K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Registered number: 02641001
World Class Software. World Class Service.
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Contents
Overview
2
4
Financial and Operational Key Points
At a Glance
Strategic Report
Chairman’s Statement
6
11 Strategy and Objectives
12 Chief Executive’s Review
18 Financial Review
19 Principal Risks and Uncertainties
21 Acquisition History
Governance
22 Corporate Governance
26 Remuneration Report
28 Directors’ Report
30 Board of Directors
Financial Statements
Group
Independent Auditors’ Report
32
37 Consolidated Income Statement
38 Consolidated Statement of Comprehensive Income
39 Consolidated Statement of Financial Position
40 Consolidated Statement of Cash Flows
41 Consolidated Statement of Changes in Equity
42 Notes forming part of the Financial Statements
Parent Company
87 Company Balance Sheet
88 Company Statement of Changes in Equity
89 Notes forming part of the Company Financial Statements
Other
97 Unaudited Five Year Summary
98 Notice of Annual General Meeting
109 Information for Shareholders
Officers and Advisers
Directors:
A Valdimarsson
RD Price
S Darling (Chairman)
PJ Claesson (non-executive)
JP Manley (non-executive)
PG Morland (non-executive)
Company secretary:
KJ Curry
Registered office:
Baltimore House, 50 Kansas Avenue, Manchester M50 2GL
Country of incorporation
of parent company:
England and Wales
Company number:
2641001
Legal form:
Auditors:
Solicitors:
Public limited company
BDO LLP, 3 Hardman Street, Spinningfields, Manchester M3 3AT
Squire Patton Boggs LLP, Trinity Court, 16 John Dalton Street, Manchester M60 8HS
DWF LLP, 1 Scott Place, 2 Hardman Street, Manchester M3 3AA
Nominated Advisor:
finnCap Limited, Cardinal Place, 60 New Broad Street, London EC2M 1JJ
Bankers:
Barclays Bank plc, 1st Floor, 3 Hardman Street, Spinningfields, Manchester M3 3HF
Registrars:
Financial PR:
HSBC Bank plc, 4 Hardman Street, Spinningfields, Manchester M3 3EB
Link Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU
KTZ Communications, No.1 Cornhill, London EC3V 3ND
AIM: KBT
k3btg.com
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K3 Business Technology Group plc
K3 is a leading provider
of integrated business
solutions encompassing
Enterprise Resource
Planning (ERP) software,
Customer Relationship
Management (CRM)
software, Point Solutions
and hosting and
managed services to
the supply chain sector.
Our customers are
Retailers, Manufacturers
and Distributors who
are looking for global,
brand leading business
solutions from a
specialist provider who
is dedicated to their
market sector.
More information about our business
can be found at www.k3btg.com
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OverviewStrategic ReportGovernanceFinancial StatementsOtherK3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
Repositioned for
profitable growth
Summary
A period of significant change – Group’s structure simplified to create more integrated and
streamlined operations, cost base reduced, and Intellectual Property (IP) strategy refocused
K3 is now significantly better positioned for long-term revenue growth, higher quality
earnings and improved cash generation
Accounting reference date and year end changed to 30 November (from 30 June)
Operational Highlights
Enterprise-related activities suffered from high value contract tenders not closing;
encouraging upturn in contract closures towards the period end and in Q1 through strategic
alliance with System Integrators
Core SME-related activities performed well across supply chain markets
Global Accounts continued to benefit from expansion of the IKEA franchisee network
Good progress with own IP product, ‘Imagine’ (previously ‘NextGen’), K3’s cloud-native,
system-agnostic offering
Cost base significantly reduced – savings of £5.0m p.a.
All comparative figures for 2016 refer to the 12 months to 30 June 2016
2
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017 Financial Highlights
Revenue for the 17 months of £118.2m (12 months to 30 June 2016: £89.2m):
– recurring revenue at 48.7% of total (2016: 46.7%)
– own IP revenue at 19.8% of total (2016: 13.9%)
Gross margin of 51.6% (2016: 54.4%)
Exceptional costs of £8.9m (net) (2016: £1.0m) – £4.5m of which is non-cash. Exceptional
costs principally reflected organisational and management changes across the Group and
an impairment of development costs (non-cash)
Adjusted loss from operations*1 of £1.6m (2016: adjusted profit*1 of £9.5m) / Reported loss
from operations of £14.8m (2016: profit of £5.2m)
Adjusted loss before tax*1 of £3.0m (2016: adjusted profit before tax*1 of £8.8m) / Reported
loss before tax of £16.1m (2016: profit of £4.5m)
Adjusted loss per share*2 of 7.7p (2016: adjusted earnings per share*2 23.5p) / Reported
loss per share of 35.3p (2016: earnings per share of 12.6p)
Fund raising in July 2017 secured £7.75m net. Net debt reduced to £4.3m at
30 November 2017 (30 June 2017: £15.6m and 30 June 2016: £8.9m)
Proposed final (and total) dividend for the period of 1.4p per share
Prospects
Current trading is encouraging, especially with own IP product sales
Board expects financial and operational progress to continue over FY2018
*See note 29 on page 86 for further details
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OverviewStrategic ReportGovernanceFinancial StatementsOtherK3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
At a Glance
K3 is a business technology innovator realizing results for our customers through the power and expertise of our people, our
products and our global partner ecosystem. We service close to 4,000 customers across Manufacturing, Distribution and Retail,
including the Fashion, Visitor Attractions and Hospitality verticals.
As the foundation, K3 offers market leading Enterprise Resource Planning (ERP) solutions from Microsoft, Syspro and Sage
combined with our own intellectual property (IP) that provides specialised vertical functionality for automating and managing the
supply chain processes. K3 has a large and loyal customer base for which it manages mission critical systems. This provides
high levels of recurring revenues and growth opportunities by continuing to provide leading-edge applications that helps them
stay agile and competitive.
Own IP
K3’s own IP is a cornerstone of the business and differentiates us in the market, drives higher margins and enables us to
repeatedly service our customers with relevant solutions specifically designed for their vertical needs. It also enables us to
extend our market reach by selling through partners globally.
Building on our already strong customer foundation, we are applying and extending our IP development expertise to new areas
such as the development of K3 imagine – a cloud-native, ERP agnostic platform and library of scalable, fit for purpose apps
that easily integrate into any existing infrastructure. This is a key enabler for our strategic future growth in the rapidly changing
business applications landscape and enables us to design and develop relevant and value adding solutions for our customers.
ax is
fashion
pebblestone
fashion
dataswitch
imagine
orchard
realize
4
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Routes to market
In the UK & Ireland we provide end-to-end solutions and services for customers in supply chain driven industries. This includes
the ERP platforms from Microsoft, SYSPRO and Sage, as well as 3rd party applications for specific verticals in combination with
our own IP. We offer our customers the choice of having these solutions on premise, in the cloud or as a hybrid offering and we
offer hosting and managed services capabilities backed by a 24/7 support desk.
K3 also offers highly specialised services to global customers and their unique eco-systems. We have the experience and
business model processes to manage global implementations, especially in the franchise context where the franchisor defines
the core system requirements and we implement for the franchisees using our own IP as an enabler where relevant.
Our cloud IP is sold throughout Europe, providing our customer with packaged Software as a Service (SaaS) solutions that
require minimal implementation effort and support. Among other things, this model provides customers with a very quick return
on investment by using standardised cloud software.
Furthermore, we have a growing eco-system of reselling partners and system integrators to sell our IP globally. In addition to
our IP, we provide deep vertical and product subject matter expertise as a packaged solution to support our partners with the
implementation and support services.
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Chairman’s Statement
“K3 is now substantially better positioned
for long-term revenue growth, higher quality
earnings and improved cash generation”
Overview
Market Positioning
K3 is a leading provider of mission-
critical Enterprise Resource Planning
(“ERP”) and other business solutions
to customers across the supply chain,
including retailers, manufacturers
and distributors. We support c.3,700
customers predominantly based in
the UK, but also in Europe, the Far
East and the USA. We deploy our
business solutions, which are mainly
built on Microsoft, Sage and SYSPRO
solutions, both directly to customers
and through channel partners. Once
installed, our solutions generate high
levels of recurring revenues through
annual software maintenance renewals,
support contracts and hosting.
K3 has undergone significant change
over the last 18 months. We have
reshaped the Group including the
leadership team, creating a simpler,
more integrated and streamlined
structure, and have removed substantial
costs. We have also redefined our
growth strategy, IP development
roadmap, and are improving our
customer delivery capability. In addition,
we completed a share placing and
open offer to qualifying shareholders.
While these initiatives have involved
substantial one-off costs, as well
as internal cultural change, we are
encouraged by the progress made to
date and the opportunities ahead.
We see scope for further operational
improvements but believe that K3 is
now substantially better positioned for
long-term revenue growth, higher quality
earnings and improved cash generation.
6
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017 K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Strategic Refocusing and
Organisational Changes
Building upon these foundations, during
the period under review, we began to
implement significant organisational
changes to the business, and
strategically refocused K3’s growth
plans.
A core element of our growth strategy
is to increase revenues from own
intellectual property (“IP”). Our IP is
embedded within specific third party
ERP solutions, including Microsoft and
SYSPRO’s, to provide sector specific
functionality. It differentiates
our solutions, underpins stronger
customer relationships, and generates
higher margins and recurring revenues.
While we will continue to build on this
model, an important part of extending
our software roadmap is the growth of
our own stand-alone ‘point’ solutions,
and in particular, our cloud-native
delivery platform, ‘Imagine’, and our
cloud-native applications, which have
been specifically developed to perform
in the cloud.
As we previously reported, ‘Imagine’
is an exciting ‘next generation’
delivery platform, which enables us to
embrace fully the opportunities that the
increasing shift to the cloud brings, and
places us at the forefront of cloud-
native development. What is especially
relevant is that it is system agnostic,
capable of swift integration with any IT
infrastructure a customer may already
have. Customers therefore do not
need to replace core systems, unlike
traditional models. We have developed
a cloud-native suite of solutions that
is built for our platform and provides
highly advanced functionality. The
whole offering therefore enables
customers to adopt innovative solutions
and applications rapidly and flexibly.
It also offers them a faster return-on-
investment and extends the life of their
previous IT investments. We intend
to develop additional applications for
Imagine in order to broaden the scope
and target market of our existing
solutions set, and view its growth
potential very positively.
Strategic Report
In reviewing our market approach for
our Enterprise-related software offering,
ax|is fashion, (a K3 own IP add-on to
a Microsoft core ERP product), we are
renewing our focus on building strategic
relationships with System Integrators
(“SI”). These relationships enable us
to capture more efficiently the sales
potential of this market-leading product.
SI’s will provide implementation and
support services while we retain IP-
related income streams and provide
industry specific expertise. Helped by this
increased focus on SIs, we are pleased
to report that we saw significantly
improved sales momentum for ax|is
fashion towards the end of the reporting
period and an encouraging number of
contracts have closed since then.
As previously reported, we undertook
a review of the Group’s resources as
part of our process of simplifying and
integrating the Group’s operations. This
review was completed in December
2017, and we have subsequently
combined our Microsoft Dynamics
businesses (AX, NAV and CRM) into
a single practice. This should also
enhance our customer service capability.
Other changes that resulted from our
review included the integration of all
software development and own IP
management functions into a single
Group-level IP unit. We also created
a single team to support sales of
our Software-as-a-Service (“SaaS”)
offering, as well as a single support
team for SaaS.
We are confident that these initiatives
will improve both the sales process and
operational efficiencies.
We have materially reduced our
cost base over the period, delivering
savings in excess of £5.0m on an
annualised basis. Over 2018, we plan
to add resource selectively to support
sales demand.
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Financial Results
These results cover the 17-month trading period to 30
November 2017. This extended period reflects the transition
to the new accounting reference date of 30 November
from 30 June. As we previously reported, given K3’s key
selling periods of December and June, the change of date
will enable the Board to provide shareholders with a more
informed view of the Company’s trading outlook when
reporting full year and half year results.
K3’s results for the period are an adjusted loss from
operations*1 of £1.67m (2016: adjusted profit from
operations*1 of £9.50m). We incurred significant charges in
the period, which related to our comprehensive review and
reorganisation programme, and they included: £4.73m of
exceptional reorganisation costs (2016: £1.05m), £4.54m
of exceptional impairment of development costs (2016:
£nil), and £3.93m of amortisation of acquired intangibles
(2016: £2.73m). After these and other charges, the loss
from operations was £14.78m (2016: profit from operations
of £5.23m). The exceptional reorganisation costs will
deliver savings of £5.0m on an annualised basis and
the impairment of development costs was taken against
products that are no longer core to the Group’s strategy.
The adjusted loss per share*2 was 7.7p (2016: adjusted
earnings per share*2 of 23.5p), and the basic loss per share
was 35.3p (2016: earnings per share of 12.6p).
The major factors influencing the outcome for the period
are discussed in the Operational Review and include
market disruption, caused by the industry’s shift away from
‘on-premise’ technology to cloud-based delivery, and a
softening in end-markets. Gross margins were adversely
impacted by both the significant reduction in software
licence sales, which are typically higher margin, and excess
resource capacity in services and implementation.
“The exceptional
reorganisation costs will
deliver savings of £5.0m
on an annualised basis”
8
*See note 29 on page 86 for further details
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017 K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
“Cash generation is a major focus and
we are making good progress in
improving working capital”
Balance Sheet and Focus
on Cash Generation
Cash generation is a major focus
and we are making good progress in
improving working capital, primarily
by reducing debtor days and accrued
income. Reflecting our initiatives to
improve cash generation, as well as
the July 2017 fund raising, net debt has
been significantly reduced and stood
at £4.3m at 30 November 2017. This
compared to net debt of £15.6m at 30
June 2017 (30 June 2016: £8.9m).
Our placing and open offer to qualifying
shareholders, completed in July 2017,
raised a total of £7.75m net, with
an additional £0.66m invested in K3
through an exercise of warrants and a
debt-to-equity conversion of £0.64m.
Dividend
Board Changes
The Board is pleased to propose a final
(and total) dividend for the financial
period of 1.4p per share. This dividend
will become payable, subject to
shareholder approval, on the 15 June
2018 to shareholders on the register on
18 May 2018.
K3’s Annual General Meeting will be
held on 30 May 2018 at 10.30am at the
Group’s offices at Baltimore House, 50
Kansas Avenue, Manchester, M50 2GL.
There have been a number of Board
changes over the 17 months to
30 November 2017. In October 2016,
Adalsteinn Valdimarsson assumed the
role of Chief Executive Officer, having
joined K3 as a Non-Executive Director
in July 2016. Robert Price, who joined
K3 as Chief Financial Officer in October
2016 (in a non-Board capacity), was
appointed to the Board as Finance
Director in July 2017. David Bolton,
previously Chairman, and Lars-Olof
Norell, previously Non-Executive
Director, both retired from the Company.
I was appointed to the Board in April
2017 and became interim Chairman
in July 2017, becoming permanent
Chairman in December 2017.
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9
Staff
Outlook
On behalf of the Board, I would like to
thank all K3’s employees for their hard
work and commitment during this period
of change. It has been tremendous and
our skilled teams remain the foundation
on which the Company will continue to
develop and grow.
K3 has undergone significant change
and is focused on continuing to improve
its performance. While there is still
work to be done in implementing our
growth initiatives, we believe that the
Group is now better positioned to drive
own IP sales and recurring income,
which currently stands at nearly half the
Group’s total revenues.
The Group’s revenue profile is
changing as the move away from
‘on-premise’ solutions accelerates
and customers increasingly adopt
consumption-based models. In the short
term, this will decrease the Group’s rate
of revenue growth but the long term
effect is highly beneficial, with revenue
flows becoming more predictable and
the customer relationship expected to
deepen and broaden.
Trading since the period end has
been encouraging, especially with our
own IP product sales. In particular,
three ax|is deals were signed in the
first quarter of the new financial year
compared to seven in the 17 months to
November 2017, and our cloud-native
Imagine offering is seeing encouraging
traction. More widely, we view
prospects for our solutions offerings
positively, underpinned by the steps
we have taken to improve the Group’s
operational performance.
We remain confident about prospects
for continuing progress over the year
ahead. We also highlight the bias in the
Group’s earnings, which is now weighted
to the second half of the financial year.
This corresponds to the timing of annual
software licence and support renewals in
our SYSPRO operations.
S Darling
Chairman
26 March 2018
All comparative figures for 2016 refer to the 12 months to 30 June 2016
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K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017 K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Strategy and Objectives
The Board believes that K3 has the potential to build on its current position as a leading supplier of SME and mid-tier business
system solutions, with a particular emphasis on our own Intellectual Property of ERP add-ons and point solutions. The Board’s
main objectives are to:
• achieve growth in our own IP;
• create shareholder value through increases in adjusted earnings per share;
• grow recurring income levels; and
• achieve progressive increases in the dividend.
Cautionary Statement
This Strategic Report has been prepared for shareholders to provide them with additional information to assess the company’s
strategies and the potential for those strategies to succeed. It should be noted that the Strategic Report contains certain forward
looking statements. These statements are made by the directors in good faith, based on the information available to them up
to the time of the approval of this report. Accordingly, all these statements should be treated with caution, due to the inherent
uncertainties, including both economic and business risk factors, underlying any such forward looking information.
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Chief Executive’s Review
Key Performance Indicators
The Board considers the key performance indicators by which it measures the performance of the Group to be revenue,
recurring revenue (both the level and the percentage of total revenue), gross margin, profit from operations and earnings per
share, both adjusted for amortisation of acquired intangibles, acquisition costs, exceptional reorganisation costs and exceptional
income. The key performance indicators used by the Board are summarised below and the table sets out K3’s performance for
the year under review.
Revenue (£’000)
Recurring revenue (£’000)
Percentage of recurring revenue
Gross margin percentage
Adjusted (loss)/profit from operations (£’000)*1
Adjusted EPS (pence)*2
17 months ended
30 November
2017
Year ended
30 June
2016
118,176
57,573
48.7%
51.6%
(1,666)
(7.7p)
89,175
41,613
46.7%
54.4%
9,501
23.5p
Revenue increased by 32% driven by the extended period and full year impact of acquisitions. However, after taking into
account the extended period, revenues were lower than for the prior year. Part of the reason for the loss was the disruption
caused by the gear-shift in how technology is being delivered, with the model changing from ‘on-premise’ technology to cloud-
based delivery. Alongside this is the associated move to the consumption/subscription model, away from large up-front software
licence payments. This disruption caused a significant lengthening in customers’ decision-making processes for large deals.
However, we also experienced a general softening in end-markets.
The gross margin increased to £60.98m (2016: £48.54m), also driven by the extended period and full year impact of acquisitions.
The gross margin percentage was down 2.8% as a result of the change in the sales mix compared to the previous year.
Definitions:
Revenue is the gross revenue as
reported in the financial statements,
comprising software, hardware,
services, and recurring revenue. This
is a key measure of activity within each
business segment and for the Group as
a whole.
Recurring revenue is the income
provided for software maintenance
renewals, support contracts for software
used by our customers and hosting
and managed services. This is a key
indicator in measuring the underlying
resilience and growth of the business.
Percentage of recurring revenue
measures the growth of income
providing core stability to the business.
Gross margin percentage is calculated
as gross profit as a percentage of
revenue. This measure identifies the
level of contribution derived from each
sale or component thereof.
Adjusted profit from operations is
calculated as profit from operations per
the financial statements, adjusted for
the impact of amortisation of acquired
intangibles, acquisition costs, exceptional
costs and exceptional income. This is a
key performance indicator for many listed
companies and is considered by the
directors a better reflection of the trading
performance of the business in both the
period under review and for comparison
between periods.
Adjusted EPS is calculated as profit
for the period, adjusted for the tax
affected impact of acquired intangibles
amortisation, acquisition costs,
exceptional costs and exceptional
income, divided by the weighted
average number of shares during the
period. This is a key performance
indicator for many listed companies
and is considered by the directors to
be useful to shareholders and investors
as it provides a better reflection of the
trading performance of the business in
both the period under review and for
comparison between periods.
*See note 29 on page 86 for further details
12
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Operational Review
Reflecting our decision to create a simpler, more integrated approach to sales and support, as well as our objective to drive own
IP sales, K3’s operational results are now presented under the following two segments:
Revenue
Gross profit
Adjusted profit
Own IP**3
Supply chain solutions & managed services*4
Head office
Total
Gross margin
Recurring revenue: as a percentage of total revenue
Own IP revenues: as a percentage of total revenue
Own IP gross margin: as a percentage of total gross profit
2017
£m
23.4
94.8
2016
£m
12.4
76.8
2017
£m
15.0
46.0
2016
£m
8.4
40.2
118.2
89.2
61.0
48.6
2017
£m
0.2
(0.1)
(1.7)
(1.6)
2016
£m
2.7
7.6
(0.8)
9.5
2017
2016
51.6%
54.4%
48.7%
46.7%
19.8%
13.9%
24.6%
17.2%
*Own IP revenues includes initial and annual software licences and those additional revenues which flow directly from K3 IP.
Recurring revenue comprises software maintenance renewals, support contracts, and hosting & managed services.
Recurring revenue as a percentage of the Group’s total revenues over the 17 months to 30 November 2017 increased to 48.7%
(2016: 46.7%). Encouragingly, revenue from our own IP accounted for 19.8% of K3’s total revenues and rose sharply from
13.9% in 2016. Own IP gross margin accounted for 24.6% of the Group’s total gross margin, up by 7.4 percentage points from
17.2% in 2016.
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13
Supply Chain Solutions & Managed Services
Revenue 2017
£94.8m
Recurring revenues as a proportion of
total revenues improved
K3’s business solutions and managed services are tailored to the requirement of the supply chain industry, including retailers,
manufacturers and distributors. The Group’s core offering is based on Microsoft, SYSPRO and Sage solutions.
Software licences
Services
Recurring*
Hardware and other
Total
Revenue
Gross profit
Gross margin
2017
£m
10.4
34.7
45.4
4.3
94.8
2016
£m
13.3
23.1
35.9
4.5
76.8
2017
£m
5.6
8.8
30.5
1.1
46.0
2016
£m
8.3
7.2
23.6
1.1
40.2
2017
%
2016
%
54.0%
25.3%
67.0%
26.7%
48.4%
62.2%
31.0%
65.8%
24.7%
52.3%
*Recurring revenue comprises software maintenance renewals, support contracts, and hosting & managed services.
Adjusted (loss)/profit from operations*4 (£m)
Recurring revenue as % of total revenues
Customer adds (like-for-like)
2017
2016
(0.1)
7.6
47.9%
46.7%
87
160
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*See note 29 on page 86 for further details
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
K3’s financial performance over the
period was adversely affected by a
number of high value contract tenders
in the Enterprise space not closing
as expected. Part of the reason for
this was the disruption caused by the
gear-shift in how technology is being
delivered, with the model changing
from ‘on-premise’ technology to cloud-
based delivery. Alongside this is the
associated move to the consumption/
subscription model, away from large
up-front software licence payments.
