K3 Business
Technology
Group PLC
Annual Report and
Financial Statements
for the year ended
30 November 2020
Registered number: 2641001
K3 Business Technology Group plc
K3 Business Technology Group plc
Annual Report and Financial Statements for the year ended 30 November 2020
Annual Report and Financial Statements for the year ended 30 November 2020
CO NT ENTS
SECTIO N 01 -
STRATEGIC REPORT
1.1 Highlights
1.2 Company Overview
1.3 Market Size and Potential
1.4 Chairman's Statement
1.5 Financial and Operational Review
1.6 Section 172 Statement
SECTIO N 02 -
GOVERNANCE
2.1 Board of Directors
2.2 Directors’ Report
2.3 Corporate Governance Statement
2.4 Remuneration Committee Report
2.5 Statement of Directors’ Responsibilities
2.6 Emissions and Energy Consumption
2.7 Risk Management
2.8 Audit Committee Report
2
4
6
10
15
20
22
24
28
34
37
38
39
43
SECTI ON 0 3 -
FI NANCI AL STAT EME NTS
3.1 Auditor's Report
3.2 Consolidated Income Statement
3.3 Consolidated Statement of
Comprehensive Income
3.4 Consolidated Statement of
Financial Position
3.5 Consolidated Statement of Cash Flows
3.6 Consolidate Statement of Changes
in Equity
3.7 Notes forming part of the
Financial Statements
3.8 Company Balance Sheet
3.9 Company Statement of Changes
in Equity
3.10 Notes forming part of the Company
Financial Statements
3.11 Notice of Annual General Meeting
3.12 Company Information
45
53
54
55
57
58
59
124
125
126
134
145
K3 Business Technology Group plc Registered number: 2641001
1
K3 Business Technology Group plc
Annual Report and Financial Statements for the year ended 30 November 2020
1.1 H IGHLI GHTS
FINANCIAL
2020 date represents 12 months to 30 November 2020 and 2019 data 12 months to 30 November 2019
£48.8m
76.2%
£16.1m
20
19
48.8
50.1
20
19
76.2
73.2
20
19
16.1
17.9
33.0%
£12.2m
£42.6%
20
19
33.0
35.7
20
19
12.2
12.6
20
19
42.6
44.0
£58.8%
£4.0m
£(20.9)m
20
19
58.8
57.4
20
19
4.0
(20.9)
7.1
20
(0.7)
19
£8.2m
£(1.9)m
£(49.3)p
20
19
8.2
5.9
(1.9)
(2.4)
20
19
(49.3)
(36.0)
20
19
(4.8)p
£(0.2)m
(4.8)
8.2
20
19
(2.6)
(14.3)
(0.2)
20
19
2
*See note 29 on page 120 for further details
of the alternative performance measures.
**Exceptional impairments (all non-cash
items) totalling £16.9m, which related
to legacy products, the third-party Sage
business and historic capitalised
development costs.
***Discontinued activities relate to UK
Dynamics and Starcom Technologies
Limited (see note 11 for further details).
2019: £50.1mRevenue2019: £17.9mOwn IP revenue (Note 5)2019: 35.7%Own IP revenue as a percentageof total revenue*32019: 73.2%Recurring or predictable revenue*22019: (£2.4)mNet debt*52019: (£14.3)mLoss from discontinued activities***2019: 44.0%Own IP gross pro�t as a percentageof total gross pro�t*42019: 12.6mOwn IP gross pro�t (Note 5)2019: 7.1mAdjusted EBITDA*12019: 57.4%Gross margin2019: (£0.7)mLoss before tax from continuing operations, including exceptional impairments**2019: 5.9mNet cash from operating activities2019: 2.6pAdjusted (loss)/earnings per share*62019: (36.0)pReported loss per share K3 Business Technology Group plc
Annual Report and Financial Statements for the year ended 30 November 2020
OPERAT IONAL
Own-IP revenue (including K3|fashion and K3|imagine) totalled £16.1m (2019: £17.9m), with gross profit of £12.2m
(2019: £12.6m) – coronavirus crisis impacted retail solution sales
Global Accounts revenue increased to £17.3m (2019: £15.7m); with gross profit up by 20.5% to £7.4m (2019:
£6.2m) – reflected ongoing expansion of the IKEA franchisee network
Third-party product revenue decreased to £15.4m (2019: £16.4m), with gross profit at £9.0m (2019: £10.0m) –
SYSPRO software and maintenance contracts renewals remained high at 97%
Loss-making UK Dynamics business placed into administration in April 2020, leaving Group focused on profitable
core units
POST-PERIOD E VE NTS A N D OUTLO O K
Successful sale of managed service unit, Starcom Technologies Ltd, in February 2021 for £14.7m in cash,
generated over £10m in profit and significantly strengthened balance sheet
Re-evaluating target markets for K3|imagine ensuring optimal return on investment
Trading so far in new financial year is in line with last financial year
On 26 March 2021 we successfully agreed an extension to our Revolving Credit Facility with Barclays, with a facility
of £3.5m, to March 2022
Appointment of Marco Vergani as Chief Executive Officer
TO M CRAW FO RD, CHA IRMA N O F K 3 , SA I D :
“In the face of unprecedented challenges created by the coronavirus pandemic, I am pleased with the resilience K3 has
demonstrated. Our high level of predictable and recurring revenues, as well as our large and diverse customer base, led to
robust results at a trading level.
“Implementing our strategy to focus on Own IP and Global Accounts and to cease investing in legacy POS products, we took
a number of important strategic decisions in line with our growth strategy. These included placing the loss-making
UK Dynamics unit into administration, raising additional funding and, in late February 2021, selling Starcom, our managed
services unit, for £14.7m. The Group is now in a significantly stronger financial position and is better placed to drive our
Own-IP strategy.
“Following Starcom’s sale, Adalsteinn Valdimarsson stepped down as Chief Executive Officer, and I am pleased to welcome
Marco Vergani as his successor. He brings significant sector experience and a strong record of driving sales.
“Marco will be leading a re-evaluation of our target markets for K3|imagine, which continues to offer exciting growth
potential. We have a strong product offering and look forward to a return to more normal trading conditions as the
coronavirus vaccine programme continues and lockdown restrictions are eased.”
3
K3 Business Technology Group plc
Annual Report and Financial Statements for the year ended 30 November 2020
1.2 COM PANY OV ERVIEW
K3 is a leading provider of mission-critical software and
relevant new technologies simply and easily and is a major
cloud solutions to the supply chain sector. The Group has
focus of the Company’s growth strategy.
over 2,400 customer installations across the UK, Europe,
the Far East, and USA. Solutions comprise both wholly
authored products and third-party products that are
enriched with K3 intellectual property (“IP”).
K3|Fashion:
K3|fashion is our concept-to-consumer solution,
embedded in Microsoft Dynamics 365 for Finance and
Operations, and further enhanced to meet the unique and
The Group typically has long relationships with customers
exacting needs of the fashion and apparel enterprises.
and generates a high level of predictable revenue. This
includes revenue from annual software licence renewals,
maintenance and support contracts and framework
service agreements.
It is a tailored environment in which business can gain
insight and control over all processes and channels to
market. Customised tools, pre-configured to align to
specific fashion tasks and processes, drive agility and
K3 has recently launched a cutting-edge new product
productivity and as such presents the perfect solution for
suite, K3|imagine – a cloud-native, ERP agnostic,
Fashion retailers and brands across the world.
commerce and data platform, together with a library
of scalable applications and integration engine and API
The out-of-the-box fashion functionality means
suite that interfaces, enhances, and modernises any
businesses can implement the K3|fashion swiftly and
pre-existing technology infrastructure to deliver digital
begin driving clear ROI without the need for extensive
strategies. It enables customers to continue to adopt
back-end configuration.
OUR RE VENU E ST REAMS
INSTALL
& DEPLOY
MAINTAIN
GROW THE 3,700
INSTALLED BASE
INCREASE MIX OF
OWN PRODUCTS
GROW RECURRING
REVENUES
INCREASE CUSTOMER
LOYALTY
SUPPORT
UPGRADES &
NEW PRODUCTS
MANAGE
SOFTWARE
HARDWARE
SUPPORT
MAINTENANCE
PROFESSIONAL SERVICES
MANAGED SERVICES
4
K3 Business Technology Group plc
Annual Report and Financial Statements for the year ended 30 November 2020
OUR CUSTOM ERS
OU R SOLUTI ONS
MAKE
MOVE
SELL
• KEEP TRACK OF PRODUCTS
IN PRODUCTION
• BUSINESS FORECASTING
& REPORTING
• OPTIMISE MY WAREHOUSE
OPERATIONS
• CUSTOMISED
REPLENISHMENT
• MULTI-SITE
STOCK MANAGEMENT
• OMNI-CHANNEL
PROMOTIONS & PRICING
SOFTWARE
OWN
PRODUCTS
AND/OR
OWN
PRODUCTS
3RD
PARTY
+
+
PROFESSIONAL
SERVICES
HOSTING &
MANAGED
SERVICES
INSIGHT CONTROL AGILITY PRODUCTIVITY
5
K3 Business Technology Group plc
Annual Report and Financial Statements for the year ended 30 November 2020
1.3 M ARKET S IZE & POTEN TIA L
MARK E T CONT EX T
OVERVIE W
2020 saw the most significant acceleration in software
critical factor in global public consumption patterns.
Transparency and sustainability are more than ever at
the forefront of commercial agendas whilst also being a
fundamental driver for businesses of all shapes and sizes.
development and deployment in concert with the biggest
shift in human behaviour that the digital age has ever seen.
Solidifying the capability to sustain continuous
adaptation and innovation in this rapidly changing
10 years’ worth of industry and human behavioural
world has been a key driver behind Technology
evolution took place in the space of a year and this
purchasing. This fundamental need to tackle and resolve
pace of change continues through 2021 at a mesmeric
uncertainty positions the K3|imagine opportunity
pace. Focus on flexible and interoperable system
at the heart of future purchasing decisions that
architecture, underpinned by clearly identifiable big
require businesses to consistently meet and exceed
data and intelligence, to drive consistent efficiency
customer and commercial expectations across multiple
gains from factory floor to the end customer, has been a
touchpoints, channels, and processes.
Information Technology (IT) spending on enterprise software
worldwide, from 2009 to 2021 (in billion U.S. dollars)
492
477
459
419
369
326
310
310
500
400
s
r
a
l
l
o
d
.
.
S
U
n
o
i
l
l
i
b
n
i
i
g
n
d
n
e
p
S
297
285
269
244.64
225.51
300
200
100
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 2020* 2021*
Sources Gartner: Statista
© Statista 2020
Additional Information:
Worldwide 2009 to 2021
VA LUE OF ENT E RPRISE
SO F TWAR E MARKET
Spending on enterprise software continues to grow
globally as businesses of all shapes and sizes move
towards cloud infrastructures and software as a service
solution for driving interoperability, efficiency gain, and
streamlining traditionally manual processes into lower
cost optimisable and adaptable software solutions. The
global spend on enterprise software this year is estimated
to reach nearly $500 billion with an additional application
market revenue of nearly $225 billion.
6
K3 Business Technology Group plc
Annual Report and Financial Statements for the year ended 30 November 2020
BUSINESS
READY
K3
TECHNOLOGY
READY
CUSTOMER
READY
K3 MA RKE T POS IT ION
Positioned within a growth industry, K3 has an emerging
solution portfolio designed to capitalise on this growth
opportunity whilst also being future proofed by modern
design. Through the fundamental cloud infrastructure,
headless commercial architecture, flexibility, and
specialism within our owned IP products, we are able to
efficiently evolve to meet industry trends and market
needs, ensuring our products have market, technology,
business, and customer fit.
