TIDMKBT
RNS Number : 2348H
K3 Business Technology Group PLC
05 April 2022
AIM: KBT
5 April 2022
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 2021
Key Points
Financial
12 months 12 months
to 30 November to 30 November
2021 2020
--------------------------------------------- --------------- ---------------
Revenue GBP45.3 GBP43.8
Recurring or predictable revenue(*2) 75.0% 77.0%
K3 Products revenue (Note 2) GBP16.3m GBP15.9m
K3 Products revenue as percentage
of total revenue(*3) 36.1% 36.2%
K3 Products gross profit (Note 2) GBP12.2m GBP12.6m
K3 Products gross profit as a percentage
of total gross profit(*4) 45.6% 46.8%
Gross margin 59.3% 61.3%
Adjusted EBITDA(*1) GBP4.4m GBP4.0m
Loss before tax from continuing operations, GBP(7.8)m GBP(20.8)m
including exceptional impairments(**)
Operating continuing cash flow normalized GBP3.2m GBP4.1m
for Government coronavirus support
Net debt(*5) GBP9.0m GBP(1.9)m
Reported gain / (loss) per share 8.0p (49.3)p
Adjusted (loss) / earnings per share
for Continuing Activities(*6) (13.6)p (3.2)p
Gain/(Loss) from disposal of discontinued GBP11.9m GBP0.0m
activities***
--------------- ---------------
** exceptional impairments (all non-cash items) totalling
GBP1.4m, (2020: GBP16.8m) which related to DdD, RSG and Walton.
(see note 7)
*** Discontinued activities relate to Sage and Starcom
Technologies Limited (see note 6 for further details)
Financial
-- Revenue from continuing activities up 3% to GBP45.3m (2020: GBP43.8m)
- recurring or predictable revenue(2) of GBP33.9m (2020: GBP33.7m)
- strategic fashion products (within K3 Products) revenue up 16% to GBP5.0m (2020: GBP4.3m)
- Third-party Solutions revenue of GBP28.9m (2020: GBP27.9m)
-- Gross profit from continuing activities constant at GBP26.8m (2020: GBP26.8m)
- strategic fashion products (within K3 Products) contributed GBP3.6m (2020: GBP3.2m)
- Third-party Solutions contributed GBP14.6m (2020: GBP14.2m)
-- Support/admin costs down by 2% to GBP22.3m (2020: GBP22.7m)
-- Capitalised development down by GBP2.2m (48%) to GBP2.3m
-- Adjusted EBIDTA up 8% to GBP4.4m (2020: GBP4.0m)
-- Loss before taxation from Continuing Activities GBP(7.8)m (2020: GBP20.8m)
-- Gain / loss after taxation from Discontinued Activities
GBP12.3m profit (2020: loss GBP0.3m)
-- Adjusted EPS loss (13.6)p (2020: loss (3.2)p) / Reported EPS
profit 8.0p (2020: loss (49.3)p
-- Net cash at 30 November 2021 of GBP9.0m (2020: net debt of GBP1.9m)
Operational
-- New growth strategy established following appointment of
Marco Vergani as CEO in March 2021
* very good growth opportunities identified across all
core activities
* strong focus on fashion, apparel and related large
retail brands, and the significant opportunity in
Sustainability (supply chain traceability),
Omni-channel and Business Insights
-- Operations reorganised and new appointments made in line
with growth plans
-- Disposal of two non-core businesses, Starcom Managed Services
unit and Sage business
* strengthened balance sheet and supported business
refocusing
-- Significant growth in key market of strategic fashion and
apparel IP with 16% increase in revenue; reflected major
new customer wins and increased licence sales to existing
customers
-- Non-core legacy point of sales products remain in managed
decline
-- Third Party Solutions:
* High level of renewal of SYSPRO software licences and
support and maintenance contracts, 98% (2020: 97%).
Strong order book for 2022, with increase in average
size of new orders
* Global Accounts continued to expand; roll-out of
stores for Inter IKEA Concept franchisees in the Far
East and in Central and South America is ongoing
-- Post-period acquisition of Sustainability-focused software
developer, ViJi, adds strategically important IP
Tom Crawford, Chairman of K3 Business Technology Group plc,
said:
"This has been a transformational year for K3. Under our new
CEO, Marco Vergani, we have established a clear and focused growth
strategy, and made substantial organisational changes, including
two disposals, which support our growth objectives. We have also
simplified the way we present the business by creating two clear
divisions of K3 Products and Third Party Solutions. The Group is
now financially stronger and better placed to take advantage of the
significant market opportunities we have identified across our core
areas of activity."
"Our post year end acquisition of Sustainability-focused
software developer ViJi is a signal of our ambitions to extend our
existing solutions to address the exciting new opportunities we
have identified."
"The Board is very pleased with the progress that has been has
made, and the new financial year has started in line with our
expectations."
Enquiries:
K3 Business Technology Marco Vergani (CEO)
Group plc
www.k3btg.com Robert Price (CFO) T: 0161 876 4498
finnCap Limited Julian Blunt/ James Thompson T: 020 7220 0500
(NOMAD & Broker) (Corporate Finance)
Richard Chambers, Sunila
De (Corporate Broking)
KTZ Communications Katie Tzouliadis/ Dan Maloney T: 020 3178 6378
CHAIRMAN'S STATEMENT
Overview
I am very pleased to present the Group's annual results after my
first full year as Chairman, having joined K3 at the end of October
2020. It has been a strategically significant year for the
business, with a number of decisive decisions and actions taken,
which set the Group on a firm course for future growth.
Marco Vergani, who was appointed Chief Executive Officer on 30
March 2021, has led a thorough re-evaluation of market strategy and
operations. Together with the Board and senior management team, he
has established a clear growth plan for K3's future development,
including a roadmap for product development. He has also
reallocated investment and made significant organisational changes
that have strengthened the business and reduced costs.
The sale of our Starcom and Sage businesses during the year have
not only allowed us to significantly strengthen our balance sheet
but have also have reduced business complexity, prompting us to
present the Group in a simpler way with just two division: K3
Products and Third Party Solutions.
As well as this, I am pleased to report that, in a challenging
market, the Group's trading performance has remained resilient.
Group revenue from continuing activities increased by 3% to
GBP45.3m (2020: GBP43.6m), and adjusted EBITDA rose by 8% to
GBP4.4m (2020: GBP4.0m). We benefitted from a strong end to the
financial year, signing both new customers and renewals in the
fashion and apparel sectors, core target markets for us. In
addition, our manufacturing software solution renewals, which are
strongly weighted to the final quarter of the financial year,
remained very high, reflecting our depth of expertise and close
customer relationships.
As a result of our actions, the Group is significantly better
positioned, with a clear strategy and commercial goals. In January
2022, we made a strategically significant acquisition, ViJi, which
has delivered valuable IP in Sustainability and specifically supply
chain transparency, in line with our growth strategy.
Financial Results
Revenue from continuing operations for the 12 months ended 30
November 2021 was up 3% year-on year to GBP45.3m (2020: GBP43.8m).
Recurring or predictable revenue accounted for 74.8% of total
revenue at GBP33.9m (2020: 77.2%), with SaaS, maintenance and
support contracts contributing GBP19.8m (2020: GBP20.3m) and
strategic products of GBP2.6m (2020: GBP2.2m).
Group gross profit for the year was constant at GBP26.8m (2020:
GBP26.8m), and gross margin was 59.2% (2020: 61.0%), which mainly
reflected a change in the contribution from services.
Support/administrative expenses net of capitalised development
cost reduced by 2% to GBP22.3m (2020: GBP22.7), with a further
reduction of GBP2.2m in capitalised development, as a result of
streamlining operations. Adjusted EBITDA(1) from continuing
activities was up 8% to GBP4.4m (2020: GBP4.0m), aided by a
reduction and redeployment of overhead resource. The loss before
tax from continuing activities was GBP9.7m (2020: GBP20.9m) with
2020 including GBP16.8m of exceptional impairments.
The balance sheet has been transformed and is significantly
stronger than a year ago. Net cash at 30 November 2021 amounted to
GBP9.0m (31 November 2020: net debt of GBP1.9m), and Operating
cashflow from Continuing Activities normalised for Government
coronavirus support was GBP3.2m (2020: GBP4.1m).