This disruption caused a significant
lengthening in customers’ decision-
making processes for large deals.
However, we also experienced a
general softening in end-markets.
The sharp drop in software licence
revenues reflects the unexpected
shortfall in sales. Gross margins were
doubly hit, not only by the effect of
a lower proportion of higher margin
software licence sales in the mix,
but also excess resource capacity in
services and implementation. Recurring
revenue was adversely impacted by the
shortfall in sales. However, recurring
revenues as a proportion of total
revenues, which provides core stability
to the business, improved.
Our Global Accounts business, which
includes our relationship with Inter IKEA
Systems B.V. (the owner and franchisor
of the IKEA concept) and the Inter IKEA
Concept franchisees, performed well.
With the continuing expansion of the
IKEA franchisee network, we anticipate
a high level of activity here.
The SYSPRO business generates
strong cash flows and delivered good
results. Customer renewals of software
licences continued to be high, at 98%
(2016: 98%). Sage X3 continued to
grow and we are now recruiting talent
from abroad, given the shortage in
the UK for delivery resource. As we
previously reported, we restructured
Business Solutions to focus on the
Microsoft Dynamics/Navision SME
space and that unit is now seeing an
improvement in its profitability, which
will be accelerated with the creation of a
single Microsoft Dynamics practice.
We previously highlighted that
the move towards cloud-based
consumption licensing has positive
long-term implications for the Group.
This is because the lifetime value
of customer relationships under this
new model has the potential to be
significantly higher, compared to
the traditional model of perpetual
software licences (typically paid
upfront, at the commencement of a
relationship). However, this shift will
affect the Group’s rate of reported
revenue growth since income from
cloud/consumption-based contracts
is recognised over longer periods.
The pace of uptake of consumption-
based contracts has increased over
the period, especially in the Microsoft
Dynamics space where we are now
seeing the majority of new contracts
signed on this basis.
“ The SYSPRO business generates strong cash
flows and delivered good results”
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Own IP
Revenue 2017
£23.4m
Total revenue from own IP benefited
from contributions from two acquisitions
K3 has developed in-house, or acquired the IP rights to, software products, which the Company sells on a standalone basis or
as part of its integrated suite of solutions. In addition K3’s core ERP solutions are typically enhanced and enriched by our own IP
for specific industry segments. This gives us our solutions a competitive advantage and differentiation.
Software licences
Services
Recurring*
Hardware and other
Total
Revenue
Gross profit
Gross margin
2017
£m
2.9
3.4
12.1
5.0
23.4
2016
£m
2.9
2.6
5.8
1.1
2017
£m
2.6
1.3
9.2
1.9
12.4
15.0
2016
£m
2017
%
2016
%
2.7
1.0
4.4
0.3
8.4
88.4%
38.2%
76.0%
38.4%
64.1%
92.9%
36.4%
76.9%
25.2%
67.7%
*Recurring revenue comprises software maintenance renewals, support contracts, and hosting & managed services.
Adjusted profit from operations*3 (£m)
Recurring revenue as % of total revenues
Customer adds (like-for-like)
ax is
fashion
pebblestone
fashion
imagine
16
2017
2016
0.2
2.7
52.0%
46.2%
340
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*See note 29 on page 86 for further details
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Total revenue from own IP over the
17 month period amounted to £23.4m
(2016: £12.4m), with the period also
benefi ting from contributions from
two acquisitions, Merac, acquired in
July 2016 and DdD Retail, which was
added in April 2016. These acquisitions
contributed a combined £10.1m to own
IP revenues over this period, including
£5.2m of recurring revenues. As well
as bringing additional valuable, wholly-
owned IP, both acquisitions have
added new customer bases. Recurring
revenues from own IP as a proportion of
total revenues increased by 5.7%. Gross
margins for own IP were slightly lower
than last year due to the lower proportion
of revenue coming from software sales
on which the gross margin is highest.
Sales of Pebblestone, our leading
business software for the mid-market
fashion industry, which we also sell
through channel partners, were
particularly strong. As previously
highlighted, sales of ax|is fashion, which
are typically large contracts, suffered
from the softness in the Enterprise
space and customers taking longer to
deliberate between cloud or ‘on-premise’
technology. However ax|is fashion deal
closure improved signifi cantly towards
the end of the reporting period and a
number of large contracts were secured
including with Jack Wolfskin, Lifestyle
Sports and Eton Shirts. Two of these
contracts were delivered through our
channel partners. We have continued to
see good deal closure since the period
end, with three ax|is contracts signed,
including SanMar in the USA, and the
pipeline for ax|is remains encouraging.
The development of Imagine, our
cloud-native, ERP agnostic platform
has been an important step for us. The
platform enables us to integrate leading-
edge ‘module’ solutions into customers’
existing infrastructure swiftly and cost-
effectively. In this way, we can bring
product innovation and the full power of
the cloud to customers in a commercially
and operationally attractive way. Our
fi rst suite of modules for Imagine are
based around our retail offerings and we
intend to develop further functionally-rich
modules to broaden the scope of our
offering. We expect the Imagine platform
to become a cornerstone of our IP
strategy and, in total, we now have circa
13 customers live on Imagine.
Central Costs
Outlook
Central costs include directors’ costs,
human resources, accounting and legal
personnel, and the costs associated
with running a PLC, including fi nancing.
Costs are stated net of recovery of
elements recharged to operating units.
Central costs*5 for the 17 month period
amounted to £1.7m (2016: £0.8m),
with the signifi cant rise refl ecting our
centralisation programme.
We remain focused on improving the
Group’s performance and in particular
driving own IP revenues and are
confi dent of continuing progress. We
are encouraged by the progress made
by own IP business units and the
recent deals closed in ax|is fashion.
We are now seeing stronger migration
by customers to cloud-based solutions
from ‘on-premise’ systems, and, while
this represents an adjustment for
the business in the near term, it will
enhance our customer relationships and
contribute high quality revenue streams.
Adalsteinn Valdimarsson
Chief Executive Offi cer
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17
Financial Review
Trading results
Earnings per share and dividends
Revenue for the 17 month period to
30 November 2017 was £118.2m
compared to £89.2m for the 12 months
to 30 June 2016, an increase of 32%
driven by the extended period and full
year impact of acquisitions. However,
after taking into account the extended
period, revenues were lower than for
the prior year on a pro rata basis, partly
due to the change from ‘on-premise’
technology to cloud-based delivery
and also the associated move to the
consumption/subscription model, away
from large up-front software licence
payments. We also experienced a
general softening in end-markets.
The change in mix toward more
product sales, particularly of our own
IP business units, is the strategic intent
of the business and evidenced by the
percentage revenue from own business
units at 19.8% (2016: 13.9%). The
Group registered an adjusted loss from
operations*1 of £1.7m for the 17 months
to 30 November 2017 (2016 profit:
£9.5m) as the new management team
brought down the cost base and re-
aligned the business to a new operating
model fit for the new consumption based
world. Loss from operations was £14.8m
(2016: profit of £5.2m).
Exceptional reorganisation costs
were £4.7m (2016: £1.0m), related
to organisational and management
changes across the Group to streamline
the organisation and centralise product
and support functions. These changes
will deliver cost savings of £5.0m on
an annualised basis. In addition, an
exceptional impairment charge against
development costs of £4.5m was made
associated with our resource review
which identified certain products which
are no longer core to the Group’s
strategy. The amortisation of acquired
intangible assets was £3.9m (2016:
£2.7m). Finance costs were £1.4m
(2016: £0.7m). The resulting loss for
the period was £13.4m (2016: profit
of £4.1m).
Adjusted loss per share*2 was 7.7p
(2016: adjusted earnings per share:
23.5p). Loss per share was 35.3p (2016:
earnings per share: 12.6p).
The directors propose to pay a dividend
of 1.4p per share (2016: 1.75p).
Taxation
There was a tax credit for the period
of £2.8m (2016: charge of £0.4m)
comprising a credit of £0.6m (2016:
charge of £0.8m) of current taxation
and a credit of £2.2m (2016: £0.4m)
of deferred taxation, of which
£0.9m (2016: £0.5m) related to the
amortisation of intangible assets. The
credit for current taxation includes an
adjustment in respect of prior periods
of £0.2m (2016: £0.03m). The deferred
tax credit includes £0.3m in respect
of losses which the directors consider
it is probable will be recovered but no
asset has been recognised in respect
of losses of £1.5m for which the
recoverability is uncertain and for which
the credit to the income statement
would have been £0.3m. The effective
tax rate was 17% (2016: 9%), which
is lower than the standard rate of
corporation tax in the UK of 19.53%
(2016: 20%) due to the inclusion of
profits from overseas subsidiaries
which are taxed at lower rates. The
effective tax rate is determined as the
tax expense/(credit) divided by the
accounting profit/(loss) before tax. The
effective tax rate excluding the impact
of the change in the rate of deferred tax
is 16% for both periods.
Balance sheet
During the period, K3 acquired Merac
Limited which resulted in an increase
in goodwill and other intangible assets.
These balances were also affected
by the finalisation of the value of
intangible asset of DdD Retail acquired
in April 2016 which had previously
been carried at provisional amounts.
Together, these acquisitions resulted
in increases to goodwill of £1.3m and
to other intangible assets of £0.7m.
Additions to development costs were
£6.2m compared to £4.6m in the
previous period, which reflects the
longer financial period of 17 months.
Despite the additions to other intangible
assets including development costs, the
value at 30 November 2017 is £5.9m
lower than at 30 June 2016 due to the
amortisation of acquired intangibles
of £3.9m and of development costs of
£5.0m reflecting the longer financial
period, and the impairment charge
against development costs of £4.5m.
Both trade receivables and trade
payables are lower than at 30 June
2016 reflecting a tighter approach to
working capital management.
Cash flow and net debt
The net debt position at 30 November
2017 was £4.3m (2016: £8.9m) and
with a new facility agreement signed in
October 2016. In July 2017 we raised
a net of £7.8m from an equity offer, as
well as an exercise of warrants of £0.7m
and debt-to-equity conversion of £0.6m.
Despite high levels of restructuring
costs and a low adjusted profit from
operations*1, significant working capital
improvements were made so that the
Group’s net cash outflow in the period
was £0.9m (2016: inflow £0.8m). The
Group’s cashflow from operations in the
period was £5.9m compared to £5.5m in
the previous year.
Robert Price
Chief Financial Officer
All comparative figures for 2016 refer to the 12 months to 30 June 2016
*See note 29 on page 86 for further details
18
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017 K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Principal Risks and Uncertainties
There are a number of potential risks
and uncertainties, which could have
a material impact on the Group’s
performance and could cause actual
results to differ materially from expected
and historical results. The Group’s risk
management policies and procedures to
deal with operational risk are included
in the Corporate Governance report
on page 24. The principal business
risks which the Group faces can be
categorised as follows:
Strategic
Changes in the business environment
influence the Group’s development
in terms of the strategies which it
pursues and the products and services
it offers. These changes may stem
from market competition or economic
and technological advancement. The
directors regularly review the Group’s
strategic progress and obtain market
information to assist in strategic
decisions around products, competitors
and potential acquisitions. We recognise
that acquisitions have played a key role
in the past growth of the business and
as we evaluate growth opportunities
for customer acquisition and product
functionality, we will evaluate
opportunities through the prism of buy,
build or partner.
We see the ownership of intellectual
property as being critical to the future
of the business, both in terms of point
solutions and innovative add-ons to third
party products. We see the continuing
development of our own IP from point
solutions such as Imagine and add-ons
such as ax|is fashion as key strategic
drivers over the future years. The ability
to widen our channels to market these
products is also a key driver.
Business environment
Delivery
Our products and services operate in
business critical areas for our customers
and any failure to meet contractual
commitments and client expectations
could damage our reputation and impact
upon our financial position. To mitigate
this risk we monitor our performance
continuously against contractual
commitments and expectations and
deploy a wide range of experienced
technical specialists and project
managers to evaluate performance.
High risk projects are monitored at
Divisional board level, meetings of
which are attended by main Board
executive directors.
As delivery of products migrates to the
cloud hosted and cloud native solutions
the Group will also be increasingly
responsible for access and data
breaches. We mitigate this risk with
security controls over our hosting and
data centre.
The Group’s customer base is mainly in
the retail, distribution and manufacturing
sectors, primarily in the United Kingdom
and Europe. The environment in which
the Group offers its products and
services is, therefore, dependent on
the economic and other circumstances
affecting these business sectors
including competitor behaviour. Over the
years we have developed a creative,
innovative, competitive culture and a
reputation for advanced functionality
and product quality. The Group has
made significant investment in its library
of IP which protects the business from
competition and increases the barrier
to entry in our specialists markets. This
has enabled the Group to build high
levels of predictable income from its
existing customer base, both in the UK
and in its overseas markets.
Relationships
The Group benefits from a number of
close commercial relationships with
key suppliers and customers. Damage
to or loss of these relationships could
have a direct and detrimental effect
on the Group’s results. The key Group
supplier relationships are secured by
commercial agreements lasting for up
to 7 years and management participate
in regular product and strategy reviews
with the supplier. On an annual basis
our customers commit to maintenance
and support agreements that facilitate
availability of product upgrades and
business support.
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Financial
Whilst all risks may be considered
to have a financial impact, the
management of the Group’s financial
resources represents a key area of
focus. Financial risks are faced in
ensuring sufficient funds are available
to meet financial commitments as
and when they fall due and protecting
the Group’s financial strength against
adverse movements in financial
markets. Further details are provided in
note 17.
• Credit risk –The Group’s credit
risk is primarily attributable to its
trade receivables and accrued
income. The amounts presented in
the statement of financial position
are net of allowances for doubtful
debts, estimated by the Group’s
management based on prior
experience and their assessment of
the current economic environment.
The Group operates in three key
verticals and hence the credit risk is
concentrated on retail, manufacturing
and distribution customers. The Group
manages credit risk by ensuring that
outlays by the Group are matched
with receipts from customers where
possible and by tight control over
contractual terms.
• Currency risk – The Group’s currency
risk is primarily attributable to its trade
receivables where certain customers
are billed in US Dollars, Euros and
other currencies, where these are not
the functional currency of the Group
company. Where possible the risk
is hedged by amounts payable in
those currencies. The Board does not
believe Brexit represents a major risk
to activities.
• Liquidity and cash flow – The Group
has a bank loan and ensures that
it has sufficient funds to meet
its obligations or commitments
associated with its financial
instruments by monitoring cash
flow as part of its day-to-day control
procedures and that appropriate
facilities are available to be drawn
upon when the need arises. The
facilities from the Group’s bankers
require the Group to meet certain
covenants throughout the term of
the loans and the Group’s forecasts
indicate that the Group will remain
within the set parameters.
20
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017 K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Acquisition History
During the period ended 30 November 2017, we acquired:
• Merac Limited, the author of electronic point-of-sale and
management system for the visitor attractions and leisure
sector, covering ticketing, hospitality and retail.
We continue to look for selective opportunities that will add
additional or complementary products, IP and skills, together
with customer bases that we can grow through our managed
services and cloud capability.
This Strategic Report is signed on behalf of the Board
Adalsteinn Valdimarsson
Director
26 March 2018
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Corporate Governance
The Board supports the principles of good governance. In fulfilling their responsibilities, the directors believe that they govern
the company in the best interests of the shareholders, whilst having due regard to the interests of the stakeholders in the group
including, in particular, customers, employees and suppliers. The directors have sought to apply certain provisions of the UK
Corporate Governance Code in so far as they consider it appropriate having regard to the size and nature of the group.
The Board
The group is headed by an effective
board which meets on a monthly
basis. All meetings in the period were
attended by all the directors, except
that Mr D Bolton was unable to attend
the meeting in May 2017. It is supplied
in a timely manner with information
of a quality to enable it to discharge
its duties. The board has determined
those matters which are retained for
board sanction and those matters
which are delegated to the executive
management of the business. Day to
day management of the business is
dealt with by the Chief Executive Officer
who has a Senior Management Team
reporting to him which includes senior
management from each of the divisions
together with the Chief Financial Officer.
The types of decisions which are to be
taken by the Board are:
• approval of the financial statements
and financial budgets and plans for
the group;
• approval of all shareholders’ circulars
and announcements;
• approval of the appointment or
termination of advisors to the group;
• the purchase or sale of any business
or subsidiary;
• any new borrowings, facilities and
related guarantees;
• any asset purchase or lease, hire
purchase facility or rental agreement
over prescribed authority limits;
• any donation to a political party, or any
charitable donation exceeding £250.
The Board has established four standing
sub-committees to assist in the discharge
of corporate governance responsibilities.
They are the nominations committee,
remuneration committee, product
committee and audit committee. The
roles of each of the committees, their
members and activities during the period
are covered separately within this report.
During the period the Board comprised
the Chairman, two executives (following
the appointment of Mr RD Price on 5 July
2017) and three non-executive directors.
Details of the Board are included on
page 30. The composition of the Board
is designed to provide an appropriate
balance of group, industry and general
commercial experience and is reviewed
as required to ensure that it remains
appropriate to the nature of the group’s
activities.
The roles of the Chairman and Chief
Executive are distinct. The office of
Chairman is held by Mr S Darling and
the office of Chief Executive is held by
Mr A Valdimarsson.
Appointments to the Board are the
responsibility of the Nominations
Committee.
22
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017 K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Nominations Committee
Remuneration Committee
Accountability and audit
During the period the Remuneration
Committee composition changed
from the Chairman (Mr L-O Norell
until his resignation on 31 May 2017
and then by Mr DJ Bolton until 5 July
2017 and then by Mr S Darling) and
one of the non-executive directors,
Mr PJ Claesson to being chaired
by Mr P Morland and including all
non-executive directors. It reviews
the remuneration and contractual
arrangements of the executive
directors. The remuneration of the
Chairman and the non-executive
directors is determined by the Board
as a whole, based on a review of the
current practices in other companies.
The committee meets on an ad hoc
basis and met at least once during the
period and the meetings were attended
by all members of the committee.
The terms of reference are available
upon request and are placed on the
company’s website.
During the year the Nominations
Committee comprised the Chairman
(Mr L-O Norell until his resignation on
31 May 2017 and then by Mr DJ Bolton
until 5 July 2017 and then by
Mr S Darling) and one of the non-
executive directors, Mr PJ Claesson,
until April 2017 when all non-executive
directors became members of the
committee. The Nominations Committee
was chaired by the Chairman. Meetings
are arranged as necessary and two
meetings were held during the period.
The committee is responsible for
nominating candidates (both executive
and non-executive) for the approval of
the Board to fill vacancies or appoint
additional persons to the Board.
Its terms of reference are available
upon request and are placed on the
company’s website.
All directors receive induction on
joining the Board covering the group’s
operations, goals and strategy, and
their responsibilities as directors of
the group. The company supports the
directors in developing their knowledge
and capabilities.
The directors have established a
procedure, agreed by the Board, for
directors in the furtherance of their duties
to take independent professional advice,
if necessary, at the company’s expense.
All directors are subject to election by
shareholders at the first opportunity
after their appointment. In accordance
with the Articles of Association, all
directors are required to retire by
rotation and shall be eligible for re-
election. The terms and conditions
of appointment of the non-executive
director are available for inspection
upon request.
Financial reporting
The Board recognises its responsibility
to present a balanced and
understandable assessment of the
group’s position and prospects, both
within its half year and annual financial
statements and in other price-sensitive
public reports. The statement of the
directors’ responsibility in preparing
the financial statements is made on
page 28.
Going concern
After making enquiries, the directors
have formed a judgement, at the time
of approving the financial statements,
that there is a reasonable expectation
that the group has adequate resources
to continue in operational existence for
the foreseeable future. A new three-
year syndicated facility agreement was
signed in October 2016 for a revolving
loan facility of up to £20m and, in
July 2017, the Group raised a net of
£7.8m from an equity offer, as well as
an exercise of warrants of £0.7m and
debt-to-equity conversion of £0.6m. For
these reasons the directors continue
to adopt the going concern basis in
preparing the financial statements.
Internal control
The Board recognises its ultimate
accountability for maintaining an
effective system of internal control
which is appropriate in relation to both
the scope and nature of the group’s
activities. The system covers all
controls including:
• financial;
• operational;
• compliance; and
• risk management.
The responsibility for managing risks on
a day to day basis lies with the CEO and
Senior Management Team. The principle
business risks and the actions to mitigate
the risks are included in the Strategic
Report on pages 19 and 20. Details of
operational risks are included below.
23
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Operational
These risks, which are inherent in
all business activities, are those
which mainly result from the potential
breakdown of individual business units
or the group’s control of its human,
physical and operating resources. The
principal financial risks to which the
group is exposed through its operations
are liquidity and credit risk. The potential
financial or reputational loss arising
from failures in internal controls, flaws or
malfunctions in computer systems and
poor product design or delivery all fall
within these categories.
There is an ongoing process for
identifying, evaluating and managing
the significant issues faced by the group
which has been in place throughout the
period and up to 26 March 2018. It has
been regularly reviewed by the Board.
The Board and Senior Management
Team have a clear and consistent
understanding of the key risks facing
the business. Whilst they recognise
that it is not possible to eliminate risk
completely, they have established an
infrastructure of controls, systems, staff
and processes which aim to minimise
the likelihood of risks occurring or
reduce the impact should they do so.
The key elements of this infrastructure
which enable the Board to review the
effectiveness of the system of internal
controls are as follows:
• establishment of a formal
management structure, including the
specification of matters reserved for
decision by the Board;
• setting and reviewing the strategic
objectives of the group;
• Board involvement in the setting and
review of the annual budget;
• the regular review of the group’s
performance compared with budget
and forecasts;
• pre and post investment appraisal of
K3 IP development expenditure;
• pre and post investment appraisal of
capital expenditure;
• integrity and competence of personnel
as part of the control environment;
and
• group reporting instructions and
procedures including delegation of
authority and authorisation levels,
segregation of duties and other
control procedures, and standardised
accounting policies.
The Board and Senior Management
Team are aware that any significant
operational matters which raise cause
for concern may have arisen because
of or give rise to material internal control
issues. There is a process in place
whereby any member of management
who becomes aware of an internal
control issue can bring this to the
attention of the Chief Financial Officer.
There were no such issues raised during
the period under review.
The Board acknowledges its
responsibility for the group’s system
of internal control and for reviewing its
effectiveness. The Board is committed
to operating comprehensive processes
to manage the key risks which face
the business. They have established
a framework of policies, systems and
procedures to ensure that the nature
and extent of the risk undertaken is
commensurate with the commercial
returns and, where necessary, to ensure
prudent risk-taking to protect shareholder
value. Such a system is designed to
manage rather than eliminate the risk
of failure to achieve business objectives
and can provide only reasonable but
not absolute assurance against material
misstatement or loss.
24
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Audit Committee
Relations with shareholders
Auditors’ remuneration
The company seeks to maintain good
communication with shareholders.
The Group Chief Executive Officer
together with members of the Senior
Management Team make presentations
to institutional shareholders covering
the interim and full year results.