Our clients are able to meet their customers where
they need to be met as opposed to being restricted
by inflexible technology with predefined design and
no innovation capacity. This allows us to differentiate
ourselves from competitors who are welded to aged
predefined software architecture and burdensome
hardware. With their front and back end coupled in hard to
innovate structures that require large development costs
and resource bases to meet the changing landscape,
our competitors increasingly represent high risk and low
scope, low innovation solutions in an industry rapidly
moving in the opposite direction.
Embedded
Commerce
Customer
Service
Social
Commerce
Point
of Sale
Mobile
Self-Checkout
Augmented
Reality
Kiosk
Converstaional
Commerce
Customer & Account
Management
Inventory
Promotions
Carts
Internationalization
Orders
Payments
Catalog
Pricing
Integration Suite
3rd Party Services
LOYALTY, PAYMENTS, ETC.
Enterprise Systems
SITE DATA, CRM, ERP, ETC.
7
K3 Business Technology Group plc
Annual Report and Financial Statements for the year ended 30 November 2020
COMPL ET E CO MM E RCE INFR ASTR UCTUR E
“Imagine proved to be the intuitive solution we were looking for without excessive days to develop. It’s an agile product that
was much needed to allow us to start with a blank piece of paper and K3|imagine was the perfect solution to fit our needs.
For us to get a development solution literally in days, that was customer led, was absolutely amazing”
Gareth Julian
British Heart Foundation
F RONT END
C O M MERCE HEADS
N L I N E
IN APP
D A TA SWITCH
S
O
C
I
A
L
TORE O
S
IN
INTELLIGENT CLOUD
I
C
N
U
T
S
E
T
L
O
DATA SW I T C H
L
I
G
M
E
R
E
C
U
S
T
N
C
E
O
M
E
R
U
B
A N D O
I N
L
A
N
SIN ESS
P E R ATIO
L LIG E N CE
C K E N D
E
T
A
B
With K3 | Imagine you can
move quickly and get ideas
to market fast. You can build,
test and deploy confidently
in a matter of days or weeks.
As your business grows,
you can support more users,
in more locations with a
broader range of devices
across your channels.
K3 | Imagine enables you to
manage your own resources
more efficiently across the
business. Transform staff roles,
stock management and CX.
A cloud-native strategy
reduces technical risk. By
choosing the cloud approach
you can move quickly while
taking small, reversible steps.
8
K3 Business Technology Group plc
Annual Report and Financial Statements for the year ended 30 November 2020
FU NDAMENTA L TO
HEALTH Y BUSI NES S
We are fundamental to healthy and successful business
for the supply chain sector. We are the beating heart of
businesses we work with, unleashing the potential of
digital and cloud, providing the intelligent commerce
engines with consistent customer touchpoint
experience, and embedding the competencies to realise
the aspirations of over $100billion of business to breath
every year.
AN Y TH ING, A NYWHERE,
AN Y TI M E
K3 makes the concept of Anything, Anywhere, Anytime
commerce truly alive through the K3|imagine platform.
RESOLVABLE UNCE RTAIN T Y
In this uncertain time, the K3|imagine platform
presents a highly flexible and adaptable foundation
and core application set from which you can build
and integrate limitless areas of interaction,
intelligence, and services holistically, whilst also
remaining fundamentally joined up. Through this we
can provide a true resolution to uncertainty.
9
9
K3 Business Technology Group plc
Annual Report and Financial Statements for the year ended 30 November 2020
1.4 CHAIRMAN'S STATEMEN T
OVERVIE W
This is my first Statement as Chairman, having joined the Group and the Board at the end of October
2020. It has been a challenging year for K3. Nonetheless, some important strategic decisions and
actions were taken, and the Group’s performance has shown a significant degree of resilience despite
the impact of the coronavirus pandemic on a number of areas of operation. Revenue from continuing
operations over the financial year decreased by 2.5% to £48.8m (2019: £50.1m), and gross profit
decreased slightly to £28.7m (2019: £28.8m). These robust results at a trading level were supported
by our high level of predictable revenues and the geographically diverse customer base. However, the
Group’s reported losses, before discontinued operations, increased to £20.9m (2019: £1.1m) after
non-cash impairment and reorganisation charges.
Throughout the pandemic, the safety and welfare of our staff, customers, partners, and suppliers have
been priorities. Our staff made a tremendous effort in responding to the challenges we faced, and I am
extremely grateful to everyone for the sacrifices they have made and for their hard work and loyalty to
the Group.
The transition to working from home, virtual global collaboration and remote customer delivery
went smoothly, although trading was affected by the impact of coronavirus-related restrictions on
some customers and sub-sectors. We implemented cost saving measures to conserve cash and used
government support where appropriate. This included furlough schemes in the UK and Denmark and
tax deferral in the UK, amounting to £2.0m of tax, which will unwind in 2021.
As previously reported, in April 2020, having explored other options, the difficult decision was
taken to place the loss-making UK Dynamics business into administration. The decision has left
the Group focused on its core profitable business units, and the sales route for our K3|fashion
and K3|pebblestone products in the UK is now through channel partners – as it is in Europe and
international markets.
10
K3 Business Technology Group plc
Annual Report and Financial Statements for the year ended 30 November 2020
On 31 March 2020, we raised £6.0m in funding, through a shareholder loan of £3.0m and a £3.0m
increase in banking facilities with Barclays. In the first quarter of the new financial year, in late February
2021, we agreed the sale of Starcom Technologies Limited (“Starcom”), our managed services unit,
for £14.7m in cash. The sale generated over £10 million of profit on disposal. On 26 March 2021 we
successfully agreed an extension to our Revolving Credit Facility with Barclays to March 2022. In
addition, we are in advanced discussions with shareholders to convert the £3.0m of shareholder loans
to equity in the near future. These actions have placed the Group on a more solid financial footing.
These transactions are part of our strategic focus to develop our own IP products, and in particular our
K3|imagine platform, as well as focus on our Global Accounts business.
With the sale of Starcom successfully concluded and the Group’s balance sheet strengthened,
Adalsteinn Valdimarsson stepped down as Chief Executive Officer in early March. We are pleased
to announce the appointment of Marco Vergani as his successor. He brings significant relevant
commercial and industry experience and a strong track record in driving sales growth.
K3 has a good platform on which to move forward, and our growth strategy is focused on developing
our own IP products and revenue streams, in particular SaaS revenue from our K3|imagine suite and
revenue from our Global Accounts segment. Given the opportunity this presents, and with a new Chief
Executive assuming control of the Group in a global environment changed by the pandemic, we are
going to be re-evaluating market strategy to ensure that we are investing in market segments with
attractive, long-term growth opportunities.
11
1.5 CH AIRMAN'S STATEMENT ( contin u ed)
FINANCIAL R ESULTS
RESU LTS FROM CONTINUING ACT IV IT IES
Revenue from continuing operations over the financial year totalled £48.8m (2019: £50.1m) with recurring or predictable
revenue*2 accounting for 76.2% of the total revenue (2019: 73.2%). The Own IP business segment generated £16.1m of
revenue (2019: £17.9m) which is 33.1% of total revenue (2019: 35.7%). Global Accounts (our business supporting Inter
IKEA Systems B.V. (the owner and franchisor of the IKEA concept) and the Inter IKEA Concept franchisees) generated
£17.3m of revenue (2019: £15.7m), an increase of 9.7%, which is 35.4% of total revenue (2019: 31.4%).
Group gross profit for the financial year was £28.7m (2019: £28.8m), with own IP contributing £12.2m (2019: £12.6m)
or 42.6% of the total gross profit (2019: 44.0%*4). Gross margin increased to 58.8% (2019: 57.4%) driven by our Own IP
and Global Accounts businesses.
Underlying support/admin expenses*7 increased by 14.5% to £24.7m (2019: £21.6m) as a result of investment in
commercial and product development resource. Adjusted EBITDA*1 from continuing activities decreased to £4.0m
(2019: £7.1m). This largely reflects the investment in increased commercial and product resource, lower fashion
software sales and the adverse effects of the coronavirus outbreak.
Following impairment and reorganisation costs the loss before tax from continuing activities was £20.9m (2019: £1.1m)
as administrative expenses increased to £48.5m (2019: £28.7m). In line with our strategic decision to cease developing
legacy products and focus on the development of our own IP products, we recognised exceptional impairments (all
non-cash items) totalling £16.9m, which comprises a £14.3m impairment of goodwill in the third-party Sage business
(£4.9m), and legacy products within Own IP (relating to legacy products in the DdD, RSG and Unisoft CGUs) (£9.4m) and
an impairment of historic capitalised development costs within our Own IP segment (£2.6m) (2019: £nil).After these
items, the resultant loss before tax from continuing activities was £20.9m (2019: £0.2m profit).
Whilst our customer base is resilient and well-diversified, both geographically and by market vertical, the challenges
of the pandemic, including lockdown restrictions, created certain impediments to sales and the adoption of new, and
developing, K3|imagine solutions.
RE PO RTED RESULTS INCLUDING D ISCON TI N UED ACTI VI TI ES
Discontinued activities relate to the UK Dynamics subsidiary and Starcom Technologies Limited (“Starcom”). UK
Dynamics was put into administration on 21 April 2020, and the loss after tax from discontinued activities was £1.0m
(2019: £15.2m).
Starcom was held for sale at 30 November 2020. The profit after tax from discontinued activities was £0.8m (2019: £0.9m).
DI VID E ND A ND AGM
Given the financial position of the Group and ongoing investment in the Own IP strategy, the Board believes it is prudent
to maintain the suspension of dividends for the foreseeable future.
K3’s Annual General Meeting will be held on Wednesday 19 May 2021 at Baltimore House, 50 Kansas Avenue,
Manchester M50 2GL. The meeting will be conducted in line with Government guidance at this time.
*See note 29 on page 120 for further details
12
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 GRO WTH STR AT EGY
The Group strategy remains focused on growing own-IP sales, and on developing the commercial opportunity presented
by the K3|imagine platform and applications. This strategy has the scope to generate high quality, SaaS revenue
and higher margins. To this end, with a new Chief Executive now in place and the global environment changed by the
pandemic, we are going to re-evaluate market strategy to ensure that we invest in attractive market segments with long-
term growth themes and potential.
The K3|imagine suite is relevant for existing as well as new customers. Its platform and applications, such as self-serve
kiosks, enable customers to adopt powerful technology rapidly and easily, and offer attractive returns on investment.
The suite provides an upgrade path for existing customers using legacy technology as well as an opportunity to cross-
sell into Global Accounts and other customers. Consequently, we made the decision in October 2020 to cease marketing
some of our legacy products and start an initiative to promote the phased adoption of the K3|imagine retail suite by
point-of-sale customers.
K3|fashion remains an important product for us and Microsoft’s global endorsement of it for the fashion and apparel
sectors enhances its market appeal. We now sell the product via channel partners across all markets, which include
Europe and the US, with partners responsible for implementations. Sales are typically with larger companies and
comprise upfront software licence income together with ongoing maintenance income. They tend to be high value
although often with longer and more complex sales cycles.
Global Accounts, which is a significant business segment and includes our Inter IKEA Systems B.V. (the owner and
franchisor of the IKEA concept) and the Inter IKEA Concept franchisees, is growing well. This reflects the strong
relationships we have established, our high service levels, and the ongoing expansion of the IKEA franchisees networks.
