities ahead.
The NexSys customer base generates strong cash flows from
software licence and maintenance and support contract renewals. The
majority of renewals takes place in the final quarter of the
financial year and remained very high at c.98 % (2021: 98%).
Global Accounts, which predominantly provides specialist
software services to the Inter IKEA Concept franchisee network,
also performed well. Our specialist services teams continued to
support the roll-out of IKEA franchisee stores in the Far East and
in Central and South America. We added delivery resource during the
year, although the shortage of available skilled resource resulted
in some cost inflation. We also continued to deliver K3 Product
applications into IKEA franchisees, including 'Mobile Goods Flow'.
We are focused on gross margin improvement over 2023, which will be
helped by an easing of resource pressures and the good backlog of
projects with franchisees. Revenue from framework contracts closed
the year strongly, up 18% on an annualised basis.
Central costs
Central Support costs include our central IT, finance, legal,
HR, insurance, marketing and PLC costs, which are not allocated to
revenue generation. There was a GBP0.4m increase in Central costs
to GBP8.5m (2021: GBP8.1m), which reflected our investments in
upgrading our internal IT application landscape by adopting and
deploying new financial, CRM and customer support systems.
Summary
Over the financial year, we made very encouraging progress in
line with our new growth strategy. Our focus on and investment in
our strategically important business areas have improved our market
position, reinforced our thought leadership in key sectors, and
enhanced our ability to drive strategic product growth. Our
products are mission-critical and help customers unlock digital
innovation thereby improving their ability to compete in the
markets they serve. We expect to deliver further growth in the new
financial year while also improving Group cash generation.
Marco Vergani
Chief Executive Officer
financial Review
Overview
It should be noted that the comparatives for the prior financial
year consolidated income statement have been restated. This
followed the classification of the certain Group-owned products
that are sold exclusively into the Third-party Solutions customer
bases being reclassified into the Third-party Solutions
segment.
The Group's reported segments are 'K3 Products' and 'Third-party
Solutions', with central support costs reported separately, as
previously. This aligns segmental reporting with the Group's growth
strategy.
The Directors consider the key performance indicators by which
they measure the performance of the Group by division to be:
-- revenue;
-- recurring or predictable revenue(*2) ;
-- Group ARC(3 ;)
-- strategic products ARC(3) ;
-- gross profit;
-- gross margin; and
-- adjusted EBITDA.
The Group's results for the year end to 30 November 2022,
together with comparatives for the same period in 2021, are
summarised in the tables below.
Continuing activities Revenue
GBPm 2022 2021*
------------------------------------------ ------- ---------
Revenue 47.5 45.3
- recurring or predictable revenue(2) 22.8 20.3
ARC - Group 22.9 20.7
ARC - Strategic products 5.7 4.3
Gross profit 28.1 26.8
Gross margin percentage 59.2% 59.3%
Underlying support / admin costs (24.7) (25.2)
Capitalised development costs 1.7 2.8
Adjusted EBITDA 5.1 4.4
------------------------------------------ ------- ---------
Overall Group revenue was up 5% to GBP47.5m (2021: GBP45.3m)
being driven by Third-party solutions. On a constant currency
basis, underlying growth was GBP2.5m higher year-on-year.
Third-party Solutions revenue increased by 11% to GBP34.0m (2021:
GBP30.5m). K3 Products revenue was GBP13.5m (2021: GBP14.8m), down
9% or GBP1.3m. This reflected legacy decline of GBP1.4m, which was
in line with expectations. Revenue from K3 Products' strategic
products increased by GBP0.1m to GBP4.7m, with total deal closure
in line with the prior year.
Gross profit mirrored revenue growth and increased by 4.7% to
GBP28.1m (2021: GBP26.8m). Overall gross margin percentage was
unchanged at 59.2% (2021: 59.3%) with K3 Products gross margin
percentage increasing to 78.3% (2021: 75.3%). This was driven by an
improving mix of higher-margin fashion products, more operational
leverage in K3 imagine and price increases. Third-party Solutions
margins remained constant at 51.6% (2021: 51.5%).
Group annualised recurring contracts ("ARC") grew by 11% to
GBP22.9m from GBP20.6m, driven by strategic products growth of 32%
to GBP5.7m (2021: GBP4.3m). Within strategic products, ARC for the
enterprise product, K3 fashion, increased by 55%, driven by both
new customers and existing customer expansion.
The key metric of adjusted earnings before interest, tax,
depreciation, amortisation and exceptional items ("EBITDA")
increased by 16% to GBP5.1m (2021: GBP4.1m), with lower capitalised
development costs of GBP1.7m (2021: GBP2.8m) meaning that
underlying operating margins are expanding.
Administrative expenses
GBPm 2022 2021*
-------------------------------------------------- ----------- ----------
Support/ administration costs net
of capitalised development costs 23.0 22.3
Depreciation & amortization 5.4 6.8
Amortization of acquired intangibles 0.0 0.5
Exceptional costs impairment & reorganisation 2.2 3.1
Share based payments 0.9 0.4
-------------------------------------------------- ----------- ----------
Total 31.5 33.1
-------------------------------------------------- ----------- ----------
Support/administration costs net of capitalised developm ent
costs (*7) increased by GBP0.8m to GBP23.1m (2020: GBP22.3m), which
reflected the investment in additional customer-facing staff.
Depreciation and amortization costs decreased in line with the
reduced level of capitalised development in recent years.
Exceptional costs in the year related to the impairment of some
Retail POS amounting to GBP1.6m, acquisitions costs and
restructuring costs of GBP0.6m. Exceptional costs in 2021 related
to redundancy costs and onerous contracts following the Starcom
disposal.
Earnings per share
The Group's adjusted loss per share from Continuing
operations(*6) reduced by 10.8p per share to 2.6p (2021: adjusted
loss per share(*6) of 13.6p). Reported loss per share was 9.0p
(2021: earnings of 8.0p, which included profit from disposals).
Dividends
No dividend will be declared for the year ended 30 November 2022
(2021: nil).
Taxation
The corporation tax charge for the financial year was GBP0.1m
(2021: GBP0.8m charge). This comprised a charge for current
taxation of GBP0.1m (2021: GBP0.6m) relating to the non-UK
businesses and a charge for deferred taxation of GBPnil (2021:
GBP0.2m).
Balance sheet
Overall the Group balance sheet remains robust with net cash
balances of GBP7.1m (2021: GBP9.1m). The Group has a bank facility
with Barclays, its long-standing bankers, which provides for the
draw down of up to GBP3.5m to support seasonal cash movements. At
the year-end, GBPnil was drawn down (2021: GBPnil). After the
financial year end, the Group's facility agreement was extended for
a further year, until March 2024.
Goodwill increased to GBP25.0m (2021: GBP24.8m) as a result of
acquisitions and FX charges. Development costs reduced to GBP3.0m
(2021: GBP6.6m), reflecting the reduction in capitalised
development costs and the impairment of GBP1.6m. The development
cost balance of GBP3.0m is now heavily weighted, 80% to the
strategic vertical of fashion & apparel. Property, plant and
equipment decreased to GBP2.5m (2021: GBP3.3m) with depreciation
exceeding additions.