Whilst most shareholder contact
is with Chief Executive Officer and
Chief Financial Officer, the Chairman
and the non-executive directors are
available to meet major shareholders if
requested to do so. The views of major
shareholders are obtained through
direct face-to-face contact and analysts’
or brokers’ briefings.
The Board considers the AGM to be an
important opportunity to communicate
with shareholders and encourages
their participation. The company
despatches the notice of AGM, with
explanatory notes describing items
of special business, at least 21
working days before the meeting. All
shareholders have the opportunity,
formally or informally, to put questions
to the company’s AGMs. All directors
attend the AGM and the Chairman
of the Audit, Remuneration and
Nominations Committees is available to
answer questions from shareholders.
At each AGM the Chairman advises
shareholders of the proxy voting details
on each of the resolutions which is
dealt with on a show of hands.
Fees for services provided by the
auditors have been as follows:
17 months
ended
Year
ended
30 November 30 June
2016
2017
£’000
£’000
Audit services
• Statutory audit of
the company
25
25
• Statutory audit of
the subsidiaries
163
151
Further assurance
services:
Tax services
• Advisory services
• Overseas tax advice
4
49
–
57
Other services
• Other services
4
2
245
235
During the period, the auditors provided
non-audit services in relation to advice
on payroll taxes and VAT in the UK and
tax advice to the overseas subsidiaries.
The Board considered the proposed
non-audit services in advance to ensure
that it was satisfied that neither the
nature nor the scale of the non-audit
services would impair the auditors’
objectivity and independence.
The Audit Committee comprised the
Chairman (Mr L-O Norell until his
resignation on 31 May 2017 and then
by Mr DJ Bolton until 5 July 2017),
and three non-executive directors,
Mr PJ Claesson, Mr PG Morland and
MR JP Manley. The Audit Committee
was chaired by the Chairman until the
appointment of Mr S Darling on 3 April
2017 who has chaired the committee
since that date. The committee met
three times during the period. The role
of the Audit Committee is to consider
the appointment of the auditors, audit
fees, scope of audit work and any
resultant findings. It reviews external
audit activities, monitors compliance
with statutory requirements for financial
reporting and reviews the interim and
full year financial statements before
they are presented to the Board for
approval. The Chief Executive, Chief
Financial Officer and external auditors
attend meetings of the Audit Committee
by invitation. The committee is also
required to review the effectiveness of
the group’s internal control systems, to
review the group’s statement on internal
control systems prior to endorsement
by the Board and to consider, from
time to time, the need for a “risk sub-
committee” to assist in monitoring
the group’s internal control systems.
Its terms of reference are available
upon request and are placed on the
company’s website.
The Audit Committee considers and
determines relevant action in respect
of any control issues raised by the
auditors. Given the size of the group
and the close day to day control
exercised by the Senior Management
Team, no formal internal audit
department is considered necessary.
25
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Remuneration Report
Remuneration
The salaries of the executive directors are determined after giving full consideration to the best practice provisions and after a
review of the performance of the individual. It is the aim to reward directors competitively; consideration is, therefore, given to
the median remuneration paid to senior management of comparable public companies. No director is involved in deciding his
own remuneration.
Chairman
L-O Norell
S Darling
Executive
DJ Bolton
A Valdimarsson
RD Price
Non-executive
PJ Claesson
PJ Cookson
PG Morland
JP Manley
Fees/basic
salary
£
17 months ended 30 November 2017
Taxable
benefits
£
Annual
bonuses
£
Pension
contributions
£
Year ended
30 June
2016
Total
£
Total
£
46,861
20,000
–
–
–
–
–
400
46,861
20,400
30,000
–
182,039
457,250
162,603
21,250
–
28,333
52,515
2,660
50,000
–
234,699
307,151
–
–
–
–
–
–
–
–
–
–
–
–
36,225
493,475
16,260
178,863
–
–
–
–
567
–
21,250
15,000
–
28,900
52,515
6,630
20,400
11,232
Aggregate emoluments
970,851
2,660
50,000
53,452 1,076,963
390,413
Included within the fees/basic salary amount for Mr L-O Norell is £19,361 (year ended 30 June 2016: £12,000) for consultancy
services in relation to the future strategy of the group’s product’s and markets and for Mr JP Manley £24,617 (year ended 30
June 2016: £nil) in relation to consultancy on the own IP positioning and development and for Mr A Valdimarsson £95,000 (year
ended 30 June 2016: £nil) in relation to consultancy on the future strategy for the Group in the period of his non-executive
directorship prior to his appointment as Chief Executive Officer.
The executive directors have has a service contracts providing 12 months’ notice.
Directors’ pension entitlements
The company makes contributions to defined contribution schemes for Mr A Valdimarsson, Mr RD Price, Mr S Darling and
Mr PG Morland.
26
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Directors’ indemnity cover
All directors benefit from qualifying third-party indemnity provisions in place during the financial period and at the date of this report.
Directors holding office
The directors who held office during the period ended 30 November 2017 were:
(resigned 31 May 2017)
(appointed 3 April 2017)
(resigned 5 July 2017)
L-O Norell
S Darling
DJ Bolton
PJ Claesson
JP Manley
PG Morland
RD Price
(appointed 5 July 2017)
A Valdimarsson
Directors’ share options and warrants
Mr PJ Claesson is interested in warrants for 25p ordinary shares held by companies associated with him as follows:
Company
CA Fastigheter AB
Number of warrants
Exercise price
400,000
123.5p
On the 4 July 2017, 600,000 warrants in which Mr PJ Claesson was interested were exercised at a price of 90p, together with
100,000 warrants at an exercise price of 123.5p.
Details of exercise periods of the warrants are given in note 19 to the consolidated financial statements.
The market price of the ordinary shares at 30 November 2017 was 167.5p and the range during the period was 144.5p to 359.0p.
There are no options outstanding or held by any of the directors.
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Directors’ Report
Dividends
The directors propose a net dividend
of 1.4p per share (2016: 1.75p). A final
dividend relating to the year ended
30 June 2016 of 1.75p, amounting to
£630,000, was paid during the period.
No interim dividend was paid during
either period.
Directors
The directors who served during the
period were as follows:
DJ Bolton
PJ Claesson
S Darling
JP Manley
PG Morland
L-O Norell
R D Price
(resigned
5 July 2017)
(appointed
3 April 2017)
(resigned
31 May 2017)
(appointed
5 July 2017)
A Valdimarsson
Mr PJ Claesson retires by rotation and
offers himself for re-election.
Statement of directors’
responsibilities for the financial
statements
The directors are responsible for
preparing the annual report and
financial statements in accordance with
applicable law and regulations.
Company law requires the directors to
prepare financial statements for each
financial year. The financial reporting
framework that has been applied in
the preparation of the group financial
statements is applicable law and IFRSs
as adopted by the European Union. The
financial reporting framework that has
been applied in the preparation of the
parent company financial statements
is applicable law and United Kingdom
Accounting Standards (United Kingdom
Generally Accepted Accounting
Practice) including Financial Reporting
Standard 101 “Reduced Disclosure
Framework”. Under company law the
directors must not approve the financial
statements unless they are satisfied
that they give a true and fair view of
the state of affairs of the group and
company and of the profit or loss for the
group for that period.
In preparing these financial statements,
the directors are required to:
• select suitable accounting policies
and then apply them consistently;
• make judgements and accounting
estimates that are reasonable and
prudent;
• state whether they have been
prepared in accordance with IFRSs
as adopted by the European Union,
subject to any material departures
disclosed and explained in the
financial statements;
• state whether applicable UK
Accounting Standards have been
followed, subject to any material
departures disclosed and explained in
the financial statements: and
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
company will continue in business.
The directors are responsible for
keeping adequate accounting records
that are sufficient to show and explain
the company’s transactions and disclose
with reasonable accuracy at any time
the financial position of the company
and enable them to ensure that the
financial statements comply with the
requirements of the Companies Act
2006. They are also responsible for
safeguarding the assets of the company
and hence for taking reasonable steps
for the prevention and detection of fraud
and other irregularities.
28
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Financial instruments risks
Employee consultation
Auditors
All of the current directors have taken
all of the steps that they ought to have
taken to make themselves aware of any
information needed by the company’s
auditors for the purposes of their audit
and to establish that the auditors are
aware of the information. The directors
are not aware of any relevant audit
information of which the auditors are
unaware.
The Notice of Annual General Meeting
contains a resolution to re-appoint BDO
LLP as auditors for the ensuing year.
By order of the Board
A Valdimarsson
Director
26 March 2018
Baltimore House
50 Kansas Avenue
Manchester
M50 2GL
Details of financial instruments risks
are included in note 17 to the financial
statements.
Substantial shareholdings
On 26 March 2018, the company had
been notified, in accordance with
section 793 of the Companies Act 2006,
of the following interests in the ordinary
share capital of the company.
Name of holder
Number Percentage
Held
Kestrel Partners 9,895,405
23.0%
Liontrust Asset
Management
5,048,732
Hargreave Hale 5,019,572
Richard Griffiths 4,875,536
PJ Claesson
4,859,790
11.8%
11.7%
11.4%
11.3%
Disabled employees
Applications for employment by disabled
persons are always fully considered,
bearing in mind the aptitudes of the
applicant concerned. In the event of
members of staff becoming disabled
every effort is made to ensure that
their employment with the group
continues and that appropriate training
is arranged. It is the policy of the group
that the training, career development
and promotion of disabled persons
should, as far as possible, be identical
with that of other employees.
The group places considerable value
on the involvement of its employees
and has continued to keep them
informed on matters affecting them as
employees and on the various factors
affecting the performance of the group.
This is achieved through monthly web
presentations by and newsletters from
the Chief Executive Officer and informal
discussions between management and
other employees at a local level.
Directors’ indemnity cover
All directors benefit from qualifying
third-party indemnity provisions in place
during the financial period and at the
date of this report.
Events after the reporting date
These are detailed in note 27 to the
consolidated financial statements.
Website publication
The directors are responsible for
ensuring the annual report and the
financial statements are made available
on a website. Financial statements are
published on the company’s website in
accordance with legislation in the United
Kingdom governing the preparation and
dissemination of financial statements,
which may vary from legislation in other
jurisdictions. The maintenance and
integrity of the company’s website is
the responsibility of the directors. The
directors’ responsibility also extends
to the ongoing integrity of the financial
statements contained therein.
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Board of Directors
Stuart Darling (Chairman) age 54
Stuart was appointed a non-executive director on 3 April 2017 and became Chairman in December 2017, having been Interim
Chairman since July 2017. He is an FCA and has extensive senior level financial and commercial experience in the technology
sector and with growing companies. He was previously Chief Financial Officer of Wifinity Ltd, a wireless network internet
provider; CFO of YASA Motors Ltd, a supplier of customer and off-the-shelf e-motors and controllers to automotive customers;
and, for 10 years, was CFO of Amino Technologies PLC, the global provider of digital TV entertainment and cloud solutions to
network operators. He is Chairman of the Audit Committee.
Adalsteinn Valdimarsson (Chief Executive Officer) age 48
Adalsteinn was appointed as Chief Executive Officer on 1 October 2016 having been appointed as non-executive director on
11 July 2016. He has over 20 years of experience in the software industry and has founded and led the expansion of a number
of product-based software companies. He has significant experience in the retail software sector and in particular with the
Microsoft Dynamics platform. Most recently, he was the Chairman of LS Retail, the supplier of retail and hospitality solutions and
Microsoft Dynamics ISV of the year 2015. Prior to that, he was Executive Chairman of Hands Holding where he was responsible
for the strategic restructuring of a number of large IT companies owned by Hands Holding and, before that, he was one of the
founders of the Landsteinar Group, focusing on products and services for the Dynamics NAV platform.
Per Johan Claesson (non-executive) age 67
Johan was appointed a director in March 2001. He is a Swedish national whose principal business interests are in property
development and real estate and is a director of a number of listed companies. He has a controlling interest in and is chairman
of Claesson and Anderzen AB (“C&A”).
Robert David Price (Chief Financial Officer) age 50
Robert was appointed to the Board on 5 July 2017 having joined the Group as CFO in October 2016. He has almost 20 years’
experience in senior finance roles in technology and supply chain and as worked extensively in international markets. He was
previously CFO of the London fintech start up, ipgaoo, and prior to that CFO/COO of the private equity backed distributor Enotria
Wine Group. Between 2002 and 2008 he was at Carlsberg Breweries, latterly as CFO and Change Management Director of
Carlsberg Italy. Robert qualified as a chartered accountant with Ernst & Young and holds an MBA from IMD, Lausanne.
Jonathan Paul Manley (non-executive) age 64
Jonathan became a non-executive director in December 2015. He has over 35 years’ experience in IT, both as Chief Information
Officer (“CIO”) and as a Consultant. Until recently, Jonathan was IT Director for Harrods Ltd where he has been leading its IT
transformation since 2014. Before that, he was IT Director of Shared Services at the John Lewis Partnership (2012-2014) and
Global CIO at Estee Lauder Companies, in New York (2006-2012). In his earlier career, he was Global CIO at LSG SkyChefs
and Universal Music, and a Consulting Partner at Ernst & Young.
Paul Gilmer Morland (non-executive) age 57
Paul was appointed a director on 29 May 2014. A chartered accountant, Paul’s background is in equities research where he has
been consistently highly ranked as an analyst throughout his career and helped many technology companies to raise funds on
the stock market. Paul has also spent approximately seven years in industry, including as Finance Director at netdecisions, an
IT services and consultancy company now trading as Agilisys, divisional Finance Director at Serco plc and Group Accountant at
David S. Smith plc, a leading European packaging company.
30
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017 K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
The K3 Business
Cloud-enabled,
mission critical
Business Software
Subscription,
hybrid,
on-premise
50+ channel partners
Core ERP
Offering
based on
Microsoft,
SYSPRO
& Sage IT
c.3,700
“sticky”
customers
For Supply
Chain Sector
Retailers
Manufacturers
& Distributors
Own IP Products
Add value, are platform agnostic, enhance
margins, drive sales & customer retention
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Independent Auditors’ Report
to the Shareholders
of K3 Business Technology Group plc
Opinion
In our opinion:
Use of our report
We have audited the financial
statements of K3 Business Technology
Group Plc (the ‘parent company’) and
its subsidiaries (the ‘group’) for the
period ended 30 November 2017 which
comprise the consolidated income
statement, the consolidated statement of
comprehensive income, the consolidated
statement of financial position, the
consolidated statement of cash flows,
the consolidated statement of changes in
equity, the company balance sheet, the
company statement of changes in equity
and notes to the financial statements,
including a summary of significant
accounting policies.
The financial reporting framework that
has been applied in the preparation
of the group financial statements
is applicable law and International
Financial Reporting Standards (IFRSs)
as adopted by the European Union.
The financial reporting framework that
has been applied in the preparation
of the parent company financial
statements is applicable law and
United Kingdom Accounting Standards,
including Financial Reporting Standard
101 Reduced Disclosure Framework
(United Kingdom Generally Accepted
Accounting Practice).
This report is made solely to the
company’s members, as a body, in
accordance with Chapter 3 of Part 16
of the Companies Act 2006. Our audit
work has been undertaken so that we
might state to the company’s members
those matters we are required to state
to them in an auditor’s report and for
no other purpose. To the fullest extent
permitted by law, we do not accept or
assume responsibility to anyone other
than the company and the company’s
members as a body, for our audit work,
for this report, or for the opinions we
have formed.
Conclusions relating to going
concern
We have nothing to report in respect of
the following matters in relation to which
the ISAs (UK) require us to report to you
where:
• the directors’ use of the going concern
basis of accounting in the preparation
of the financial statements is not
appropriate; or
• the directors have not disclosed in
the financial statements any identified
material uncertainties that may cast
significant doubt about the group’s
or the parent company’s ability to
continue to adopt the going concern
basis of accounting for a period of
at least twelve months from the date
when the financial statements are
authorised for issue.
• the financial statements give a true
and fair view of the state of the
group’s and of the parent company’s
affairs as at 30 November 2017 and
of the group’s loss for the period then
ended;
• the group financial statements have
been properly prepared in accordance
with IFRSs as adopted by the
European Union;
• the parent company financial
statements have been properly
prepared in accordance with United
Kingdom Generally Accepted
Accounting Practice; and
• the financial statements have been
prepared in accordance with the
requirements of the Companies Act
2006.
Basis of opinion
We conducted our audit in accordance
with International Standards on Auditing
(UK) (ISAs (UK)) and applicable
law. Our responsibilities under those
standards are further described in the
Auditor’s responsibilities for the audit
of the financial statements section
of our report. We are independent
of the parent company and the
group in accordance with the ethical
requirements that are relevant to our
audit of the financial statements in
the UK, including the FRC’s Ethical
Standard as applied to listed entities,
and we have fulfilled our other ethical
responsibilities in accordance with these
requirements. We believe that the audit
evidence we have obtained is sufficient
and appropriate to provide a basis for
our opinion.
32
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017 K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Revenue recognition
The group has a number of different revenue streams,
each of which has a different revenue recognition policy
dependent on the specific terms of the transfer of goods
or the service provision.
We focused on this area because the recognition of
revenue for each component of a sale, when sold
together under one contract with a customer, requires
the application of judgment in the recognition of
revenue between the components of the contract.
Given that licence revenue is recognised up front in
full where performance obligations have been fulfilled,
whereas support, hosting and managed services
revenue is spread over the duration of the contact term,
there is a risk of there being inappropriate allocation of
revenue, particularly relevant for contracts entered into
with customers in the period immediately prior to the
year end.
In view of the judgements required to be made by
management in this area we have determined that
revenue recognition is a significant risk in the audit and
hence a key audit matter.
Revenue by steam for period to 30 November 2017 is
as follows:
Software
Services
Recurring
Other
Total
£m
13.3
38.1
57.6
9.2
118.2
Refer to note 5 of the financial statements for disclosure.
How We Addressed the Key Audit Matter
in the Audit
• We have reviewed the policies adopted by the
Group in relation to revenue recognition and
have confirmed, through a review of a sample of
contracts, how these policies have been adopted
practically.
• Our review included consideration of the treatment
of overruns where consultancy days were over and
above the amount specified in the contract, the
dates the licenses were delivered and the delivery of
in-house software.
• Our review also considered the ability to
“un-bundle” contracts which include an element of
both consultancy, license and support.
• We have reviewed the revenue recognised on any
multi-year deals with reference to the terms of the
contracts and the fulfilment of obligations by all
parties to the contract.
• We have reviewed a sample of contracts to
understand the contractual obligations, to
understand the deliverables within the contract and
whether the entities have fulfilled the requirements
of the contract and earned the right to consideration
where revenue has been recognised.
• We have reviewed cut-off at the period end in detail
and considered revenue recognised after date on
material contracts to ensure this is in line with the
group’s accounting policy.
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Development costs
All development expenditure that meets the criteria
within International Accounting Standard 38 ‘Intangible
assets’ must be capitalised as an asset and amortised
over the assets useful economic life from the date the
asset is available for use.
Management are also required to consider the carrying
value of all capitalised development costs, including
those capitalised in previous periods, both with reference
to the future cash flows expected to be generated from
the assets and the reasonableness of the amortisation
period assigned to the asset.
Development costs at 30 November 2017 have a net
book value of £9.8m (30 June 2016: £12.8m).
Refer to note 11 of the financial statements for
disclosure.
How We Addressed the Key Audit Matter
in the Audit
• We have reviewed the amounts capitalised in the
period as prepared by management and agreed
a sample to supporting documentation such as
timecards, external invoices, etc.
•
For each project for which development expenditure
has been capitalised we have obtained supporting
evidence in relation to the future revenue to be
generated from the development expenditure,
including contracts evidencing sales of the software
development undertaken.
• We have considered the brought forward
development costs to ensure that they remain
supported by future cashflows.
• We have reviewed the appropriateness of the
impairment of development costs based on future
cashflows.
• We have reviewed the appropriateness of
the amortisation period assigned to assets by
comparison to market averages and a review of net
book values supported by future cashflows.
Carrying value of Intangibles and Goodwill
How We Addressed the Key Audit Matter
in the Audit
Management are required to review the carrying value of
goodwill and test it annually for impairment.
Management exercise significant judgement in
determining the underlying assumptions used in
the impairment review; the assumptions include the
discount rate used, the allocation of assets to cash
generating units (CGU) and the future cash flows
attributed to each CGU.
Goodwill at 30 November 2017 has a net book value of
£51.0m (30 June 2016: £48.8m).
Other intangibles, including development costs, have a
net book value of £20.5m (30 June 2016: £26.4m).
Refer to note 11 of the financial statements for
disclosure.
• We have verified the integrity of the calculations
data prepared by management in the impairment
review of goodwill and intangibles.
• We have assessed the reasonableness of the
assumptions underlying management’s assessment
of goodwill and intangibles, including the discount
rate by consultation with an internal expert, by
challenging the forecast growth in comparison to
actual for the period to 30 November 2017 and by
performing sensitivity analysis.
•
Particular consideration has been given to the
key areas of judgement made by management
being the definition of the CGUs and the forecast
period over which the impairment calculations have
been performed. We have considered if they are
reasonable and in line with our understanding of
the business.
• We have considered the appropriateness of the
amortisation periods adopted by comparison within
the market to similar entities and by assessing the
current carrying values as detailed above.
34
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017 K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group Materiality
£590,000 (2016: £625,000)
Basis for materiality
0.5% of revenue (2016: 7.25% of a weighted average of 3 years of adjusted profits)
Rationale for the
benchmark adopted
As the group made an adjusted loss in the current year it is not practicable to use the same
benchmark as in the prior year. Revenue is the most stable and relevant alternative measure and
the percentage determined was considered appropriate for a listed entity.
In considering individual account balances and classes of transactions we apply a lower level of materiality (performance
materiality) in order to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality. Performance materiality was set at £410,000 (2016: £445,000), representing 70% of materiality.
For each component in the group audit we allocated a planning materiality lower than our overall group planning materiality and
used £165,000 for overseas entities and £245,000 for UK entities with a similar restriction of 70% for performance materiality.
We agreed with the audit committee that we would report to the committee all individual audit differences identified during the
course of our audit in excess of £14,000 (2016: £10,000). We also agreed to report differences below these thresholds that, in our
view, warranted reporting on qualitative grounds.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding
of the Group and its environment, including group-wide
controls, and assessing the risks of material misstatement
at the group level.
Our group audit scope focused on the group’s principal
operating locations being the United Kingdom, Netherlands,
Denmark and Ireland. The operations in the United Kingdom
and Netherlands were subject to a full scope audit.
Together with the parent company and its group consolidation,
which was also subject to a full scope audit, these locations
represent the principal business units of the group and account
for 100% of the group’s revenue.
Whilst materiality for the financial statements of a whole was
£500k, each component of the group was audited to a lower
level of materiality.
Audits of the components were performed at a materiality level
calculated by reference to a proportion of group materiality
appropriate to the relative scale of the business concerned.