Growth Strategy
After an in-depth analysis of K3's offering, expertise, domain
strengths and market opportunities, we have developed a new
strategic growth plan for the Group. It continues to focus on
product-led, high-margin recurring revenue, as previously, but is
now more tightly focused on certain target markets and sales
execution.
We see significant growth opportunities across all the Group's
strategic products and third party solution activities over the
next few years, with some areas offering greater commercial
rewards, which we will reflect in our ongoing capital allocation
plans. Growth in fashion, apparel, and related large retail brands
is a particular focus for us. We already offer a powerful set of
solutions to the fashion, apparel and designer sectors, which
support core business processes, and believe there is a significant
opportunity to assist brands in the key areas of Sustainability,
Omni-channel and Business Insights.
We see opportunities to increase sales in other market segments,
including manufacturing and distribution, where we have
well-established third-party-based software solutions, capable of
serving larger projects. Recurring revenue from these third-party
solutions contribute significantly to the Group's profitability and
cash flows, and are important contributors to investment in
strategic software product development. Our Global Accounts
activity, which is specialist services led, also has good growth
potential well into the medium term internationally, and provides
cross-selling opportunities for K3 Product.
K3's sector expertise and ERP heritage is being leveraged to
pursue the growth opportunities we have identified, and our
cloud-native K3 | imagine technology platform is a strategically
important element. It is micro-service and API driven, in a
'headless' agnostic architecture with strong in-built integration
capabilities. It therefore plays a key role in the easy adoption of
our solutions.
We continue to support our legacy solutions, comprising mostly
point-of-sale ("POS") products. However, we expect to see revenue
from these POS solutions continue to decrease year-on-year.
We have significantly re-shaped the business this year. We
disposed of two non-core businesses, selling Starcom (managed
services) in February 2021 and our Sage reseller business in
September 2021. This has streamlined K3, leaving it tightly focused
on core solutions and chosen markets. It has also significantly
strengthened the Group's year-end balance sheet, eliminating net
debt.
Following these disposals, we have reorganised the Group into
two primary segments, K3 Products, comprising solutions based on
significant K3 intellectual property ("IP"), and Third-party
Solutions, which includes our SYSPRO and Global Accounts
activities.
People
In a challenging year, with the coronavirus pandemic still
overshadowing work and personal life, our staff have shown great
adaptability and dedication. They have innovated to overcome
obstacles created by the pandemic situation, and we would like to
thank them for their commitment and hard work during the year.
There were three Board changes in the financial year. In March
2021, as previously mentioned, Marco Vergani joined as Chief
Executive Officer, and in September 2021, Per Johan Claesson,
Non-executive Director retired from the Board, with Gabrielle Hase
joining as Non-executive Director in his place. We also made a
number of new senior executive appointments in the year. This has
brought additional expertise, commercial drive and domain knowledge
into the Group, and has strengthened our leadership teams.
Marco has over 30 years' experience in the technology industry
and has worked in leadership roles in commercial sales across the
UK, Europe, US and Asia. He has extensive experience of retail,
fashion and direct-to-consumer sectors with a long and successful
career at IBM.
Gabrielle Hase is a senior-level specialist in global ecommerce
and has significant experience in advising on omni-channel growth
strategies and digital transformation, in particular for fashion
retailers.
We would like to reiterate our thanks to Per Johan Claesson, who
retired from the Board after twenty years of service. He has been a
very strong supporter of the business and made a considerable
contribution over many years.
In addition, Jonathan Manley has decided not to stand for
re-election at the AGM in May this year. Jonathan, who joined the
Board in December 2015, plans to spend more time in the US, and
felt the 2022 AGM was an appropriate time to retire from the Board.
Jonathan has provided valuable support to the Group during his
tenure, and we also reiterate our thanks to him. We will be
commencing a recruitment process to appoint an independent
non-executive director as successor to Jonathan.
Summary and Outlook
The Group has been significantly transformed this year. It is
now financially and operationally stronger, with a clear growth
strategy and stronger balance sheet.
Our focus is on growth cash generation and recurring income. The
Group already generates substantial recurring income, but we intend
to move more strongly towards SaaS-based revenues, in particular by
driving the growth of our strategic products. Current SaaS,
maintenance and support revenue generated by K3 totals
approximately GBP20m, including a proportion generated by legacy
products under managed decline. Third-party Solutions delivers
highly visible and predictable income under framework contracts,
worth approximately an additional GBP14m per annum.
We believe there is a substantial opportunity to exploit our
existing expertise in the fashion, apparel and retail markets by
expanding our offering to address unmet needs in Supply Chain
Sustainability, Omni-channel and Business Insights. Brands are
increasing their focus on Sustainability, prioritising
environmental and ethical considerations concerns, and seeking
greater transparency over their supply chains. Legislation is also
driving a requirement for greater supply chain traceability. In
addition, digital and physical sales channels typically require
greater integration and unification, and next-generation analytics
is another burgeoning area.
Our recent acquisition of ViJi, a software developer with
innovative and proven Sustainability software solutions aiding
fashion retailers, is an exciting development, and will help to
accelerate our offering in this area.
K3 has made significant progress over the financial year, and a
clear growth plan is now in place. We are continuing with
initiatives to improve the operations. In an inflationary
environment with some resourcing issues, we are also managing costs
carefully.
Third Party Solutions is experiencing encouraging demand, and
has secured contracts with larger UK manufacturing customers, and
the expansion of IKEA franchisee stores in Asia and Latin America
is continuing in line with schedules.
K3 Products is seeing positive signs of increased activity, with
new clients signed and additional software licences taken by
existing fashion customers. Its market position has been
strengthened byK3's inclusion as an Independent Software Vendor
(ISV) within the newly announced Microsoft Retail Cloud.
Non-strategic products are being managed in line with
expectations.
Cash balances are at planned levels and further supported by an
extension to banking facilities, secured in this first quarter. The
Board expects to make further progress with growth initiatives.
T Crawford
Chairman
5 April 2022
CHIEF EXECUTIVE OFFICER'S Review
Introduction
My priority on joining K3 in March 2021 was to conduct a
thorough review of the Group. This included reviewing its markets,
solutions, product portfolio, sales strategies and organisational
structure. As a result of this exercise, we have established a new
purpose, vision and growth strategy for K3. We have also made
operational changes that support our new commercial objectives,
including streamlining operations, upgrading certain systems and
recruiting additional talent.
Retail Sector
The retail industry, particularly the fashion, design and
apparel sectors, is experiencing fundamental transformation.
Certain megatrends, including 'Unified Consumer Experience',
'Digitalisation', 'Personalisation', and 'Omni-channel' retailing,
are at the forefront. They are driving changes in the way brands
and retailers sell to and engage with customers. Retailers are
working hard to enable consumers to choose products and make
purchases in the most convenient way and to establish closer
customer relationships and reinforce their brand values.
In addition, there are a number of even more profound trends,
based on new and emerging societal priorities and values, which are
altering consumer purchasing habits. A greater emphasis on
environmental and ethical concerns is evident. Younger generations,
in particular, are attracted to a digital experience of brands and
increasingly model their tastes and preferences on the basis of
social influence exercised via social media. Consumer lifestyle
changes, including those driven by the coronavirus pandemic, are
also shifting consumers' purchasing patterns and behaviours.
Understanding consumer motivation and behaviour remains a
fundamental objective for all brands. However traditional
classifications of consumers - by age, income, culture - are being
superseded by more sophisticated AI-driven personalisation
techniques. Nonetheless, while AI enables retailers to identify and
leverage some consumer patterns, it still does not accurately
predict individual behaviors, trends, and patterns or easily
identify changes in the emotional dynamics between consumers and
brands.
Traditional retailers, particularly in non-grocery industries -
the so-called "horizontal" retailers - are adapting their models,
image and branding as they react to these market trends. On the
opposite side, "vertical" retailers, including direct-to-consumer
brands, are growing. These include manufacturers and distributors
now selling directly to the consumer, as well as online retailers,
whose models provide greater commercial agility than traditional
retailers.