We have increased investment in resource in the Kuala Lumpur office to support growth, and are in the process of
standardising service implementation, which should protect services gross margin. We expect to see this area of
operation continue to grow, including within the newer geographies.
In line with our growth strategy, UK Dynamics was put into administration on 21 April 2020 and Starcom Technologies
Limited was held for sale at 30 November 2020. As a result, third party solutions now principally comprises our SYSPRO
and Sage products, which we sell in the UK. SYSPRO’s core markets are manufacturing, and distribution and our large
installed customer base generates significant earnings and cash flows from annual software licence, support, and
maintenance renewals. Sage and SYSPRO suffered from sluggish new business impacted by Brexit and the coronavirus
pandemic. As the impact of Brexit decreases and we begin to move out of the significant disruption caused by the
coronavirus pandemic, the prospects and situation for the SYSPRO business is also beginning to improve.
BOARD CHANG ES
We are very pleased to welcome Marco Vergani to the Board as Chief Executive Officer. Marco has over 30 years’
experience in technology, principally in commercial sales, including in the UK, Europe, the Far East, and USA. He has
wide sector experience, which includes retail, consumer, and e-commerce. A major part of his career was spent at
IBM, the multi-national technology company, where he ran the Retail Store Solutions Division in Europe, Middle East,
and Africa prior to joining the IBM Business Process Outsourcing division where he was promoted to Vice President of
Sales for Europe. In 2014, he joined Digital River, the US-based global e-commerce, payments, and marketing services
company becoming its Senior Vice President, Global Sales and Account Management. More recently, he was Chief
Operating Officer at Qubit, the venture capitalist-backed personalisation technology company.
13
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 1.5 CH AIRMAN'S STATEMENT ( contin u ed)
Marco replaces Adalsteinn Valdimarrson who stepped down from the Board and Company in early March 2021.
We would like to thank Adalsteinn for his significant contribution to the Group. He successfully led a fundamental
restructuring of the Group and refocused its strategic direction. We wish him every success in his new ventures.
Over the year under review, a number of other changes were made to the Board. Oliver Scott joined as Non-executive
Director in February 2020. Oliver is a partner of Kestrel Partners LLP, the independent investment manager, which he
co-founded in 2009, having previously spent 20 years advising smaller quoted and unquoted companies, latterly as a
director of KBC Peel Hunt Corporate Finance. He is also a non-executive director of ULS Technology PLC. Kestrel is K3's
largest shareholder, with a current holding representing 24.3% of the Company's share capital.
In May 2020 Non-Executive Directors Stuart Darling and Paul Morland retired from the Board and at the end of October
2020, I was pleased to join the Group, taking over the role of Chairman from Jonathan Manley (interim Chair).
I temporarily assumed the role of Interim Chief Executive Officer in March 2021 ahead of Marco joining the Board.
My career to date has been in the global software industry, both in the UK and internationally, including Europe and
North America. I also have significant experience in growing and developing product-based software businesses, and
was, until January 2020, Chief Executive Officer of Aptitude Software Group Plc, the global financial management
software company
STAFF
On behalf of the Board, we extend our thanks to all our staff for their hard work in this unprecedented year. Our teams
have shown significant dedication and commitment during this time, and their response to adapting to the new
conditions created by the pandemic was outstanding.
OUTLOO K
Trading so far in the new financial year has been in line with the same period last year. In the first quarter of the new
financial year ending 30 November 2021, term contracts with a total contract value of £1.5m have been closed in
K3|fashion, with £0.5m of new contracts signed for K3|imagine. Global Accounts is maintaining momentum and
initiatives to promote the migration of key customers on legacy POS solutions to our K3|imagine retail suite are in
planning and development. We are re-examining the wider market opportunities for K3|imagine and remain excited
about its growth potential.
The Board remains confident in the plans for the future of the Group and the repositioning strategy to focus on own-IP
lead growth and SaaS in attractive markets. We look forward to more normal trading conditions as the coronavirus
vaccine programme rolls out and pandemic restrictions are eased.
T Crawford
Chairman
29 March 2021
14
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 1.5 FIN ANCIA L A ND
OPERATIONA L REVIEW
The Directors consider the key performance indicators by which they measure the performance of the Group to be
turnover, gross profit, gross margin, recurring or predictable revenue*2 and Own IP gross profit as a percentage of total
gross profit*4. The Group’s results for the year end to 30 November 2020, together with comparatives for the same
period in 2019, are summarised in the tables below. 2019 comparatives have been restated following the classification
of UK Dynamics as a discontinued activity (after its administration in April 2020) and Starcom as an asset held for sale as
at 30 November 2020.
During the year we have realigned our segmental reporting in line with our growth strategy. With the continuing growth
in Global Accounts, we now recognise it as a separate segment and include revenue and costs relating to the Inter IKEA
Systems B.V. (the owner and franchisor of the IKEA concept) and the Inter IKEA Concept franchisees. Our segmental
analysis provides further information on the Group’s performance across key areas of activity; Own IP, Global Accounts
and Third-party products (including SYSPRO and Sage).
(£m)
Revenue Gross profit Gross margin
2020
16.1
17.3
15.4
48.8
2019
(restated)
17.9
15.7
16.5
50.1
2020
12.2
7.4
9.1
28.7
Own IP
Global Accounts
Third-party products
Total
Continuing Activities
Recurring or predictable revenue
Own IP gross profit as a percentage of total gross profit
2019
(restated)
70.7%
39.1%
60.4%
57.4%
2019
(restated)
12.6
6.2
10.0
28.8
2020
76.2%
42.6%
2020
75.8%
43.0%
58.8%
58.8%
2019
73.2%
44.0%
*See note 29 on page 120 for further details
15
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 1.6 FINANC IAL AND OPERATIO N AL RE VI EW (continu ed )
OWN I P
K3’s own IP includes;
IP embedded within third-party solutions to add extra functionality and produce a richer overall solution for K3’s
target markets. These solutions include K3|fashion and K3|pebblestone
K3|imagine, our cloud-native platform, solutions, and apps, with our integration engine, K3|dataswitch; and
other stand-alone point solutions and apps including our legacy point of sale (“POS”) products.
Own-IP revenue decreased by 9.7% to £16.1m (2019: £17.9m) however gross profit only fell by 3.2%to £12.2m (2019:
£12.6m), reflecting a product mix that included a greater contribution from K3|fashion sales and lower contribution
from POS products. In line with this, gross margin increased to 75.8% (2019: 70.7%).
Despite the challenges that the lockdown restrictions created for the retail sector, £1.4m of contracts were closed for
K3|fashion over the financial year (2019: £2.4m). In the first quarter of the new financial year ending 30 November 2021,
£1.5m of contracts have been closed with both European and US retailers in line with our sales strategy for this product.
We remain confident about prospects for K3|fashion and its endorsement by Microsoft as its recommended ‘add-on’
solution for the fashion and apparel sector globally that has given our product additional profile in the market.
Our K3|imagine platform and its applications are provided on a Platform-as-a-Service (“PaaS”) and Software-as-a-
Solution (“SaaS”) basis. Customers bought from across the suite of applications, including self-serve kiosks, point
of sale, companion apps, and make tax digital. However, the retail solution sales have been impacted by coronavirus
restrictions and poor trading conditions throughout 2020, and this trend has continued into 2021. In total £1.0m of
contracts were closed over the year (2019: £0.3m).
As a result of the focus on our K3|imagine platform and its suite of applications we have recognised an impairment of
£12.0m within Own IP (see Note 15). This is comprised of an impairment to Goodwill and Other Intangibles of £9.4m
relating to the legacy POS products and a £2.6m impairment of legacy development costs.
GLO BAL ACCOUN TS
Revenue from Global Accounts continued to grow, increasing by 10.1% to £17.3 m (2019: £15.7m). Gross profit
increased by 19.4% to £7.4m (2019: £6.2m) with gross margin increasing to 43.0% (2019: 39.1%).
This strong performance reflected our ability to support the ongoing expansion of the IKEA franchisee network into new
geographies such as South and Central America. The increased activity mainly contributed to services income. The Far
East has generally proven to be more resilient to the impact of coronavirus than the West, with Far Eastern customers
being impacted for less time. We anticipate continued growth in Global Accounts and have further expanded resource at
our Kuala Lumpur office to support this.
16
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
THIRD-PA RT Y PROD UCTS
Third-party products include our SYSPRO and Sage products, which we resell in the UK. This area of activity was the
most badly affected by the coronavirus crisis and Brexit uncertainty as customers in distribution and manufacturing
held back from supply chain investments and services projects. We implemented mitigating actions to reduce the
impact, including furlough. Revenue decreased by 6.7% to £15.4m (2019: £16.5m) and gross profit reduced by 9.0% to
£9.1m (2019: £10.0m). Gross margin was 58.8% (2019: 60.4%).
Our manufacturing customer base, which largely comprises SYSPRO customers, was more resilient to coronavirus
although SYSPRO services income was impacted by some customer sites being closed. Encouragingly SYSPRO new
business discussions continued throughout the period.
Our retail and distribution customer base, which is more biased to Sage, was more disrupted by coronavirus-related
restrictions, and new business opportunities and pipeline remains soft. We do not expect substantial new sales in the
future from our Sage business and as a result we have recognised a £4.9m impairment of goodwill relating to the Sage
business unit (see Note 15).
The second half of the financial year benefited from the high level of software licence and maintenance and support
contract renewals from the SYSPRO customer base in this period. This was reflected in the typically strong weighting in
earnings and cash generation to the fourth quarter.
AD MINIST RAT IV E EXPENSES
Underlying Support/Administration costs*7 have increased to £24.7m (2019: £21.6m) reflecting investment in the
commercial and product development teams. Total administrative expenses increased to £48.5m (2019: £28.7m).
This includes exceptional impairments (all non-cash items) totalling £16.9m, which relate to a £14.3m impairment of
goodwill in the third-party Sage business (£4.9m), and legacy products within Own IP (£9.4m) and an impairment of
historic capitalised development costs within our Own IP segment (£2.6m) (2019: £nil).
CORONAVIRU S PAN D EMIC A ND B R EXI T
The Group responded swiftly to the coronavirus pandemic with employees moving to remote working and offices that
remained operational implementing protective measures, in line with government guidance.
Coronavirus lockdown restrictions created challenges for the Group more prominently within the retail and hospitality
sectors resulting in reduced contract wins for K3|imagine retail suite and visitor attractions solutions. Our third-party
products segment was also impacted as customers in distribution and manufacturing delayed investments in supply
chain investments and services projects. In response to these challenges the Group utilised furlough schemes in the
UK and Denmark, which reflected specific verticals that were impacted, and staff volunteered temporary salary
reductions. The Group also made use of Government tax deferral schemes, with a total of £2.0m of tax deferred at
the financial year end.
*See note 29 on page 120 for further details
17
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 1.6 FINANC IAL AND OPERATIO N AL RE VI EW (continu ed )
CORONAVIRU S PAN D EMIC A ND B R EXI T (co n ti n u e d)
Additional funding totalling £6.0m was secured in April 2020, when we extended our loan facility with Barclays by £3.0m
and raised £3.0m via a shareholder loan.
Brexit impacted our UK operations, especially for third party product sales. However, these units recovered
somewhat in the final quarter of the financial year, helped by sales opportunities cultivated during the lockdown in the
manufacturing vertical coming through and by the investment in sales resources.