The Netherlands operations form 20% of group turnover. As
part of our audit strategy, the senior member of the audit team
visited Netherlands during the audit. We communicated with
the Netherlands component audit team, timed to enable us to
be involved during planning and the risk assessment process
and to consider key matters arising from the component audit.
During our visit, we attended key meetings with component
management and auditors, and reviewed component auditor
work papers.
The remaining components of the group were considered
non-significant (Denmark form 4% and Ireland 1% of Group
turnover) and these components were principally subject to
limited scope procedures, together with additional substantive
testing over certain audit risk areas.
Other information
The directors are responsible for the other information. The
other information comprises the information included in
the annual report, other than the financial statements and
our auditor’s report thereon. Our opinion on the financial
statements does not cover the other information and, except
to the extent otherwise explicitly stated in our report, we do not
express any form of assurance conclusion thereon.
35
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In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing
so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or
apparent material misstatements, we are required to determine
whether there is a material misstatement in the financial
statements or a material misstatement of the other information.
If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report in
this regard.
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion, based on the work undertaken in the course of
the audit:
•
•
the information given in the strategic report and the
directors’ report for the financial period for which the
financial statements are prepared is consistent with the
financial statements; and
the strategic report and the directors’ report have
been prepared in accordance with applicable legal
requirements.
Matters on which we are required to report by
exception
In the light of the knowledge and understanding of the group
and the parent company and its environment obtained in
the course of the audit, we have not identified material
misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
•
•
•
adequate accounting records have not been kept, or
returns adequate for our audit have not been received
from branches not visited by us; or
the parent company financial statements are not in
agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by
law are not made; or
Responsibilities of directors
As explained more fully in the directors’ responsibilities
statement (set out on page 28), the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to
enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group’s and the parent
company’s ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either
intend to liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the
financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
Julien Rye (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
Manchester
26 March 2018
• we have not received all the information and explanations
we require for our audit.
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
36
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017 K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Consolidated
Income Statement
for the period ended 30 November 2017
Revenue
Cost of sales
Gross profit
Administrative expenses
Adjusted (loss)/profit from operations
Amortisation of acquired intangibles
Acquisition costs
Exceptional reorganisation costs
Exceptional impairment of development costs
Release of contingent consideration
(Loss)/profit from operations
Finance expense
(Loss)/profit before taxation
Tax credit/(expense)
(Loss)/profit for the period
All of the loss for the period is attributable to equity shareholders of the parent.
(Loss)/Earnings Per Share
Basic
Diluted
The notes on pages 42 to 86 form part of these financial statements.
17 months ended
30 November
2017
£’000
Year ended
30 June
2016
£’000
118,176
(57,197)
60,979
(75,762)
(1,666)
(3,930)
(308)
(4,731)
(4,541)
393
(14,783)
(1,360)
(16,143)
2,773
(13,370)
89,175
(40,636)
48,539
(43,310)
9,501
(2,734)
(492)
(1,046)
_
_
5,229
(701)
4,528
(425)
4,103
Notes
2
11
3
3
3
3
3
6
7
17 months ended
30 November
2017
Year ended
30 June
2016
9
9
(35.3)p
(35.3)p
12.6p
12.3p
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Consolidated Statement
of Comprehensive Income
for the period ended 30 November 2017
(Loss)/profit for the period
Other comprehensive income
Exchange differences on translation of foreign operations
Other comprehensive income
Total comprehensive (expense)/income for the period
17 months ended
30 November
2017
£’000
Year ended
30 June
2016
£’000
(13,370)
4,103
1,110
1,110
(12,260)
3,073
3,073
7,176
All of the total comprehensive (expense)/income is attributable to equity holders of the parent. All of the other comprehensive
income will be reclassified subsequently to profit or loss when specific conditions are met. None of the items within other
comprehensive income/(expense) had a tax impact.
38
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Consolidated Statement
of Financial Position
as at 30 November 2017
ASSETS
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Deferred tax assets
Available-for-sale investments
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
LIABILITIES
Non-current liabilities
Long-term borrowings
Deferred tax liabilities
Total non-current liabilities
Current liabilities
Trade and other payables
Current tax liabilities
Short-term borrowings
Total current liabilities
Total liabilities
EQUITY
Share capital
Share premium account
Other reserves
Translation reserve
Retained earnings
Total equity attributable to equity holders of the parent
Total equity and liabilities
Registered number: 2641001
30 November
2017
£’000
30 June
2016
£’000
2,479
51,019
20,539
1,281
98
2,389
48,793
26,369
423
98
75,416
78,072
30,429
1,941
32,370
40,923
2,772
43,695
107,786
121,767
6,170
2,524
8,694
29,249
127
59
29,435
38,129
10,737
28,897
10,448
2,186
17,389
69,657
8,272
3,753
12,025
32,824
132
3,376
36,332
48,357
9,000
21,586
10,448
1,076
31,300
73,410
107,786
121,767
Notes
10
11/12
11
18
14
16
18
15
16
19
20
20
20
20
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The financial statements on pages 37 to 86 were approved and authorised for issue by the Board of Directors on
26 March 2018 and were signed on its behalf by:
RD Price
Director
The notes on pages 42 to 86 form part of these financial statements.
39
Consolidated Statement
of Cash Flows
for the period ended 30 November 2017
Cash flows from operating activities
(Loss)/profit for the period
Adjustments for:
Share-based payments charge
Depreciation of property, plant and equipment
Amortisation and impairment of intangible assets and development expenditure
Loss on sale of property, plant and equipment
Finance expense
Tax (credit)/expense
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
Cash generated from operations
Finance expense paid
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired
Development expenditure capitalised
Purchase of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issue of share capital
Proceeds from long-term borrowings
Payment of long-term borrowings
Payment of finance lease liabilities
Dividends paid
Net cash from financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at start of period
Exchange gains on cash and cash equivalents
Cash and cash equivalents at end of period
The notes on pages 42 to 86 form part of these financial statements.
17 months ended
30 November
2017
£’000
Year ended
30 June
2016
£’000
Notes
(13,370)
4,103
67
1,373
13,481
–
1,360
(2,773)
10,022
(4,206)
5,954
(1,237)
356
5,073
(989)
(6,158)
(1,307)
(8,454)
28
971
5,077
4
701
425
(5,977)
170
5,502
(783)
(688)
4,031
(7,401)
(4,642)
(916)
(12,959)
8,408
5,715
13,175
_
(10,885)
(2,928)
(77)
(630)
2,531
(850)
2,772
19
1,941
(12)
(477)
9,758
830
1,895
47
2,772
28
28
28
28
40
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Consolidated Statement
of Changes in Equity
for the period ended 30 November 2017
At 30 June 2015
Changes in equity for year
ended 30 June 2016
Profit for the year
Other comprehensive income for the year
Total comprehensive income
Share-based payment credit
Options exercised
Issue of new shares
Movement in own shares held
Dividends to equity holders
At 30 June 2016
Changes in equity for period
ended 30 November 2017
Loss for the period
Other comprehensive income for the period
Total comprehensive income/(expense)
Share-based payment credit
Warrants exercised
Conversion of shareholder loan to equity
Issue of new shares
Movement in own shares held
Dividends to equity holders
At 30 November 2017
Share
capital
£’000
Share
premium
£’000
Other Translation
reserve
£’000
reserves
£’000
Retained
earnings
£’000
Total
equity
£’000
7,949
9,462
10,448
(1,997)
27,633
53,495
–
–
–
–
–
–
–
–
28
107
1,023
12,017
–
–
–
–
–
–
–
–
–
–
–
–
–
4,103
3,073
3,073
–
4,103
–
–
–
–
–
28
–
–
13
(477)
4,103
3,073
7,176
28
135
13,040
13
(477)
9,000
21,586
10,448
1,076
31,300
73,410
–
–
–
–
175
114
–
–
–
–
488
526
1,448
6,297
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(13,370)
(13,370)
1,110
–
1,110
1,110
(13,370)
(12,260)
–
–
–
–
–
–
67
–
–
–
22
(630)
67
663
640
7,745
22
(630)
10,737
28,897
10,448
2,186
17,389
69,657
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Notes forming part of the
Financial Statements
for the period ended 30 November 2017
1 Accounting policies for the group financial statements
Statement of compliance
These group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs
and IFRIC interpretations) as endorsed by the European Union (“endorsed IFRS”) and with those parts of the Companies
Act 2006 applicable to companies preparing their accounts under endorsed IFRS. The company financial statements have
been prepared in accordance with Financial Reporting Standard 101, Reduced Disclosure Framework (“FRS101”); these are
presented on pages 87 to 96.
The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have
been consistently applied to all the periods presented.
Adoption of new and revised standards
New accounting standards adopted by the Group
There have been no new standards or amendments which have had a material effect on the Group’s results.
New accounting standards in issue but not yet effective
The following IFRS have been issued but are not yet effective:
IFRS 15 ‘Revenue from Contracts with Customers’ is mandatory for the Group from 1 December 2018 with early adoption
permitted. The Group commenced an initial project to assess the effect of the adoption of IFRS 15 in the latter half of 2017. As
this project progressed the complexities of IFRS 15 became apparent, leading to the need to perform a more detailed analysis
of the group’s performance obligations under each significant contract in order to assess whether they are distinct and to
determine the point in time, or period over which, it is appropriate to recognise revenue. This also includes determining whether
customers have a right to use or a right to access the software. There are some contracts where revenue may need to be
recognised differently under IFRS 15 than under existing IFRS and these areas include the following:
•
Software licenses where there are significant customisation and installation obligations
• Customers rights under multi-year deals
• Customers rights under hosted services
•
Bundled software and support services
Work is still ongoing to fully quantify the impact on revenue recognition for these contracts. The Group has tentatively taken
the decision to apply the cumulative effect method as of the date of initial application with no restatement of comparatives. The
cumulative effect of applying the new standard will be recorded as an adjustment to the opening balance of equity (retained
earnings) at the date of initial application. The Group anticipates that further information on the effect of the adoption of IFRS 15
will be made during the coming year and to consider whether the Group will adopt the standard earlier than is mandatory.
IFRS 16 ‘Leases’ was issued on 13 January 2016 and is mandatory for the Group from 1 December 2019 with early adoption
permitted if IFRS 15 ‘Revenue from Contracts with Customers’ has also been applied. The standard was endorsed by the EU
in November 2017. The standard represents a significant change in the accounting and reporting of leases for lessees as it
provides a single lessee accounting model, and as such, requires lessees to recognise assets and liabilities for all leases unless
the underlying asset has a low value or the lease term is 12 months or less. The impact of the standard on the Group is currently
being assessed and it is not yet practicable to quantify the effect of IFRS 16 on these consolidated financial statements. However,
on adoption of IFRS 16, the Group will recognise within the balance sheet a right of use asset and lease liability for all applicable
leases, and within the income statement rent expense will be replaced by depreciation an interest expense which will result in a
42
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017 K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
1 Accounting policies for the group financial statements (continued)
decrease in administrative expenses and an increase in finance expenses. The standard will also impact a number of statutory
measures such as profit from operations and cash generated from operations. A gauge of the level of the asset and liability that
may be brought onto the balance sheet is the value of operating lease commitments which was £7.3m at 30 November 2017 (see
note 21).
IFRS 9 ‘Financial instruments’ is effective for the Group from 1 December 2018 with early adoption permitted. It was endorsed
by the EU in December 2016. The standard replaces IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9
sets out a new forward looking ‘expected credit loss (ECL)’ model which replaces the incurred loss model in IAS 39 and applies
to, amongst other financial assets and liabilities, trade receivables. The new requirements will lead to the earlier recognition
of larger credit losses. Unlike IAS 39, entities will be required to consider forward looking information when measuring ECL.
Therefore, a credit event (or impairment ‘trigger’) no longer has to occur before credit losses are recognised. Therefore, the
provision for impairment of trade receivables will take account of the forward looking information. The group is still developing its
model for calculating the ECL and until it has been finalised it is not possible to quantify the effects of this part of the standard. It
is likely to lead to an increase in the £1.46m provision currently recognised.
Basis of consolidation
Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee if all three of
the following elements are present:
•
•
•
power over the investee;
exposure to variable returns from the investee; and
the ability of the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.
The consolidated financial statements present the results of the company and its subsidiaries as if they formed a single entity.
Intercompany transactions and balances between group companies are therefore eliminated in full.
The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the
statement of financial position, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised
at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of
comprehensive income from the date on which control is obtained.
Business combinations
All business combinations are accounted for by applying the acquisition method. On acquisition, all of the subsidiaries’ assets
and liabilities that exist at the date of acquisition are recorded at their fair values reflecting their condition at that date. The
results of subsidiaries acquired in the period are included in the income statement from the date on which control is obtained.
Costs of acquisitions are expensed to the income statement immediately. Contingent consideration is recognised at fair value
and any subsequent adjustments to the initial fair value are recognised in the income statement.
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
1 Accounting policies for the group financial statements (continued)
Critical accounting estimates and judgements
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 and a suitable discount rate in order to calculate present value. An impairment review has been
performed at the reporting date and no impairment has been identified. More details including carrying values are included in
notes 11 and 12.
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 is 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. Expenditure is only capitalised when the investment
appraisal process has assessed that the product is likely to benefit the Group in the future.
Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits associated with the transaction will flow into
the Group.
Revenue comprises the value of sales to third party customers of software licences, customised software, hardware and fees
derived from installation, consultancy, training, support and managed services. It is stated exclusive of value added tax and net
of trade discounts and rebates.
Revenue on the sale of software licences is recognised where there is persuasive evidence of an agreement with a customer
(contract and/or binding purchase), delivery of the software has taken place and the customer has the ability to use the
software, collectability is probable and the fee is fixed or determinable. Where the Group acts as a reseller of third-party
software and maintenance contracts, revenue is recognised at the point the customer received the rights to the contract and
the Group has fulfilled its obligations. Revenue on the sale of customised software, hardware and installation is recognised on
delivery to a customer or on completion of contractual milestones. Revenue from training and consultancy is recognised as the
contract progresses. Revenue from support, hosting and managed services is generally invoiced in advance, termed “deferred
revenue”, and taken to revenue in equal monthly instalments over the relevant period. Revenue on the sale of third party
licences, and support and maintenance contracts is recognised once the group has fulfilled its obligations.
The Group has a number of different revenue streams for which the revenue recognition varies as outlined above. Where there
is one contract covering more than one revenue stream, the contract is “unbundled” to recognise the revenue on each stream in
accordance with the revenue recognition set out above. Where a contract for consultancy specifies a fixed number of days and
these are exceeded, i.e. the contract overruns, the recognition of revenue is adjusted to reflect the number of days to date as a
proportion of the total expected number of days.
44
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017 K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
1 Accounting policies for the group financial statements (continued)
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income
statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes
items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the reporting date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted
for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises
from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction
that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised on intangible assets and other
temporary differences recognised in business combinations.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates,
except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference
will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly
to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when the group has a legally enforceable right to offset current tax assets and
liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:
•
•
the same taxable group company; or
different group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets
and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities
are expected to be settled or recovered.
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
1 Accounting policies for the group financial statements (continued)
Property, Plant and Equipment
Items of property, plant and equipment are initially recognised at cost. The cost of items of property, plant and equipment is its
purchase cost, together with any incidental costs of acquisition. As well as the purchase price, cost includes directly attributable
costs of bringing the asset into use.
Depreciation is calculated so as to write off, on a straight-line basis over the expected useful economic lives of the asset
concerned, the cost of property, plant and equipment, less estimated residual values, which are adjusted, if appropriate, at each
reporting date. The principal economic lives used for this purpose are:
•
•
•
Long leasehold buildings
Leasehold improvements
Period of lease
Period of lease
Plant, fixtures and equipment
Three to five years
• Motor vehicles
Four years
Provision is made against the carrying value of items of property, plant and equipment where impairment in value is deemed to
have occurred.
Goodwill
Goodwill represents the excess of the fair value of the consideration paid on acquisition of a business over the fair value of the
assets, including any intangible assets identified, liabilities and contingent liabilities acquired. Goodwill is not amortised but is
measured at cost less impairment losses. In determining the fair value of consideration, the fair value of equity issued is the
market value of equity at the date of completion.
On disposal of a subsidiary, the attributable net book value of goodwill is included in the determination of the profit or loss
on disposal.
Externally acquired intangible assets
Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight-line basis over their
useful economic lives. The amortisation expense is included within administrative expenses in the consolidated income statement.
Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other
contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques (see
section related to critical estimates and judgements below).
The significant intangibles recognised by the group, their estimated useful economic lives and the methods used to determine
the cost of intangibles acquired in business combinations are as follows:
Intangible asset
Estimated useful economic life
Valuation method
Software distribution agreements
5-9 years
Estimated royalty stream if the rights were
to be licensed
Contractual and non-contractual
5-15 years
Estimated discounted cash flow
customer relationships
Intellectual property rights
6-10 years
Estimated royalty stream if the rights were
to be licensed
46
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
1 Accounting policies for the group financial statements (continued)
Internally generated intangible assets (research and development costs)
Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated
intangible asset arising from the group’s software development is recognised only if all of the following conditions are met:
•
•
•
•
•
•
it is technically feasible to develop the product for it to be sold;
adequate resources are available to complete the development;
there is an intention to complete and sell the product;
the group is able to sell the product;
sale of the product will generate future economic benefits; and
expenditure on the project can be measured reliably.
The expenditure capitalised represents the cost of direct labour incurred in developing the software product.
Capitalised development costs are amortised on a straight-line basis over their useful lives commencing from the date the
asset is available for use. The estimated useful lives for development expenditure are estimated to be in a range of between
three and seven years. Where the estimate useful life is more than five years, this reflects the judgement that there will be
more substantial economic benefit flowing in the last five years of the period. The amortisation expense is included within
administrative expenses in the consolidated income statement. Where no internally-generated intangible asset can be
recognised, development expenditure is recognised as an expense in the period in which it is incurred.
Impairment charges of non-current assets (excluding deferred tax assets)
Impairment tests on goodwill are undertaken at the financial period end. Other non-current assets are subject to impairment
tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the
carrying value of an asset exceeds its recoverable amount (i.e. the higher of its fair value less costs to sell and its value in use
(effectively the expected cash to be generated from using the asset in the business)), the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the
asset’s cash-generating unit (i.e. the lowest group of assets in which the asset belongs for which there are separable identifiable
cash flows that are largely independent of the cash flows from the other assets or groups of assets). Goodwill is allocated on
initial recognition to each of the group’s cash-generating units that are expected to benefit from the synergies of the combination
giving rise to the goodwill.
The estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not
been adjusted.
Impairment charges are included in administrative expenses in the consolidated income statement and have been disclosed
within exceptional reorganisation costs. An impairment loss recognised for goodwill is not reversed.
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
1 Accounting policies for the group financial statements (continued)
Financial assets
The Group has not classified any of its financial assets as held to maturity.
Financial assets are recognised at fair value on the group’s statement of financial position when the group becomes a party to
the contractual provisions of the instrument.
Loans and receivables
These assets arise principally through the provision of goods and services to customers, e.g. trade receivables. Trade
receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated
irrecoverable amounts.
Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of
the counterparty or default or significant delay in payment) that the group will be unable to collect all of the amounts due under
the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present
value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net,
such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in
the income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is
written off against the associated provision.
The group’s loans and receivables comprise trade and other receivables and cash and cash equivalents.
Available-for-sale
Non-derivative financial assets not included in the above categories are classified as available-for-sale and comprise principally
the Group’s strategic investments in entities not qualifying as subsidiaries or associates. They are carried at fair value with
changes in fair value generally recognised in other comprehensive income and accumulated in an available-for-sale reserve.
Where there is a significant or prolonged decline in the fair value of an available-for-sale financial asset (which constitutes
objective evidence of impairment), the full amount of impairment, including any amount previously recognised in other
comprehensive income, is recognised in profit or loss.
Financial liabilities
The group classifies its financial liabilities into one of two categories, depending on the purpose for which it was acquired. The
group’s accounting policy for each category is as follows:
Other financial liabilities
Other financial liabilities include the following items:
•
Bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the
instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate
method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the
liability carried in the statement of financial position. Interest expense in this context includes initial transaction costs and
premiums payable on redemption, as well as any interest or coupon payable while the liability is outstanding;
•
Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently
carried at amortised cost using the effective interest method.
48
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017 K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
1 Accounting policies for the group financial statements (continued)
Equity instruments
Equity instruments issued by the group are recorded at the proceeds received, net of direct issue costs.
Leased assets
All leases other than finance leases are regarded as operating leases and the payments made under them are charged to the
income statement on a straight-line basis over the lease term.
Employee share ownership plans
As the company is deemed to have control of its ESOP trust, it is treated as a subsidiary and consolidated for the purposes of
the group accounts. The material assets, liabilities, income and costs of the K3 Business Technology Group plc Share Incentive
Plan are included in the financial statements. Until such time as the group’s own shares vest unconditionally with employees,
the consideration paid for the shares is deducted in equity shareholders’ funds.
Pension contributions
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as
incurred. The group has no defined benefit arrangements in place.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. The group considers all highly liquid investments with
original maturity dates of three months or less to be cash equivalents. Bank overdrafts that are repayable on demand and form
an integral part of the group’s cash management system are included as a component of cash and cash equivalents for the
purpose of the statement of cash flows.
Foreign currency translation
Transactions entered into by group entities in a currency other than the currency of the primary economic environment in
which they operate (the “functional currency”) are translated at the rates ruling at the dates of transactions. Monetary assets
and liabilities denominated in foreign currencies at the reporting date are translated at the rates ruling at that date. Exchange
differences arising on the retranslation of unsettled monetary assets and liabilities are similarly recognised immediately in the
income statement.
On consolidation, results of overseas subsidiaries are translated using the average exchange rate for the period. The balance
sheets of overseas subsidiaries are translated using the closing period end rate. Exchange differences arising, if any, are
taken to a separate component in equity (the translation reserve). Such translation differences are recognised as income or as
expenses in the period in which the operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the
foreign entity and translated at the closing rate. The group has elected to treat goodwill and fair value adjustments arising on
acquisitions before the date of transition to IFRS as sterling denominated assets and liabilities.
Exchange differences recognised in the income statement of group entities’ separate financial statements on the translation of
long-term monetary items forming part of the group’s net investment in the overseas operation concerned are reclassified to the
translation reserve on consolidation.
49
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
2 Revenue
The group’s revenue comprises:
Software licence revenue
Services revenue
Recurring revenue*
Hardware and other revenue
Revenue
*From software maintenance renewals, support contracts and hosting and managed services.