Overall, the retail sector is contending with the need to
micro-segment and to effect strategic and operational change more
rapidly. Fashion retailers and direct-to-consumer brands are now
seeking to shorten their supply lead times in order to be able to
offer more frequent collections as well as to adapt more rapidly to
sales trends. For example, pricing and promotion changes have to be
executed more often and consumer data collected and analysed more
frequently. These requirements are driving closer supply chain
collaboration and, where possible, virtualisation.
While these changed dynamics constitute challenges for many
consumer brands and retailers, they have also created fertile
ground for new and existing brands, who have a clear understanding
of the power of technology and digital channels to strengthen their
reputation, image and market positioning, engage with consumers
globally, and amplify sales.
A new Vision
We have identified compelling growth opportunities across all
our core activities, with particularly exciting opportunities in
fashion and apparel and related large retail and direct-to-consumer
brands.
K3 Products - Strategic focus on Fashion & Apparel
K3 has a deep knowledge and experience of retail businesses,
rooted in its delivery of Enterprise Resource Planning ("ERP") and
Point of Sales ("POS") solutions.
We have significant expertise across all the core
"Concept-to-Consumer" processes, which include product design,
manufacturing, supply and returns, as well as all the intermediate
steps. We also have a strong understanding of the challenges facing
our customers and their changing priorities as a result of new
technologies, new regulation, and changing consumer behaviour. The
ongoing digital transformation affecting the sector is, in
particular, driving a requirement for solutions that enable strong
supply chain collaboration, a smarter and more integrated sales
experience, as well as a shift to data led cloud-based Software as
a Service ("SaaS") solutions.
We believe that we have a particular opportunity to capitalise
on our existing position and reputation in the fashion and apparel
and related large retail markets. This includes brands that have an
ambition to develop their direct-to-consumer sales.
We have encapsulated our new purpose and vision, with the
phrase, 'Transform retail for good'. The two key ideas of
'transformation' and 'good' summarise the direction of travel we
are taking i.e. in providing solutions that will support necessary
innovation and adaptation in core business processes, including in
relation to environmental and ethical priorities.
The key growth areas we are focusing on are:
-- Sustainability - especially supply chain traceability, as
further evidenced by the March 2022 EU strategy for sustainable and
circular textiles;
-- Omni-channel and 'unified inventory' - in particular 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 extract actionable
intelligence from the data collected through our products to
optimise inventory, maximise profitability, reduce wastage and
inefficiencies, and engage with consumers in a more personalised
way.
We believe that we have a unique opportunity to closely
integrate our ERP solutions, K3|fashion and K3| pebblestone, which
are based on Microsoft, with K3|imagine, our 'headless' cloud
commerce platform (which integrates readily with any IT
infrastructure) so as to provide a comprehensive suite of solutions
capable of supporting customer needs in these critical areas of
their business.
We believe that this will provide us with a highly
differentiated and compelling offering to mid-size enterprise
fashion and apparel clients that need to replace old legacy systems
and/or want to embrace modern and agile ways of supporting their
core business processes, managing their sales and enhancing their
engagement and brand with consumers. We also envisage a 'land and
expand' strategy, where we win new clients with a particular
product and then cross-sell other products, which offer broader
end-to-end capabilities, optimisation and streamlined
operations.
The recent acquisition of ViJi, the sustainability-focused
software developer with a compelling suite of products addressing
supply chain transparency, allows us to extend the existing
Sustainability capabilities already provided by our fashion ERP
solutions. Supply chain transparency is a burgeoning area that is
increasingly regulated, and demand for end-to-end solutions is
growing rapidly.
Third-party Solutions
SYSPRO
There is an increasing demand for digital transformation, smart
manufacture and direct machine integration, as SYSPRO customers
move away from first generation, monolithic ERPs or fragmented
legacy applications, which are typically poorly integrated or
siloed. This provides a significant growth opportunity for us, and
we plan to expand our presence in the UK market. Our focus is on
serving and delivering larger-scale implementations and
transformation for customers in growth sectors.
We are also continuing to invest in our relationship with SYSPRO
and in new software development that enriches the SYSPRO offering
with our own modules, capabilities and add-ons. These include 'CAD
integration', 'warehouse management', 'shop floor labour control'
and 'Making Tax Digital'. We also have an unrivalled unified,
end-to-end support service that underpins our offering.
Global Accounts
Our Global Accounts business 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 of the core IKEA solution for
franchisees and supporting franchisees with the IT infrastructure,
integration and system enhancement that underpins all IKEA
franchisee stores and back-office solutions.
Developing and delivering additional complementary new
solutions, such as our 'Mobile Goods Flow' and 'Self-ordering
Kiosk' applications, are important additional support functions
that keep our relationships strong and K3 as the vendor of
choice.
The continuing expansion of the IKEA Concept and stores into new
territories is well-established. We expect further growth in new
store openings in Latin America as well as additional expansion in
Asia and Middle East.
Restructuring
Alongside this refocusing, we have restructured K3, selling two
non-core businesses in the year, Starcom, the Managed Services
unit, and the Sage reseller practice. This has significantly
strengthened the Group's financial position, generating total cash
proceeds of GBP16.2m.
Following these disposals, and in line with our growth plans, we
now report on two segments, K3 Products and Third-party Solutions,
alongside central support costs as previously.
Organisational and operational changes
We made a number of changes to the organisation of the Group,
reallocating resource and reporting lines and making some new
appointments to align the business more effectively. In particular,
we focused on the Group's commercial functions.
We allocated additional resource to our strategic partnerships,
which include Microsoft and channel partners responsible for
reselling our fashion offerings. Our relationship with Microsoft
remains close, and K3 has been nominated as part of Microsoft
Retail Cloud, which is an important recognition of our products in
the fashion and apparel sector. We also strengthened the new sales
team for North America, which supports our 'go-to-market' resource
with Microsoft in this important region. We have sought to improve
client support, increase cross-selling and upselling, and
strengthen delivery processes and knowledge management
practices.
Review of Performance
K3 Products
K3 Products are those software products and solutions that are
powered by our own IP. K3 Products comprise:
-- Strategic products focused on the fashion and apparel
markets, including K3|fashion, K3|imagine retail solutions and
K3|pebblestone;
-- solutions for the visitor attraction market, integration
products and manufacture solutions; and
-- stand-alone point solutions, mainly our legacy point-of-sale ("POS") products.
GBPm 2021 2020*
------------------------------------ ------- ----------
Revenue 16.3 15.9
Gross profit 12.2 12.6
Gross margin % 74.9% 79.3%
Underlying admin / support
costs (12.2) (14.1)
EBITDA pre capitalised development (0.0) (1.5)
Capitalised development 2.3 4.1
Adjusted EBITDA 2.3 2.6
------------------------------------ ------- ----------
*restated
Total revenue increased by 3% to GBP16.3m (2020: GBP15.9m), with
very good growth in the strategic fashion products where revenue
increased by 16% year-on-year. As expected, the revenue
contribution from legacy POS business continued to decline,
partially offsetting growth elsewhere. This also impacted gross
profit and gross margin, although gross margin remained high at
74.9%. We reduced underlying administration and support costs, and
EBITDA before capitalised development costs improved by GBP1.5m to
a breakeven position, with a more focused deployment of development
resource. Adjusted EBITDA was GBP2.3m. (2020: GBP2.6m).
New orders for fashion and apparel product increased, with
GBP3.1m of contracts closed for K3|fashion and K3|pebblestone
(2020: GBP2.2m) after a strong end to the financial year. New
orders included a number of new customers wins, as well as
increased licence sales to existing customers. New customers
included a Swedish clothing brand for children, a German e-commerce
fashion and homeware brand, and a Scandinavian designer brand.
We remain confident about prospects for our fashion products,
which are sold primarily via selected Microsoft business partners.
Microsoft's global endorsement as its recommended 'add-on' solution
for the fashion and apparel vertical continues to underline the
quality of our products.
We believe that there are very good growth opportunities in the
USA for our fashion products, and we have increased our sales
resource there to three executives (2020:1). We have also
strengthened our channel partner management team, bringing in new
talent to help drive channel sales.