DI SCONT INUE D ACT I VITIES – U K DY NA MI CS
On 21 April 2020, the UK Dynamics subsidiary was put into administration. The subsidiary’s reported results show a loss
before tax of £1.3m (2019: loss of £14.8m). The UK Dynamics business had, despite several restructurings, continued to
be cash consumptive, with long deal cycles and high operating costs. Following its administration, we have maintained
relationships with UK Dynamics customers using K3 Own IP and now use channel partners as the route to market in the
UK for K3|fashion and K3|pebblestone, as we do in non-UK territories.
DI SCONT INUE D ACT I VITIES – STARCO M
TECHNO LO GIES LIM ITED
In September 2020, the Board embarked on a programme to explore options to sell Starcom Technologies Limited
(“Starcom”), our managed services unit, since managed services was not seen as a strategic growth area. Starcom
was therefore classified as an ‘available for sale’ asset as at 30 November 2020 and it has been accounted for in
discontinued activities.
Starcom’s total external revenue for the year ended 30 November 2020 was £9.5m (2019: £9.3m) and the unit
generated a profit before taxation of £0.8m (2019: £1.0m). In February 2021, the unit was sold for £14.7m including
£0.5m of cash on the balance sheet. The management team and staff of Starcom have transferred with the sale of the
business together with its 280 customers. Under the terms of a services agreement Starcom will continue to provide K3
and its customers with managed services for at least three years.
EA RNI NGS PE R S HARE A ND DIVI D EN D S
Adjusted loss per share was*6 4.8p (2019: adjusted profit per share*6 2.6p). Loss per share was 49.3p (2019: 36.0p).
No dividend will be declared for the year ended 30 November 2020 (2019: nil).
TA X ATION
There was a tax benefit for the financial year of £0.3m (2019: £0.9m charge) comprising a charge of £0.3m (2019: £0.6m)
for current taxation and a benefit of £0.6m (2019: £0.3m charge) for deferred taxation, of which £0.2m (2019: £0.3m)
related to the amortisation of intangible assets.
*See note 29 on page 120 for further details
18
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 The loss before taxation was driven by the large impairment charge which is non-tax deductible. The Group’s tax rate
is sensitive to the geographical mix of its profits and losses and with the growth of the non-UK business, overseas tax
is increasing. The effective tax rate for the year is 1.3% (2019: (6.4%). The effective tax rate is determined as the tax
expense/(credit) divided by the accounting profit/(loss) before tax.
BA L ANCE SHE ET
As a result of the Group’s strategic focus moving away from older POS products and towards the new own IP products,
particularly the K3|imagine platform, as well as reduced expectations for future sales in mature business components,
an impairment charge of £16.9m was recognised in the year. This consisted of a £12.8m impairment of Goodwill and
a £1.5m impairment of IP and Customer Relationships, relating to older POS products and the Sage unit, and a £2.6m
impairment of historical development costs.
The assets, and associated liabilities, for Starcom have been classified as held for sale as at 30 November 2020 with a
net asset value of £3.3m.
Additions to development costs were £4.5m compared to £4.1m in 2019, driven by the focus on development of
K3|imagine. Amortisation of development costs was £2.5m (2019: £2.9m). An impairment loss of £2.6m was recognised
against the development costs of older products. The amortisation charge on acquired intangible assets was £1.8m
(2019: £2.5m).
Trade and other receivables were £12.2m (2019: £20.7m). Included within the 2019 balance was £5.9m for UK Dynamics,
and £1.7m for Starcom. The remaining £0.9m reduction compared to 2019 is due to better credit control management.
Trade and other payables were £19.1m (2019: £25.0m). Included within the 2019 balance was £5.1m for UK Dynamics
and £3.0m for Starcom, so underlying trade payables have increased by £2.2m, of which HMRC coronavirus deferrals
were £2.0m.
The net debt*5 position at 30 November 2020 was £1.9m and comprised £0.8m of bank net cash and a shareholder loan
of £2.7m. £0.3m of the total shareholder loan value of £3.0m is recognised in equity as a fair value adjustment for the
associated warrants, which were issued alongside the loan, at 30 November 2020. This will be amortised as a finance
expense in 2021. Net debt*5 at the same point in 2019 amounted to £2.4m and was entirely bank net debt.
CASH FLOW
The net cash from continuing operating activities was £8.2m (2019: £5.8m). The net change in working capital from
trade and other receivables and trade and other payables was £4.1m inflow (2019: £0.3m outflow). The main drivers
for these movements were the release of balances related to UK Dynamics along with better credit control and
invoicing procedures.
Investing activities increased to £5.2m (2019: £4.7m) with the focus on the development of the K3|imagine platform.
The purchase of property, plant and equipment also included IT equipment to run managed services and IFRS 16 right
to use asset additions.
Robert Price
Chief Financial Officer
29 March 2021
19
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 K3 Business Technology Group plc
Annual Report and Financial Statements for the year ended 30 November 2020
1.6 SECTI ON 1 7 2
STATEM ENT
The K3 Board considers it has made decisions in a way that, in good faith, would be most likely to promote the success
of the Group for the benefit of its members as a whole, having regard to the factors set out in section 172 of the
Companies Act 2006.
The table below sets out some examples of how the Directors have exercised this duty:
Stakeholder
Shareholders
Continued support from shareholders is crucial to
our success. In return for their support, we aim to
create value by increasing the performance of the
Group and providing sustainable shareholder returns.
The Company proactively engages in dialogue with
shareholders. The Chief Executive Officer and Chief
Financial Officer regularly meet with institutional
shareholders and analysts, including after the
announcement of full-year and half-year results.
How the Board engaged
In March 2020, the Company consulted with key
shareholders in relation to the financing of the
Company, in association with the Company’s
bankers, which resulted in the agreement for an
aggregate £3.0m shareholder loan from two key
shareholders.
At the same time, the Group’s loss-making UK
Dynamics business entered administration. Whilst
a difficult decision, this process supported the
Group’s long-term strategic direction to focus on
own-IP and recurring software revenues for the
benefit of its members as a whole.
The Directors also decided to suspend dividend
payments for the financial year, to preserve cash
and to support continued investment own-IP,
in line with the long-term strategic direction of
the Group.
After review of product and business strategy,
including the global environment and a decision
to stop proactively marketing some older
products, we have taken a non-cash impairment of
£16.9m on intangible assets relating primarily to the
Sage business and older products within the UK
and Europe.
20
K3 Business Technology Group plc
Annual Report and Financial Statements for the year ended 30 November 2020
Stakeholder
Employees
K3 recognises the importance of our talented
and important teams across the organisation and
several initiatives have been put in place throughout
the last financial year to improve the employee
experience.
Customers and Business Partners
Customer satisfaction is of critical importance to K3.
As well as allocating dedicated K3 account
managers for the larger relationships, sizeable or
complex customer projects also have executive
sponsors within the group, where senior managers
are appointed to oversee key customer projects;
to ensure sufficient customer engagement at the
correct level within the K3 Group.
The Group also runs customer forums to feedback
on, and in to, product roadmap; to ensure strategic
product management and development to meet
long term customer needs, market trends and
requirements.
The Group also supplies and deploys its own
software solutions through its international network
of reselling and implementation partners, which
forms an important element of the Group’s route-
to-market strategy.
How the Board engaged
The annual K3 People Survey – which aims to
understand how our people feel about the
organisation and identify areas of improvement
- had its second run during September 2020. The
results indicated improvements in all rating areas
on the previous year and the Board now has deeper
insight into which areas to focus on to improve life at
K3 for our people.
During the financial period, in February 2020,
the Group carried out a Group-wide customer
satisfaction survey, to gauge customer feedback
and seek to drive improvements in customer
experience and engagement. The results of the
survey prompted several actions, including the
restructuring of the Group’s support and business
development functions, under a unified customer
engagement team.
The Group also continued its focus on supporting
its network of reselling partners, further
strengthening its strategic alliances with two major
international systems integrators, appointing its
first non-K3 partners in the UK for its K3|fashion and
K3|pebblestone products, and adding its first pilot
partner for the Group’s K3|imagine product.
Suppliers
With part of the Group a reseller of software,
including Microsoft, SYSPRO and Sage, K3’s
relationships with strategic software partners are
important to the success of the business.
During the financial period, the Group, in respect
of its K3|fashion and K3|pebblestone products,
became a member of the Microsoft Inner Circle,
recognising K3 as a leading Microsoft partner, and
was invited to participate in the Microsoft Partner
Advisory Council (ISV PAC).
21
K3 Business Technology Group plc
Annual Report and Financial Statements for the year ended 30 November 2020
2.1 BOARD OF
DIRECTORS
Tom Crawford
(Non-executive Chairman) age 52
Tom was appointed Non-executive
Chairman on 28 October 2020. He
has over 20 years of main market
listed small cap software business
experience and a successful
Marco Vergani
(Chief Executive Officer) age 57
Marco was appointed CEO and
elected to the Board on 30
March 2021. Marco has over 30
years’ experience in technology,
principally in commercial sales,
track record of developing and growing international
including in the UK, Europe, the Far East, and USA. He has
product-based software businesses. Until recently, to
wide sector experience, which includes retail, consumer,
January 2020, Tom was Chief Executive Officer of
and e-commerce. A major part of his career was spent at
London based Aptitude Software Group Plc, the global
IBM, the multi-national technology company, where he
financial management software company, having
ran the Retail Store Solutions Division in Europe, Middle
previously led the expansion of the business into North
East, and Africa prior to joining the IBM Business Process
America and Asia Pacific with a dominant position in new
Outsourcing division where he was promoted to Vice
market verticals.
President of Sales for Europe. In 2014, he joined Digital
River, the US-based global e-commerce, payments, and
marketing services company becoming their Senior
Vice President, Global Sales and Account Management.
More recently, he was Chief Operating Officer at Qubit,
the venture capitalist-backed personalisation
technology company.
22
K3 Business Technology Group plc
Annual Report and Financial Statements for the year ended 30 November 2020
Robert David Price
(Chief Financial Officer) age 53
Robert was appointed to the
Board on 5 July 2017 having joined
the Group as CFO in October
2016. He has more than 20 years’
experience in senior finance roles in
Per Johan Claesson
(non-executive) age 70
Johan was appointed a Director
in March 2001. He is a Swedish
national whose principal
business interests are in
property development and real
technology and supply chain and has worked extensively
estate and is a director of several listed companies. He
in international markets. He was previously CFO of a pan
has a controlling interest in and is chairman of Claesson
European fintech start up and prior to that CFO/COO
and Anderzen AB (“C&A”).
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 67
Oliver Scott
(Non-executive) age 53
Oliver joined the board as a Non-
executive Director in February
2020. Oliver is a partner of Kestrel
Partners LLP, a business he
co-founded in 2009 and which
specialises in investing in smaller quoted technology
Jonathan became a Non-executive
companies. Prior to this, he spent over 20 years advising
Director in December 2015. He has
smaller quoted and unquoted companies, latterly as a
over 35 years’ experience in IT, both
Director of KBC Peel Hunt Corporate Finance. Oliver has
as Chief Information Officer (“CIO”)
acted as Kestrel’s representative on the Boards of various
and as a Consultant. Previously
of its investee companies. He is currently a non-executive
Jonathan was IT Director for Harrods Ltd where he was
Director of ULS Technology PLC and was previously a
leading its IT transformation. Before that, he was IT
non-executive Director of IQGeo Group plc, IDOX PLC
Director of Shared Services at the John Lewis Partnership
and KBC Advanced Technologies plc prior to its takeover
(2012-2014) and Global CIO at Estee Lauder Companies,
by Yokogawa.
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.