17 months ended
30 November
2017
£’000
Year ended
30 June
2016
£’000
13,304
38,074
57,573
9,225
118,176
16,235
25,745
41,613
5,582
89,175
50
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
3
(Loss)/profit from operations
This has been arrived at after charging/(crediting):
Staff costs (see note 4)
Depreciation of property, plant and equipment
Amortisation of acquired intangible assets
Amortisation of development costs
Exceptional impairment of development costs (see below)
Acquisition costs (see below)
Exceptional reorganisation costs (see below)
Release of contingent consideration (see below)
Foreign exchange differences
Operating lease expenses
– Plant and machinery
– Property
Loss on disposal of fixed assets
17 months ended
30 November
2017
£’000
Year ended
30 June
2016
£’000
64,885
40,296
1,373
3,930
5,010
4,541
308
4,731
393
34
2,062
2,010
–
971
2,734
2,343
–
492
1,046
–
(26)
1,877
1,151
4
As previously reported, K3 has implemented a programme to simplify and more closely integrate the Group’s operations. In
order to achieve this, significant changes were made which resulted in exceptional reorganisation costs of £4.73m, of which the
vast majority were redundancy costs, but which will deliver cost savings of £5.0m on an annualised basis. The reorganisation
costs in the prior year of £1.05m related to reorganisational and management changes particularly in the retail division (now part
of supply chain solutions and managed services). Following a review of development costs, the costs relating to certain products
that are no longer core to the Group’s strategy have been written down to £nil at a cost of £4.54m (year ended 30 June 2016:
£nil). This impairment charge has no cash impact. The Group incurred costs in relation to acquiring new businesses of £0.31m
(year ended 30 June 2016: £0.49m) (see notes 24 and 25). Contingent consideration not required to be paid of £0.39m (year
ended 30 June 2016: £nil) was released (see note 25).
Fees paid to the company’s auditors are disclosed in the Corporate Governance statement on page 25.
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
4 Staff costs
Staff costs (including directors) comprise:
Wages and salaries
Short-term non-monetary benefits
Defined contribution pension cost
Share-based payment expense (see note 23)
Employers national insurance contributions and similar taxes
17 months ended
30 November
2017
£’000
Year ended
30 June
2016
£’000
53,245
36,399
3,000
2,458
67
6,115
64,885
1,989
1,579
28
3,931
43,926
Of the above staff costs, £4.28m (year ended 30 June 2016: £3.63m) has been capitalised within development costs (see note 11).
The average number of employees during the period was:
Consultants and programmers
Sales and distribution
Administration
17 months ended
30 November
2017
Number
Year ended
30 June
2016
Number
556
77
132
765
554
82
126
762
Directors and key management personnel remuneration
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the
activities of the group, including the Directors of the company listed on the inside front cover and the divisional directors.
Key management personnel remuneration consists of:
Remuneration
Compensation for loss of office
Company contributions to defined contribution pension schemes
Share-based payment expense (note 23)
Employers national insurance contributions and similar taxes
17 months ended
30 November
2017
£’000
Year ended
30 June
2016
£’000
2,440
1,472
138
–
317
1,672
–
183
–
231
4,367
2,086
52
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
4 Staff costs (continued)
Directors’ remuneration consists of:
Emoluments
Contributions to personal pension schemes
Remuneration in respect of the highest paid director:
Aggregate emoluments
Pension contributions
17 months ended
30 November
2017
£’000
Year ended
30 June
2016
£’000
1,023
53
1,076
390
–
390
17 months ended
30 November
2017
£’000
Year ended
30 June
2016
£’000
457
36
493
307
–
307
There were four directors in defined contribution pension schemes (year ended 30 June 2016: none).
Note that the directors’ emoluments include amounts attributed to benefits-in-kind on which directors are assessed for tax
purposes. This may differ to the cost to the group of providing those benefits included in note 4.
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
5 Segment information
As noted in the Chairman’s statement, K3 has undergone significant change during the period and a core element of our growth
strategy is to increase revenues from our own intellectual property (“IP”). This is important to us since own IP sales typically
underpin stronger customer relationships, differentiate us from our competitors and generate higher margins and recurring
revenue. All software product development and own IP management functions are now integrated into a single Group-level IP unit.
Therefore, the operating segments have been re-defined to reflect the focus between Own IP units within the Group and 3rd party
IP and reseller units. The comparatives for the year ended 30 June 2016 have been restated on the same basis.
The Head Office segment comprises head office and other centrally incurred costs which are recharged to the units through a
central management charge.
The activities and products and services of the operating segments are detailed in the Strategic Report on pages 13 to 17.
The CODM (Chief Operating Decision Maker, the Board) primarily assesses the performance of the operating segments based
on adjusted profit from operations. This is a measure of divisional operating profit less an allocation of head office costs. Adjusted
profit from operations is profit before interest, tax, amortisation of acquired intangibles, acquisition costs, exceptional costs and
exceptional income.
54
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
5 Segment information (continued)
The segment results for the period ended 30 November 2017 and for the year ended 30 June 2016, reconciled to profit before
taxation as included in the consolidated income statement, are as follows:
17 months ended 30 November 2017
Total segment revenue
Inter-segment revenue
Software licence revenue
Services revenue
Recurring revenue
Hardware and other revenue
External revenue
Cost of sales
Gross profit
Depreciation
Amortisation of development costs
Administrative expenses
Divisional operating profit/(loss)
Management charges
Adjusted profit/(loss) from operations
Amortisation of acquired intangibles
Acquisition costs
Exceptional reorganisation costs
Exceptional impairment charge
Release of contingent consideration
Profit/(loss) from operations
Finance expense
Profit/(loss) before tax
Supply chain
solutions and
managed
services
£’000
94,842
(78)
10,389
34,707
45,410
4,258
Own IP
£’000
25,683
(2,271)
2,915
3,367
12,163
4,967
23,412
94,764
(8,404)
(48,793)
15,008
45,971
(123)
(1,923)
(1,230)
(3,086)
(12,257)
(39,487)
705
(499)
206
(1,829)
–
(246)
(1,593)
393
(3,069)
(203)
(3,272)
2,168
(2,308)
(140)
(2,101)
–
(2,929)
(2,948)
–
(8,118)
(15)
(8,133)
Head
office
£’000
–
–
–
–
–
–
–
–
–
(20)
–
(4,519)
(4,539)
2,807
(1,732)
–
(308)
(1,556)
–
–
(3,596)
(1,142)
(4,738)
Total
£’000
120,525
(2,349)
13,304
38,074
57,573
9,225
118,176
(57,197)
60,979
(1,373)
(5,009)
(56,263)
(1,666)
–
(1,666)
(3,930)
(308)
(4,731)
(4,541)
393
(14,783)
(1,360)
(16,143)
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
5 Segment information (continued)
Year ended 30 June 2016
Total segment revenue
Inter-segment revenue
Software licence revenue
Services revenue
Recurring revenue
Hardware and other revenue
External revenue
Cost of sales
Gross profit
Depreciation
Amortisation of development costs
Administrative expenses
Divisional operating profit/(loss)
Management charges
Adjusted profit/(loss) from operations
Amortisation of acquired intangibles
Acquisition costs
Exceptional reorganisation costs
Profit/(loss) from operations
Finance expense
Profit/(loss) before tax
Supply chain
solutions and
managed
services
£’000
76,865
(59)
13,274
23,145
35,895
4,492
Own IP
£’000
14,451
(2,082)
2,961
2,600
5,718
1,090
12,369
76,806
(3,998)
(36,638)
8,371
40,168
(58)
(614)
(901)
(1,727)
(4,649)
(28,281)
3,050
(379)
2,671
(437)
(292)
(16)
1,926
(6)
1,920
9,259
(1,601)
7,658
(2,297)
–
(918)
4,443
5
4,448
Head
office
£’000
–
–
–
–
–
–
–
–
–
(13)
–
(2,795)
(2,808)
1,980
(828)
–
(200)
(112)
(1,140)
(700)
(1,840)
Total
£’000
91,316
(2,141)
16,235
25,745
41,613
5,582
89,175
(40,636)
48,539
(972)
(2,341)
(35,725)
9,501
–
9,501
(2,734)
(492)
(1,046)
5,229
(701)
4,528
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 39. 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’s revenue does not arise from any individual customer accounting for in excess of 10% of revenues.
56
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
5 Segment information (continued)
Analysis of the group’s external revenues (by customer location) and non-current assets by geographical location are
detailed below:
United Kingdom
Netherlands
Ireland
Rest of Europe
Rest of World
6 Finance income and expense
Finance expense
Bank borrowings
On related party balances
Other
Net finance expense
External revenue
Non-current assets
17 months ended
30 November
2017
£’000
Year ended
30 June
2016
£’000
30 November
2017
£’000
79,767
12,584
4,153
12,886
8,786
69,046
7,653
2,427
5,064
4,985
48,316
12,375
5,848
8,821
56
30 June
2016
£’000
50,914
12,512
5,766
8,821
59
118,176
89,175
75,416
78,072
17 months ended
30 November
2017
£’000
Year ended
30 June
2016
£’000
1,236
55
69
1,360
577
55
69
701
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
7 Tax expense
Current tax (credit)/expense
UK corporation tax and income tax of overseas operations
on (losses)/profits for the period
Adjustment in respect of prior periods
Deferred tax income
Origination and reversal of temporary differences
Effect of change in rate of deferred tax
Total tax (credit)/expense in current period
17 months ended
30 November 2017
Year ended
30 June 2016
£’000
£’000
£’000
£’000
(388)
(176)
(2,046)
(163)
(564)
(2,209)
(2,773)
866
(25)
(94)
(322)
841
(416)
425
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 (losses)/profits for the period are as follows:
(Loss)/profit before tax
Expected tax charges based on the standard rate of corporation tax in the UK
of 19.53% (2016: 20%)
Expenses not deductible for tax purposes
Effect of tax reliefs
Utilisation of losses
Losses not recognised (see note 18)
Different tax rates applied in overseas jurisdictions
Effect of change in rate for deferred tax
Adjustment for over provision in prior periods
Total tax (credit)/expense in current period
17 months ended
30 November
2017
£’000
Year ended
30 June
2016
£’000
(16,141)
4,528
(3,152)
(188)
–
(320)
1,249
222
(163)
(421)
(2,773)
906
(61)
–
(5)
–
(68)
–
(347)
425
None of the items within other comprehensive income in the Consolidated Statement of Comprehensive Income have resulted
in a tax expense or tax income.
58
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
8 Dividends
Final dividend of 1.75p (2016: 1.5p) per ordinary share proposed
and paid during the period relating to the previous period’s results
17 months ended
30 November
2017
£’000
Year ended
30 June
2016
£’000
630
477
A dividend in respect of the period ended 30 November 2017 of 1.4p per share, amounting to a total dividend of £601,000 is to
be proposed at the annual general meeting on 30 May 2018. These financial statements do not reflect this dividend payable.
9
(Loss)/earnings per share
The calculations of (loss)/earnings per share are based on the (loss)/profit for the period and the following numbers of shares:
30 November
2017
Number of
shares
30 June
2016
Number of
shares
Denominator
Weighted average number of shares used in basic EPS
37,893,951
32,439,624
Effects of:
Employee share options and warrants
Weighted average number of shares used in diluted EPS
–
798,049
37,893,951
33,237,673
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 period.
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 (losses)/profits and the above number of shares.
17 months ended 30 November 2017
Per share
amount
Basic
p
Per share
amount
Diluted
p
Earnings
£’000
Year ended 30 June 2016
Per share
amount
Basic
p
Per share
amount
Diluted
p
Earnings
£’000
Numerator
(Loss)/earnings per share
(13,370)
(35.3)
(35.3)
4,103
12.6
12.3
Add back:
Amortisation of acquired intangibles
(net of tax)
Acquisition costs (net of tax)
Exceptional reorganisation costs
(net of tax)
Exceptional impairment charge
(net of tax)
Release of contingent consideration
(net of tax)
Adjusted (L)/EPS
3,037
308
8.0
0.8
8.0
0.8
2,190
492
3,832
10.1
10.1
837
3,678
9.7
9.7
(393)
(2,908)
(1.0)
(7.7)
(1.0)
(7.7)
–
–
6.8
1.5
2.6
–
–
6.6
1.5
2.5
–
–
7,622
23.5
22.9
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
10 Property, plant and equipment
Long
leasehold
land and
buildings
£’000
Leasehold
improvements
£’000
Plant,
fixtures
and
equipment
£’000
Motor
vehicles
£’000
Cost
At 30 June 2015
On acquisitions
Additions
Disposals
Effect of movements in foreign exchange rate
At 30 June 2016
On acquisitions
Additions
Disposals
Effect of movements in foreign exchange rate
750
419
4,568
–
–
–
–
–
–
–
–
16
987
(464)
186
750
419
5,293
–
–
–
–
–
–
–
–
6
1,443
(155)
85
6,672
3,088
909
(449)
119
266
48
–
–
314
3,667
73
–
–
387
153
105
32
1,285
(145)
61
4,868
1,480
1,626
1,804
At 30 November 2017
750
419
Accumulated depreciation
At 30 June 2015
Depreciation charge
Disposals
Effect of movements in foreign exchange rate
At 30 June 2016
Depreciation charge
Disposals
Effect of movements in foreign exchange rate
At 30 November 2017
Net book value
At 30 June 2015
At 30 June 2016
At 30 November 2017
82
10
–
–
92
15
–
–
107
668
658
643
Total
£’000
5,769
16
987
(502)
192
6,462
6
1,443
(155)
85
7,841
3,453
971
(473)
122
4,073
1,373
(145)
61
5,362
2,316
2,389
2,479
32
–
–
(38)
6
–
–
–
–
–
–
17
4
(24)
3
–
–
–
–
–
15
–
–
Bank borrowings are secured on certain assets of the group including property, plant and equipment. There is a fixed charge over
the long leasehold property.
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K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
10 Property, plant and equipment (continued)
The net carrying amount of property, plant and equipment includes the following amounts in respect of assets held under
finance leases (see note 21):
Plant, fixtures and equipment
11 Intangible assets
Cost or valuation
At 30 June 2015
Additions
30 November
2017
£’000
30 June
2016
£’000
85
54
Contractual
and
non-contractual
customer
relationships
£’000
Development
costs
£’000
Goodwill
£’000
Distribution
agreements
£’000
Intellectual
property
rights
£’000
Total
£’000
43,541
16,573
20,312
10,489
Acquired through business combinations
3,519
Effect of movements in
foreign exchange rate
At 30 June 2016
1,733
48,793
–
4,642
133
1,108
22,456
–
1,977
779
–
–
68
973
–
2,560
91,888
4,642
8,189
241
3,929
23,068
10,557
3,774
108,648
Additions
–
6,158
Acquired through business combinations
1,334
–
Elimination of cost of assets no longer
in use
–
(8,552)
–
440
–
Effect of movements in
foreign exchange rate
At 30 November 2017
892
568
51,019
20,630
503
24,011
–
–
–
–
–
299
6,158
2,073
–
(8,552)
205
2,168
10,557
4,278
110,495
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
11 Intangible assets (continued)
Contractual
and
non-contractual
customer
relationships
£’000
Development
costs
£’000
Goodwill
£’000
Distribution
agreements
£’000
Intellectual
property
rights
£’000
Accumulated amortisation
At 30 June 2015
Amortisation charge
Effect of movements in
foreign exchange rate
At 30 June 2016
Amortisation charge
Impairment charge
Elimination of accumulated amortisation
on assets no longer in use
Effect of movements in
foreign exchange rate
At 30 November 2017
Net book value
At 30 June 2015
At 30 June 2016
At 30 November 2017
–
–
–
–
–
–
–
–
–
7,010
2,343
322
9,675
5,010
4,541
(8,552)
183
10,857
10,105
1,935
9,796
693
430
68
12,470
10,557
3,191
–
–
301
–
–
–
–
15,962
10,557
43,541
48,793
51,019
9,563
12,781
9,773
10,207
10,598
8,049
693
–
–
630
106
48
784
739
–
–
38
1,561
343
2,990
2,717
Total
£’000
27,541
5,077
868
33,486
8,940
4,541
(8,552)
522
38,937
64,347
75,162
71,558
During the period, certain development costs have been written down to nil at a cost of £4.54m (year ended 30 June 2016: £nil).
This is included within exceptional costs in the income statement.
All intangible assets, other than goodwill which has an indefinite life, have a useful economic life of between 3 and 10 years. The
remaining useful life of development costs is between 1 and 7 years, for contractual and non-contractual customer relationships
is between 0 and 10 years, for distribution agreements is 0 years and for intellectual property rights is between 0 and 7 years.
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K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
12 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. Details of goodwill allocated to each CGU are as follows:
Walton
Syspro
Hosting and managed services
Business Solutions
Retail
Dynamics International
IP
Sage
Retail Systems Group (RSG) (including Merac)
Unisoft
Integrated Business Solutions (IBS)
DdD Retail (see note 25)
Goodwill carrying amount
30 June
2016
£’000
30 November
2017
£’000
1,555
13,680
1,555
13,680
2,905
3,591
6,460
9,541
410
4,556
1,707
872
770
2,905
3,591
6,460
8,995
385
4,556
1,220
816
770
4,972
51,019
3,860
48,793
The recoverable amounts of the CGUs are determined from value in use calculations, derived from the present value of future
cash flows generated by the CGUs. There are a number of assumptions and estimates involved in calculating the present value
of the future cash flows, including but not restricted to the following:
•
•
growth rates applied to profit from operations used as the basis for the future cash flows;
the discount rate applied to the cash flows to calculate their present value.
The basis of the assumptions used is as follows:
• management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of
money and the risks specific to the business. The growth rates are based on management forecasts for the markets in
which each CGU operates.
•
the group prepares pre-tax cash flow forecasts derived from the most recent financial forecasts approved by management
for the next five years. The forecasts assume higher growth rates in years 2 and 3 of 5-20% (year ended 30 June 2016:
0-20%) with more conservative growth rates in years 4 and 5 of between 2% and 5% (year ended 30 June 2016: 2-5%)
with exception of the IP, Walton and IBS CGUs. Growth rates for the IP CGU of 58% in year 2 and 33% in year 3 have been
applied reflecting the Board’s positive view of growth in our own IP (year ended 30 June 2016: 65% in year 2 and 56% in
year 3). The Walton and IBS CGUs relates to small systems and a gradual attrition of income is expected, and an attrition
rate of 5% has been applied (year ended 30 June 2016: 5%). The most recent financial forecasts have been prepared on
the assumption that gross margins will be consistent with those generated historically and that overheads are in line with
any changes in the level of revenues forecast. The growth rates are based on industry growth rates, management’s view of
the observable markets as well as historical and estimated requirement by customers for the products and services.
•
the rate used to discount the forecast pre-tax cash flows is 13.7% and represents the directors’ current best estimate of the
weighted average cost of capital (“WACC”).
As a result of the impairment testing carried out on the basis of these estimates and assumptions, no impairment provisions are
considered necessary.
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
12 Goodwill and impairment (continued)
For the majority of CGUs no reasonably possible changes to the assumptions used in the impairment test would give rise to
an impairment. For two CGUs, Business Solutions and Sage, the forecast show good headroom although if performance and
annual cash generated falls continuously short by 10% or more of the forecast cash generated there would be an impairment.
However, the Board have plans in place to exceed forecasts.
13 Subsidiaries
The trading subsidiaries of K3 Business Technology Group plc, all of which have been included in these consolidated financial
statements, are as follows:
Name
K3 BTG Limited
K3 Business Solutions Limited
K3 Business Technology Group Trustees Company Limited
K3 CRM Limited
K3 FDS Limited
K3 Retail Solutions Limited
K3 Syspro Limited
K3 Systems Support Limited
Retail Systems Group Limited
Starcom Technologies Limited
FDS Technology Systems Limited
Integrated Manufacturing Software Limited
K3 Retail and Business Solutions Limited
K3 Business Solutions BV
K3 Software Solutions BV
K3 Solutions BV
K3 Business Solutions Pte Limited
K3 Business Solutions ehf
FashionCloudSoftware.com, LLC
K3 Software Solutions LLC
DdD Retail A/S
DdD Retail Norway A/S
DdD Retail Germany AG
DdD Retail Sweden
Country of incorporation
Proportion of ownership interest
and ordinary share capital held
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Ireland
Ireland
Ireland
Netherlands
Netherlands
Netherlands
Singapore
Iceland
USA
USA
Denmark
Norway
Germany
Sweden
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
The principal activity of all of the above subsidiary undertakings is the supply of computer software and consultancy with the
exception of the following: Starcom Technologies Limited, K3 Partner Network (International) Limited and K3 Systems Support
Limited which are hosting and managed services providers; K3 Business Technology Group Trustees Company Limited which is
the trustee for the group’s employee share ownership plan.
64
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
13 Subsidiaries (continued)
The registered office for all the UK companies is Baltimore House, 50 Kansas Avenue, Manchester, M50 2GL. The registered
office for all the Irish companies is Beaux Lane House, Mercer Street Lower, Dublin 2, Ireland. The registered offices for the
other overseas subsidiaries are:
K3 Business Solutions BV
Gildeweg 9b, 2632 BD Nootdorp, The Netherlands
K3 Software Solutions BV
Gildeweg 9b, 2632 BD Nootdorp, The Netherlands
K3 Solutions BV
Cartografenweg 6, 5141 MT Waalwijk, The Netherlands
K3 Business Solutions Pte Limited
133 New Bridge Road, #10-09 Chinatown Point, Singapore 059413
K3 Business Solutions ehf
Austurstræt 12, 101 Reykjavik , Iceland
FashionCloudSoftware.com, LLC
33S 6th st., Suite 4200, Minneapolis MN 55402, USA
K3 Software Solutions LLC
33S 6th st., Suite 4200, Minneapolis MN 55402, USA
DdD Retail A/S
Theilgaards Allé 2, 4600 Køge, Denmark
DdD Retail Norway A/S
195, Stensarmen 4, 3112, Tonsberg, Norway
DdD Retail Germany AG
Weilstrasse 41, 89143 Balubeuren, Germany
DdD Retail Sweden
Vallhal Park, Stjernsvards Alle 52, 262 74 Angelholm, Sweden
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
13 Subsidiaries (continued)
In addition, the company has the following subsidiaries which are non-trading or intermediate holding companies and all of
which have been included in these consolidated financial statements:
Name
Clarita Support Limited
Colne Investments Limited
FDS Holdco Limited
Fifth Dimension Systems Limited
Intelligent Solutions Consultancy Limited
K3 AX Limited
K3 Business Systems Holdco Limited
K3 FD Systems Limited
K3 Global Products Limited
K3 Hosting Limited
K3 Information Engineering Limited
K3 Information Services Limited
K3 International Support Services Limited
K3 Landsteinar Limited
K3 Managed Services Holdco Limited
K3 Partner Network (International) Limited
K3 Retail and Business Solutions Holdco Limited
Merac Limited (see note below)
Retail Computer Maintenance Limited
Retail Technology Limited
Sense Enterprise Solutions Limited
Shine Marketing UK Limited
Syspro (UK) Limited
Syspro Europe Limited
Syspro Limited
K3 Holdings BV
K3 Managed Services Inc
NTS Systemhaus Sud Verwaltungs GmbH
Retail Support International ApS
Country of incorporation
Proportion of ownership interest
and ordinary share capital held
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Ireland
UK
UK
Ireland
UK
UK
UK
UK
UK
UK
UK
UK
UK
Netherlands
USA
Germany
Denmark
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
The trade and assets of Merac Limited, acquired on 1 July 2016, were transferred to its parent company, Retail Systems Group
Limited, on 1 April 2017 and the company ceased to trade.