Own -IP solutions for visitor attractions, integration products
and manufacture solutions performed in line with management
expectations. The UK visitor attractions segment was heavily hit by
the coronavirus pandemic but, with the lifting of restrictions
during the summer, has been recovering strongly. We have
significantly upgraded our offering, with an enhanced reservation
engine and improved online ticketing capability, and are planning
to release shortly a refreshed user-interface.
After the financial year end, 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 to trace and authenticate more easily
the environmental and social credentials of their supply chains. It
has developed fully scalable software solutions, covering the
collection, verification and renewal of supplier certifications, as
well as a consumer-facing component that enables fashion retailers
to provide ethical and environmental information on their
products.
ViJi's exciting new products are entirely complementary to K3's
existing offering and align with our plans to create a suite of
products that address sustainability and in particular supply chain
transparency. We will integrate the solutions with the
sustainability features in our fashion products. As forthcoming
sustainability-related legislation comes into effect both in Europe
and the USA, we believe that our solutions will be well-positioned
for the fashion and apparel markets.
Third-party Solutions
Third-party Solutions comprises our SYSPRO and Global Accounts
units, 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 2021 2020*
------------------------------------ ------ ---------
Revenue 28.9 27.9
Gross profit 14.6 14.2
Gross margin % 50.4% 51.1%
Underlying admin / support
costs (6.6) (6.8)
EBITDA pre capitalised development 8.0 7.4
Capitalised development 0.0 0.1
Adjusted EBITDA 8.0 7.5
------------------------------------ ------ ---------
restated
Total revenue increased by 4% to GBP28.9m (2020: 27.9m) and
adjusted EBITDA increased by 7% to GBP8.0m (2020: GBP7.5m).
Our UK manufacturing customer base, which largely comprises
SYSPRO customers, delivered a resilient performance in the pandemic
environment, with customers proceeding with new software
installations. We secured a good level of new SYSPRO business in
the year, and were successful in targeting larger, more complex
projects. As a result, the average size of new orders has increased
significantly, and we have a strong services order book for 2022.
We plan to increase our resource to support the opportunities we
have created.
Software licence and maintenance and support contract renewals
across the SYSPRO customer base remained very high at c.98 % (2020:
97%). Most of these renewals take place in the final quarter of the
financial year, and generate substantial cash inflows.
Internationally, our Third-party Solutions business mainly
comprises Global Accounts and, in particular, the Inter IKEA
Concept franchisee network, and this business performed well. We
are supporting a significant expansion of IKEA franchisee stores in
Central and South America. Reflecting this, we increased our Far
East off-shoring resource earlier in the year, which caused a
reduction in our services gross margin. Activity levels are
expected to remain high over the new financial year, and we have
plans to substantially increase the size of our delivery teams for
Global Accounts. While there has been a shortage of available
skilled resources, we expect the situation to normalise over the
year. We were also pleased to support Global Account customers with
some of our new K3 applications, including 'Mobile Goods Flow' and
the integration of our 'Self-ordering Kiosk' application into IKEA
store restaurants.
Central costs
Central Support costs include our central IT, finance, legal,
HR, insurance, marketing and PLC costs, which are not allocated to
revenue generation. These decreased slightly to GBP5.9m from
GBP6.1m in 2020 following some efficiency drives
Summary
It has been a transformational year for K3. We have taken major
steps forward in repositioning the business for long-term,
sustainable profitable growth and cash generation. We believe that
we are establishing an organisation that is more commercially
-driven and customer-focused, as well as more agile. Our emphasis
is on ensuring that the business is "market-product-price-fit"
driven and provides an excellent customer service. We have clearly
defined growth plans for the future and have identified very good
growth opportunities across our fashion and apparel activities and
in our SYSPRO and Global Accounts operations.
Marco Vergani
Chief Executive Officer
5 April 2022
financial Review
Overview
These financial statements are for the financial year ended 31
November 2021.
It should be noted that the comparatives for the prior financial
year consolidated income statement have been restated. This
followed the classification of the Sage practice as a discontinued
activity after its disposal in September 2021. The Starcom Managed
Services unit, which was disposed of in February 2021, was already
classified as an asset held for sale as at 30 November 2020 and
presented within discontinued operations. The 2020 comparatives
have therefore been restated to present Sage as part of the
discontinued operations in order to provide comparability.
The Group's reported segments are now 'K3 Products' and 'Third
party Solutions', with central support costs reported separately as
previously. This aligns segmental reporting with the Group's growth
strategy and the disposals of the Sage and Starcom businesses.
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) ;
-- gross profit; and
-- gross margin
-- Adjusted EBITDA
The Group's results for the year end to 30 November 2021,
together with comparatives for the same period in 2020, are
summarised in the tables below. K3's intellectual property as a
percentage of total gross profit is also highlighted below.
Continuing activities Revenue
GBPm 2021 2020*
------------------------------------------ ------- ----------
Revenue 45.3 43.8
- recurring or predictable revenue(2) 33.9 33.7
Strategic SaaS, maintenance, and
- support 2.6 2.2
Gross profit 26.8 26.8
Gross margin percentage 59.2% 61.3%
Underlying support / admin costs (24.7) (26.9)
Capitalised development costs 2.3 4.2
Adjusted EBITDA 4.4 4.0
------------------------------------------ ------- ----------
*restated
2021 2020
K3 products gross profit as a percentage
of total gross profit(*4) 45.6% 46.9%
------------------------------------------ ------ ------
K3 generated revenue of GBP45.3m, which was 3% ahead of the
prior financial year. This growth was slightly
offset by the expected decline in revenue from legacy product. .
The key metric of adjusted earnings before interest, tax,
depreciation, amortisation and exceptional items ("EBITDA")
increased by 8% to GBP4.4m (2020: GBP4.0m), with Gross Profit flat
on 2020 and a reduction in underlying support / admin costs. Gross
margins reduced to 59.2%, (2020: 61.3%) due upfront investment in
Third Party Solution Services teams.
Administrative expenses
GBPm 2021 2020*
-------------------------------------------------- ----------- ----------
Support/ administration costs net
of capitalised development costs 22.3 22.7
Depreciation & amortization 6.8 4.4
Amortization of acquired intangibles 0.5 1.5
Exceptional costs impairment & reorganisation 3.1 17.8
Share based payments 0.4 0.0
-------------------------------------------------- ----------- ----------
Total 33.1 46.4
-------------------------------------------------- ----------- ----------
Support/administration costs net of capitalised development
costs (*7) reduced by 2% to GBP22.3m (2020: GBP22.7). This followed
a decision to reduce non-revenue generating resource and redirect
this investment in new customer-facing staff.
Depreciation and amortization costs increased in line with a
change in amortization period for capitalised development costs
from five-seven years to three years. Exceptional costs in 2021
related to the funding of redundancy costs to support the reduction
in support / administration costs and onerous contracts following
the Starcom disposal. The significantly higher exceptional costs in
2020 included the impairment of goodwill and capitalised
development costs of GBP16.8m.
Discontinued activities
On the 28 February 2021, the Group disposed of its Starcom
Managed Services unit for GBP13.3m. The unit had already been
classified as an 'available for sale' asset as at 30 November 2020
and had been accounted for in discontinued activities in 2020
reported results.
Starcom's total external revenue for the three months to 28
February 2021 was GBP2.3m (12 months to 30 November 2020: GBP9.5m)
and it generated a profit before taxation of GBP9.5m (12 months to
30 November 2020: GBP1.1m) including profit on disposal of
GBP9.3m.
On 1 October 2021, the Group disposed of its Sage business for
GBP1.5m. This business generated external revenue for the 10 months
to 30 September 2021 of GBP4.0m and a profit before tax of GBP2.6m
including the GBP2.6m gain on the sale of trade and negative net
assets (12 months to 30 November 2020: revenues of GBP5.1m and loss
before tax of GBP0.1m).
In April 2020, the UK Dynamics subsidiary was put into
administration. The subsidiary has no reported results for 2021. It
showed a loss after tax of GBP3.4m in 2020 results.
Earnings per share
Reported gain per share was 8.0p (2020: Loss 49.3p). The Group's
adjusted loss per share for Continuing Activities was(*6) (13.6)p
(2020: adjusted loss per share(*6) 42.4p).