23
K3 Business Technology Group plc
K3 Business Technology Group plc
Annual Report and Financial Statements for the year ended 30 November 2020
Annual Report and Financial Statements for the year ended 30 November 2020
2.2 D IRECTO RS’ REPORT
The Directors present their report together with the audited financial statements for the year ended 30 November
2020. The corporate governance statement on pages 28 to 33 also forms part of the Directors’ report.
Review of Business
The Chairman’s statement on pages 10 to 15 provides a review of the business, the Group’s trading for the year ended
30 November 2020, key performance indicators and an indication of future developments.
Research and Development
During the year, the Group carried out development work of which £4.5m (2019: £4.1m) was capitalised. Development
related to the Group’s own IP including the K3|imagine platform.
Result and Dividend
The Group has reported its Consolidated financial statements in accordance with International Financial Reporting
Standards as adopted by the European Union.
The Group’s results for the year are set out in the Consolidated Income Statement on page 53. The Company has
applied FRS 101: Reduced Disclosure Framework to the Company accounts for the year ended 30 November 2020.
The directors do not propose a dividend (2019: 0p per share). No interim dividend was paid during either period.
Directors
The directors who served during the year were as follows:
T Crawford
M Vergani
R D Price
PJ Claesson
O Scott
J P Manley
(from 28 October 2020)
(from 30 March 2021)
(from 14 February 2020)
A Valdimarsson
(resigned 4 March 2021)
P G Morland
S Darling
(resigned 29 May 2020)
(resigned 29 May 2020)
Mr PJ Claesson and Mr R D Price retire by rotation and offer themselves for re-election at the AGM.
Mr S Darling and Mr P G Morland resigned with effect from the AGM on 29 May 2020, and Mr A Valdimarsson resigned
with effect from 4 March 2021.
Mr O Scott was appointed to the Board on 14 February 2020, Mr T Crawford was appointed to the Board on 28 October
2020 and Mr M Vergani was appointed to the Board on 30 March 2021.
In accordance with the Company’s current Articles of Association, Mr T Crawford will resign and offer himself for
re-election at the AGM.
24
24
K3 Business Technology Group plc
Annual Report and Financial Statements for the year ended 30 November 2020
Director’s Interest
Directors hold interests in the company’s shares as follows:
PJ Claesson
T Crawford
M Vergani
J P Manley
R D Price
A Valdimarsson
O Scott
As at
30 November 2020
Number of shares
As at
30 November 2019
Number of shares
9,828,923
9,828,923
nil
nil
47,940
60,154
101,429
10,421,191
nil
Nil
20,680
54,728
71,429
10,034,591
Mr O Scott’s interest in shares is by virtue of his position as a partner in Kestrel Partners LLP. Mr A Valdimarsson
resigned as a director of the Company on 4 March 2021.
Mr PJ Claesson has interests in warrants for 25p ordinary shares held by companies associated with him as follows:
Company
CA Fastigheter AB
CA Fastigheter AB
Number of warrants
Exercise price
400,000
600,000
123.5p
25p
Clients of Kestrel Partners LLP (in which Mr O Scott is a partner) have interests in 600,000 warrants for 25p ordinary
shares, exercisable at a price of £0.25 per ordinary share. These warrants, and the CA Fastigheter AB 600,000 warrants,
were granted in connection with the April 2020 shareholder loans.
Substantial Shareholdings
The company had been notified of the following interests in the ordinary share capital of the company at 29 March 2021.
Name of holder
Kestrel Partners
PJ Claesson
Canaccord Genuity
Liontrust Asset Mngmt
Richard Griffiths
Number
Percentage Held
10,421,191
9,828,923
6,044,372
4,649,199
4,902,750
24.27%
22.89%
14.07%
10.83%
11.42%
25
2.2 DIRECTORS’ REPORT (continu ed )
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.
Employee Consultation
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 regular 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.
Going Concern
The Group closely reviews its funding position throughout the year, including monitoring compliance with covenants
and available facilities to ensure it has sufficient headroom to fund operations. The disruption arising from COVID-19
introduced additional uncertainty for the Group, but the Group was able to raise additional funding in the period,
exceeded the forecast models with the Group generating a cash inflow of £3.7m in the year ending 30 November 2020.
However, despite the positive cash generation, on 30 November 2020 the Group was in a net current liability position of
£9.0m. This was a result of loan facilities of £6.8m due to expire on 31 March 2021 and a shareholder loan of £3.0m due
for repayment by 30 June 2021.
The Group has prepared cashflow forecast for a period of at least 12 months from the date of approval of the financial
statements which show that the Group will have reasonably significant headroom and be in compliance with covenants.
The forecast has undergone sensitivity analysis and stress testing and the Directors have concluded that there is no
reasonably worst-case scenario that is likely which would mean the group would run out of cash or breach covenants.
The forecast has been strengthened by key actions taken by the Board. On 26 February 2021, the Group agreed the sale
of Starcom Technologies Limited (“Starcom”), our managed services unit, for £14.7m in cash. The sale generated over
£10 million of profit on disposal and following the sale the Group moved into a net cash position. On 26 March 2021 we
successfully agreed an extension to our Revolving Credit Facility with Barclays to March 2022 with an option to extend.
In addition, we are in advanced discussions with shareholders to convert the £3.0m of shareholder loans to equity in the
near future. These actions have put the Group in a net cash position as at 30 March 2021 and significantly reduced the
Group’s short-term liabilities.
The Directors therefore have a reasonable expectation that there are no material uncertainties that cast significant
doubt about the Group’s ability to continue in operation and meet its liabilities as they fall due for the foreseeable
future, being a period of at least 12 months from the date of approval of the financial statements. For these reasons the
financial statements have been prepared on a going concern basis.
26
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 Financial Instruments Risks
Details of financial instruments risks are included in note 19 to the financial statements.
Events after the reporting date
These are detailed in note 27 to the consolidated financial statements.
Auditors
All the current directors have taken all 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
Baltimore House
50 Kansas Avenue
Manchester
M50 2GL
T Crawford
Director
29 March 2021
27
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
2.3 CORPORAT E G OVERNA NC E
STATEM ENT
K3 adopts the Quoted Companies Alliance’s (QCA) Corporate Governance Code (“the Code”) being, in the view of
the Board, the most appropriate recognised corporate governance code having regard to the size and nature of the
K3 Group.
As Chairman of the Board, I am responsible for implementing corporate governance at the K3 Group, working with the
other members of the board and the company secretary. I chair meetings of the board and am responsible for ensuring
the board agenda appropriately focuses on the Group’s potential, strategy, business model and delivery against its
strategic objectives. I am also a member of each board committee.
We have reviewed and considered where and how we apply each of the ten (10) principles of the Code, and we set out an
explanation of this on our website at
https://www.k3btg.com/investor-centre/corporate-govenanance/corporate-governance-code-disclosures,
and below.
QCA Code Principle
K3 Application
Establish a strategy
The Board is responsible for determining the potential and main aims of
and business model
the Company and agreeing a strategy to achieve those aims. The Board
which promote
is also responsible for monitoring progress against the Company’s
long-term value for
strategic and financial goals and for allocating investment or initiating any
shareholders
corrective measures. The strategic report on pages 2 to 21 sets out the
Board’s strategy and business model to promote long-term value
for shareholders.
Seek to understand
K3 seeks to maintain good communication with shareholders. The
and meet shareholder
executive Directors make presentations to institutional shareholders
needs and
expectations
covering interim and full year results. The views of major shareholders
are also obtained through direct face-to-face contact and analysts’ or
brokers’ briefings. The Company also arranges investor presentations from
time to time, to enhance investor engagement with management, and to
elicit feedback.
All shareholders also have the opportunity, formally or informally, to put
questions to the Company’s AGM.
1.
2.
28
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 QCA Code Principle
K3 Application
3.
Take into account
See Section 172 statement on pags 20 to 21
wider stakeholder and
social responsibilities
and their implications
for long-term success
4.
Embed effective
risk management,
considering both
opportunities and
The Board recognises its ultimate accountability for maintaining an
effective system of internal control which is appropriate in relation to the
scope, size, nature and risk within the Group’s activities.
threats, throughout
The responsibility for managing risks on a day-to-day basis lies with the
the organisation
CEO and Senior Leadership Team. The principal business risks and the
actions to mitigate the risks are included on pages 39 to 42. A description
of the risk management adopted by the Board to address the risks
highlighted, and in order to deliver on its strategy, is also included.
The key elements which enable the Board to review the effectiveness of the
system of internal controls are:
• 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 business plan
•
the regular review of the Group’s performance compared with plan
and forecasts
• pre and post investment appraisal of K3 IP development investment;
and
• group reporting instructions and procedures including delegation of
authority and authorisation levels, segregation of duties and other
control procedures, and standardised accounting policies.
29
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 2.3 CORPORATE GOVERNANCE STATEMEN T ( continu ed)
QCA Code Principle
K3 Application
5.
Maintain the board
The Board comprises the non-executive Chairman, two executive directors
as a well-functioning,
and three non-executive Directors. Biographical details of the Board are
balanced team led by
included on pages 22 and 23. The roles of the Chairman and Chief Executive
the chair
are distinct.
All non-executive directors have written terms of appointment and are
paid a fixed fee for their office which is not performance or incentive based.
The only exception to this is the Chairman’s participation in the 2020
LTIP, details of which are set out at page 36, but this is not regarded as
compromising his independence.
The Company currently has two independent non-executive directors (Mr
T Crawford and Mr J P Manley), as recommended by the QCA Code.
Mr J P Manley has previously provided additional consultancy services
for the Company for which he has been paid a fee, in addition to his role
as Non-executive Director, but this is not regarded as compromising his
independence.
Mr P J Claesson (Non-executive Director) is a significant shareholder and
has been on the board for over 9 years and would therefore more likely
not be regarded as independent in accordance with the Code. Mr O Scott
is a founding partner of another significant shareholder, Kestrel Partners
LLP, and, accordingly, Mr O Scott would also likely not be regarded as
independent in accordance with the Code.
Notwithstanding this, the Board believes that the interests of each non-
executive director are aligned with those of shareholders and that the
board composition is appropriate for the circumstances of the Company.
All directors are subject to election by shareholders at the first opportunity
after their appointment. The Articles of Association of the Company
require that no fewer than one-third of directors should be subject to
re-election at each AGM. Any non-executive director serving over 9 years
since first appointment is also subject to re-election at each AGM in
accordance with the Company’s articles.
30
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 QCA Code Principle
K3 Application
5.
continued
Board Meetings and Effectiveness
The Board is supplied with information to enable it to discharge its duties,
which includes a regular monthly Board pack including updates from the
executive management team and detailed financial information measured
against plan or forecast.
The Board is also provided with ad-hoc operational updates, and non-
executive directors regularly communicate with executive directors
between formal board meetings.
Board Meetings
The Board met on 17 occasions during the financial period. Directors are
expected to attend all meetings, and to dedicate sufficient time to the
Group’s business and affairs to enable them to discharge their duties. Board
(and committee) meeting attendance during the financial period was as set
out below.
Director
Board (17) Remuneration (5) Audit (2) Nomination (3)
Mr T Crawford
J P Manley
Mr O Scott
R D Price
A Valdimarsson
P J Claesson
S Darling
P G Morland
2
14
13
17
17
11
12
10
Board Committees
1
5
4
n/a
n/a
5
2
2
n/a
2
1
n/a
n/a
1
2
2
n/a
3
3
n/a
n/a
3
n/a
n/a
The Board has established three standing sub-committees to assist in
the discharge of corporate governance responsibilities. They are the
nominations committee, remuneration committee and audit committee.
The roles of the committees and their activities are available at:
https://www.k3btg.com/investor-centre/corporate-governance/
corporate-governance-code-disclosures/
All four non-executive directors are members of each committee.