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K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
14 Trade and other receivables
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Current taxes
Other receivables
Accrued income
Prepayments
30 November
2017
£’000
18,038
(1,460)
16,578
1,007
507
9,891
2,446
30,429
30 June
2016
£’000
21,134
(1,330)
19,804
678
1,982
15,466
2,993
40,923
The fair value of trade and other receivables approximates to book value at 30 November 2017 and 30 June 2016.
Of the above, trade receivables of £0.03m (30 June 2016: £0.04m) and accrued income of £4.80m (30 June 2016: £4.56m) is
due after more than one year.
The group is exposed to credit risk with respect to trade receivables due and accrued income which will become due from
its customers. The group has c.3,700 customers spread across various industries, although predominantly in the retail,
manufacturing and distribution sectors, and hence the concentration of credit risk is limited due to the large and diverse
customer base. The group assesses the credit rating for new customers to minimise the credit risk. Provisions for bad and
doubtful debts are made based on management’s objective assessment of the risk taking into account the age of the debt and
items considered to be in dispute with customers. Given that the large number of customers limits the concentration of credit
risk, the directors consider that no further credit provision is required other than the provision for impairment of £1.46m (30 June
2016: £1.33m).
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
14 Trade and other receivables (continued)
As at 30 November 2017 trade receivables of £3.15m (30 June 2016: £4.47m) were past due but not impaired. They relate to
the customers against whom no provision is considered necessary. The ageing analysis of these receivables is as follows:
Up to 3 months overdue
3 to 6 months overdue
6 to 12 months overdue
Over 12 months overdue
30 November
2017
£’000
750
1,182
572
645
3,149
30 June
2016
£’000
1,005
2,148
624
692
4,469
As at 30 November 2017 trade receivables of £1.46m (30 June 2016: £1.33m) were past due, impaired and provided against.
There are no individually significant receivables included within this provision. The group takes a prudent view in assessing
the risk of non-payment and considers provision for all debts more than three months in arrears unless there are specific
circumstances to indicate that there is little or no risk of non-payment of these older debts.
The carrying amounts of the group’s trade and other receivables are denominated in the following currencies:
Pound Sterling
Euro
Other
30 November
2017
£’000
20,436
9,400
593
30,429
30 June
2016
£’000
31,774
8,561
588
40,923
The currency denominated receivables are predominantly held in the functional currency of the relevant subsidiary. Movements on
the group provision for impairment of trade receivables are as follows:
At beginning of period
On business acquisitions
Provided during the period
Utilised during the period
Unused amounts released
At end of period
30 November
2017
£’000
1,330
–
1,721
(1,498)
(93)
1,460
30 June
2016
£’000
543
81
940
(183)
(51)
1,330
The movement on the provision for impaired receivables has been included in administrative expenses in the consolidated
income statement.
Other classes of financial assets included within trade and other receivables do not contain impaired assets.
The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable set out above.
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K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
15 Trade and other payables – current
Trade payables
Other payables
Accruals
Total financial liabilities, excluding loans and borrowings,
classified as financial liabilities measured at amortised cost
Contingent consideration (see note 17)
Deferred consideration
Other tax and social security taxes
Deferred revenue
30 November
2017
£’000
4,739
594
8,818
30 June
2016
£’000
8,192
713
9,548
14,151
18,453
–
–
3,961
11,137
29,249
912
25
4,266
9,168
32,824
The fair value of contingent consideration was based on the present value of cash flows.
To the extent trade and other payables are not carried at fair value in the consolidated balance sheet, book value approximates to
fair value at 30 November 2017 and 30 June 2016.
Maturity analysis of the financial liabilities, excluding loans and borrowings, classified as financial liabilities measured at amortised
cost, is as follows:
Up to 3 months
3 to 6 months
6 to 12 months
30 November
2017
£’000
12,737
395
1,019
14,151
30 June
2016
£’000
16,913
1,144
396
18,453
69
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
16 Loans and borrowings
Non-current
Bank loans (secured)
Finance lease creditors (note 21)
Current
Bank loans (secured)
Finance lease creditors (note 21)
Loans from related parties (note 26)
Total borrowings
30 November
2017
£’000
30 June
2016
£’000
6,124
46
6,170
–
59
–
59
6,229
8,234
38
8,272
2,718
18
640
3,376
11,648
Principal terms and the debt repayment schedule of the group’s loans and borrowings are as follows:
Currency
Nominal rate %
Year of maturity
Security
Secured bank loan
GBP
2.1%-6% over LIBOR
Finance lease creditors (note 21)
GBP
0.7%
2019
2019
See below
Secured
Finance lease creditors are secured on the assets to which they relate.
Maturity analysis of loans and borrowings:
In less than one year
In more than one year but not more than two years
In more than two years but not more than five years
30 November
2017
£’000
62
6,409
16
6,487
30 June
2016
£’000
3,590
8,311
–
11,901
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K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
16 Loans and borrowings (continued)
Bank borrowings
The bank loans are secured by a fixed charge over the group’s long leasehold property and floating charges over the remaining
assets of the group.
The group has undrawn committed borrowing facilities available at 30 November 2017 of £13.63m (30 June 2016: £7.50m) for
which all conditions have been met. It is a syndicated revolving loan facility on which interest is charged at a floating rate linked
to LIBOR.
The currency profile of the group’s loans and borrowings is as follows:
Pound Sterling
Euro
17 Financial instruments
Risk management
30 November
2017
£’000
2,354
3,875
6,229
30 June
2016
£’000
3,355
8,293
11,648
The group is exposed through its operations to one or more of the following financial risks:
• Liquidity risk
• Credit risk
Policy for managing these risks is set by the Board following recommendations from the Chief Financial Officer. Certain risks
are managed centrally, while others are managed locally following guidelines communicated from the centre. The policy for
each of the above risks is described in more detail below. Further quantitative information in respect of these risks is presented
throughout these financial statements.
There have been no substantive changes from previous periods in the group’s exposure to financial instrument risks, its
objectives, policies and processes for managing those risks or methods used to measure them.
Principal financial instruments
The principal financial instruments used by the group, from which financial risk arises, are as follows:
• Trade receivables;
• Cash at bank;
• Trade and other payables;
• Floating-rate bank loans; and
• Loans from related parties.
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
17 Financial instruments (continued)
Market risk
Market risk arises from the group’s use of interest bearing, tradable and foreign currency financial instruments. It is the risk that
the fair value of future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk),
foreign exchange rates (currency risk) or other market factors (other price risk).
Fair value and cash flow interest rate risk
The group has fixed interest loans in respect of finance leases with a net book value of £0.11m (year ended 30 June 2016:
£0.06m). The loans from related parties of £0.64m were converted into equity during the period (year ended 30 June 2016:
£0.64m). The fixed rate applicable on finance leases is 0.7% and on the loans from related parties was 8.5%.
Bank debt totalling £6.12m (30 June 2016: £10.95m) is held under floating rates linked to quarterly LIBOR.
Foreign currency risk
Foreign exchange risk arises because the group has operations located overseas whose functional currency is not the same as
the group’s primary functional currency (sterling). The net assets from overseas operations are exposed to currency risk giving
rise to gains or losses on retranslation into sterling.
Foreign exchange risk also arises when individual group operations enter into transactions denominated in a currency other
than their functional currency. It is group policy that such transactions should be hedged by entering into forward contracts
where it is considered the risk to the group is significant. This policy is managed centrally by group treasury entering into a
matching forward contract with a reputable bank.
It is group policy that transactions between group entities are always denominated in the selling entity’s functional currency
thereby giving rise to foreign exchange risk in the income statement of both the purchasing group entity and the group. No
external hedge is entered into as there is no exposure to consolidated net assets from intra-group transactions.
Liquidity risk
The liquidity risk of each group entity is managed centrally by the group treasury function comparing to budgets and quarterly
forecasts.
The group maintains a syndicated revolving loan facility with two major banking corporations to manage any unexpected
short-term cash shortfalls. The facilities from the Group’s bankers require the Group to meet certain covenants throughout the
term of the loans and the group’s forecasts indicate that the group will remain within the set parameters.
The principal terms of the group’s borrowings are set out in note 16.
72
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017 K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
17 Financial instruments (continued)
Credit risk
Credit risk is the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the group. The
group is mainly exposed to credit risk from credit sales. It is group policy, implemented locally, to assess the credit risk of new
customers before entering contracts. Such credit ratings, taking into account local business practices, are then factored into any
contractual arrangements.
The group does not have any significant credit risk exposure to any single customer. The carrying amount of financial assets
recorded in the financial statements, which is net of impairment losses, represents the group’s maximum exposure to credit risk.
Further details, including quantitative information, are included in note 14.
Capital disclosures
The group monitors “adjusted capital” which comprises all components of equity (i.e. share capital, share premium, retained
earnings and other reserves) other than amounts in the translation reserve. Other reserves comprise a merger relief reserve.
Total equity
Less: amounts in translation reserve
30 November
2017
£’000
69,657
(2,186)
67,471
30 June
2016
£’000
73,410
(1,076)
72,334
The group’s objective when maintaining capital is to safeguard the company’s ability to continue as a going concern so that it
can continue to provide returns to shareholders and benefits for other stakeholders. In order to maintain the capital structure, the
group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets
to reduce debt.
Sensitivity analysis
Whilst the group takes steps to minimise its exposure to cash flow interest rate risk and foreign exchange risk as described
above, changes in interest and foreign exchange rates will have an impact on profit.
The directors consider a 0.6% movement in the interest rate to be reasonably possible as at the reporting date. The annualised
effect of a 0.6% increase or decrease in the interest rate at the reporting date on the variable rate debt carried at that date
would, all other variables being held constant, in the directors’ opinion, be immaterial.
The group’s foreign exchange risk is dependent on the movement in the Euro to sterling exchange rate. The directors
consider a 6% movement in the Euro rate to be reasonably possible as at the reporting date. The effect of a 6% strengthening
or weakening in the Euro against sterling at the balance sheet date on the Euro denominated debt at the date and on the
annualised interest on that amount would, all other variables being held constant, in the directors’ opinion, be immaterial.
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
17 Financial instruments (continued)
Financial instruments by category
The carrying value of the Group’s financial instruments (together with non-financial assets/liabilities for reconciling purposes) are
analysed as follows:
As at 30 November 2017
Assets
Available-for-sale
Trade and other receivables:
Trade receivables
Other non-derivative financial assets
Non-financial instruments
Cash and cash equivalents
Total assets
Liabilities
Borrowings:
Current
Non-current
Trade and other payables:
Trade payables
Contingent consideration
Deferred consideration
Other non-derivative financial liabilities
Total liabilities
Net assets
Loans and
receivables
£’000
Available- Amortised
cost
£’000
for-sale
£’000
At
FVTPL
£’000
Notes
–
98
14
14
14
16,578
507
9,891
1,941
–
–
–
–
28,917
98
–
–
–
–
–
–
16
16
15
15
15
15
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(59)
(6,170)
(4,739)
–
–
(9,412)
(20,380)
28,917
98
(20,380)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£’000
98
16,578
507
9,891
1,941
29,015
(59)
(6,170)
(4,739)
–
–
(9,412)
(20,380)
8,635
74
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
17 Financial instruments (continued)
Financial instruments by category (continued)
As at 30 June 2016
Assets
Available-for-sale
Trade and other receivables:
Trade receivables
Other non-derivative financial assets
Non-financial instruments
Cash and cash equivalents
Total assets
Liabilities
Borrowings:
Current
Non-current
Trade and other payables:
Trade payables
Contingent consideration
Deferred consideration
Other non-derivative financial liabilities
Total liabilities
Net assets
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Loans and
receivables
£’000
Available- Amortised
cost
£’000
for-sale
£’000
At
FVTPL
£’000
Notes
Total
£’000
98
19,804
1,982
15,466
2,772
40,122
–
–
–
–
–
–
–
–
–
–
–
–
(3,376)
(8,272)
–
–
(3,376)
(8,272)
(8,192)
–
(8,192)
–
(25)
(10,262)
(912)
–
–
(912)
(25)
(10,262)
(30,127)
(912)
(31,039)
–
98
14
14
14
16
16
15
15
15
19,804
1,982
15,466
2,772
40,024
–
–
–
–
–
–
–
–
–
–
–
98
–
–
–
–
–
–
–
40,024
98
(30,127)
(912)
9,083
75
Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
17 Financial instruments (continued)
Financial instruments measured at fair value
The only financial instrument that is measured subsequent to initial recognition at fair value is contingent consideration at
30 June 2016 amounting to £0.91m. There are no such financial instruments at 30 November 2017. IFRS 7 requires that these
be grouped into Levels 1 to 3 based on the degree to which the fair value is observable and the contingent consideration was
Level 3.
Level 3 fair value measurements:
Opening balance
Payments
Released
On acquisition of subsidiary
Gain in income statement
Closing balance
18 Deferred tax
Contingent
consideration
30 November
2017
£’000
(912)
519
–
–
393
–
30 June
2016
£’000
(75)
56
19
(912)
–
(912)
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 19% (30 June 2016: 20%).
The movement on net deferred tax is as shown below:
At 30 June 2016
Credit to income statement
On business combinations
Effect of movements in foreign exchange rates
At 30 November 2017
30 November
2017
£’000
(3,330)
2,209
(154)
32
30 June
2016
£’000
(2,701)
416
(858)
(187)
(1,243)
(3,330)
Deferred tax assets have been recognised in respect of all tax losses and other temporary differences giving rise to deferred tax
assets where the directors believe it is probable that these assets will be recovered.
76
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
18 Deferred tax (continued)
The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted
by IAS12) during the period are shown below.
Deferred tax assets
At 30 June 2015
Charge (credit) to income statement
On business combinations
Effect of movements in foreign exchange rates
At 30 June 2016
Charge (credit) to income statement
On business combinations
Effect of movements in foreign exchange rates
At 30 November 2017
Accelerated Other temporary
differences
£’000
capital allowances
£’000
Business
combinations
£’000
Total
gross assets
£’000
166
(22)
–
–
144
124
–
–
268
529
(274)
63
(80)
238
622
–
112
972
41
–
–
–
41
–
–
–
41
736
(296)
63
(80)
423
746
–
112
1,281
There are unrecognised deferred tax assets in relation to losses for which the recoverability is uncertain of £1.45m. Deferred
tax assets on business combinations relate to those arising on fair value adjustments.
Deferred tax liabilities
At 30 June 2015
On business combinations
Credit to income statement
Effect of movements in foreign exchange rates
At 30 June 2016
On business combinations
Credit to income statement
Effect of movements in foreign exchange rates
At 30 November 2017
Other
temporary
differences
£’000
Business
combinations
£’000
Total
gross
liabilities
£’000
(1,158)
(2,279)
(3,437)
–
168
–
(921)
544
(107)
(921)
712
(107)
(990)
(2,763)
(3,753)
–
570
(2)
(422)
(154)
893
(78)
(154)
1,463
(80)
(2,102)
(2,524)
Deferred tax liabilities on business combinations relate to those arising on separately identifiable intangibles.
No deferred tax has been provided on temporary differences of £1.64m (30 June 2016: £2.08m) relating to the unremitted earnings
of foreign subsidiaries.
77
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
19 Share capital
Ordinary shares of 25p each
At beginning of the period
New shares issued
Warrants exercised
Shareholder loan converted to equity
Employee share options exercised
At end of the period
Issued and fully paid
30 November 2017
30 June 2016
Number
£’000
Number
£’000
35,999,201
5,790,322
700,000
457,142
–
9,000
31,794,497
1,448
4,090,909
175
114
–
–
–
113,795
7,949
1,023
–
–
28
42,946,665
10,737
35,999,201
9,000
All shares have equal voting rights and there are no restrictions on the distribution of dividends or repayment of capital.
5,790,322 (year ended 30 June 2016: 4,090,909) ordinary shares having a nominal value of £1.45m (year ended 30 June 2016:
£1.02m) were allotted during the period in respect of a placing to strengthen the Group’s balance sheet and provide additional
working capital. The placing during the year ended 30 June 2016 was to fund the acquisition of Retail Support International ApS
(“DdD Retail”). The aggregate consideration received was £8.11m (year ended 30 June 2016: £13.5m).
700,000 ordinary shares having a nominal value of £0.18m were allotted during the period following the exercise of warrants (see
below). The aggregate consideration received was £0.66m. No warrants were exercised during the year ended 30 June 2016.
457,142 ordinary shares having a nominal value of £0.11m were allocated during the period following the conversion of the
shareholder loan (see below). The aggregate consideration received was £0.64m.
113,795 ordinary shares having a nominal value of £0.03m were allotted during the year ended 30 June 2016 under the terms of
the Company’s employee share option schemes which are described in note 23. The aggregate consideration received was
£0.14m. No ordinary shares were allocated under the schemes during the period ended 30 November 2017.
78
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
19 Share capital (continued)
Own shares held
30 November
2017
Number
30 June
2016
Number
83,726
117,064
Own shares are held by a subsidiary undertaking, K3 Business Technology Group Trustees Company Limited, as trustee of the
group’s employee share ownership plan.
In connection with the loan made by CA Fastigheter AB to the company to assist it with the acquisition of Alpha Landsteinar,
the company issued 200,000 warrants for ordinary shares of 25p each. These were exercised on 4 July 2017 at the exercise
price of £0.90. In addition, 500,000 warrants for ordinary shares of 25p each were issued to CA Fastigheter AB during 2007 in
recognition of the reduction in its security following the increase in borrowings from the bank to fund the acquisition of McGuffie
Brunton Limited. The warrants were exercisable at 123.5p and until the date on which the loan to CA Fastigheter AB was repaid
upon meeting the following conditions: 300,000 of the warrants were exercisable when the company’s share price stands at
£2.50; 100,000 were exercisable when it stands at £3.25; 100,000 had no conditions attached to them. The 100,000 warrants
with no conditions attached to them were exercised on 4 July 2017. The remaining warrants remain outstanding at the same
exercise price and upon the same company share prices but, following conversion of the loan due to CA Fastigheter AB into
equity, the terms were amended such that the warrants are now exercisable until 5 July 2022. This has had no impact on the
diluted earnings per share.
In addition, Johan and Marianne Claesson AB held 400,000 warrants for the ordinary shares of 25p each. These were exercised
on 4 July 2017 at the exercise price of £0.90.
217,497 options were granted during the year ended 30 June 2016 under the SAYE 2016 scheme (none granted during the period
ended 30 November 2017). None of these options have been exercised during either period.
20 Reserves
The following describes the nature and purpose of each reserve within shareholders’ equity.
Reserve
Description and purpose
Share premium
Amount subscribed for share capital in excess of nominal value.
Other reserve
Merger relief reserve for amount in excess of nominal value on issue of shares in relation to
business combinations.
Translation
Gains/losses arising on retranslating the net assets of overseas operations into sterling and
currency movements on loans treated as part of the effective hedge of the net investment in
foreign entities.
Retained earnings
Cumulative net gains and losses recognised in the consolidated income statement and credits to
equity in relation to share-based payments.
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
21 Leases
Finance leases
The group leases a small proportion of its office equipment and motor vehicles (net carrying value £0.09m). Such assets are
generally classified as finance leases as the rental period approximates to the estimated useful economic life of the assets
concerned and often the group has the right to purchase the assets outright at the end of the minimum lease term by paying a
nominal amount.
Future lease payments are due as follows:
Not later than one year
Later than one year and not later than five years
Not later than one year
Later than one year and not later than five years
The present values of future lease payments are analysed as follows:
Current liabilities
Non-current liabilities
Operating leases
Minimum
lease
payments
£’000
62
50
112
Minimum
lease
payments
£’000
22
42
64
30 November 2017
Interest
£’000
(3)
(4)
(7)
30 June 2016
Interest
£’000
(4)
(4)
(8)
Present
value
£’000
59
46
105
Present
value
£’000
18
38
56
30 November
2017
£’000
30 June
2016
£’000
59
46
105
38
18
56
With the exception of the property in Manchester, the group leases all of its properties. The terms of property leases vary, although
they all tend to be tenant repairing with rent reviews every 2 to 5 years and many have break clauses. In addition, the group leases
the majority of its motor vehicles which are generally 3 year contracts.
The total future value of minimum lease payments under non-cancellable operating leases is due as follows:
Not later than one year
Later than one year and not later than five years
Later than five years
80
30 November
2017
£’000
1,970
4,742
599
7,311
30 June
2016
£’000
2,157
2,785
650
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K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
22 Retirement benefits
The group operates a defined contribution scheme and also makes contributions to personal pension schemes of certain senior
employees and directors.
Pension costs for defined contribution schemes in the period to 30 November 2017 are £2.46m (year ended 30 June 2016:
£1.56m).
23 Share-based payments
As disclosed in note 19, K3 Business Technology Group plc operates an equity-settled share-based remuneration scheme for
employees: an Executive Share Option Scheme for certain senior management including executive directors. Under the scheme
there are two types of share options: those where the options vest based on the achievement of a share price target and those
where the options vest on the achievement of target growth in adjusted earnings per share, i.e. adjusted for amortisation of
acquired intangibles, cost of share-based payments and exceptional items and with the tax charge being 30% of the operating
profit so adjusted. All options are subject to the employee having completed three years’ service from the date of grant. The group
also operates a Save As You Earn (SAYE) scheme for employees.
30 November 2017
30 June 2016
Outstanding at beginning of the period
295.50
217,497
Weighted
average
exercise
price
(pence)
Options
(number)
Granted during the period
Exercised during the period
Lapsed during the period
–
–
–
–
–
Weighted
average
exercise
price
(pence)
118.80
295.50
118.80
Options
(number)
131,080
217,497
(113,795)
(75,786)
–
(17,285)
Outstanding at the end of the period
295.50
141,711
295.50
217,497
The exercise price of options outstanding at the end of the period was 295.5p (30 June 2016: 295.5p) and their weighted
average contractual life was 3.85 years (30 June 2016: 3.85 years).
The share-based remuneration expense (note 4) comprises:
Equity-settled schemes
17 months ended
30 November
2017
£’000
Year ended
30 June
2016
£’000
67
28
The group did not enter into any share-based payment transactions with parties other than employees during the current or
previous period.
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
24 Acquisitions
Merac Limited
On 1 July 2016, the company acquired the entire share capital of Merac Limited. The initial consideration was £1.70m satisfied on
completion in cash. Contingent consideration of £0.18m which was dependent on profits generated in the year from 1 April 2016 was
paid in full in April 2017.