Current assets increased in Contract Assets driven by multi-year
longer term deals and in Trade Debtors with increased Third-party
Solution revenues. Trade & Other Payables increased to GBP17.7m
(2021: GBP14.5m), which reflected deferred income and contingent
acquisition consideration and higher year-end commissions. Current
leases obligations reduced to GBP0.8m (2021: GBP1.6m) following the
reduction of the office footprint and car fleet.
Cash flow
Net cash balances at the year-end stood at GBP7.1m (2021:
GBP9.0m). The underlying trend of cash generation is improving with
an annualised GBP3.0m cash outflow(1) as at 31 May 2022, reducing
to GBP1.9m as at 30 November 2022 and with further material
reduction in Q1 2023 on K3's path to cash generation. Cash
outflow(1) in the financial year amounted to GBP1.9m, including
GBP0.3m of costs relating to the acquisition of Viji and GBP1.0m of
investment in upgrading internal systems.
The comparison of cashflow in 2022 and 2021 is distorted by the
disposals of the Sage and Starcom business units. The table below
normalises the impact of the disposals and also the 2021 Government
coronavirus support unwind on cash generated from operations.
GBPm 2022 2021
Net cash from operating activities 2.4 (0.5)
------ ------
Total
------ ------
- Add back Sage outflows - 0.2
-------------------------------------------- ------ ------
- Add back Starcom inflows - (1.1)
-------------------------------------------- ------ ------
- Add back Dynamics (inflow)/ outflow (0.4) 1.6
-------------------------------------------- ------ ------
Development expenditure capitalized (1.7) (3.0)
------ ------
Purchase of property, plant and equipment (0.8) (0.6)
------ ------
Government coronavirus tax support paid/
(deferred) - 2.7
------ ------
Operating cash flow from Continuing
Activities normalised for Government
coronavirus support and capital expenditures 2.6 (0.3)
------ ------
Investing Activities included GBP0.3m for the consideration of
the Viji acquisition in addition to associated deal costs. 2021
Investing Activities included the disposal proceeds of the Starcom
and Sage businesses of GBP13.3m and GBP1.5m respectively.
Development expenditure capitalised for products was GBP1.7m
(2021: GBP2.3m) with a further GBP1.0m invested in internal systems
upgrade classified across capitalised development and purchase of
property, plant and equipment. Development expenditure capitalised
on product for external commercialisation was spread evenly across
the core strategic products of K3 fashion, K3 pebblestone and K3
Viji.
Within 2021 Financing Activities, following the high level of
Starcom and Sage disposal proceeds, these funds were used to pay
down the bank facilities of GBP6.8m. In addition, 2021 indebtedness
was further reduced by the non-cash debt-to-equity conversion of
the GBP3m shareholder loan.
Finance expenses were higher in 2021 due to the charge for the
conversion of shareholder loan notes into equity. Repayments of
lease liabilities continued to decrease following the reduction of
the office footprint and size of the car fleet.
Robert Price
Chief Financial Officer
K3 Business Technology Group plc
Consolidated income statement
for the year ended 30 November 2022
Notes Year ended Year ended
30 November 30 November
2022 2021
GBP'000 GBP'000
Revenue 3 47,532 45,267
Cost of sales (19,382) (18,432)
------------- -------------
Gross profit 28,150 26,835
Administrative expenses (31,518) (33,106)
Impairment losses on financial
assets 3 (102) (118)
------------- -------------
Adjusted EBITDA 12 5,064 4,357
Depreciation and amortisation (5,383) (6,797)
Amortisation of acquired intangibles - (518)
Exceptional impairment (1,603) (1,421)
Exceptional reorganisation
costs 3 (693) (1,570)
Share-based payment charge (855) (440)
------------- -------------
Loss from operations 3 (3,470) (6,389)
Finance expense (338) (1,433)
------------- -------------
Loss before taxation from
continuing operations (3,808) (7,822)
------------- -------------
Tax expense 4 (278) (939)
------------- -------------
Loss after taxation from continuing
operations (4,086) (8,761)
Profit after taxation from discontinued
operations 6 108 12,292
(Loss)/profit for the year (3,978) 3,531
------------- -------------
All the (loss)/profit for the year is attributable to equity
shareholders of the parent.
Gain / (loss) per share Year ended Year ended
30 November 30 November
2022 2021
Basic and diluted (9.0)p 8.0p
Basic and undiluted from Continuing
operations (9.3)p (19.9)p
Year ended Year ended
30 November 30 November
2022 2021
GBP'000 GBP'000
(Loss)/profit for the year (3,978) 3,531
------------- -------------
Other comprehensive income/(expense)
Exchange differences on translation
of foreign operations 69 (1,085)
Other comprehensive income/(loss) 69 (1,085)
Total comprehensive (expense) /income
for the year (3,909) 2,446
------------- -------------
Total comprehensive (expense)/income is attributable to equity
holders of the parent.
All the other comprehensive income will be reclassified
subsequently to profit or loss when specific conditions are met.
None of the items within other comprehensive income/(expense) had a
tax impact.