31
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 2.3 CORPORATE GOVERNANCE STATEMEN T ( continu ed)
QCA Code Principle
K3 Application
6.
Ensure that between
The composition of the Board is designed to provide an appropriate
them the directors
balance of Group, industry and general commercial experience and is
have the necessary
reviewed as required to ensure that it remains appropriate to the nature of
up-to-date
the Group’s activities.
experience, skills, and
capabilities
Biographical details of the Board (including relevant skills and experience)
are included on pages 22 and 23.
Recommendations for appointments to the Board are the responsibility of
the Nominations Committee.
The Directors also have access to the Company’s Nominated Advisor and
Company Secretary, for support in the furtherance of their duties.
7.
Evaluate board
performance
The Board has established an annual process of Board performance review,
once per calendar year, the first of which was carried out in February 2020.
based on clear and
This has superseded what was previously a more informal evaluation
relevant objectives,
approach. The review process assists the board in identifying any
seeking continuous
structural, procedural and/or individual development needs by reference to
improvement
clear objectives and the results will inform improvement activities.
8.
Promote a corporate
The Group seeks to carry out its business with the highest standards of
culture that is based
integrity, based on sound ethical values, and its corporate culture seeks to
on ethical values and
reflect this premise.
behaviours
The Board maintains oversight of this through receipt of regular
management reporting, which would, where appropriate, include any
material issues relating to corporate culture and integrity and ethics,
including any updates to or non-compliance with key internal ethics
policies.
The Group maintains written policies and procedures concerning a number
of areas that impact on its ethical values, and these policies, which are
shared with all the Group’s staff, underpin some of the ethical elements of
the Group’s culture. These include detailed policies addressing health and
safety, anti-bribery and corruption, whistleblowing, equal opportunities,
and anti-harassment.
32
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 QCA Code Principle
K3 Application
9.
Maintain governance
The Board has responsibility for promoting the success of the Company
structures and
processes that
are fit for purpose
and support good
and for the strategic leadership of the Group, with day-to-day management
of the business of the group the responsibility of the executive directors
and Senior Leadership Team.
decision-making by
The Chairman of the Board is responsible for running the Board, and has
the board
overall responsibility for corporate governance, but with the support of the
other Directors and the Company Secretary.
Shareholder relations are primarily managed by the CEO and CFO.
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 Leadership Team
reporting to him. The types of decisions which are to be taken by the Board
are:
• approval of the financial statements and plans for the Group;
• approval of all shareholders’ circulars and announcements;
• the purchase or sale of any business or subsidiary;
• any new borrowings, facilities and related guarantees; and
• any asset purchase or lease, hire purchase facility or rental agreement
over prescribed authority limits.
10.
Communicate
The Company communicates regularly with shareholders, as further
how the company
described in relation to Code Principle 2 above.
is governed and
is performing
by maintaining
a dialogue with
The Company maintains RNS details on its web-site at:
http://www.k3btg.com/investor-centre/regulatory-news/regulatory-news/
shareholders and
These include notices, as well as results, of the most recent AGM, together
other relevant
stakeholders
with prior years’ annual reports.
T Crawford
Director
29 March 2021
33
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
K3 Business Technology Group plc
Annual Report and Financial Statements for the year ended 30 November 2020
2.4 REM UNERATION
CO MM I T TEE RE PORT
Remuneration Committee Composition
During the period, the Remuneration Committee was chaired by Mr P G Morland and (from the date of Mr P G Morland’s
resignation on 29 May 2020) Mr O Scott and included the other non-executive directors. The CEO and CFO attend
meetings of the Remuneration Committee by invitation.
Remuneration Committee Role and Duties
The Remuneration Committee 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 when necessary.
The salaries (and other remuneration) of the executive directors are determined after considering 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.
The key matters considered and actioned by the Remuneration Committee during the financial period were:
the adoption of a new long-term incentive plan for senior management; and
review and consideration of executive director remuneration.
34
K3 Business Technology Group plc
Annual Report and Financial Statements for the year ended 30 November 2020
Directors’ Remuneration
Set out below is a summary of the total gross remuneration of directors who served during the financial period to
30 November 2020.
Fees/basic
Fees/basic
salary salary waived
Annual
Taxable
bonuses contributions
Pension
Total
Year
ended 30
November
2019
£
£
Chairman
S Darling*
T Crawford**
19,583
45,984
(708)
-
£
-
-
Executive
A Valdimarsson 303,000
179,000
R D Price
(24,267)
(22,918)
9,000
10,429
Non-Executive
PJ Claesson
PG Morland
JP Manley
O Scott***
Aggregate
emoluments
25,000
15,000
50,833
23,879
12,500
-
(4,791)
(12,500)
-
-
-
-
662,279
(77,684)
19,429
£
-
-
-
-
-
-
-
-
-
£
775
-
£
£
19,650
45,984
57,383
-
27,524
15,597
315,257
182,108
339,000
196,233
-
750
-
-
12,500
15,750
46,042
11,379
25,000
31,300
49,250
-
44,646
648,670
698,166
*S Darling retired as Chairman of the Board with effect from 29 May 2020.
**T Crawford was appointed Chair of the Board with effect from 28 October 2020.
***O Scott was appointed non-executive with effect from 17 February 2020.
Included within the fees/ basic salary amount for Mr JP Manley was £nil (2019: £19,250) in relation to consultancy on the
own IP positioning and development and for management of internal systems.
Included within the fees/ basic salary amount for Mr T Crawford was £41,068 (2019: £nil) in relation to strategic
consultancy, which was provided prior to Mr T Crawford’s appointment to the Board.
The executive directors have service contracts providing 6 months’ notice.
Directors’ Pension Entitlements
The company makes contributions to defined contribution schemes for Mr A Valdimarsson, Mr RD Price and previously
made such contributions for former directors Mr S Darling and Mr PG Morland.
Directors’ Share Options and Warrants
Mr PJ Claesson has interests in warrants for 25p ordinary shares held by companies associated with him as follows:
Company
Number of warrants
Exercise price
CA Fastigheter AB
CA Fastigheter AB
400,000
600,000
123.5p
25p
35
2.4 REMUNERATION COMMIT TE E RE PORT (continu ed)
Clients of Kestrel Partners LLP (in which Mr O Scott is a partner) have interests in 600,000 warrants for 25p ordinary
shares, exercisable at a price of £0.25 per ordinary share. These warrants, and the CA Fastigheter AB 600,000 warrants,
were granted in connection with the April 2020 shareholder loans.
1,100,000 options ("2020 LTIP Options") were granted to Mr A Valdimarsson, Mr R D Price and Mr T Crawford during
the year ended 30 November 2020 under the terms of a new K3 Long Term Incentive Plan (the "2020 LTIP"). They are
exercisable at a price of 25p per share, being nominal value.
The 2020 LTIP Options are subject to performance conditions based on the achievement of certain 60 day Volume
Weighted Average Price (‘VWAP’) thresholds of K3 ordinary shares measured between the third and fourth anniversary
of the date of option grant. The 60 day VWAP measurement will be applied to any consecutive 60 trading days during
the 12 month testing period.
The performance targets and associated vesting of the 2020 LTIP Options are:
25% vest at VWAP of 200p;
50% vest at VWAP of 225p; and
100% vest at VWAP of 250p,
with a straight line vesting between these thresholds.
Subject to meeting the above performance targets, the 2020 LTIP Options may be exercised as follows:
50% on or after the fourth anniversary of the date of grant
50% on or after the fifth anniversary of the date of grant.
The 2020 LTIP Options will remain exercisable until the seventh anniversary of the original date of grant, at which point
they will lapse.
It was a condition of the award of the 2020 LTIP Options that Mr A Valdimarsson and Mr R D Price waived and released
their option awards under the Company’s 2018 LTIP scheme.
Aggregate emoluments do not include any amounts for the value of options to acquire ordinary shares in the company
granted to or held by the directors. Details of the options are as follows:
Name of
Director
A Valdimarsson
R D Price
T Crawford
1 December 2019
Granted
Exercised
Lapsed
840,000
550,000
-
500,000
300,000
300,000
-
-
-
840,000
550,000
-
30 November
2020
500,000
300,000
300,000
All options are exercisable at a price of 25p.
The market price of the ordinary shares at 30 November 2020 was 117.5p and the range during the year was 64p to 154.5p.
There are no options outstanding or held by any of the directors, other than as set out above.
36
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
2.5 STATEMENT
OF D I RECTORS’
RESPONSIBIL ITIES
The directors are responsible for preparing the strategic report, 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 in
accordance with international accounting standard in conformity with the requirements of the Companies Act 2006.
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 a 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.
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.
37
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
2.6 EM I SSIO NS AND
ENE RGY CONSUMPTION
These disclosures are made in accordance with Streamlined Energy & Carbon Reporting guidelines. the GHG Protocol
Corporate Accounting and Reporting Standard and the 2019 UK Government Environmental Reporting Guidelines and
we have used the 2020 UK Government’s Conversion Factors for Company Reporting.
The data included covers the FY20 financial year, and will form the base year for future comparison due to this being the
first year that the Group has been subject to the SECR requirements.
We have measured our scope 1 and 2 emissions and included scope 3 emissions related to employee use of their own
vehicles, where they claim mileage allowance (grey fleet). Although we are not regulated to include global emissions, to
provide a more complete emissions statement, we have reported on our UK and Netherlands operations which account
for 87% of our headcount as a voluntary measure.
The energy consumption for serviced offices, which do not have sub-meters, has been calculated using the kWh/m2 of
a similar sized office.
The intensity ratio chosen was tCO2e per £ million turnover. This was chosen as it was deemed to be the best metric
which could be constantly used over time and would best reflect changes in our energy consumption, but also reflect
changes in our operations. As this is the first year of reporting, there is no figure available for the previous year.
Consumption in metric tonnes CO2e
Gas (Scope 1)
Electricity (Scope 2)
UK
60.5
55.7
Employee use of own vehicle (Scope 3)
145.5
Total consumption in metric tonnes CO2e
261.7
Netherlands
8.9
79.4
-
88.3
Total
69.4
135.1
145.5
350.0
Total energy usage in kWh
1,158,758
247,255
1,406,013
Efficiency ration
Consumption in metric tonnes CO2e
Tonnes CO2e per £’m turnover
UK
13.05
Netherlands
3.70
Total
16.75
Despite being our first year of SECR reporting, we do not believe FY20 to be a representative year for the K3 Group.
COVID-19 restrictions worldwide have meant a reliance on homeworking since March 2020. This has reduced the use
of our offices, and travel by our employees has all but halted which has resulted in lower emissions that we would have
expected. Moving forward we therefore expect our emissions to increase as the COVID-19 restrictions begin to be lifted.
Having been through the SECR process for the first time, we have been able to identify sites which have a low level
of energy efficiency, even considering the low office use during the year. It is our intention to look at each property
individually to identify actions to improve both electricity and gas consumption on a site-by-site basis.
38
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
2.7 RI SK
MAN AGEMENT
The Board is responsible for risk management of the Group with the principal business risks which the Group faces
categorised as follows:
Description
Mitigation
Change
Coronavirus
The Group’s customer base is geographically
Down
Coronavirus has had an impact on
the Group’s customer base and
employees. Access to customers and
prospect sites has been restricted
impacting project implementation
and lengthening deal cycles. Trading
results and cash generated were
consequently impacted.
and vertically diverse and generates a portfolio
benefit with some verticals and geographies
performing well whilst others suffer. The Group
has a high level of recurring and predictable
revenue which reduces revenue volatility.