Dividends
No dividend will be declared for the year ended 30 November 2021
(2020: nil).
Taxation
GBPm 2021 2020
---------------------------------------- ------ ------
Net VAT 2.8 3.3
Corporation tax 0.8 0.5
Employer social security contributions 3.2 3.2
---------------------------------------- ------ ------
Total 6.8 7.0
---------------------------------------- ------ ------
% of revenue 15.0% 14.1%
---------------------------------------- ------ ------
Employer social security contribution amounted to GBP3.2m (2020:
GBP3.2m) reflecting the number of people in the Group. Aggregated
corporation tax charges, employee taxes and net VAT totalled
GBP6.6m (2020: GBP7.0m).
During the previous financial year, we received governmental
support during the early part of the coronavirus pandemic. We
deferred GBP2.7m of PAYE and VAT payments as at 30 November 2020,
which we subsequently repaid in full by 30 November 2021.
There was a corporation tax charge for the financial year of
GBP0.8m (2020: GBP0.3m credit). This comprised a charge for current
taxation of GBP0.6m (2020: GBP0.3m) relating to the non UK
businesses and a charge for deferred taxation of GBP0.2m (2020:
GBP0.6m benefit).
Balance Sheet
The Balance Sheet has altered significantly since last year
following the disposal of two units and the associated pay down of
Bank Facilities and the conversion to equity of the GBP3m
shareholder loans. The Starcom business was disposed of in 2021,
however, its assets and associated liabilities had already been
classified as held for sale as at 30 November 2020, with Starcom's
net asset value at that date standing at GBP3.3m. The Sage business
was also disposed of during 2021, and this consequently reduced
non-current assets by GBPnil, current assets by GBP0.2m and current
liabilities by GBP0.8m.
A sharper focus on product development cost spend meant
additions to development costs were GBP2.3m compared to GBP4.5m in
2020, with 90% of this invested in development of fashion and
apparel products. Following a review of the Group's accounting
policies and the resultant decision to reduce the amortization
period to three years from five to seven years, amortisation of
development costs increased to GBP5.1m (2020: GBP2.5m).
Within working capital, Trade and other receivables amounted to
GBP10.6m (2020: GBP10.6m) with K3 maintaining ownership of the Sage
receivables following the disposal and with the increase on last
year driven by an increase of services revenue. Trade and other
payables totalled GBP14.4m (2020: GBP18.0m) with 2020 including
GBP2.7m relating to governmental tax deferrals schemes).
The Group's net cash(*5) position has significantly
strengthened. At the financial year end, it stood at GBP9.0m (2020:
net debt of GBP1.9m). This material improvement was underpinned by
the disposal proceeds of Starcom (GBP13.3m) and Sage (GBP1.5m), as
well as the conversion to equity of the GBP3.0m shareholder
loan.
After the financial year end, the Group's facilities agreement
with Barclays was extended for another year until the next renewal
review in March 2023.
Cash flow
Cash generated from Operations was GBP0.9m (2020: GBP8.6m) for
the Group which included both Discontinued Activities and
Government coronavirus support programmes in which the Group
delayed payments in FY20 and paid them in FY21. The table beneath
shows the normalisation for the Government coronavirus support
payments and for Discontinued operations. Operating cash flow from
Continuing Activities normalized for Government coronavirus support
is GBP3.2m (2020: GBP4.1m), the main difference driven by some
slower moving sales ledger balances in FY21, which are now
unwinding. The FY20 exceptional income of GBP2.5m was associated
with the Dynamics administration.
GBPm 2021 2020
------------------------------------------------ -------- ----------
Net cash from operating activities 0.9 8.6
------------------------------------------------ -------- ----------
Total
- Add back Sage outflows 0.2 0.2
- Add back Starcom inflows (0.6) (1.1)
Add back Dynamics outflow - 1.6
Government coronavirus tax support paid/
(deferred) 2.7 ( 2.7)
Exceptional income - (2.5)
------------------------------------------------ -------- ----------
Operating cash flow from Continuing
Activities normalised for Government
coronavirus support 3.2 4.1
------------------------------------------------ -------- ----------
Income taxes paid increased to GBP1.4m (2020: GBP0.4m) due
increasing taxable profits being made in non UK tax regimes.
Investing Activities included the disposal proceeds of the
Starcom and Sage businesses of GBP13.3m and GBP1.5m respectively. A
sharper focus on the development cost base reduced the amount of
capitalised development expenditure capitalised GBP2.3m (2020:
GBP4.5m).
Within 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, Net Debt was reduced by
the non cash debt to equity conversion of the GBP3m shareholder
loan. Interest expenses paid also increased despite the lower debt
levels due to GBP0.6m interest costs associated with the
shareholder loan conversion.
Robert Price
Chief Financial Officer
5 April 2022
Consolidated income statement
for the year ended 30 November 2021
Notes Year ended Year ended
30 November 30 November
2021 2020 (restated)
GBP'000 GBP'000
Revenue 2 45,267 43,762
Cost of sales (18,432) (16,926)
-------------------------------------- --------- ------------- -----------------
Gross profit 26,835 26,836
Administrative expenses (33,106) (46,435)
Impairment losses on financial
assets (118) (62)
--------- -----------------
Adjusted EBITDA 4,357 4,034
Depreciation and amortisation (6,797) (4,446)
Amortisation of acquired intangibles (518) (1,471)
Exceptional Impairment 7 (1,421) (16,855)
Exceptional reorganisation
costs (1,570) (902)
Share-based payment charge (440) (20)
--------- -----------------
(Loss)/profit from operations (6,389) (19,660)
Finance expense (1,433) (1,193)
-------------------------------------- --------- ------------- -----------------
Loss before taxation from
continuing operations (7,822) (20,853)
-------------------------------------- --------- ------------- -----------------
Tax expense 3 (939) (22)
-------------------------------------- --------- ------------- -----------------
Loss after taxation from continuing
operations (8,761) (20,875)
Loss after taxation from discontinued
operations 6 12, 292 (255)
Profit / (loss) for the year 3,531 (21,130)
------------------------------------------------- ------------- -----------------
^ The 2020 results have been restated to present Sage within the
discontinued operations. See Note 6 for further details.
All the loss for the year is attributable to equity shareholders
of the parent
Gain / (Loss) per share Year ended Year ended
30 November 30 November
2021 2020 (restated)
Basic and diluted 9 8.0p (49.3)p
Basic and diluted from Continuing
operations 9 (19.9)p (48.8)p
Year ended Year ended
30 November 30 November
2021 2020 (restated))
GBP'000 GBP'000
Profit / (loss) for the year 3,531 (21,130)
-------------------------------------- ------------- ------------------
Other comprehensive (loss) / income
Exchange differences on translation
of foreign operations (1,085) 1,065
Other comprehensive (loss) ( 1, 085) 1,065
Total comprehensive expense / (loss)
for the year 2,446 (20,065)
-------------------------------------- ------------- ------------------
All the total comprehensive expense 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/(loss) had a tax impact.