K3 Business Technology Group plc
Consolidated statement of financial position
as at 30 November 2022
Notes 2022 2021
GBP'000 GBP'000
ASSETS
Non-current assets
Property, plant, and equipment 1,766 1,551
Right-of-use assets 801 1,709
Goodwill 7 25,022 24,772
Other intangible assets 3,394 6,648
Deferred tax assets 855 1,010
--------- ---------
Total non-current assets 31,838 35,690
--------- ---------
Current assets
Stock 484 467
Trade and other receivables 13,549 10,605
Forward currency contracts 110 -
Cash and short-term deposits 7,113 9,146
Total current assets 21,256 20,218
--------- ---------
Total assets 53,094 55,908
--------- ---------
LIABILITIES
Non-current liabilities
Lease liabilities 79 135
Provisions 179 1,129
Deferred tax liabilities 1,119 1,288
--------- ---------
Total non-current liabilities 1,377 2,552
--------- ---------
Current liabilities
Trade and other payables 16,882 14,456
Current tax liabilities 372 509
Lease liabilities 802 1,623
Borrowings 50 113
Provisions 968 854
Total current liabilities 19,074 17,555
--------- ---------
Total liabilities 20,451 20,107
--------- ---------
EQUITY
Share capital 11,183 11,183
Share premium account 31,451 31,451
Other reserves 11,151 11,151
Translation reserve 1,607 1,538
Retained earnings (22,749) (19,522)
--------- ---------
Total equity attributable to equity holders
of the parent 32,643 35,801
--------- ---------
Total equity and liabilities 53,094 55,908
--------- ---------
K3 Business Technology Group plc
Consolidated Cash Flow Statement
for the year ended 30 November 2022
Year ended Year ended
30-Nov 2022 30-Nov 2021
Notes GBP'000 GBP'000
Cash flows from operating activities
Profit/ (loss) for the period (3,978) 3,531
Adjustments for:
Finance expense 336 1,448
Tax expense 4 90 829
Depreciation of property, plant, and equipment 636 591
Depreciation of right-of-use assets 981 963
Amortisation of intangible assets and development expenditure 3,767 5,639
Impairment of intangible assets 1,603 1,421
Loss on sale of property, plant, and equipment 10 466
Share-based payments charge 751 440
(Profit) on disposal of discontinued operations - (11,893)
Net cash flow from provisions (717) 1,558
Net cash flow from trade and other receivables (3,037) (242)
Net cash flow from trade and other payables 2,380 (4,863)
---------------------------------------------------------------------------- ------ ------------ ------------
Cash generated from operations 2,822 (112)
Income taxes paid (395) (395)
---------------------------------------------------------------------------- ------ ------------ ------------
Net cash from operating activities 2,427 (507)
---------------------------------------------------------------------------- ------ ------------ ------------
Cash flows from investing activities
Development expenditure capitalised (1,725) (3,024)
Acquisition of a subsidiary, net of cash acquired 5 (178) -
Proceeds from disposal of operations net of cash balances in disposal unit - 14,763
Purchase of property, plant, and equipment (845) (623)
---------------------------------------------------------------------------- ------ ------------ ------------
Net cash from investing activities (2,748) 11,116
---------------------------------------------------------------------------- ------ ------------ ------------
Cash flows from financing activities
Proceeds from loans and borrowings - 4,800
Repayment of loans and borrowings (111) (11,571)
Repayment of lease liabilities (1,073) (1,187)
Interest paid on lease liabilities (132) (202)
Finance expense paid (150) (673)
Net cash from financing activities (1,466) (8,833)
---------------------------------------------------------------------------- ------ ------------ ------------
Net change in cash and cash equivalents (1,787) 1,776
---------------------------------------------------------------------------- ------ ------------ ------------
Cash and cash equivalents at start of year 8 9,033 7,566
Exchange losses on cash and cash equivalents (133) (309)
---------------------------------------------------------------------------- ------ ------------ ------------
Cash and cash equivalents at end of year 8 7,113 9,033
K3 Business Technology Group plc
Consolidated statement of Changes in Equity
for the year
ended 30 November Share Share Other Translation Retained
2022 Note capital premium reserves reserve earnings Total equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 November 2020 10,737 28,897 11,151 2,623 (23,493) 29,915
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Changes in equity
for year ended 30
November 2021
Profit for the year - - - - 3,531 3,531
Other comprehensive loss
for the year - - - (1,085) - ( 1,085)
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Total comprehensive
income/(expense) - - - (1,085) 3,531 2,446
Share-based payment - - - - 440 440
Issue of shares 446 2,554 - - - 3,000
At 30 November 2021 11,183 31,451 11,151 1,538 (19,522) 35,801
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Changes in equity
for year ended 30
November 2022
Loss for the year - - - - (3,978) (3,978)
Other comprehensive income
for the year - - - 69 - 69
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Total comprehensive
income/(expense) - - - 69 (3,978) (3,909)
Share-based payment - - - - 751 751
At 30 November 2022 11,183 31,451 11,151 1,607 (22,749) 32,643
---------------------------- ------------- ------------- ------------- ------------- ------------- -------------
NOTES
1 Basis of preparation
Statement of compliance
The Group financial statements from which this statement of
Final Results is extracted have been prepared in accordance with UK
endorsed IFRS in conformity with the requirements of the Companies
Act 2006 ("IFRS"). The company financial statements have been
prepared in accordance with Financial Reporting Standard 101,
Reduced Disclosure Framework ("FRS101").
The financial information has been prepared under the historical
cost convention except for derivative financial instruments which
are stated at their fair value.
Whilst the financial information included in this statement of
Final Results has been prepared in accordance with the recognition
and measurement criteria of IFRS, this announcement does not itself
contain sufficient information to comply with IFRS.
The Group's statutory financial statements for the year ended 30
November 2022, from which the financial information presented in
this announcement has been extracted, were prepared using the
accounting policies disclosed in the principal accounting policies
set out in the Group's Annual Report. These policies have been
consistently applied to all years presented.
The preparation of financial statements in conformity with IFRS
requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Although these estimates are
based on management's best knowledge of the amount, event or
actions, actual results ultimately may differ from these
estimates.
This statement of Final Results does not constitute the
Company's statutory accounts for the years ended 30 November 2022
and 30 November 2021 within the meaning of Section 435 of the
Companies Act 2006 but is derived from those statutory
accounts.
The Group's statutory accounts for the year ended 30 November
2021 have been filed with the Registrar of Companies, and those for
2022 will be delivered following the Company's Annual General
Meeting. The Auditor has reported on the statutory accounts for
2022 and 2021. Their report for 2022 was (i) unqualified, (ii) did
not contain any material uncertainties and (iii) did not contain
statements under Sections 498 (2) or 498 (3) of the Companies Act
2006 in relation to the financial statements.
Going Concern
The Group closely reviews its funding position throughout the
year, including monitoring compliance with covenants and available
facilities to ensure it has sufficient headroom to fund operations.
The Group has extended its current Banking Facilities arrangements
with its long-term Bank, Barclays, for a further year to 31 March
2024.
The capital structure of the Group has materially changed in the
last two years with the disposal of the Starcom and Sage businesses
for a combined GBP16.2m and the conversion of a GBP3.0m shareholder
loans to equity. The Group therefore ended the year ended 30
November 2022 with a Net Cash position of GBP7.1m.
The Group has prepared cashflow forecast for a period of at
least 12 months from the date of approval of the financial
statements which show that the Group will have reasonably
significant headroom and be in compliance with covenants. The
forecast has undergone sensitivity analysis and stress testing and
the Directors have concluded that there is no reasonable worst-case
scenario that is likely which would mean the group would run out of
cash or breach covenants.
The Directors therefore have a reasonable expectation that there
are no material uncertainties that cast significant doubt about the
Group's ability to continue in operation and meet its liabilities
as they fall due for the foreseeable future, being a period of at
least 12 months from the date of approval of the financial
statements. For these reasons the financial statements have been
prepared on a going concern basis.
2 Key Accounting policies for the Group financial statements
Goodwill
Goodwill is initially recognised and measured as set out
above.
Goodwill is not amortised but is reviewed for impairment at
least annually. For impairment testing, goodwill is allocated to
each of the Group's subsidiaries or cash-generating units (or
groups of cash-generating units) expected to benefit from the
synergies of the combination. Cash-generating units to which
goodwill has been allocated are tested for impairment annually, or
more frequently when there is an indication that the unit may be
impaired. If the recoverable amount of the cash-generating unit is
less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill
allocated to the unit and then to the other assets of the unit
pro-rata based on the carrying amount of each asset in the unit. An
impairment loss recognised for goodwill is not reversed in a
subsequent period.
On disposal of a subsidiary or cash-generating unit, the
attributable net book value of goodwill is included in the
determination of the profit or loss on disposal.