At the start of the coronavirus pandemic the
Group transitioned seamlessly to remote
working, since employees were already skilled
in remote cross geography team working. Large
projects continued to be deployed well across
the globe using remote teams.
Additional capital, to give financial flexibility
during the pandemic, was raised in April 2020
from existing Lenders and shareholders plus
governmental tax deferral schemes were taken
advantage of in several jurisdictions.
Liquidity and Banking Facilities
The Group ensures it has the funds to meet its
Down
The Group has a bank Facilities
Agreement that requires 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.
obligations or commitments under the Facilities
Agreement 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 Group has been re-financed in March
2021 with a final maturity date of 31 March
2022 and at a lower level of indebtedness
following the disposal of Starcom and
associated cash proceeds.
39
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 2.7 RISK MANAGEMENT (continued )
Description
Mitigation
Change
Group strategies and product
management
The Group has invested a significant
amount of funds in the new
K3|imagine platform including its suite
of applications and other own IP. The
risk is that the Group is
unable to commercialise that
investment due to market product
fit, customer engagement, product
stability or pricing.
The Group is re-evaluating market strategy
in 2021 and will ensure that strategy, product,
Up
and business development is market led and
market informed going forwards. The Group
assesses the investment needed for each
product at each point in its natural product
lifecycle regarding ROI. Resourcing is regularly
reviewed compared to development pipeline,
deal closure and market needs. Pricing for new
products is regularly assessed against internal
and external benchmarks.
The Group has some legacy products
and there is a risk that customers may
move away from these.
The Group manages its legacy products with
regard to replacement products, pricing and
continuing support costs.
Supplier Relationships
The key Group supplier and software partners
Flat
The Group benefits from several
close commercial relationships
with key suppliers and software
partners. Damage to or loss of these
relationships could have a direct
and detrimental effect on the
Group’s results.
relationships are secured by commercial
agreements and management participate in
regular product, service, and strategy reviews
with key suppliers and software partners.
Employees
As a global software house, the
Group is committed to attracting
and retaining talent across the globe
without which we would not be able to
operate effectively.
Up
The Group seeks to access global talent
and has expanded its talent catchment with
the opening of the Kuala Lumpur office.
Competitive renumeration is offered together
with the ability to participate in a global bonus
scheme. Long-term incentive plans are in place
to retain key executive talent.
40
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 Change
Down
Description
Mitigation
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.
Coronavirus has only had a minor
impact on credit risk so far.
The Group operates a centralised credit
management function and assesses credit
risk on an individual customer basis and with
standardised contract terms.
The shift to SaaS based products will
structurally reduce the amounts on the
sales ledger as customers move to smaller
more regular payments and with the Group
controlling the right to access software.
Currency risk
Where possible the risk is hedged by amounts
Flat
The Group’s currency risk is primarily
attributable to its trade receivables
where certain customers are billed in
Euros, and other currencies, where
these are not the functional currency
of the Group company. Most employees
are paid in EUR or GBP.
payable in those currencies.
The Group’s banking facilities allow for a blend
in debt in EUR or GBP.
Brexit
The Board has assessed the risk from Brexit
Down
The Brexit deal agreed between
the UK and the EU in December
2020 has given clarity to the future
trading arrangements. The previous
uncertainty in supply chain rules and
governance was impacting customers’
appetite to invest in new supply chain
solutions.
Furthermore, the Group GBP
consolidated reported earnings
would be impacted by any changes
in revaluation of non-GBP earnings
caused by currency movements
regulation and does not believe that Brexit will
have a material impact on the Group due to the
in-country nature of implementations and that
software deployment does not have physical
logistics challenges.
The agreement of a Brexit deal is expected to
give the customer base clarity and is expected to
open up deal opportunities for UK customers.
The Group is able to ensure travel visa
compliance by monitoring EU to UK travel,
however with the increase in remote working,
the need for travel has structurally reduced.
41
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 2.7 RISK MANAGEMENT (continued )
Description
Mitigation
Change
Customer relationships
Although represented by a single ecosystem,
Flat
The Group has a single customer
ecosystem (including franchisees)
which accounts for over 30% of
revenue. Damage to this customer
relationship, or loss of revenue,
would have a significant and
detrimental impact on the Group’s
financial performance.
the customer, projects, and franchisees are
spread across numerous territories
and individual businesses around the
world, mitigating the risk caused by
geopolitical issues.
The systems supplied by K3 are mission
critical for the customer and franchisees. If the
customer were to re-platform this would be
an extremely lengthy and costly process for
the ecosystem which reduces the risk of this
happening in the short to medium term.
K3 has two year rolling contracts with the lead
customer providing K3 with revenue stability.
The customer and franchisees have shown
themselves to be extremely resilient in the
face of disruption caused by coronavirus, with
revenue increasing year on year.
Cyber security
The cyber security landscape risk
is increasing with attacks being
led by increasingly sophisticated
international organisations.
The Group has increased its cyber security
resourcing and has a programme of training
and IT infrastructure improvement projects.
Security policies and incident response
protocols are available on the intranet.
Up
42
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 2.8 AU DIT
CO MM I T TEE RE PORT
Audit Committee Composition
During the financial period, the Audit Committee was chaired by Mr S Darling and (from the date of Mr S Darling’s
resignation on 29 May 2020) Mr O Scott and included the other non-executive directors. The CEO, CFO and external
auditors attend meetings of the Audit Committee by invitation.
Audit Committee Role and Duties
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 committee is also required to review the effectiveness of the group’s internal control systems.
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.
The key matters considered and actioned by the Audit Committee during the financial period were:
review of audit plan and consideration of key audit matters
review of Annual Report and financial statements
review and consideration of external audit report and management representation letter
going concern review
internal control systems review; and
audit meeting with external auditor, without management.
External Auditor and Audit Process
The external auditor, BDO LLP, sets out the scope of its audit in an audit plan, which is reviewed and approved in
advance by the Committee. Following the audit, the auditor presented its findings to the Audit Committee, and no
major areas of concern were highlighted.
The Audit Committee regularly reviews auditor independence, including the provision of any non-audit services by the
auditor. The Audit Committee has confirmed its recommendation to re-appoint BDO LLP at the next AGM.
43
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
2.8 AU DIT COMMIT TEE REPORT (continu ed )
Auditors’ remuneration
Fees for services provided by the auditors have been as follows:
Year ended
30 November 2020
Year ended
30 November 2019
Audit services
Statutory audit of the company
Statutory audit of the subsidiaries
Further assurance services:
Tax services
Advisory services
Overseas tax advice
Other services
Other services
£'000
25
146
-
-
23
194
£'000
25
141
-
-
6
172
During the period, the auditors’ overseas member firms provided non-audit services in relation to tax advice and
company secretarial support to certain overseas subsidiaries. The UK audit firm did not provide any non-audit services.
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.
Risk Management and Compliance
The Audit Committee has reviewed both the Company’s risk management and internal controls (reference on pages 39
to 42), and the Company’s policies on key compliance matters, such as anti-bribery and whistleblowing, and is satisfied
that current control systems and policies are operating effectively.
44
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
3.1 I ND EPENDE NT AUDITOR’ S
REPORT TO THE MEMBERS OF
K3 BU S INESS TECHNOLOGY
GROUP PLC
Opinion
We have audited the financial statements of K3 Business Technology Group plc (the ‘Parent Company’) and its
subsidiaries (the ‘Group’) for the year ended 30 November 2020 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 parent company balance
sheet, the parent 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 accounting standards in conformity with the requirements of the Companies Act 2006.
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).
In our opinion:
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 2020 and of the Group’s loss for the year then ended;
the Group financial statements have been properly prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act 2006;
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 for 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 Group and the Parent Company 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.
45
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
3.1 INDE PENDE NT AUDITOR’S RE PORT (con tin ued )
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.
Key audit matters
Key audit matters are those matters that, in our professional judgement, 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.
46
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
Revenue recognition
How we Addressed the Key Audit Matter
in the Audit
The group has a number of different
revenue streams, each of which has a
different revenue recognition policy
which increases the complexity of the
application of the accounting standards.
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 judgement in
the recognition of revenue between the
components of the contract.
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.
Refer to note 1 of the financial statements
for details in relation to revenue
recognition accounting policies.
• We considered and discussed the management prepared
memo on how the business have continued to implement
IFRS 15 in the year including application to new contracts
and revenue streams. We considered whether the
accounting treatment was in accordance with IFRS 15 for
each revenue stream.
• We tested a sample of revenue contracts, including all
significant new contracts across the group, to assess
whether the revenue had been correctly recognised in line
with IFRS 15 and the Group’s revenue recognition policy.
For each significant new contract in our sample we examined
the agreement to understand the contractual obligations,
to understand the distinct deliverables within the contract
and whether the entities have fulfilled the requirements of
the contract and earned the right to consideration.
• We confirmed appropriate cut-off had been applied at the
year end to check revenue is recognised in the appropriate
accounting period for each revenue stream by testing a
sample of transactions to supporting documentation.
• We tested a sample of cost of sales balances to check
that the related revenue has been correctly recognised in
the period.
• We tested a sample of deferred and accrued income
balances, agreeing to supporting documentation such
as license delivery, employee timecards and maintenance
purchase invoice, to check that these amounts have been
recognised in the appropriate period.
• We tested a sample of debtors and accrued income balances
to post year end cash, invoice and to evidence of the
services having been delivered to confirm their existence.
Key observations:
We consider the judgements that management have made
are reasonable in respect of revenue recognition.
47
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
3.1 INDE PENDE NT AUDITOR’S RE PORT (con tin ued )
Development costs
How we Addressed the Key Audit Matter
in the Audit
All development expenditure that meets
the criteria set out in the accounting
standards 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.
We considered this to be a key audit
matter due to the volume of expenditure
in this area and the judgement involved in
determining whether the criteria outlined
above has been met.
• We have agreed a sample of development costs capitalised
by management 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 tested a sample of the brought forward
development costs to check that they remain supported by
future cash flows.
• We have reviewed the appropriateness of the impairment
of development costs based on future cash flows,
particularly having regard to the change in strategic and
market focus and expectation for future sales.
• We have considered the appropriateness of the
amortisation period by comparison to market averages and
a review of net book values supported by future cash flows.
Refer to notes 1 and 14 of the financial
statements for disclosure.
Key observations:
We consider that management have appropriately capitalised
directly attributable relevant costs in the current year and
assessed the economic return of the projects and have
recognised an appropriate impairment charge for previously
capitalised development costs.
48
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
Carrying value of Intangibles
and Goodwil
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.
We considered this to be a key audit
matter due to the significant element of
judgement involved in this assessment
and the changes in the strategic focus of
the business going forward have resulted
in substantial impairment charges against
goodwill and intangibles.
Refer to notes 1, 14 and 15 of the financial
statements for disclosure.
• We have challenged the calculations prepared by
management in the impairment review.
• We assessed the triggers for the required impairments and
reviewed the strategic decisions made by management
during the year in particular arising from the decision in
the forecast period to cease investing in certain legacy
products.
• We have consulted with our internal valuation specialists to
review the appropriateness of the discount rate applied.
• We have assessed the reasonableness of the assumptions
underlying management’s assessment of goodwill, including
the pipeline and cashflow forecasts for each CGU.
• We considered whether managements CGU’s were
appropriate based on the planned future operation of the
business.
• We have compared actual results for year ended 30
November 2020 to the forecast results for FY 2021 and
beyond.
• We have performed sensitivity analysis for all CGUs on the
discount rate and cashflow forecast.
• We reviewed the disclosures in the financial statements
(notes 14/15) for compliance with accounting standards
requirements.