The following table sets out the book values of the identifiable assets and liabilities acquired and their values to the group. These have
been updated from the provisional fair values included in events after the balance sheet date in the financial statements at 30 June
2016 as, during the measurement period of twelve months following the date of acquisition, the value of intangible assets has been
reassessed (an increase of £0.55m), together with the consequent impact on the deferred tax liabilities (an increase of £0.11m).
Assets
Property, plant and equipment
Other intangible assets
Trade receivables
Other current assets
Cash and cash equivalents
Liabilities
Trade and other payables
Deferred tax liabilities
Net assets
Consideration
Initial cash consideration
Contingent cash consideration
Goodwill
Acquisition costs to be charged to the income statement
Net cash outflow arising on acquisition
Cash consideration
Less cash and cash equivalent balances acquired
Fair value
£’000
6
1,315
133
25
434
(259)
(263)
1,391
1,702
175
1,877
486
41
1,702
(434)
1,268
The intangible assets recognised in the adjustments relate to customer relationships and IP. £0.26m of the deferred tax liability
recognised relates to these intangible assets. The goodwill is attributable to those intangibles such as the workforce which are
not recognised separately.
In the period to 30 November 2017 Merac contributed £1.29m revenue and £0.37m to the group’s profit, which is on an
annualised basis as the acquisition was on the first day of the financial period.
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Annual Report and Financial Statements for the 17 month period ended 30 November 2017
25 Acquisitions of the prior period
Retail Support International ApS (“DdD Retail”)
On 29 April 2016 the group acquired 100% of the issued share capital of Retail Support International Aps, known as DdD Retail. DdD
Retail provides a proprietary combined point of sale (“PoS”) software/hardware solution, focusing on the fashion retail industry. The
initial consideration was €8.6m (£6.7m) satisfied on completion in cash. Based on managements’ best estimate at the date of
acquisition, contingent consideration of €1.1m (£0.9m) was payable. The final amount paid in May 2017 was €0.60m (£0.47m) with
the excess of £0.39m released to the income statement and included in exceptional income.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below. These
have been updated from the provisional fair values included in the financial statements at 30 June 2016 as, during the measurement
period of twelve months following the date of acquisition, the value of intangible assets has been reassessed (a reduction of €0.62m
(£0.48m), together with the consequent impact on the deferred tax liabilities (a reduction of €0.12m (£0.10m). In addition a liability of
€0.54m (£0.48m) has been recognised which had not previously been identified in the provisional values.
Assets
Tangible fixed assets
Other intangible assets
Trade receivables
Other current assets
Cash and cash equivalents
Liabilities
Trade and other payables
Deferred tax liabilities
Net assets
Consideration
Initial cash consideration
Contingent cash consideration
Goodwill
Acquisition costs to be charged to the income statement
Net cash outflow arising on acquisition
Cash consideration
Contingent consideration paid
Less cash and cash equivalent balances acquired
Fair value
£’000
15
4,185
667
205
345
(1,435)
(824)
3,158
6,721
863
7,584
4,426
292
6,721
470
(345)
6,846
The cash consideration of €0.10m (£0.08m) was refunded during the period by the sellers due to an adjustment regarding
working capital at the date of acquisition and €0.45m (£0.39m) of the contingent consideration was repaid to the company from
the amount paid into escrow at the date of acquisition.
The intangible assets recognised in the adjustments relate to customer relationships and IP. £0.70m of the deferred tax liability
recognised relates to these intangible assets. The goodwill is attributable to those intangibles such as the workforce which are
not recognised separately.
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
26 Related party transactions
Details of directors and key management compensation are given in the Remuneration Report on pages 26 and 27 and note 4.
Other than their remuneration and participation in the group’s share option schemes, there are no transactions with key
management personnel. Other related party transactions are as follows:
Included within other loans due to related parties at 30 June 2016 were loans of £0.64m from CA Fastigheter AB, a company
connected with Mr PJ Claesson, a director of the Company. No repayments have been made during the current or previous period
and interest was charged at 8.5% per annum. The loan was converted into 457,142 ordinary shares on 4 July 2017. In connection
with the loan, the company issued 200,000 warrants for ordinary shares of 25p. These were exercised on 4 July 2017 at the
exercise price of £0.90. In addition, 500,000 warrants for ordinary shares of 25p each were issued to CA Fastigheter AB during
2007 in recognition of the reduction in its security following the increase in borrowings from the bank to fund the acquisition of
McGuffie Brunton Limited. The warrants were exercisable at £1.235 and until the loan was repaid upon meeting the following
conditions: 300,000 of the warrants were exercisable when the company’s share price stands at £2.50, 100,000 are exercisable
when it stands at £3.25; 100,000 had no conditions attached to them. The 100,000 warrants with no conditions attached to them
were exercised on 4 July 2017. The remaining warrants remain outstanding at the same exercise price and upon the same
company share prices but, following conversion of the loan into equity, the terms were amended such that the warrants are now
exercisable until 5 July 2022.
In addition, Johan and Marianne Claesson AB, a company connected with Mr PJ Claesson, a director of the company, held
400,000 warrants for ordinary shares of 25p. These were exercised on 4 July 2017 at the exercise price of £0.90.
As part of the placing of new shares on 4 July 2017 of ordinary shares of 25p at £1.40, Mr A Valdimarsson acquired 71,429 shares;
Mr R Price acquired 50,000 shares; and Mr S Darling acquired 14,286 shares. Mr J Manley acquired 20,680 ordinary shares of 25p
at a price of £1.45 on 15 July 2017.
27 Events after the reporting date
In March 2018 the Board announced a proposed dividend of 1.4p per share to shareholders on the record on 18 May 2018.
Subject to shareholder approval at the forthcoming annual general meeting the dividend will be paid on 15 June 2018.
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Annual Report and Financial Statements for the 17 month period ended 30 November 2017
28 Notes to the cash flow statement
Cash flows from operations include acquisition costs, exceptional costs and exceptional income. The adjusted cash generated from
operations has been computed because the directors consider it more useful to shareholders and investors in assessing the
underlying operating cash flow of the Group. The adjusted cash generated from operations is calculated as follows:
Cash generated from operating activities
Add:
Exceptional reorganisation costs
Acquisition costs
Release of contingent consideration
Adjusted cash generated from operations
Acquisition of subsidiaries and other business units, net of cash acquired comprises:
Initial consideration
Cash balances acquired
Contingent consideration repaid from/(paid into) escrow
Contingent and deferred consideration
Cash and cash equivalents comprise:
Cash available on demand
17 months ended
30 November
2017
£’000
Year ended
30 June
2016
£’000
5,954
5,502
4,731
308
(393)
10,600
1,046
300
–
6,848
17 months ended
30 November
2017
£’000
Year ended
30 June
2016
£’000
(1,506)
(6,802)
324
393
(200)
(989)
345
(863)
(81)
(7,401)
30 November
2017
£’000
30 June
2016
£’000
1,941
2,772
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Notes forming part of the
Financial Statements (continued)
for the period ended 30 November 2017
29 Notes to the Strategic Report
*1 Group adjusted loss from operations is calculated before
*4 Supply Chain Solutions & Managed Services adjusted loss
amortisation of acquired intangibles of £3.93m (2016:
from operations is calculated before amortisation of
£2.73m), exceptional reorganisation costs of £4.73m
acquired intangibles of £2.10m (2016: £2.30m),
(2016: £1.05m), exceptional impairment of development
exceptional reorganisation costs of £2.93m (2016:
costs of £4.54m (2016: £nil), acquisition costs of £0.31m
£0.92m), and exceptional impairment of development
(2016: £0.49m) and release of contingent consideration of
costs of £2.95m (2016: £nil).
£0.39m (2016: £nil).
*5 Head office costs are calculated before exceptional
*2 Group adjusted loss per share is calculated before
reorganisation costs of £1.56m (2016: £0.11m) and
amortisation of acquired intangibles (net of tax) of £3.04m
acquisition costs of £0.31m (2016: £0.20m).
(2016: £2.19m), exceptional reorganisation costs (net of
tax) of £3.83m (2016: £0.84m), exceptional impairment of
development costs £3.68m (2016: £nil), acquisition costs
(net of tax) of £0.31m (2016: £0.49m) and release of
contingent consideration (net of tax) of £0.39m (2016: £nil).
*3 Own IP adjusted profit from operations is calculated before
amortisation of acquired intangibles of £1.83m (2016:
£0.44m), exceptional reorganisation costs of £0.25m
(2016: £0.02m), exceptional impairment of development
costs of £1.59m (2016: £nil), acquisition costs of £nil
(2016: £0.29m), and release of contingent consideration of
£0.39m (2016: £nil).
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Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Company Balance Sheet
as at 30 November 2017
Registered number: 2641001
Fixed assets
Tangible assets
Investments
Current assets
Debtors
Cash at bank and in hand
Creditors: Amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: Amounts falling due after more than one year
Provisions for liabilities and charges
Net assets
Capital and reserves
Called-up share capital
Share premium account
Other reserve
Profit and loss account
Equity shareholders’ funds
30 November
2017
£’000
30 June
2016
£’000
Notes
4
5
6
7
8
9
10
387
40,755
41,142
52
40,755
40,807
44,684
1,491
46,175
(13,656)
32,519
73,661
(6,124)
–
30,075
1
30,076
(5,937)
24,139
64,946
(8,234)
–
67,537
56,712
10,737
28,897
10,324
17,579
67,537
9,000
21,586
10,324
15,802
56,712
As permitted under section 408 of the Companies Act 2006, no separate profit and loss account is presented in respect of the
parent company.
The profit for the year dealt with in the financial statements of the parent company was £2,318,000 (year ended 30 June 2016:
£1,068,000).
The financial statements on pages 87 to 96 were approved and authorised for issue by the board of directors on 26 March 2018
and signed on its behalf by:
RD Price
Director
The notes on pages 89 to 96 form part of these financial statements.
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Company Statement
of Changes in Equity
for the period ended 30 November 2017
At 30 June 2015
Changes in equity for year
ended 30 June 2016
Profit for the year
Total comprehensive income
Share-based payment credit
Options exercised
Issues of new shares
Movement in own shares held
Dividends paid to equity holders
At 30 June 2016
Changes in equity for period
ended 30 November 2017
Profit for the period
Total comprehensive income
Share-based payment credit
Warrants exercised
Conversion of shareholder loan to equity
Issue of new shares
Movement in own shares held
Dividends paid to equity holders
At 30 November 2017
Share
capital
£’000
Share
premium
£’000
Other
reserves
£’000
Retained
earnings
£’000
Total
equity
£’000
7,949
9,462
10,324
15,170
42,905
–
–
–
–
–
–
28
107
1,023
12,017
–
–
–
–
–
–
–
–
–
–
–
1,068
1,068
28
–
–
13
1,068
1,068
28
135
13,040
13
(477)
(477)
9,000
21,586
10,324
15,802
56,712
–
–
–
175
114
–
–
–
488
526
1,448
6,297
–
–
–
–
–
–
–
–
–
–
–
–
2,318
2,318
67
–
–
–
22
2,318
2,318
67
663
640
7,745
22
(630)
(630)
10,737
28,897
10,324
17,579
67,537
Of the above reserves, the directors only consider the profit and loss account to be distributable.
The own shares are held by a wholly-owned subsidiary, K3 Business Technology Group Trustees Company Limited, as trustee
of the group’s employee share ownership plan. The own shares represent 83,726 shares held under an employee share
ownership plan which will be issued to the employees when they choose to withdraw them. The current market value of these
shares as at 30 November was £137,000.
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K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Notes forming part of the
Company Financial Statements
for the period ended 30 November 2017
1 Accounting policies for the company financial statements
The principal accounting policies are summarised below where they differ from those in the consolidated financial statements on
pages 42 to 49. They have all been applied consistently throughout the current period and the preceding year.
Basis of accounting
The financial statements have been prepared in accordance with Financial Reporting Standard 101, Reduced Disclosure
Framework (“FRS101”).
The financial statements have been prepared under the historical cost convention and derivative financial instruments at fair
value through profit or loss. The principal accounting policies adopted by the company are set out below.
In preparing these financial statements, the company has taken advantage of certain exemptions permitted by FRS 101, as the
equivalent disclosures are made in the group accounts. Exemptions have been applied in respect of the following disclosures:
• The cash flow statement and related notes
• Capital management disclosures
• The effects of new but not yet effective IFRSs
• The disclosure of the remuneration of key management personnel
• Disclosure of related party transactions with other wholly owned members of the K3 Business Technology Group plc group
of companies
• Financial instrument disclosures
Investments
Fixed asset investments are shown at cost less provision for impairment. Loans due from subsidiary companies which are of a
long-term nature are regarded as permanent equity and included in investments. For investments in subsidiaries acquired for
consideration including the issue of shares qualifying for merger relief, cost is measured either by reference to the nominal value
or the fair value of the shares where appropriate. Any premium is ignored when the nominal value is used.
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Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Notes forming part of the
Company Financial Statements (continued)
for the period ended 30 November 2017
2 Staff numbers
The average monthly number of employees (including executive directors) was:
Consultants and programmers
Sales and distribution
Administration
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs (see note 12)
Share-based payment costs
Short term non-monetary benefits
3 Directors’ remuneration, interests and transactions
Directors’ remuneration is disclosed in note 4 to the consolidated financial statements.
Directors’ share options are disclosed in the Remuneration Report on pages 26 and 27.
17 months ended
30 November
2017
Number
Year ended
30 June
2016
Number
–
–
17
17
–
–
15
15
17 months ended
30 November
2017
£’000
Year ended
30 June
2016
£’000
3,051
349
233
67
243
3,943
1,860
175
70
28
150
2,283
90
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
4 Tangible fixed assets
Cost
At 1 July 2016
Additions
Disposals
At 30 November 2017
Depreciation
At 1 July 2016
Charge for the period
Disposals
At 30 November 2017
Net book value
At 30 November 2017
At 30 June 2016
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Plant, office
equipment
and fixtures
£’000
107
355
(33)
429
55
20
(33)
42
387
52
91
Notes forming part of the
Company Financial Statements (continued)
for the period ended 30 November 2017
5 Fixed asset investments
Subsidiary undertakings
Subsidiary undertakings
30 November
2017
£’000
30 June
2016
£’000
40,755
40,755
The trading subsidiaries of K3 Business Technology Group plc are disclosed in note 13 to the consolidated financial statements.
All subsidiary undertakings are wholly owned and all shares consist of ordinary shares only.
Cost of
investments
£’000
Loans
£’000
Total
£’000
Cost
At 1 July 2016 and 30 November 2017
16,731
24,722
41,453
Amounts written off
At 1 July 2016 and 30 November 2017
Net book value
At 30 November 2017
At 30 June 2016
698
–
698
16,033
16,033
24,722
24,722
40,755
40,755
Loans of £24,722,000 due from subsidiary undertakings are considered to be permanent equity.
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Annual Report and Financial Statements for the 17 month period ended 30 November 2017
6 Debtors
Amounts falling due within one year:
Amounts owed by subsidiary undertakings
Other debtors
Corporation tax
Deferred tax (see note 9)
Prepayments and accrued income
30 November
2017
£’000
30 June
2016
£’000
43,790
28,306
327
507
25
35
765
783
21
199
44,684
30,075
Interest is charged on amount owed by subsidiary undertakings at 3.8% which is deemed to be a market rate.
7 Creditors: Amounts falling due within one year
Bank loans and overdrafts
Other loans due to related parties (note 13)
Trade creditors
Amounts owed to subsidiary undertakings
Taxation and social security
Other creditors
Accruals
30 November
2017
£’000
–
–
269
12,392
45
472
478
30 June
2016
£’000
2,741
640
97
1,582
51
379
447
13,656
5,937
The bank loans and overdrafts are secured by a fixed and floating charge over the assets of the group.
Interest is charged on amount owed to subsidiary undertakings at 3.8% which is deemed to be a market rate.
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Notes forming part of the
Company Financial Statements (continued)
for the period ended 30 November 2017
8 Creditors: Amounts falling due after more than one year
Bank loans
At the year end, other borrowings were repayable as follows:
Bank overdrafts
On demand or within one year
Bank loans
Between one and two years
Between two and five years
On demand or within one year
Other loans due to related parties
On demand or within one year
30 November
2017
£’000
30 June
2016
£’000
6,124
8,234
30 November
2017
£’000
30 June
2016
£’000
–
23
6,124
–
6,124
–
6,124
8,234
–
8,234
2,718
10,952
–
640
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Annual Report and Financial Statements for the 17 month period ended 30 November 2017
9 Deferred taxation
Accelerated capital allowances
Other timing differences
Deferred tax asset
The deferred tax asset is included within Debtors (see note 6).
The movements in deferred tax assets (liabilities) during the period are:
At 1 July 2016
Charged to profit and loss
At 30 November 2017
30 November
2017
£’000
30 June
2016
£’000
(3)
28
25
(9)
30
21
Accelerated
capital
allowances
£’000
Other
timing
differences
£’000
(9)
6
(3)
30
(2)
28
Total
£’000
21
4
25
The company has no unrecognised tax losses in either period. The deferred tax assets have been recognised as they are expected
to be recoverable against future taxable profits.
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95
Notes forming part of the
Company Financial Statements (continued)
for the period ended 30 November 2017
10 Called-up share capital
Allotted, called-up and fully-paid
30 November
2017
£’000
30 June
2016
£’000
42,946,665 ordinary shares of 25p each (2016: 35,999,201)
10,737
9,000
See note 19 to the consolidated financial statements for details of the movements in called-up share capital and of
outstanding warrants.
11 Share-based payment
K3 Business Technology Group plc operates an equity-settled share-based remuneration scheme for employees: an Executive
Share Option Scheme for certain senior management including executive directors, and a Save As You Earn (SAYE) scheme for
employees. See note 23 to the consolidated financial statements for details regarding share-based payments.
12 Pension arrangements
The company operates a defined contribution scheme and also makes contributions to personal pension schemes of certain senior
employees and directors for which the total pension cost charge for the period amounted to £233,000 (year ended 30 June 2016:
£70,000).
13 Related party transactions
Related party transactions are disclosed in note 26 to the consolidated financial statements. There were no other transactions with
related parties during the period.
14 Contingent liability
The company has entered into a cross-guarantee with fellow group undertakings in relation to liabilities with Barclays Bank plc and
HSBC Bank plc. At the period end the liabilities covered by this guarantee totalled £6,124,000.
96
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Unaudited Five Year Summary
17 months
ended
30 November
2017
£’000
2016
£’000
12 months ended 30 June
2014
£’000
2015
£’000
2013
£’000
Revenue
118,176
89,175
83,427
71,950
63,513
Adjusted (loss)/profit from operations*1
(Loss)/profit from operations
(Loss)/profit before tax
(Loss)/profit after tax
Adjusted basic (loss)/earnings per share*2 (pence)
Basic (loss)/earnings per share (pence)
Cash and cash equivalents
Gross debt*3
Net debt*4
Adjusted cashflow from operations*5
Net cashflow from operations
(1,666)
(14,783)
(16,143)
(13,370)
(7.7)
(35.3)
1,941
6,229
4,288
10,600
5,954
9,501
5,229
4,528
4,103
23.5
12.6
2,772
11,648
8,876
6,848
5,502
8,151
4,805
3,879
3,443
19.4
10.9
7,301
2,590
1,885
2,560
18.6
8.2
1,895
(2,997)
13,974
12,079
9,911
9,600
14,275
13,628
7,074
5,352
5,094
1,185
462
1,242
14.0
4.3
(833)
14,083
13,811
8,659
8,022
*1 Adjusted profit from operations is calculated before amortisation of acquired intangibles, acquisition costs, exceptional costs
and exceptional income.
*2 Calculated before amortisation of acquired intangibles, acquisition costs, exceptional costs, and exceptional income, all net
of attributable taxation.
*3 Gross debt includes bank loans and overdrafts, finance lease creditors and loans from related parties.
*4 Net debt is gross debt net of cash and cash equivalents.
*5 Adjusted cash flow from operations is calculated before payments which the directors consider to be costs of acquisitions,
including payments to regularise liabilities, acquisition costs, exceptional costs and exceptional income. See note 28 to the
consolidated financial statements.
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97
Notice of Annual General Meeting
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you are in any doubt as to what action you should take, you are recommended to seek your own financial advice from
your stockbroker or other independent adviser authorised under the Financial Services and Markets Act 2000.
If you have sold or transferred all of your shares in K3 Business Technology Group plc (the “Company”), please forward
this document, together with the accompanying documents, as soon as possible either to the purchaser or transferee or to
the person who arranged the sale or transfer so they can pass these documents to the person who now holds the shares.
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the annual general meeting of the Company will be held at the Company’s offices at Baltimore
House, 50 Kansas Avenue, Manchester M50 2GL on Wednesday 30 May 2018 at 10.30 am at which the following
business will be transacted.
You will be asked to consider and vote on the resolutions below. Resolutions 1 to 9 will be proposed as ordinary
resolutions and resolutions 10 and 11 will be proposed as special resolutions.
Ordinary Business
To consider and, if thought fit, pass the following resolutions which will be proposed as ordinary resolutions:
1. To receive, consider and adopt the directors’ and auditors’ reports and the financial statements for the period ended
30 November 2017.
2. To re-elect Mr PJ Claesson as a director of the Company in accordance with Article 96 of the articles of association.
3. To elect Mr S Darling as a director of the Company, who was appointed by the Board since the last annual general
meeting.
4. To elect Mr RD Price as a director of the Company, who was appointed by the Board since the last annual general
meeting.
5. To re-appoint BDO LLP as auditors of the Company to hold office from the conclusion of this meeting until the
conclusion of the next annual general meeting at which financial statements are laid before the Company.
6. To authorise the directors of the Company to determine the auditor’s remuneration.
7. To declare a final dividend for the period ended 30 November 2017 of 1.4p per ordinary share of 25 pence each in
the issued share capital of the Company.
8. That the directors of the Company be and they are generally and unconditionally authorised in accordance with
section 551 of the Companies Act 2006 (the “Act”), to exercise all powers of the Company to allot shares in the
Company or grant rights to subscribe for or to convert any security into shares in the Company (“Rights”) up to an
aggregate nominal amount of £3,578,889 (being approximately one-third of the issued share capital of the Company
at the date of the notice convening the meeting at which this resolution is proposed) provided that this authority shall
unless previously revoked, renewed or varied by the Company in general meeting expire five years from the date of
this resolution or if earlier, the date of the next annual general meeting of the Company, save that the Company may
before such expiry make an offer or agreement which would or might require shares to be allotted or Rights to be
granted after such expiry and the directors of the Company may allot shares or grant Rights in pursuance of such an
offer or agreement as if the authority conferred hereby had not expired. This authority is in substitution for all previous
unexercised authorities conferred upon the directors pursuant to section 551 of the Act, but without prejudice to the
allotment of any shares or the grant of any Rights already made or to be made pursuant to such authorities.