Revenue recognition
The Group contracts for products and services in a variety of
contractual forms and deployment methods which impact IFRS 15
revenue recognition. These include:
-- Reselling of 3rd party products for which following
contracting the Group has no continuing performance obligations for
software and the customer controls the software. These are usually
perpetual licenses with customer on premise installations. Since
the Group is reselling these all already functional products,
services are unbundled. Customers can also choose to take
maintenance and support for these products or indeed obtain
services, support, and maintenance from different suppliers.
-- K3 bolt on own software IP (Intellectual Property) that adds
incremental vertical functionality and bolts onto Microsoft
Dynamics products and that is either sold directly to customer or
via a channel partner. K3 does not control the software after the
contract and issue of access code, which is contemporaneous. There
is an ongoing performance obligation to maintain the product to
ensure the functionality continues to bolt onto Microsoft Dynamics
products.
-- K3 own products for which K3 controls and has ongoing
performance obligations. These products are typically SaaS
(Software as a Service) based subscription products which include a
right to access as the customer continuously consumes
functionality. The product offer is a typical bundle of software
access, maintenance, and support. The contracts typically have a
low level of services.
Software license revenue:
Software licenses for 3rd party products are recognised at a
point in time, on contract and issue of the initial license key
which is contemporaneous.
K3 bolt on own software IP is recognised at a point in time, on
contract and issue of the license key which is contemporaneous.
K3 own products which is SaaS based is recognised over time and
not in software but rather in maintenance and support for the
purposes of revenue disaggregation disclosures. Revenue is
recognised over time as K3 controls the product, the license is not
distinct, and the customer continually receives benefits.
Services revenues
Services are linked to implementation and set up of K3 own and
3rd party products, rather than product functionality build.
Services are contracted for on a time and materials basis, the
customer takes ownership of the work delivered and revenue is
recognised as it is performed.
Hardware:
Hardware is peripheral to a number of contract implementations;
the revenue is recognised when the customer takes control of the
asset on delivery.
Maintenance and Support:
Maintenance refers to the maintenance of the products and
ensuring a right to upgrade whilst Support refers to ongoing
customer support including for example help desk access.
3rd party products maintenance is provided by the product's
author K3 has no performance obligation and this is sold through K3
for a margin. Revenue is recognised for the term of the contract at
a point in time when the contract is signed. Support of 3rd party
products is provided by K3 over time over the term of the
contract.
K3 bolt on own software IP is typically re-sold via channel
partners who provide support. K3 has an ongoing performance
obligation for the maintenance of the product and recognises a
portion of revenue associated with that over time.
K3 own SaaS / subscription products and usually hosted by K3 and
typically a bundled offer of maintenance and support is provided to
customers which are both performance obligations for K3 and revenue
is recognised over time.
Allocation of transaction price:
Transaction price is measured based on the consideration
specified in a contract with a customer and, where applicable, the
best estimate of any consideration related to modifications to the
contract which has yet to be agreed. Any amounts expected to be
paid to the customer, such as penalties for late delivery, are
deducted from the consideration. Where a transaction price must be
allocated between multiple performance obligations, this is
generally achieved through allocating a proportion of total price
against each using either standard list sales prices or an
estimated cost methodology.
Critical accounting estimates and judgements
In applying the Group's accounting policies above the directors
are required to make judgements (other than those involving
estimations) that have a significant impact on the amounts
recognised and to make estimates and assumptions about the carrying
amounts of assets and liabilities that are not readily apparent
from other sources. The estimates and associated assumptions are
based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
The directors are of the opinion that there are no significant
judgements to be disclosed except those over going concern which
are disclosed in detail in the basis of preparation accounting
policy in note 1. The key sources of estimation that have a
significant impact on the carrying value of assets and liabilities
are discussed below:
Impairment of goodwill and other intangibles
Determining whether goodwill is impaired requires an estimation
of the value in use of the cash generating units to which goodwill
has been allocated. The value in use calculation requires an entity
to estimate the future cash flows expected to arise from the cash
generating unit. It also requires judgement as to a suitable
discount rate in order to calculate present value, i.e., the
directors' current best estimate of the weighted average cost of
capital ("WACC"). Other intangibles are assessed annually for
impairment as well as when triggers of impairment arise. An
impairment review has been performed at the reporting date.
Capitalised development expenditure and subsequent
amortisation
Where such expenditure meets the relevant criteria, the Group is
required to capitalise development expenditure. In order to assess
whether the criteria are met the Board is required to make
estimates in relation to likely income generation and financial and
technical viability of the relevant development projects and the
period over which the Group is likely to benefit from such
expenditure. Development projects are subject to an investment
appraisal process with the product managers to assess the status of
the development and the expected commercial opportunities.
Development costs are assessed for impairment which requires an
estimation of the future expected revenues to be generated from
each product. This methodology, which is similar to that used to
assess any impairment of goodwill. Expenditure is only capitalised
when the investment appraisal process has assessed that the product
is likely to benefit the Group in the future.
Calculation of loss allowance
When measuring expected credit losses, the Group uses reasonable
and supportable forward-looking information, which is based on
assumptions for the future movement of different economic drivers
and how these drivers will affect each other.
Loss given default is an estimate of the loss arising on
default. It is based on the difference between the contractual cash
flows due and those that the lender would expect to receive, taking
into account cash flows from collateral and integral credit
enhancements.
Probability of default constitutes a key input in measuring
Expected Credit Losses (ECL). Probability of default is an estimate
of the likelihood of default over a given time horizon, the
calculation of which includes historical data, assumptions and
expectations of future conditions.
If the rates on trade receivables more than 90 days past due had
been 50 per cent higher as of November 2022, the loss allowance on
trade receivables would have been GBP9k (2021: GBP16k) higher.
If the ECL rates on trade receivables between 61 and 90 days
past due had been 50 per cent higher as of November 2022, the loss
allowance on trade receivables would have been GBP7k (2021: GBP4k)
higher.
Calculation of incremental borrowing rate and lease term in
respect of IFRS 16
Lease liabilities are measured at the present value of the
contractual payments due to the lessor over the lease term, with
the discount rate determined by reference to the rate inherent in
the lease unless (as is typically the case) this is not readily
determinable, in which case the Group's incremental borrowing rate
on commencement of the lease is used. The Group's incremental
borrowing rate is calculated by reference to borrowing rates
applicable to the Group's other borrowings/financial liabilities
and then adjusted for the specifics of the lease and asset. For
every 0.5% increase in the incremental borrowing rate the right of
use asset and lease liability recognised would increase by
approximately GBP4k, conversely an equivalent reduction in the
incremental borrowing rate would decrease the right of use asset
and liability by approximately GBP4k.
Lease term is ordinarily calculated by reference to the
contractual terms of the Group's leases. Management may change
their estimates in respect of the term of any lease if the
probability of an extension or termination option, within the lease
contract, being exercised changes. As a result of any change in
estimate of the lease term the Group adjusts the carrying amount of
the lease liability to reflect the payments to make over the
revised term, which are discounted using a revised discount rate.