Consolidated statement of financial position
as at 30 November 2021
2021 2020
GBP'000 GBP'000
ASSETS
Non-current assets
Property, plant, and equipment 1,551 1,866
Right-of-use assets 1,709 2,719
Goodwill 24,772 26,132
Other intangible assets 6,648 10,271
Deferred tax assets 1,010 935
---------------- ---------
Total non-current assets 35,690 41,923
---------------- ---------
Current assets
Stock 467 452
Trade and other receivables 10,605 10,616
Cash and cash equivalents 9,146 9,306
Assets in disposal groups classified as
held for sale - 6,899
---------------- ---------
Total current assets 20,218 27,273
---------------- ---------
Total assets 55,908 69,196
LIABILITIES
Non-current liabilities
Lease Liabilities 135 1,735
Provisions 1,129 416
Deferred tax liabilities 1,288 889
---------------- ---------
Total non-current liabilities b 3,040
---------------- ---------
Current liabilities
Trade and other payables 14,456 18,018
Current tax liabilities 509 1,274
Lease liabilities 1,623 925
Borrowings 113 12,443
Provisions 854 9
Liabilities directly associated with assets
classified as held for sale - 3,572
---------------- ---------
Total current liabilities 17,555 36,241
---------------- ---------
Total liabilities 20,107 39,281
EQUITY
Share capital 11,183 10,737
Share premium account 31,451 28,897
Other reserves 11,151 11,151
Translation reserve 1,538 2,623
Retained earnings (19,522) (23,493)
---------------- ---------
Total equity attributable to equity holders
of the parent 35,801 29,915
---------------- ---------
Total equity and liabilities 55,908 69,196
Consolidated Cash Flow Statement
for the year ended 30 November 2021
Year ended Year ended
30-Nov 2021 30-Nov 2020
Notes GBP'000 GBP'000
Cash flows from operating activities
Profit/ (loss) for the period 3,531 (21,130)
Adjustments for:
Finance expense 1,448 1,137
Tax expense / (credit) 829 (284)
Depreciation of property, plant, and equipment 591 730
Depreciation of right-of-use assets 963 1,727
Amortisation of intangible assets and development expenditure 5,639 4,247
Impairment of intangible assets 1,421 16,855
Loss on sale of property, plant, and equipment 466 254
Share-based payments credit 440 20
(Profit) / loss on disposal of discontinued operations (11,893) 957
Increase in provisions 1,558 71
(increase) / decrease in trade and other receivables (242) 6,680
Decrease in trade and other payables (3,896) (2,668)
---------------------------------------------------------------------------- ------ ------------ ------------
Cash generated from operations 855 8,596
Income taxes paid (1,362) (364)
---------------------------------------------------------------------------- ------ ------------ ------------
Net cash from operating activities (507) 8,232
---------------------------------------------------------------------------- ------ ------------ ------------
Cash flows from investing activities
Development expenditure capitalised (3,024) (4,516)
Proceeds from disposal of operations net of cash balances in disposal unit 6 14,763 -
Purchase of property, plant, and equipment (623) (713)
---------------------------------------------------------------------------- ------ ------------ ------------
Net cash generated from / (used in) investing activities 11,116 (5,229)
---------------------------------------------------------------------------- ------ ------------ ------------
Cash flows from financing activities
Proceeds from loans and borrowings 4,800 9,950
Repayment of loans and borrowings (11,571) (6,468)
Repayment of lease liabilities (1,187) (1,841)
Interest paid on lease liabilities (202) (308)
Finance expense paid (673) (590)
Net cash from financing activities (8,833) 743
---------------------------------------------------------------------------- ------ ------------ ------------
Net change in cash and cash equivalents 1,776 3,746
---------------------------------------------------------------------------- ------ ------------ ------------
Cash and cash equivalents at start of year 7,566 3,841
Exchange losses on cash and cash equivalents (309) (21)
---------------------------------------------------------------------------- ------ ------------ ------------
Cash and cash equivalents at end of year 9,033 7,566
Consolidated statement of Changes in Equity
for the year ended 30 November 2021
Translation Retained
Share capital Share premium Other reserves reserve earnings Total equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 November
2019 10,737 28,897 10,448 1,558 (2,383) 49,257
------------------- -------------- -------------- --------------- -------------- --------------- -------------
Changes in equity
for year ended 30
November 2020
Loss for the year - - - - (21,130) (21,130)
Other
comprehensive
income for the
year - - - 1,065 - 1,065
------------------- -------------- -------------- --------------- -------------- --------------- -------------
Total
comprehensive
income/(expense) - - - 1,065 (21,130) (20,065)
Share-based
payment - - - - 20 20
Issue of warrants - - 703 - - 703
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
------------------- -------------- -------------- --------------- -------------- --------------- -------------
1 Basis of preparation
Statement of compliance
These group financial statements 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 Preliminary
Results Announcement 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 2021, 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 2021
and 30 November 2020 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
2020 have been filed with the Registrar of Companies, and those for
2021 will be delivered following the Company's Annual General
Meeting. The Auditor has reported on the statutory accounts for
2021 and 2020. Their report for 2021 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
2023.
The capital structure of the Group has materially changed in the
last year 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 2021 with a Net Cash position of GBP9.0m compared to a Net
Debt position of GBP1.9m the previous year end.
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 reasonably 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.
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 and support are 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. More
details including carrying values are included in note 7.
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, is discussed further in note 7.
Expenditure is only capitalised when the investment appraisal
process has assessed that the product is likely to benefit the
Group in the future. More details including carrying values are
included in note 7.
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 between 61 and 90 days past
due had been 50 per cent higher as of November 2021, the loss
allowance on trade receivables would have been GBP16k (2020: GBP2k)
higher.
If the ECL rates on trade receivables between 31 and 60 days
past due had been 50 per cent higher as of November 2021, the loss
allowance on trade receivables would have been GBP4k (2020: GBP11k)
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 GBP300,000, conversely an equivalent reduction in the
incremental borrowing rate would decrease the right of use asset
and liability by approximately GBP300,000.
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.
Prior period restatements
On 20 September 2021, the Group announced the trade and asset
sale of its Sage business CGU to Pinnacle Computing (Support)
Limited. On 26 February 2021, the Group announced that it had
completed a share sale of Starcom Technologies Limited. Starcom
Technologies Limited had been classified as a disposal group held
for sale at 30 November 2020 and presented as a discontinued
operation. The 2020 comparatives have therefore been restated to
present Sage as part of the discontinued operations in order to
provide comparability.
One further presentational adjustment was made in the statement
of financial position, to the 2020 comparatives, to reflect a
correction to the IFRS15 treatment of certain Trade Receivable /
Contract Liability (Deferred Income) balances. The impact of this
was to remove GBP1.1m of Trade Receivables and Contract Liability
balances as these balances related to invoices raised in advance
for work performed after 30 November 2020. There was no impact on
Profit/Loss, Net Assets or Cashflows.
2 Segment information
We have restated the 2020 segment information to remove the
discontinued activities of Sage, to be presented as discontinued
alongside those of UK Dynamics and Starcom which were shown as
discontinued in 2020. 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 and Third-party reseller
activities across revenue and gross margin. This has changed from
the prior year reported disclosures which was based on three
segments of K3 own IP, Global Accounts and Third Party products. We
have now merged Global Accounts and Third Party Products 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 on pages 9 to 12.
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(*1) .
The segment results for the year ended 30 November 2021 and for the
year ended 30 November 2020, reconciled to loss for the year.
Year ended 30 November 2021
K3 Products Third-party Solutions Central Costs Total
GBP'000 GBP'000 GBP'000 GBP'000
Total segment revenue 21,216 31,401 - 52,617
Less: Inter-segment revenue (4,887) (2,463) - (7,350)
Software licence revenue 3,678 2,963 - 6,642
Services revenue 1,310 16,014 - 17,325
Maintenance & support 10,000 9,868 - 19,867
Hardware and other revenue 1,341 93 - 1,433
External revenue 16,329 28,938 - 45,267
Cost of sales (4,091) (14,341) - (18,432)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Gross profit 12,238 14,597 - 26,835
Gross margin 74.9% 50.4% - 59.3%
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Underlying administrative expenses(*7) (9,922) (6,629) (5,927) (22,478)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Adjusted EBITDA(*1) from continuing operations 2,316 7,968 (5,927) 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 gains - - 35 35
Share-based payment charge - - (440) (440)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Profit / (Loss) from operations 2,316 7,968 (16,673) (6,389)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Finance expense - - (1,433) (1,433)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Profit / (Loss) before tax and discontinued
operations 2,316 7,968 (18,106) (7,822)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Tax expense - - (939) (939)
Profit from discontinued operations 11 - - 12,292 12,292
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Profit / (Loss) for the year 2,316 7,968 (6,753) 3,531
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Year ended 30 November 2020 (restated^)
K3 Products Third-party Solutions Central Costs Total
GBP'000 GBP'000 GBP'000 GBP'000
Total segment revenue 20,001 30,984 - 50,985
Less: Inter-segment revenue (4,143) (3,080) - (7,224)
Software licence revenue 3,303 1,896 - 5,200
Services revenue 1,184 15,535 - 16,719
Maintenance & support 10,031 10,301 - 20,331
Hardware and other revenue 1,340 172 - 1,512
--------------------------------------------------- ------------ ------------------------ -------------- ---------
External revenue 15,858 27,904 - 43,762
Cost of sales (3,282) (13,644) - (16,926)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Gross profit 12,576 14,260 - 26,836
Gross margin 79.3% 51.1% - 61.3%
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Underlying administrative expenses(*7) (9,972) (6,741) (6,089) (22,802)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Adjusted EBITDA(*1) from continuing operations 2,604 7,519 (6,089) 4,034
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Depreciation and amortisation - - (4,446) (4,446)
Amortisation of acquired intangibles - - (1,471) (1,471)
Exceptional impairment - - (16,855) (16,855)
Exceptional reorganisation costs - - (902) (902)
Share based payment charge / (credit) - - (20) (20)
Profit / (Loss) from operations 2,604 7,519 (29,783) (19,660)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Finance expense - - (1,193) (1,193)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Profit / (Loss) before tax and discontinued
operations 2,604 7,519 (30,976) (20,853)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Tax expense - - (22) (22)
Loss from discontinued operations - - (255) (255)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
Profit / (Loss) for the year 2,604 7,519 (31,253) (21,130)
--------------------------------------------------- ------------ ------------------------ -------------- ---------
^ The 2020 segmentation has been restated to present Sage as
discontinued operations alongside those of, UK Dynamics and Starcom
which were shown as discontinued operations in 2020 (see Note 11
for further details) and to present the results based on the
product segments of K3 Products and Third-party reseller
products.