98
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017 K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
To consider and, if thought fit, pass the following resolutions, which will be proposed as special resolutions:
Disapplication of pre-emption rights
9. That subject to and conditional on the passing of resolution 8 above, the directors of the Company be and they are
empowered pursuant to section 570 and 573 of the Act to allot equity securities (as defined in section 560(1) of the
Act) for cash pursuant to the authority conferred by resolution 8 above as if section 561(1) of the Act did not apply to
such allotment, provided that this power shall be limited to the allotment of equity securities:
9.1 in connection with an offer of such securities by way of rights to holders of ordinary shares in proportion (as nearly as
may be practicable) to their respective holdings of such shares and to holders of other equity securities as required
by the rights of those securities or as the direction otherwise consider necessary, but subject to such exclusions
or other arrangements as the directors of the Company may deem necessary or expedient in relation to fractional
entitlements or any legal or practical problems under the laws of any territory, or the requirements of any regulatory
body or stock exchange; and
9.2 otherwise than pursuant to sub-paragraph 9.1 above, up to an aggregate nominal amount of £536,833 (being
approximately one-twentieth of the issued share capital of the Company (excluding treasury shares) at the date of
the notice convening the meeting at which this resolution is proposed);
and, unless previously renewed, revoked or varied by the Company in general meeting, the authority granted
by this resolution shall expire five years from the date of this resolution, or if earlier the date of the next annual
general meeting of the Company, save that the Company may before such expiry make an offer or agreement
which would or might require equity securities to be allotted or equity securities held as treasury shares to be sold
after such expiry and the directors of the Company may allot equity securities and/or sell equity securities held
as treasury shares in pursuance of any such offer or agreement notwithstanding that the power conferred by this
resolution has expired.
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99
Notice of Annual General Meeting (continued)
Special Business
Authority to Repurchase Ordinary Shares
10. That the Company be and is hereby generally and unconditionally authorised in accordance with section 701 of the
Act to make one or more market purchases (within the meaning of section 693(4) of the Act) of ordinary shares of
25 pence each in the capital of the Company (“Shares”), provided that:
(a) the maximum aggregate number of Shares authorised to be purchased is 4,294,667 (representing approximately
10% of the issued share capital of the Company at the date of the notice convening the meeting at which this
resolution is proposed);
(b) the minimum price (exclusive of expenses) which may be paid for a Share is 25 pence;
(c) the maximum price (exclusive of expenses) which may be paid for a Share is an amount equal to the greater
of (i) 105% of the average of the middle market quotations for a Share for the five business days immediately
preceding the day on which that Share is purchased and (ii) the higher of the price of the last independent trade
and the highest then current independent bid for any number of the Shares on the Alternative Investment Market
of the London Stock Exchange;
(d) the authority hereby conferred shall expire at the conclusion of the annual general meeting of the Company to
be held in 2019 or, if earlier, on the expiry of 15 months from the date of passing of this resolution unless such
authority is renewed prior to such time; and
(e) the Company may make one or more contracts to purchase Shares under this authority before the expiry of
such authority which will or may be executed wholly or partly after the expiration of such authority, and may
make a purchase of Shares in pursuance of any such contract.
Adoption of new Articles of Association
11. That the articles of association in the form produced at the meeting and initialled by the Chairman of the meeting for
the purposes of identification be adopted as the new articles of association of the Company in substitution for, and to
the exclusion of, the existing articles of association.
Registered Office
Dated 26 April 2018
K3 Business Technology Group plc
By order of the Board
Baltimore House
50 Kansas Avenue
Manchester M50 2GL
K Curry
Company Secretary
100
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Explanatory Notes to the Resolutions proposed in the Notice of Annual General Meeting
Please refer to notes 11 to 25 relating to entitlement to attend and vote at the meeting and the appointment of proxies.
1. Resolution 1 – The Directors are required to present to shareholders at the annual general meeting the Annual
Report and Accounts for the financial period ended 30 November 2017 together with the Director’s and Auditor’s
reports on such accounts.
2. Resolution 2 – In compliance with Article 95 of the Company’s current articles of association one-third of the
Directors are required to retire at the 2018 annual general meeting. Accordingly, Mr PJ Claesson will retire at the
2018 annual general meeting. He will offer himself for re-election as a Director at the 2018 annual general meeting
and he is recommended by the Board for re-election. Mr PJ Claesson was originally appointed as a non-executive
director of the Company in March 2001. Biographical details of Mr PJ Claesson are set out on page 30 to the
financial statements.
3. Resolution 3 – In compliance with Article 94 of the Company’s current articles of association any Director appointed
since the previous annual general meeting shall hold office only until the next following annual general meeting,
and shall then be eligible for election. Mr S Darling was appointed by the Board as a non-executive director of the
Company on 3 April 2017 and subsequently appointed as Interim Chairman in July 2017 and permanent chairman in
December 2017. Biographical details of Mr S Darling are set out on page 30 to the financial statements.
4. Resolution 4 – In compliance with Article 94 of the Company’s current articles of association any Director appointed
since the previous annual general meeting shall hold office only until the next following annual general meeting, and
shall then be eligible for election. Mr RD Price was appointed by the Board as a director of the Company on 5 July
2017. Biographical details of Mr RD Price are set out on page 30 to the financial statements.
5. Resolutions 5 and 6 – The Company is required at each general meeting at which accounts are presented to appoint
auditors to hold office until the next such meeting. BDO LLP have indicated their willingness to continue in office.
Accordingly, Resolution 5 reappoints BDO LLP as the Auditor of the Company and Resolution 6 authorises the
Directors to fix their remuneration.
6. Resolution 7 – Members are being asked to approve a final dividend of 1.4 pence for each ordinary share of
25 pence in the capital of the Company in respect of the financial period ended 30 November 2017. If approved by
the shareholders of the Company, the dividend will be paid on 15 June 2018 to all holders of ordinary shares on the
register of members at the close of business on 18 May 2018. The payment of a dividend requires approval of the
shareholders and that approval is sought in Resolution 7.
7. Resolution 8 would empower the directors to allot shares for any reason in accordance with Section 551 of the Act
up to an aggregate nominal amount of £3,578,889 representing approximately one-third of the issued share capital
of the Company at the date of the notice of annual general meeting. This resolution complies with the Investment
Association Share Capital Management Guidelines issued in July 2016. As at close of business on 26 April 2018 the
Company did not hold any treasury shares. The authority granted by this resolution will expire five years from the
date of the resolution or if earlier, on the conclusion of next year’s annual general meeting.
101
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Notice of Annual General Meeting (continued)
Explanatory Notes to the Resolutions proposed in the Notice of Annual General Meeting (continued)
8. Resolution 9 would empower the directors pursuant to the authority to allot granted by resolution 8 to allot equity
securities (as defined by section 560 of the Act) for cash other than to existing shareholders pro rata to their existing
holdings. Such power would be limited to the situations referred to in sub-paragraphs 9.1 and 9.2 of that resolution.
Sub-paragraph 9.1 refers to rights issues and similar issues, where difficulties arise in offering relevant securities to
certain overseas shareholders or where fractional entitlements arise. Sub-paragraph 9.2 permits allotments for cash
(other than rights issues or similar) of ordinary shares up to an aggregate nominal amount of £536,833 representing
approximately one-twentieth of the issued ordinary share capital of the Company at the date of the notice of annual
general meeting. The resolution is proposed so as to give the directors greater flexibility to take advantage of
business opportunities as they arise. The directors have no present intention of exercising the authority. The power
granted by this resolution will expire five years from the date of the resolution, or if earlier on the conclusion of next
year’s annual general meeting.
This resolution is in line with guidance issued by the Investment Association and the Pre-Emption Group Statement
of Principles (as updated in March 2015).
9. Resolution 10 seeks authority for the Company to make market purchases of its own ordinary shares and is
proposed as a special resolution. If passed, the resolution gives authority for the Company to purchase up to
4,294,667 of its ordinary shares, representing approximately 10 per cent of the Company’s issued ordinary share
capital (excluding treasury shares) as at the date of the notice of annual general meeting. The resolution specifies
the minimum and maximum prices which may be paid for any ordinary shares purchased under this authority. The
authority will expire on the earlier of the Company’s 2019 annual general meeting and the date 15 months after
the resolution.
The directors will only exercise the authority to purchase ordinary shares where they consider that such purchases
will be in the best interests of shareholders generally and will result in an increase in earnings per ordinary share.
The Company may either cancel any shares it purchases under this authority or transfer them into treasury (and
subsequently sell or transfer them out of treasury or cancel them).
10. Resolution 11 proposes the adoption of new articles of association in substitution for the Company’s existing articles
of association. The differences between the new and current articles of association primarily reflect the provisions of
the Act. The Board have reviewed the Company’s current articles of association and in light of the full implementation
of the Act have, as a result, decided to adopt a new set of articles of association (the “New Articles”).
An explanation of the main differences between the New Articles and the current articles is set out in Appendix I of
this document. Other changes, which are of a minor, technical or clarifying nature have not been noted in Appendix I.
A copy of the Company’s existing articles of association and the New Articles will be available for inspection during
normal business hours (excluding Saturdays, Sundays and bank holidays) at the Company’s registered office from
the date of this notice of meeting until the close of the meeting. The proposed New Articles will also be available for
inspection at the annual general meeting at least 15 minutes prior to the start of the meeting and up until the close of
the meeting.
102
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Notes to the Notice of Annual General Meeting
Entitlement to attend and vote
11. On a show of hands every shareholder present in person has one vote and on a poll every shareholder has one vote
for each share held by him. The necessary quorum at this meeting is two members present in person or by proxy
and entitled to vote upon the business to be transacted.
12. The Company specifies that only those members registered on the Company’s register of members at:
•
•
close of business on 28 May 2018; or,
if this Meeting is adjourned, at close of business on the day two days prior to the adjourned meeting,
shall be entitled to attend and vote at the Meeting. Changes to the register of members after the relevant deadline
shall be disregarded in determining the rights of any person to attend and vote at the meeting.
Issues shares and total voting rights
13. As at close of business on 26 April 2018, the Company’s issued share capital comprised 42,946,665 ordinary shares
of 25 pence each. Each ordinary share carries the right to one vote at a general meeting of the Company and,
therefore, the total number of voting rights in the Company as at close of business on 26 April 2018 is 42,946,665.
Documents on display
14. The following documents will be available for inspection at Baltimore House, 50 Kansas Avenue, Manchester
M50 2GL from the date of the notice of the annual general meeting until the time of the Meeting and for at least
15 minutes prior to the Meeting and during the Meeting:
• Copies of the service contracts of executive directors of the Company.
• Copies of the letters of appointment of the non-executive directors of the Company.
• A copy of the proposed New Articles, together with a copy of the existing articles of association of the Company.
Appointment of proxies
15. If you are a member of the Company at the time set out in note 12 above, you are entitled to appoint a proxy to
exercise all or any of your rights to attend, speak and vote at the Meeting and you should have received a proxy form
with this notice of meeting. You can only appoint a proxy using the procedures set out in these notes and the notes
to the proxy form.
16. A proxy does not need to be a member of the Company but must attend the Meeting to represent you. Details of how
to appoint the Chairman of the Meeting or another person as your proxy using the proxy form are set out in the notes
to the proxy form. If you wish your proxy to speak on your behalf at the Meeting you will need to appoint your own
choice of proxy (not the Chairman) and give your instructions directly to them.
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103
Notice of Annual General Meeting (continued)
Notes to the Notice of Annual General Meeting (continued)
17. You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different
shares. You may not appoint more than one proxy to exercise rights attached to any one share. To appoint more
than one proxy please complete new proxy forms for each proxy appointed and list the details of each proxy on
a separate photocopied form. Further copies of the proxy form may be obtained by photocopying the proxy form.
Please indicate in the box next to the proxy’s name the number of shares in relation to which he/she is authorised
to act as your proxy. Failure to specify the number of shares to which a proxy appointment relates or specifying
a number in excess of those held by the Member will result in the proxy appointment being invalid. Please also
indicate by ticking the box provided if the proxy instruction is one of multiple instructions being given. All forms must
be signed and should be returned in the same envelope.
18. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for
or against the resolution. If no voting indication is given, your proxy will vote or abstain from voting at his or her
discretion. Your proxy will vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is
put before the Meeting.
Members can
• Appoint a proxy or proxies and give proxy instructions by returning the enclosed pay form by post (see note 19).
• Register their proxy appointment electronically (see note 20).
•
If a CREST member register their proxy appointment by utilising the CREST electronic proxy appointment
service (see note 21).
Appointment of proxy using hard copy proxy form
19. The notes to the proxy form explain how to direct your proxy to vote on each resolution or withhold their vote.
To appoint a proxy using the proxy form, the form must be:
•
•
completed and signed;
sent to Link Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU or delivered to Link Asset
Services at The Registry, 34 Beckenham Road, Beckenham Road, Kent BR3 4TU; and
•
received by Link Asset Services no later than 10.30 am on 28 May 2018.
In the case of a member which is a company, the proxy form must be executed under its common seal or signed on
its behalf by an officer of the company or an attorney for the company.
Any power of attorney or any other authority under which the proxy form is signed (or a duly certified copy of such
power or authority) must be included with the proxy form.
Proxy voting using the Registrar’s share portal
20. You may also submit your proxy vote electronically using the Share Portal service at www.signalshares.com. If not
already registered for the Share Portal, you will need your Investor Code as shown on a recent dividend tax voucher
or recent share certificate. For an electronic proxy vote to be valid, your appointment must be received by no later
than 10.30 am on 28 May 2018.
104
K3 Business Technology Group plcAnnual Report and Financial Statements for the 17 month period ended 30 November 2017
K3 Business Technology Group plc
Annual Report and Financial Statements for the 17 month period ended 30 November 2017
Notes to the Notice of Annual General Meeting (continued)
CREST proxy voting (uncertificated shareholders)
21. (a) CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment
service may do so by using the procedures described in the CREST Manual. CREST personal members or other
CREST sponsored members and those CREST members who have appointed a voting service provider(s),
should refer to their CREST sponsor or voting service provider(s) who will be able to take the appropriate action
on their behalf.
(b) In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate
CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear
UK & Ireland Limited (formerly CRESTCo’s) specifications and must contain the information required for
such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes
the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy, must,
in order to be valid, be transmitted so as to be received by the issuers’ agent (ID RA10) by the latest time
for receipt of proxy appointments specified in this notice or, in the event of an adjourned meeting, 48 hours
before the adjourned meeting. For this purpose, the time of receipt will be taken to be the time (as determined
by the timestamp applied to the message by the CREST Applications Host) from which the registrars are
able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any
change of instructions to proxies appointed through CREST should be communicated to the appointee through
other means. CREST members and, where applicable, their CREST sponsors or voting service provider(s)
should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for
any particular messages. Normal system timings and limitations will therefore apply in relation to the input of
CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST
member is a CREST personal member or sponsored member or has appointed a voting service provider(s),
to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary
to ensure that a message is transmitted by means of the CREST system by any particular time. In this
connection, CREST members and, where applicable, their CREST sponsors or voting service providers are
referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST
system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out
in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
Appointment of proxy by joint members
22. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the
appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the
names of the joint holders appear in the Company’s register of members in respect of the joint holding (the first-
named being the most senior).
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105
Notice of Annual General Meeting (continued)
Notes to the Notice of Annual General Meeting (continued)
Changing proxy instructions
23. To change your proxy instructions simply submit a new proxy appointment using the method set out above. Note
that the cut-off time for receipt of proxy appointments (see above) also apply in relation to amended instructions; any
amended proxy appointment received after the relevant cut-off time will be disregarded.
Where you have appointed a proxy using the hard-copy proxy form and would like to change the instructions using
another hard-copy proxy form, please contact Link Asset Services on 0871 664 0300. Calls cost 12p per minute plus
your phone company’s access charge. If you are outside the United Kingdom, please call +44 371 664 0300. Calls
outside the United Kingdom will be charged at the applicable international rate. Lines are open between 9.00 am –
5.30 pm, Monday to Friday excluding public holidays in England and Wales.
If you submit more than one valid proxy appointment, the appointment received last before the latest time for the
receipt of proxies will take precedence. If the Company is unable to determine which of more than one valid proxy
appointment was deposited or delivered last in time, none of them shall be treated as valid in respect of the share(s)
to which they relate.
Termination of proxy appointments
24. In order to revoke a proxy instruction you will need to inform the Company by sending a signed hard copy notice
clearly stating your intention to revoke your proxy appointment to Link Asset Services, PXS, 34 Beckenham Road,
Beckenham, Kent BR3 4TU. In the case of a member which is a company, the revocation notice must be executed
under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any
power of attorney or any other authority under which the revocation notice is signed (or a duly certified copy of such
power or authority) must be included with the revocation notice.
The revocation notice must be received by Link Asset Services, PXS, 34 Beckenham Road, Beckenham, Kent
BR3 4TU no later than 10.30 am on 28 May 2018.
Appointment of a proxy does not preclude you from attending the Meeting and voting in person. If you have
appointed a proxy and attend the Meeting in person, your proxy appointment will automatically be terminated.
Corporate representatives
25. A corporation which is a shareholder can appoint one or more representatives who may exercise, on its behalf, all
its powers as a shareholder provided that no more than one corporate representative exercises power over the
same share.
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Appendix I
EXPLANATORY NOTES OF THE PRINCIPAL DIFFERENCES BETWEEN THE PROPOSED NEW ARTICLES OF
ASSOCIATION AND THE COMPANY’S CURRENT ARTICLES OF ASSOCIATION
The Company’s objects
The provisions regulating the operations of the Company are currently set out in the Company’s memorandum and
articles of association. The Company’s memorandum contains, among other things, an objects clause which sets out
the scope of the activities the Company is authorised to undertake. This is drafted to give a wide scope.
The Companies Act 2006 (the “Act”) significantly reduces the constitutional significance of a company’s memorandum.
The Act provides that the memorandum will record only the names of subscribers and the number of shares
each subscriber has agreed to take in the company. Under the Act the majority of the previous provisions of the
memorandum, most notably the objects clause, are deemed to be a part of the company’s articles of association.
Furthermore the Act states that, unless a company’s articles provide otherwise, a company’s objects are unrestricted.
This abolishes the need for companies to have an objects clause. For this reason the Company is proposing to remove
its objects clause (together with all other provisions of its memorandum which, by virtue of the Act, are treated as
forming part of the Company’s articles of association). This will be achieved by the adoption of the New Articles which
contain no such provisions other than a statement regarding the limited liability of shareholders (see Article 2.1).
Authorised share capital and unissued shares
The Act removed the concept of authorised share capital. As with the objects clause, the statement of authorised share
capital previously contained in a company’s memorandum of association is deemed to be a provision of the company’s
articles of association (and takes effect as setting out the maximum number of shares that may be allotted by the
company). The adoption of the New Articles will have the effect of removing this provision.
Authority to purchase own shares, consolidate and sub-divide shares, and reduce share capital (Former Articles
43 to 47)
Under the Companies Act 1985, a company required specific enabling provisions in its articles to purchase its own
shares, to consolidate or sub-divide its shares and to reduce its share capital or other distributable reserves as well as
shareholder authority to undertake the relevant action. Such provisions are included in the current Articles. Under the Act,
a company only requires shareholder authority to do any of these things and it is no longer necessary for the articles to
contain enabling provisions. Accordingly, the relevant enabling provisions have been removed in the New Articles.
Uncertificated Shares (Article 7)
The Uncertificated Securities Regulations 2001 provide that issuers may allow securities issued by them to be held in
uncertificated form and transferred by means of a computer-based system (referred to in the Regulations as a “relevant
system”). Amendments have been made to the New Articles to reflect that shares can be held in uncertificated form (see
Articles 7 and 19).
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Notice of Annual General Meeting (continued)
Appendix I (continued)
Electronic shareholder communication and participation
The Companies Act 2006, as amended by the Companies (Shareholders’ Rights) Regulations 2009, contains additional
provisions relating to electronic shareholder communication and participation. Some minor amendments have been
made in accordance with best practice in light of these (see Article 15).
Remuneration of Directors (Former Article 103)
The articles dealing with the remuneration of the Directors have been amended to reflect that the Directors (other than
any Director who for the time being holds an executive office or employment with the Company or a subsidiary of the
Company) shall not receive in aggregate more than £200,000 per annum to increase annually by an amount equal to
any increase in the UK retail price index (“RPI”) (see Article 21).
Borrowing Powers (Former Article 80)
The articles dealing with the borrowing powers of the Company have been amended to reflect that Directors shall
restrict the borrowings of the Company and its subsidiary undertakings to a borrowing limited to two times the
aggregate of the Company’s paid up share capital and reserves (adjusted as may be necessary in respect of any
variation in the paid up share capital or reserves of the Company since the date of its latest audited balance sheet) in
respect of all other borrowings, save where sanctioned by an ordinary resolution of the Company in general meeting
(see Article 29).
Directors’ interests (Article 31)
The articles dealing with directors’ conflicts of interest have been amended in line with market practice. Under the
New Articles certain conflicts of interest do not need to be authorised. Generally, the nature and extent of any conflict
of interest must be disclosed before it can be authorised or before it is permitted without being authorised but the
New Articles provide for some situations in which disclosure is not required where knowledge can be presumed and
disclosure is unlikely to be necessary.
General
Generally, the opportunity has been taken to bring some clearer language into the New Articles and in some areas to
conform the language of the New Articles with that used in the model articles for public companies.
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Information for Shareholders
Dividend mandates
If you wish to have dividends paid directly into a bank or building society account, you should contact our registrar,
Link Asset Services, on 0871 664 0300. Calls cost 12p per minute plus your phone company’s access charge. If you are outside
the United Kingdom, please call +44 371 664 0300. Calls outside the United Kingdom will be charged at
the applicable international rate. Lines are open between 9.00 am – 5.30 pm, Monday to Friday excluding public holidays in
England and Wales. Alternatively, if you have internet access, you can access the shareholder portal at www.signalshares.com
where you can set up or amend a dividend mandate. This method of payment removes the risk of delay or loss of dividend
cheques in the post and ensures your account is credited on the due date.
Enquiring about your shareholding
If you want to ask, or need information, about your shareholding, please contact our registrar, Link Asset Services, on 0871 664
0300. Calls cost 12p per minute plus your phone company’s access charge. If you are outside the United Kingdom, please call
+44 371 664 0300. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between
9.00 am – 5.30 pm, Monday to Friday excluding public holidays in England and Wales. Alternatively, if you have internet access,
you can access the shareholder portal at www.signalshares.com where you can, amongst other things, view details of your
shareholding, set up or amend a dividend mandate and update your address details.
Electronic communications
You can elect to receive shareholder communications electronically by writing to our registrar, Link Asset Services, FREEPOST
SAS, 34 BECKENHAM ROAD, BR3 9ZA. Alternatively, if you have internet access, you can access the shareholder portal at www.
signalshares.com where you can elect to receive shareholder communications electronically. This will save on printing and
distribution costs, creating environmental benefits. When you register, you will be sent a notification to say when shareholder
communications are available on our website and you will be provided with a link to that information.
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K3 Business Technology Group plc
Baltimore House, 50 Kansas Avenue, Manchester M50 2GL
www.k3btg.com