An equivalent adjustment is made to the carrying value of the
right-of-use asset, with the revised carrying amount being
amortised over the remaining (revised) lease term. If the carrying
amount of the right-of-use asset is adjusted to zero, any further
reduction is recognised in profit or loss.
3 Segment information
The Group operates a streamlined organisation with management
resource and central services focused on working across the Group
in a more unified manner to increase the strategic focus on the
level of our own product sales. Reporting is based on product split
between K3 own products ('K3 Products') and Third-party reseller
activities ('Third-party Solutions') across revenue and gross
margin. Global Accounts and Third-party Products continue to be
merged into Third-party Solutions. Overheads and administrative
expenses are included as a central cost given resource works across
these three segments. The activities and products and services of
the operating segments are detailed in the Strategic Report.
Transactions between operating segments are on an arms-length
basis. The CODM (Chief Operating Decision Maker, the Board)
primarily assesses the performance of the operating segments based
on product revenue, gross margin and Group adjusted EBITDA. The
segment results for the year ended 30 November 2022 and for the
year ended 30 November 2021, reconciled to loss for the year.
Year ended 30 November 2022
K3 Products Third-party Solutions Central Costs Total
GBP'000 GBP'000 GBP'000 GBP'000
Software licence revenue 2,174 3,468 - 5,642
Services revenue 738 17,377 - 18,115
Maintenance & support 9,620 13,196 - 22,816
Hardware and other revenue 925 34 - 959
External revenue 13,457 34,075 - 47,532
Cost of sales (2,920) (16,462) - (19,382)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Gross profit 10,537 17,613 - 28,150
Gross margin 78.3% 51.7% - 59.2%
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Underlying administrative expenses(*7) (11,243) (4,820) (8,722) (24,785)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
EBITDA before Capitalised Development costs (706) 12,793 (8,722) 3,365
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Capitalised Development costs 1,420 47 232 1,699
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Adjusted EBITDA(*1) from continuing operations 714 12,840 (8,490) 5,064
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Depreciation and amortisation - - (5,383) (5,383)
Amortisation of acquired intangibles - - - -
Exceptional impairment - - (1,603) (1,603)
Exceptional reorganisation costs - - (595) (595)
Acquisition costs - - (98) (98)
Share-based payment charge - - (855) (855)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
(Loss)/profit from operations 714 12,840 (17,024) (3,470)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Finance expense - - (338) (338)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
(Loss)/profit before tax and discontinued
operations 714 12,840 (17,362) (3,808)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Tax expense - - (278) (278)
Profit from discontinued operations 6 - - 108 108
--------------------------------------------------- ------------ ------------------------ -------------- ---------
(Loss)/profit for the year 714 12,840 (17,532) (3,978)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Year ended 30 November 2021 (restated*)
K3 Products Third-party Solutions Central Costs Total
GBP'000 GBP'000 GBP'000 GBP'000
Software licence revenue 3,309 2,898 - 6,207
Services revenue 1,048 16,283 - 17,331
Maintenance & support 9,091 11,204 - 20,295
Hardware and other revenue 1,331 103 - 1,434
--------------------------------------------------- ------------ ------------------------ -------------- ---------
External revenue 14,779 30,488 - 45,267
Cost of sales (3,660) (14,772) - (18,432)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Gross profit 11,119 15,716 - 26,835
Gross margin 75.2% 51.5% - 59.3%
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Underlying administrative expenses(*7) (12,807) (4,344) (8,166) (25,317)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
EBITDA before Capitalised Development costs (1,688) 11,372 (8,166) 1,518
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Capitalised Development costs 2,747 45 47 2,839
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Adjusted EBITDA from continuing operations 1,059 11,417 (8,119) 4,357
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Depreciation and amortisation - - (6,797) (6,797)
Amortisation of acquired intangibles - - (518) (518)
Exceptional impairment - - (1,421) (1,421)
Exceptional reorganisation costs - - (1,605) (1,605)
Acquisition gain - - 35 35
Share based payment charge / (credit) - - (440) (440)
Profit / (Loss) from operations 1,059 11,417 (18,865) (6,389)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Finance expense - - (1,433) (1,433)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Profit/(loss) before tax and discontinued
operations 1,059 11,417 (20,298) (7,822)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Tax expense - - (939) (939)
Profit from discontinued operations - - 12,292 12,292
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Profit/(loss) for the year 1,059 11,417 (8,945) 3,531
--------------------------------------------------- ------------ ------------------------ -------------- ---------
*FY2021 restated to reflect latest segment reporting, in which
Revenue and Gross profit from "mobile goods flow" and "make tax
digital" are reclassified from K3 Products to Third-party
Solutions.
Segment assets and segment liabilities are reviewed by the CODM
in a consolidated statement of financial position. Accordingly,
this information is replicated in the Group consolidated statement
of financial position included within this announcement. As no
measure of assets or liabilities for individual segments is
reviewed regularly by the CODM, no disclosure of total assets or
liabilities has been made, in accordance with the amendment to
paragraph 23 of IFRS 8.
The accounting policies of the operating segments are the same
as those described in the summary of significant accounting
policies. Transactions between segments are accounted for at
cost.
The Group has one customer relationship which accounts for 46%
(2021: 43%) of external Group revenue.