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 on page 42. 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 43%
(2020: 41%) 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 2020
2021 30 November 2020 2021 (restated)
GBP000 GBP000 GBP000 GBP000
United Kingdom 15,648 14,347 30,606 31,142
Netherlands 7,978 9,170 180 420
Ireland 1,157 1,250 5,941 10,861
Rest of Europe 7,575 9,676 (1,570) (318)
Middle East 1,887 1,641 - -
Asia 7,494 4,503 304 274
USA 506 1,005 19 19
Rest of World 3,020 2,171 - -
-------- ------------
45,267 43,762 35,480 43,399
--------------------- ------------- ------------------ -------- ------------
% of non-UK revenue 65% 67%
External revenue by Business Unit Geography
2021
External Revenue by Market
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 10,664 9,204 19,867
Hardware and other Revenue 628 806 1,433
---------------------------------- ------------- ----------- ---------- ---------
Total 15,674 29,593 45,267
---------------------------------- ------------- ----------- ---------- ---------
External revenue by business unit
geography
Maintenance Total
Software Services & support Hardware &
2021 Licencing Revenue Revenue Other Revenue
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 2,607 700 4,072
---------------- ----------- --------- ------------ --------------- --------
Total 6,642 17,324 19,867 1,433 45,267
---------------- ----------- --------- ------------ --------------- --------
External Revenue by revenue recognition category
Maintenance
Software Services & support Hardware
2021 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 4 - - 4
---------------------------- --------- --------- --------- ---------
Total 4,499 -- - 4,499
---------------------------- --------- --------- --------- ---------
2020
External Revenue by
Market
UK Non-UK Total
GBP'000 GBP'000 GBP'000
Software Licence Revenue 1,833 3,367 5,200
Services Revenue 2,044 14,675 16,719
Maintenance & Support
Revenue 9,913 10,418 20,331
Hardware and other
Revenue 370 1,142 1,512
---------------------------- -------- -------- --------
Total 14,160 29,602 43,762
---------------------------- -------- -------- --------
External Revenue by business unit geography
Maintenance & support Hardware & Other
Software Licencing Services Revenue Revenue Revenue Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
United Kingdom 2,089 2,168 10,562 417 15,238
Netherlands 2,781 14,248 6,480 112 23,621
Ireland 55 141 260 71 528
Rest of Europe 274 161 3,029 912 4,376
---------------- ------------------- ----------------- ------------------------ ------------------------ --------
Total 5,200 16,719 20,331 1,512 43,762
---------------- ------------------- ----------------- ------------------------ ------------------------ --------
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 5,200 - - 1,512 6,712
Services transferred
at a point in
time - 16,558 5,718 - 22,276
Services transferred
over time - 161 14,613 - 14,774
---------------------- ----------- --------- ------------ ----------------- --------
Total 5,200 16,719 20,331 1,512 43,762
---------------------- ----------- --------- ------------ ----------------- --------
Revenue to be recognised in the future, related to agreed
performance obligations that are unsatisfied or partially satisfied
as at 30 November 2020, was as follows:
2021 2022 Later Total
GBP'000 GBP'000 GBP'000 GBP'000
Software Licence Revenue 226 226 324 776
Services Revenue 321 - - 321
Maintenance & Support 5,066 - - 5,066
Hardware and other Revenue 333 - - 333
---------------------------- --------- --------- --------- ---------
Total 5,946 226 324 6,496
---------------------------- --------- --------- --------- ---------
Revenue recognised and included within contract assets can be
reconciled as follows:
2021
GBP'000
At 1 December 2020 3,220
Transfers in the period from contract assets to trade receivables (3,220)
Excess of revenue recognised over cash (or rights to cash) being recognised during the period 3,077
At 30 November 2021 3,077
--------
Revenue recognised and included within contract liabilities can
be reconciled as follows:
2021
GBP'000
At 1 December 2020 restated 5,369
Amounts included in contract liabilities that was recognised as revenue during the period (5,369)
Cash received in advance of performance and not recognised as revenue during the period 3,364
At 30 November 2021 3,364
--------
3 Tax expense / (charge)
2020
2021 restated
GBP'000 GBP'000
Current tax expense/(credit)
Income tax of overseas operations on profits/(losses)
for the period 676 397
Adjustment in respect of prior periods (80) (59)
-------- ---------
Total current tax expense 596 338
-------- ---------
Deferred tax (credit)/expense
Origination and reversal of temporary differences 233 (622)
Total deferred tax expense/(credit) 233 (622)
-------- ---------
Total tax expense/(credit) in the current
year 829 (284)
-------- ---------
Income tax expense/(credit) attributable
to continuing operations 939 22
Income tax (credit) attributable to discontinued
operations (110) (306)
-------- ---------
829 (284)
-------- ---------
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 2021 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:
2020
2021 % restated %
GBP'000 GBP'000
Loss before taxation from continuing
operations (7,822) (20,853)
Profit before taxation from discontinued
operations (note 11) 12,182 1,149
-------- ---------
Profit/(loss) before tax 4,360 (19,704)
-------- ---------
Expected tax charge/(credit) based on
the standard rate of corporation tax 828 19.0 (3,744) 19.0
Effects of:
Items not deductible for tax purposes 504 3,161
Non-taxable gain on disposal of shares (2,274) -
Adjustment to tax charge in respect
of prior periods (180) (226)
Differences between overseas tax rates 571 110
Group relief not paid for 154 -
Super-deduction (11) -
Movements in temporary differences not
recognised 1,184 435
Effect of deferred tax rate difference 54 (40)
-------- ---------
Total tax expense / (credit) in current
period 829 39.4 (304) 19
-------- ---------
Deferred tax recognised directly in equity was GBPnil (2020:
GBPnil). Current tax recognised in equity was GBPnil (2020:
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.
4 Dividends
No dividend in respect of the year ended 30 November 2021 will
be proposed (2020: nil).
5 (Loss)/earnings per share
The calculations of (loss)/earnings per share are based on the
profit/(loss) for the year and the following numbers of shares:
2021 2020
Number of shares Number of shares
Denominator
Weighted average number of shares used in basic and diluted EPS 44,090,074 42,899,598
Certain employee options and warrants have not been included in
the calculation of diluted EPS because their exercise is contingent
on the satisfaction of certain criteria that had not been met at
the end of the year.
Basic and diluted
2021 2020
Loss after tax from continuing operations (8,761) (20,875)
Profit/(loss) after taxation from discontinued
operations 12,292 (255)
--------- ---------
Profit / (Loss) attributable to ordinary equity
holders of the parent for basic and diluted
earnings per share 3,531 (21,130)
--------- ---------
The alternative earnings per share calculations have been
computed because the directors consider that they are useful to
shareholders and investors. These are based on the following
profits/(losses) and the above number of shares.