Analysis of the Group's external revenues (by customer
geography) and non-current assets by geographical location are
detailed below:
External revenue by end-customer geography
External revenue Non-current assets
Year ended
30 November Year ended
2022 30 November 2021 2022 2021
GBP000 GBP000 GBP000 GBP000
United Kingdom 16,323 15,648 21,932 30,606
Netherlands 6,434 7,978 5,749 180
Ireland 631 1,157 1,650 5,941
Rest of Europe 7,166 7,575 2,323 (1,570)
Middle East 1,807 1,887 - -
Asia 8,882 7,494 181 304
USA 820 506 3 19
Rest of World 5,469 3,022 - -
--------- ----------
47,532 45,267 31,838 35,480
--------------------- ------------- ------------------ --------- ----------
% of non-UK revenue 66% 65%
External revenue by market
2022 UK Non-UK Total
GBP'000 GBP'000 GBP'000
Software Licence Revenue 1,236 4,438 5,674
Services Revenue 2,679 15,429 18,108
Maintenance & Support 11,929 10,862 22,791
Hardware and other Revenue 467 492 959
------------------------------------------- ----------- ---------- ---------
Total 16,311 31,221 47,532
------------------------------------------- ----------- ---------- ---------
External revenue by business
unit geography
Maintenance Total
Software Services & support Hardware
2022 Licencing Revenue Revenue & Other Revenue
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
United Kingdom 1,082 2,983 12,364 454 16,883
Netherlands 4,574 14,984 7,853 124 27,535
Ireland (153) 26 430 13 316
Rest of Europe 171 88 2,144 367 2,770
Rest of World - 27 - 1 28
---------------- ----------- --------- ------------ ----------------- --------
Total 5,674 18,108 22,791 959 47,532
---------------- ----------- --------- ------------ ----------------- --------
External revenue by revenue recognition category
Maintenance
Software Services & support Hardware
2022 Licencing Revenue Revenue & Other Revenue Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Goods Transferred
at a point in
time 4,390 10 95 923 5,418
Services transferred
at a point in
time 988 17,606 6,130 - 24,724
Services transferred
over time 296 492 16,566 36 17,390
---------------------- ----------- --------- ------------ ----------------- --------
Total 5,674 18,108 22,791 959 47,532
---------------------- ----------- --------- ------------ ----------------- --------
Revenue to be recognised in the future, related to agreed
performance obligations that are unsatisfied or partially satisfied
as at 30 November 2022, was as follows:
2023 2024 Later Total
GBP'000 GBP'000 GBP'000 GBP'000
Software Licence Revenue - 38 - 38
Services Revenue 15 40 - 55
Maintenance & Support 3,159 2,981 1,978 8,118
Hardware and other Revenue 18 220 - 238
---------------------------- --------- --------- --------- ---------
Total 3,192 3,279 1,978 8,449
---------------------------- --------- --------- --------- ---------
External revenue
by market
2021 UK Non-UK Total
GBP'000 GBP'000 GBP'000
Software Licence Revenue 1,734 4,908 6,642
Services Revenue 2,648 14,676 17,324
Maintenance & Support
Revenue 10,664 9,203 19,867
Hardware and other
Revenue 628 806 1,434
---------------------------- -------- -------- --------
Total 15,674 29,593 45,267
---------------------------- -------- -------- --------
External revenue by business unit geography
Maintenance & support Hardware & Other
2021 Software Licencing Services Revenue Revenue Revenue Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
United Kingdom 1,596 2,783 10,623 627 15,629
Netherlands 4,389 14,149 6,069 57 24,664
Ireland 107 176 569 50 902
Rest of Europe 550 216 2,606 700 4,072
---------------- ------------------- ----------------- ------------------------ ------------------------ --------
Total 6,642 17,324 19,867 1,434 45,267
---------------- ------------------- ----------------- ------------------------ ------------------------ --------
External revenue by revenue recognition category
Maintenance
Software Services & support Hardware
Licencing Revenue Revenue & Other Revenue Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Goods Transferred
at a point in
time 6,642 - - 1,432 8,074
Services transferred
at a point in
time - 17,324 9,880 2 27,206
Services transferred
over time - - 9,987 - 9,987
---------------------- ----------- --------- ------------ ----------------- --------
Total 6,642 17,324 19,867 1,433 45,267
---------------------- ----------- --------- ------------ ----------------- --------
Revenue to be recognised in the future, related to agreed
performance obligations that are unsatisfied or partially satisfied
as at 30 November 2021, was as follows:
2022 2023 Later Total
GBP'000 GBP'000 GBP'000 GBP'000
Software Licence Revenue 328 - - 328
Services Revenue 93 - - 93
Maintenance & Support 4,073 - - 4,073
Hardware and other Revenue 5 - - 5
---------------------------- --------- --------- --------- ---------
Total 4,499 -- - 4,499
---------------------------- --------- --------- --------- ---------
Revenue recognised and included within contract assets can be
reconciled as follows:
2022
GBP'000
At 1 December 2021 3,077
Transfers in the period from contract assets to trade receivables (3,077)
Excess of revenue recognised over cash (or rights to cash) being recognised during the period 5,512
At 30 November 2022 5,512
--------
Revenue recognised and included within contract liabilities can
be reconciled as follows:
2022
GBP'000
At 1 December 2021 3,364
Amounts included in contract liabilities that was recognised as revenue during the period (3,364)
Cash received in advance of performance and not recognised as revenue during the period 5,312
At 30 November 2022 5,312
--------
4 Tax expense / (charge)
2022 2021
GBP'000 GBP'000
Current tax expense/(credit)
Income tax of overseas operations on profits/(losses)
for the period 203 676
Adjustment in respect of prior periods (100) (80)
-------- --------
Total current tax expense 103 596
-------- --------
Deferred tax (credit)/expense
Origination and reversal of temporary differences 9 233
Effect of changes in tax rate 10 -
Adjustments in respect of prior periods (32) -
Total deferred tax expense/(credit) (13) 233
-------- --------
Total tax expense in the current year 90 829
-------- --------
Income tax expense attributable to continuing
operations 278 939
Income tax (credit) attributable to discontinued
operations (188) (110)
-------- --------
90 829
-------- --------
The March 2021 Budget announced an increase to the main rate of
corporation tax to 25% from April 2023 and this rate was enacted on
10 June 2021. Deferred tax balances as at 30 November 2022 have
been measured at 25%.
The reasons for the difference between the actual tax charge for
the period and the standard rate of corporation tax in the UK
applied to profits/(losses) for the year are as follows:
2022 % 2021 %
GBP'000 GBP'000
Loss before taxation from continuing
operations (3,807) (7,822)
(Loss)/profit before taxation from discontinued
operations (note 6) (80) 12,182
-------- --------
(Loss)/profit before tax (3,887) 4,360
-------- --------
Expected tax charge/(credit) based on
the standard rate of corporation tax (739) 19.0 828 19.0
Effects of:
Items not deductible for tax purposes 439 504
Non-taxable gain on disposal of shares - (2,274)
Income not taxable (496) -
Adjustment to tax charge in respect
of prior periods (132) (180)
Movements in deferred tax not recognised 1,149 -
Differences between overseas tax rates (136) 571
Group relief not paid for - 154
Super-deduction - (11)
Movements in temporary differences not
recognised - 1,184
Effect of deferred tax rate difference 5 53
-------- --------
Total tax expense / (credit) in current
period 90 2.3 829 39.4
-------- --------
Deferred tax recognised directly in equity for FY2022 was GBPnil
(2021: GBPnil). Current tax recognised in equity for FY2022 was
GBPnil (2021: GBPnil). None of the items within other comprehensive
income in the Consolidated Statement of Comprehensive Income have
resulted in a tax expense or tax income.
5 Acquisition of a subsidiary - Viji
On 27 January 2022, the Group acquired 100 per cent of the
voting shares of Viji, an innovative software developer with an
exciting suite of products focused on sustainability, for an
initial consideration of EUR0.25 million and agreed to an
undiscounted deferred consideration of EUR0.1 million, due to be
paid a year after date of acquisition. There is also contingent
consideration of EUR0.7 million, dependent upon the achievement of
agreed performance criteria over the next two years from the date
of acquisition. The acquisition-related costs amounted to GBP0.1
million and are included in the Consolidated Income Statement.
The acquisition has been accounted for using the purchase method
of accounting.
The following table summarises the recognised amounts of assets
acquired and liabilities assumed at the date of acquisition:
Provisional fair
value to the Group
GBP'000
--------------------------------- --------------------
Other intangible assets 376
Property, plant and equipment 2
Borrowings (136)
Trade and other receivables 35
Cash and cash equivalents 30
Trade and other payables (34)
--------------------------------- --------------------
Net assets acquired 273
Goodwill arising on acquisition 102
--------------------------------- --------------------
375
--------------------------------- --------------------
Discharged by:
Cash paid on acquisition 208
Deferred consideration 75
Contingent consideration 92
--------------------------------- --------------------
375
--------------------------------- --------------------
Cash outflow on acquisition:
Cash paid on acquisition 208
Cash and cash equivalents
acquired 30
--------------------------------- --------------------
178
--------------------------------- --------------------
The initial accounting for the acquisition of Viji has only been
provisionally determined at the date of finalisation of these
Consolidated Financial Statements based on Management's best
estimates.
From the date of acquisition to 30 November 2022, Viji
contributed GBP19 thousands to the Group's revenue and a profit of
GBP0.1 million to the Group's loss after tax.
If the acquisition of Viji were completed on 1 December 2021,
the Group's revenue for the year would have been GBP47,506k and the
Group's loss after tax would have been GBP5,078k.
6 Discontinued operations
On 26 February 2021 the Group announced that a sale of the
Starcom business for consideration of GBP14.7m had been approved
and completed. Starcom had already been classified as a
discontinued operation in the prior year as it represented a major
line of business for the Group.
The post tax gain on disposal of the Starcom business was
determined as follows:
2022 2021
GBP'000 GBP'000
Cash consideration received - 14,474
Total consideration received - 14,747
-------- --------
Cash disposed of - (1,375)
Net cash inflow on disposal of
discontinued operations - 13,372
Net assets disposed (other than
cash)
Property, plant and equipment - (199)
Intangibles - (3,015)
Right of use asset - (454)
Trade and other receivables - (2,404)
Trade and other payables - 1,958
-------- --------
- (4,114)
-------- --------
Pre-tax gain on disposal of discontinued
operations - 9,258
Gain on disposal of discontinued
operations - 9,258
-------- --------
Trade and other payables includes an onerous contract provision
of GBP1,125k relating to higher than market pricing on the 3 year
post completion service agreement with the buyer.
The results of the Starcom business for the year are presented
below:
2022 2021
GBP'000 GBP'000
Total Revenue - 2,309
Less inter-segment revenue - -
------------------------------------------- -------- --------
External revenue - 2,309
Cost of sales - (845)
------------------------------------------- -------- --------
Gross profit - 1,464
Administrative expenses - (1,011)
Impairment losses on financial - -
assets
Amortisation of acquired intangibles - (107)
Profit from operations 346
Profit on disposal - 9,258
Finance credit/(expense) - 9
------------------------------------------- -------- --------
Profit before taxation from discontinued
operations - 9,613
------------------------------------------- -------- --------
Tax credit including on gain on
asset held for sale - 110
Profit for the year from discontinued
operations - 9,723
------------------------------------------- -------- ----------
2022 2021
Basic and diluted profit per
share from discontinued operations Nil 22.0
The major classes of assets and liabilities of the Starcom
business classified as held for sale as at 30 November 2022 are as
follows:
2022 2021
GBP'000 GBP'000
Property, plant, and equipment - 237
Right-of-use assets - 332
Goodwill - 2,373
Other intangible assets - 690
Deferred tax assets - 136
Trade and other receivables - 1,871
Cash and cash equivalents - 1,260
---------------------------------------------- -------- --------
Assets classified as held for sale - 6,899
---------------------------------------------- -------- --------
Trade and other payables - (3,196)
Provisions - (60)
Lease liabilities - (316)
---------------------------------------------- -------- --------
Liabilities directly associated with assets
classified as held for sale - (3,572)
---------------------------------------------- -------- --------
Net Assets directly associated with disposal
group - 3,327
---------------------------------------------- -------- --------
The net cashflows incurred by Starcom are as follows:
2022 2021
GBP'000 GBP'000
Operating - 628
Investing - (129)
Financing - (157)
--------- ---------
Net cash inflow - 342
--------- ---------
On the 20 September 2021, the Group disposed of the customers
and employees of its Sage business to Pinnacle Computing (Support)
Ltd for GBP1.68m.
Formal completion occurred in early October 2021, following a
TUPE consultation process in respect of the transfer to Pinnacle of
the employees, and the disposal consideration was subject to a
downward adjustment of GBP0.2m in respect of restructuring costs
that Pinnacle undertook immediately following completion. The Group
maintained ownership of the sales ledger at Completion which was
GBP0.1m at the 30 November 2021.
The post tax gain on disposal of the Sage business was
determined as follows:
2022 2021
GBP'000 GBP'000
Cash consideration received - 1,475
Total consideration received - 1,475
-------- --------
Cash disposed of - -
Net cash inflow on disposal of discontinued
operations - 1,475
Net assets disposed (other than cash)
Trade and other receivables - 682
Trade and other payables - 478
-------- --------
- 1,160
-------- --------
Pre-tax gain on disposal of discontinued
operations - 2,635
Gain on disposal of discontinued operations - 2,635
-------- --------
Trade and other payables includes the release of working capital
accruals no longer payable following the disposal of the
business.
The results of the Sage business for the year are presented
below:
2022 2021
GBP'000 GBP'000
External revenue (50) 4,011
Cost of sales (1) (2,437)
----------------------------------------------- -------- --------
Gross profit (51) 1,574
Administrative expenses (31) (1,641)
Impairment losses on financial assets - 31
Profit from operations (82) (36)
Profit on disposal - 2,629
Finance (expense)/credit 2 (24)
----------------------------------------------- -------- --------
Profit before taxation from discontinued
operations (80) 2,569
----------------------------------------------- -------- --------
Tax credit/(charge) (188) -
----------------------------------------------- -------- --------
(Loss)/profit for the year from discontinued
operations (108) 2,569
----------------------------------------------- -------- ----------
2022 2021
Basic and diluted profit per
share from discontinued operations 0.2 5.8
The amounts included in the consolidated cashflows related to
the Sage business are as follows:
2022 2021
GBP'000 GBP'000
Operating (67) (230)
Investing - 1,475
Financing 2 (24)
------------- -----------
Net cash inflow/(outflow) (65) 1,221
------------- -----------
7 Goodwill and impairment
Goodwill acquired in business combinations is allocated at
acquisition to the cash generating units ("CGUs") that are expected
to benefit from that business combination.
The carrying value of goodwill in respect of all CGUs is set out
below. These are fully supported by either value in use
calculations in the year or the fair value less cost to sell for
CGUs held for sale.
Goodwill carrying amount
2022 2021
GBP'000 GBP'000
Syspro 13,677 13,677
Global Accounts 9,371 9,227
Walton & Integrated Business Solutions
(IBS) 1,868 1,868
Viji 106 -
25,022 24,772
-------- --------
The Group tests goodwill and the associated intangible assets
and property, plant, and equipment of CGUs annually for impairment,
or more frequently if there are indications that an impairment may
be required.
The recoverable amounts of the remaining CGUs are determined
from value in use calculations. The key assumptions for these
calculations are discount rates, sales growth, gross margin, and
admin expense growth rates. The assumptions for these calculations
reflect the current economic environment. The discount rate
represents the current market assessment of the risks specific to
the Group, taking into consideration the time value of money and
individual risks of the underlying assets that have not been
incorporated in the cash flow estimates. The discount rate
calculation is based on the specific circumstances of the Group and
its operating segments and is derived from the weighted average
cost of capital (WACC). Other assumptions used are based on
external data and management's best estimates.