Basic and diluted before
Other items
2021 2020
------------ -------------
Loss after tax from continuing operations (8,761) (20,875)
------------ -------------
Add back other Items:
Amortisation of acquired intangibles 518 1,471
Exceptional reorganisation costs 1,605 902
Exceptional impairment costs 1,421 16,855
Shared-based payment charge 440 20
Tax charge related to Other Items (1,207) 255
------------ -------------
(Loss)/profit attributable to ordinary equity
holders of the parent for basic and diluted
earnings per share from continuing operations
before other items (5,984) (1,372)
------------ -------------
2021 2020 restated
------------------------------------------------ ------- --------------
Profit/(loss) per share
Basic and diluted earnings/(loss) per share 8.0 (49.3)
Basic and diluted earnings/(loss) per share
from continuing operations (19.9) (48.8)
Basic and diluted earnings/(loss) per share
from discontinued operations 27.9 (0.5)
Adjusted earnings per share
Basic and diluted earnings/(loss) per share
from continuing operations before other items (13.6) (3.2)
------------------------------------------------ ------- --------------
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:
2021 2020
GBP'000 GBP'000
Cash consideration received 14,474 -
Total consideration received 14,747 -
-------- --------
Cash disposed of (1,375) -
Net cash inflow on disposal 13,372 -
of discontinued operations
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 9,258 -
discontinued operations
Related tax expense - -
Gain on disposal of discontinued 9,258 -
operations
-------- --------
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:
2020
2021 restated
GBP'000 GBP'000
Total Revenue 2,309 10,229
Less inter-segment revenue - (710)
---------------------------------------- -------- ----------
External revenue 2,309 9,519
Cost of sales (845) (3,966)
---------------------------------------- -------- ----------
Gross profit 1,464 5,553
Administrative expenses (1,011) (3,998)
Impairment losses on financial
assets - (25)
Amortisation of acquired intangibles (107) (322)
Profit from operations 346 1,208
Profit on disposal 9,258 -
Finance credit/(expense) 9 (73)
---------------------------------------- -------- ----------
Profit before taxation from
discontinued operations 9,613 1,135
---------------------------------------- -------- ----------
Tax credit including on gain
on asset held for sale 110 22
Profit for the year from discontinued
operations 9,723 1,157
---------------------------------------- -------- ------------
2020
2021 restated
Basic and diluted profit per
share from discontinued operations 22.0 2.7
The major classes of assets and liabilities of the Starcom
business classified as held for sale as at 30 November 2021 are as
follows:
2021 2020
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:
2021 2020
GBP'000 GBP'000
Operating 628 1,096
Investing (129) (155)
Financing (157) (133)
------------- -----------
Net cash inflow 342 808
------------- -----------
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:
2021 2020
GBP'000 GBP'000
Cash consideration received 1,475 -
Total consideration received 1,475 -
-------- --------
Cash disposed of - -
Net cash inflow on disposal 1,475 -
of discontinued operations
Net assets disposed (other
than cash)
Trade and other receivables 682 -
Trade and other payables 478 -
-------- --------
1,160 -
-------- --------
Pre-tax gain on disposal of 2,635 -
discontinued operations
Related tax expense - -
Gain on disposal of discontinued 2,635 -
operations
-------- --------
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:
2021 2020
GBP'000 GBP'000
External revenue 4,011 5,057
Cost of sales (2,437) (3,184)
----------------------------------------------- -------- --------
Gross profit 1,574 1,873
Administrative expenses (1,641) (1,967)
Impairment losses on financial
assets 31 (60)
Profit from operations (36) (154)
Profit on disposal 2,629 -
Finance (expense)/credit (24) 69
----------------------------------------------- -------- --------
Profit after taxation from
discontinued operations 2,569 (85)
----------------------------------------------- -------- --------
Tax credit /(charge) including
on gain on asset held for
sale - 14
----------------------------------------------- -------- --------
Profit/(loss) for the year from discontinued
operations 2,569 (71)
----------------------------------------------- -------- ----------
2021 2020
Basic and diluted profit per
share from discontinued operations 5.8 0.2
The amounts included in the consolidated cashflows related to
the Sage business are as follows:
2021 2020
GBP'000 GBP'000
Operating (230) (197)
Investing 1,475 -
Financing (24) 69
------------- -----------
Net cash inflow/(outflow) 1,221 (128)
------------- -----------
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
2021 2020
GBP'000 GBP'000
Global Accounts 9,227 9,729
Integrated Business Solutions (IBS) 771 771
SSL and Starcom - 400
Syspro 13,677 13,677
Walton 1,097 1,555
24,772 26,132
------------- ------------
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 2021,
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 (1.5%) is then made for a
further two years.
The pre-tax cash flow forecasts used the following key
assumptions:
-- DdD Retail, IBS, Unisoft and Walton - these CGUs relate to
older products and the forecasts for DdD Retail have a year-on-year
attrition of revenue by 10% in FY22 and FY23 as the Group's
decision to cease investing in these products with a plan to
transitioning customers, wherever possible, to the K3|imagine
platform. From FY24 we are assuming no revenue from these legacy
products with a plan to migrate to the K3|imagine platform.
-- Syspro - growth rates of 21.4% to 13.2 % over the next three years.
-- RSG - revenue decline rates decreasing from (35.7%) to (7.5%) over the next three years.
-- K3 products - as this is where the Group's strategy is
focused, strong growth rates of 123% to 58% over the next three
years from a low base
-- Global Accounts - revenue growing by 47.3% over the 5-year
forecast period with gross margin maintained at current
performance
The rate used to discount the forecast pre-tax cash flows is
13.4% (2020: 12.1%) 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.
Having calculated the value in use, the following impairments,
against goodwill and other intangible assets, have been recognised
along with any remaining headroom:
(Impairment)
/ Headroom
Goodwill Other Intangibles Development Total
Costs
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Global Accounts / IKEA 9,200 - 14 9,214 72,909
Integrated Business Solutions
(IBS) 800 - - 800 324
Syspro 13,700 - 546 14,246 8,081
Walton 1,072 - 4 1,076 -
24,772 - 564 25,336 81,314
--------- ------------------ ------------ -------- -------------
The impairments have been recognised in the reportable segments
as follows relating to DDD, RSG and Walton:
Impairment
Goodwill Other Intangibles Development Total
Costs
GBP'000 GBP'000 GBP'000 GBP'000
K3 products (857) (564) - (1,421)
Global Accounts - - - -
Third-party products - - - -
(857) (564) - (1,421)
--------- ------------------ ------------ --------
8 Events after the reporting date
On the 11th February 2022 the Group agreed an extension to its
Current Revolving Credit Facility with Barclays for GBP3.5m until
31 March 2023.
On the 27th January 2022, K3 acquired the French sustainability
start up, ViJi SAS. ViJi's products enable brands to trace and
authenticate more easily and reliably the environmental and social
credentials of their supply chains. This includes the collection,
verification and renewals of supplier certifications. The software
also has a consumer-facing component, enabling the digital
communication of information on the ethical history of items,
including materials, manufacturing processes and
sustainability.
ViJi generated revenue of 0.03m EUR and an EBITDA loss of 0.24m
EUR in the year ended 31 December 2021. Its net assets at that date
stood at 0.1m EUR. The acquisition has been agreed for an initial
cash consideration of 0.35m EUR in the first year, with further
cash consideration, capped at 0.7m EUR, due over the next two
years, dependent on the attainment of annual recurring revenue
performance targets. An estimate of the allocation of intangible
assets is GBP0.1m of contracted customer relationships and GBP0.2m
goodwill.
On 9 February 2022, the Group granted a further 80,000 Market
Priced Share Options and a further 175,000 new Nominal Priced
Options to certain PDMRs. Note 10 sets out the terms of those
options.
Jonathan Manley (non-executive director) retires by rotation at
the 2022 AGM and, with plans to spend more time in the US, has
decided not to offer himself for re-election. Jonathan will
therefore resign from the Board at the 2022 AGM.
9 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.
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END
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(END) Dow Jones Newswires
April 05, 2022 02:01 ET (06:01 GMT)
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