For all the CGUs where the recoverable amount is determined from
value in use, the Group performs impairment reviews by forecasting
cash flows based upon the Board 3-year plan starting in the 2023,
which anticipates sales, gross margin and admin cost growth based
on management's best estimates. A projection of sales and cash
flows based upon a blended inflation rate (2.1%) is then made for a
further two years.
The pre-tax cash flow forecasts used the following key
assumptions:
-- Syspro - growth rates of 23.7% to 5.5% over the next three years;
-- Global Accounts - revenue growing by 26.2% over the 5-year forecast
period with gross margin maintained at current performance;
-- IBS and Walton - these CGUs relate to older products and the forecasts.
A decision was made last year to cease investing in these products
with a plan to transitioning customers, wherever possible, to
Viji's platform. From FY27 we are assuming no revenue from these
legacy products; and
-- Viji - FY2023 will be second full year since acquisition. Growth
rates of 30% from FY2024 over the next three years.
The rate used to discount the forecast pre-tax cash flows is
17.4% (2021: 13.4%) and represents the Directors' current best
estimates of the weighted average cost of capital ("WACC"). The
Directors consider that there are no material differences in the
WACC for different CGUs.
8 Notes to the cash flow statement
Cash and cash equivalents
2022 2021
GBP'000 GBP'000
Cash and bank balances available
on demand 7,113 9,146
Bank overdrafts - (113)
-------- --------
7,113 9,033
-------- --------
Cash and cash equivalents comprise cash and bank balances
available on demand. The carrying amount of these assets is
approximately equal to their fair value. Cash and cash equivalents
at the end of the reporting period as shown in the consolidated
statement of cash flows can be reconciled to the related items in
the consolidated reporting position as shown above.
Non -cash transactions
Additions to buildings, motor vehicles and equipment during the
year amounting to GBP233k (2021: GBP319k) were financed by new
leases. During FY2022, GBPnil (2021: GBP3 million) shareholders
loan converted to equity.
9 Provision
Dilapidations Onerous contracts Deferred consideration Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------- ------------------ ----------------------- --------
At 30 November 2021 370 769 844 1,983
Additions - - - -
Paid in the year - (342) (375) (717)
Interest 26 - - 26
Disposed (145) - - (145)
-------------- ------------------ ----------------------- --------
At 30 November 2022 251 427 469 1,147
-------------- ------------------ ----------------------- --------
Split as:
Current 251 342 375 968
Non-Current - 85 94 179
---- ---- ---- ------
At 30 November 2022 251 427 469 1,147
---- ---- ---- ------
The Onerous contract provision relates to commitments undertaken
for the post completion services agreement with the Buyer of
Starcom for activity no longer in the Group. The deferred
consideration provision relates to above market pricing included in
the post completion services agreement with the Buyer of Starcom.
The non-current element of these provisions will be utilised evenly
until the end of February 2024.
10 Deferred tax
The net deferred tax asset/liability at the end of the year is
analysed as follows:
2022 2021
GBP000 GBP000
Deferred tax assets
Continuing operations 855 1,010
Deferred tax liabilities
Continuing operations (1,119) (1,288)
(264) (278)
-------- --------
Recognised deferred tax assets and liabilities and attributable
to the following:
GBP000's Assets Liabilities Net
2022 2021 2022 2021 2022 2021
Plant & Equipment 111 148 (1) (3) 110 145
Other temporary differences 663 806 (1,118) (1,285) (455) (479)
Losses 23 - - - 23
Business combinations 58 56 - - 58 56
----------------------------- ------ -------- ---------- ---------- -------- --------
Deferred tax assets
/ (liabilities) 855 1,010 (1,119) (1,288) (264) (278)
----------------------------- ------ -------- ---------- ---------- -------- --------
Movement in deferred tax during the year
1 December 2021 Recognised in income Disposal 30 November 2022
Plant & Equipment 145 (35) - 110
Other temporary differences (478) 23 (455)
Losses - 23 - 23
Business combinations 56 2 - 58
------------------------------------- ---------------- --------------------- --------- -----------------
Deferred tax assets / (liabilities) (277) 13 - (264)
------------------------------------- ---------------- --------------------- --------- -----------------
The Group have not recognised a deferred tax asset on GBP1.8m
(2021: GBP2.8m) of tax losses and intangible fixed asset timing
differences carried forward due to uncertainties over recovery.
No deferred tax liability is recognised on temporary differences
of GBP20k (2021: GBP23k) relating to the unremitted earnings of
overseas subsidiaries as the Group can control the timing of the
reversal of these temporary differences and it is probable that
they will not reverse in the foreseeable future.
11 Events after the reporting date
On the 24 February 2023 the Group agreed an extension to its
Current Revolving Credit Facility with Barclays for GBP3.5m until
31 March 2024.
12 Non-statutory information
The Group uses a variety of alternative performance measures,
which are non-IFRS, to assess the performance of its operations.
The Group considers these performance measures to provide useful
historical financial information to help investors evaluate the
underlying performance of the business.
These measures, as described below, are used to improve the
comparability of information between reporting periods and
geographical units, to adjust for exceptional items or to adjust
for businesses identified as discontinued to provide information on
the ongoing activities of the Group. This also reflects how the
business is managed and measured on a day-to-day basis.
*1 Adjusted EBITDA - is the loss from continuing activities adjusted
to exclude depreciation and amortisation of development costs),
amortisation of acquired intangibles exceptional impairment costs
exceptional reorganisation costs exceptional customer settlement
provisions and share-based charges.
*2 Recurring or predictable revenue - contracted support, maintenance
and services revenues with a frame agreement of 2 years or more,
as % of total revenue.
*3 K3 Product revenue as a percentage of total Group revenue.
*4 K3 products gross profit as a percentage of total gross profit.
*5 Net debt comprises Bank Loans, Shareholder Loans and Overdrafts
less Cash and cash equivalents, including Cash and cash equivalents
held for sale. It excludes any liabilities associated with Right
of Use Assets under IFRS16.
*6 Adjusted loss/earnings per share - basic loss per share from continuing
operations adjusted to exclude amortisation of acquired intangibles,
exceptional impairment costs, exceptional reorganisation costs,
and share-based charges net of the related tax charge.
*7 Underlying support/admin costs - administrative expenses adjusted
to exclude depreciation and amortisation of development costs,
amortisation of acquired intangibles, exceptional impairment costs
exceptional reorganisation costs and share-based charges.
*8 ARC (Annualised Recurring Contracts) - the annual contracted income
from support, maintenance, SaaS and term contract software spread
over the term of the contract.
*9 Cash outflow -speed at which business spends the money that is
available to it. Calculated as delta between cash and cash equivalents
balances between two periods.
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END
FR NKCBKDBKBONB
(END) Dow Jones Newswires
March 30, 2023 02:00 ET (06:00 GMT)
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