Key observations:
We consider the assumptions made by management in
assessing the carrying value of intangibles and goodwill to be
reasonable.
49
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
3.1 INDE PENDE NT AUDITOR’S RE PORT (con tin ued )
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
£381,000 (2019: £395,000)
Basis for materiality
0.8% of revenue (0.5% of revenue), small increase reflects the risk
profile of the business following changes in the year.
Rationale for the
Revenue is the most stable and relevant measure for the users of the
benchmark adopted
financial statements, 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 £266,700 (2019: £276,500),
representing 70% of materiality.
Component materiality ranged from £235,000 to £140,000 (2019: £282,000 to £186,000). Parent company materiality
was £155,000 (2019: £186,000), which was based on at 0.6% of its net assets. Performance materiality was set at 70%
for components and the parent company.
We agreed with the audit committee that we would report to them all individual audit differences identified during the
course of our audit in excess of £11,430 (2019: £11,850). 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 significant components, which are located in the UK and Netherlands, all
of which were audited by group auditor.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate
quantitative coverage of significant accounts and transactions in the financial statements, our Group audit scope
focused on the Group’s significant components: the parent company and K3 Business Solutions BV. These two
components, together with UK subsidiaries K3 Syspro Limited and K3 FDS Limited were subject to full scope audits by
the group auditor. Three Irish subsidiaries were subject to detailed audit procedures covering all risk areas performed
50
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
by the UK audit team. The insignificant components were subject to limited scope procedures performed by the group
auditor or BDO Denmark for the DdD sub group. Group reporting instructions were provided to BDO Denmark to
ensure matters of importance to the group audit were considered. In total these components account for 81% of the
Group’s revenue and 90% of the Group’s net assets.
Other information
The Directors are responsible for the other information. The other information comprises the information included in
the annual report and financial statements, 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.
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 year 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 by the Parent Company, 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
we have not received all the information and explanations we require for our audit.
51
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
3.1 INDE PENDE NT AUDITOR’S RE PORT (con tin ued )
Responsibilities of Directors
As explained more fully in the statement of Directors’ responsibilities set out on page 37 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: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Parent 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 Parent 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 Parent Company and the Parent
Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Julien Rye
Senior Statutory Auditor
For and on behalf of BDO LLP, Statutory Auditor
Manchester, UK
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
52
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 3.2 CONSOLI DATED
INCO ME STATEM EN T
FOR THE YEAR END ED 30 NOVE MBE R 20 2 0
Notes
Year ended
30 November
2020
Year ended
30 November
2019 (restated^)
Revenue
Cost of sales
Gross profit
Administrative expenses
Impairment losses on financial assets
2
3
Adjusted EBITDA
Depreciation and amortisation
Amortisation of acquired intangibles
Exceptional Impairment
Exceptional reorganisation costs
Exceptional customer settlement provision
Share-based payment (charge)/credit
29
12/13/14
14
15
3
16
10
(Loss)/profit from operations
Finance expense
Loss before taxation from continuing operations
Tax expense
Loss after taxation from continuing operations
3
6
7
Loss after taxation from discontinued operations
11
Loss for the year
£’000
48,819
(20,110)
28,709
(48,402)
(122)
3,965
(4,500)
(1,471)
(16,855)
(934)
-
(20)
(19,815)
(1,124)
(20,939)
(7)
(20,946)
(184)
(21,130)
£’000
50,094
(21,341)
28,753
(28,799)
115
7,149
(4,260)
(2,161)
-
(362)
(400)
103
69
(776)
(707)
(424)
(1,131)
(14,316)
(15,447)
^ The 2019 results have been restated to present UK Dynamics and Starcom Technologies Limited as discontinued operations.
See Note 11 for further details.
All the loss for the year is attributable to equity shareholders of the parent.
Loss per share
Basic
Diluted
Year ended
30 November
2020
Year ended
30 November
2019 (restated)
9
9
(49.3)p
(49.3)p
(36.0)p
(36.0)p
The notes on pages 59 to 123 form part of these financial statements.
53
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
3.3 CO NSOL IDATED STATEMENT
OF CO MPREHENSIVE IN COME
FOR THE YEAR END ED 30 NOVE MBE R 20 2 0
Loss for the year
Other comprehensive income
Exchange differences on translation of foreign operations
Other comprehensive income
Total comprehensive expense for the year
Year ended
30 November
2020
Year ended
30 November
2019 (restated)
£’000
(21,130)
1,065
(20,065)
(20,065)
£’000
(15,447)
(928)
(16,375)
(16,375)
All the total comprehensive expense is attributable to equity holders of the parent. All the other comprehensive
income will be reclassified subsequently to profit or loss when specific conditions are met. None of the items within
other comprehensive income/(expense) had a tax impact.
The notes on pages 59 to 123 form part of these financial statements.
54
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
3.4 CO NSOL IDATED STATEMENT
OF FI NANCIAL POS ITION
FOR THE YEAR END ED 30 NOVE MBE R 20 2 0
ASSETS
Non-current assets
Property, plant and equipment
Right-of-use assets
Goodwill
Other intangible assets
Deferred tax assets
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Assets classified as held for sale
Total current assets
Total assets
LIABILITIES
Non-current liabilities
Lease liabilities
Borrowings
Provisions
Deferred tax liabilities
Total non-current liabilities
Current liabilities
Trade and other payables
Current tax liabilities
Lease liabilities
Borrowings
Provisions
Liabilities directly associated with assets classified as held for sale
Total current liabilities
Notes
12
13
14/15
14
21
16
11
22
18
20
21
17
22
18
20
11
2020
£’000
1,866
2,719
26,132
10,271
935
41,923
12,195
9,306
6,899
28,400
2019
£’000
2,107
4,058
40,467
14,422
825
61,879
20,746
8,226
-
28,972
70,323
90,851
1,735
-
416
889
3,040
19,145
1,274
925
12,443
9
3,572
37,368
2,507
6,262
294
1,115
10,178
25,008
493
1,410
4,385
120
-
31,416
Total liabilities
40,408
41,594
55
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
3.4 CONSOL IDATED STATEMENT OF FIN AN ACI AL
POSITIO N (continued)
EQUITY
Share capital
Share premium account
Other reserves
Translation reserve
Retained earnings
Total equity attributable to equity holders of the parent
Notes
23
2020
£’000
10,737
28,897
11,151
2,623
(23,493)
29,915
2019
£’000
10,737
28,897
10,448
1,558
(2,383)
49,257
Total equity and liabilities
70,323
90,851
The financial statements on pages 53 to 123 were approved and authorised for issue by the Board of Directors on
29 March 2021 and were signed on its behalf by:
RD Price
Director
The notes on pages 59 to 123 form part of these financial statements.
56
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
3.5 CO NSOL IDATED STATEMENT
OF CASH FLOWS
FOR THE YEAR END ED 30 NOVE MBE R 20 2 0
Notes
10
20
Cash flows from operating activities
Loss for the period
Adjustments for:
Finance expense
Tax expense
7
Depreciation of property, plant and equipment
12
Impairment loss on property, plant and equipment
12
13
Depreciation of right-of-use assets
Amortisation of intangible assets and development expenditure 14
Impairment of intangible assets
14
Impairment of investments
Loss on sale of property, plant and equipment
Share-based payments credit/ (charge)
Loss on disposal of discontinued operations, net of tax
Increase in provisions
Decrease in trade and other receivables
Decrease in trade and other payables
Cash generated from operations
Income taxes
Net cash from operating activities
Cash flows from investing activities
Development expenditure capitalised
Purchase of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from loans and borrowings
Repayment of loans and borrowings
Repayment of lease liabilities
Interest paid on lease liabilities
Finance expense paid
Dividends paid
Net cash from financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at start of year
Exchange gains /(losses) on cash and cash equivalents
Cash and cash equivalents at end of year
14
12
28
28
8
The notes on pages 59 to 123 form part of these financial statements.
Year ended
30 Nov 2020
£’000
Year ended
30 Nov 2020
£’000
(21,130)
(15,447)
1,137
(284)
730
-
1,727
4,247
16,855
-
254
20
957
71
6,680
(2,688)
8,596
(364)
8,232
(4,516)
(713)
(5,229)
9,950
(6,468)
(1,841)
(308)
(590)
-
743
3,746
3,841
(21)
7,566
856
931
794
73
1,737
5,377
12,062
98
-
(103)
-
414
3,629
(4,348)
6,073
(191)
5,882
(4,080)
(666)
(4,746)
4,500
(5,750)
(1,505)
(347)
(385)
(661)
(4,148)
(3,012)
6,914
(61)
3,841
57
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
3.6 CONSOLI DATE STAT EMENT
OF CH ANGES IN EQUIT Y
FOR THE YEAR END ED 30 NOVE MBE R 20 2 0
Note
Share
capital
Share
premium
Other Translation
reserve
reserves
Retained
earnings
Total
equity
£’000
£’000
£’000
£’000
£’000
£’000
At 30 November 2018
10,737
28,897
10,448
2,486
13,828
66,396
Changes in equity for year
ended 30 November 2019
Loss for the year
Other comprehensive
income for the year
Total comprehensive
income/(expense)
Share based reversal
Dividends to equity holders
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(15,447)
(15,447)
(928)
-
(928)
(928)
(15,447)
(16,375)
-
-
(103)
(661)
(103)
(661)
At 30 November 2019
10,737
28,897
10,448
1,558
(2,383)
49,257
Changes in equity for year
ended 30 November 2020
Loss for the year
Other comprehensive
income for the year
Total comprehensive
income/(expense)
Share based reversal
Issue of warrants
-
-
-
-
-
-
-
-
-
-
-
-
-
-
703
-
(21,130)
(21,130)
1,065
-
1,065
1,065
(21,130)
(20,065)
-
-
20
-
20
703
At 30 November 2020
10,737
28,897
11,151
2,623
(23,493)
29,915
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. Own shares represent 47,067 (2019: 66,739) shares held
under an employee share ownership plan which will be issued to the employees when they choose to withdraw them.
The market value of these shares as at 30 November 2020 was £55,304 (2019: £103,445).
The notes on pages 59 to 123 form part of these financial statements.
58
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
3.7 NOTES FORM ING PA RT OF
THE F INA NCIAL STATEMENTS
1. ACCOUNTING POLICIES FOR TH E
GRO UP FINANCIAL STATEMENTS
Statement of compliance
These group financial statements have been prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006. The company financial statements have been prepared
in accordance with Financial Reporting Standard 101, Reduced Disclosure Framework (“FRS101”); these are presented
on pages 124 to 133.
The financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair
value of the consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, regardless of whether that price is directly observable or
estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into
account the characteristics of the asset or liability if market participants would take those characteristics into account
when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in
these consolidated financial statements is determined on such a basis, except for share-based payment transactions
that are within the scope of IFRS 2, leasing transactions that are within the scope of IFRS 16, and measurements that
have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.
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 unless the Group has exercised any exemptions arising
following the adoption of new or revised IFRSs allowing the Group to not restate the comparative information.
The financial statements are presented in Sterling and in round thousands.
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K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 1. ACCOUNTING POLICIES FOR TH E
GRO U P FINANCIAL STATEMENTS (co nt inued)
Going Concern
The Group closely reviews its funding position throughout the year, including monitoring compliance with covenants
and available facilities to ensure it has sufficient headroom to fund operations. The disruption arising from COVID-19
introduced additional uncertainty for the Group, but the Group was able to raise additional funding in the period,
exceeded the forecast models with the Group generating a cash inflow of £3.7m in the year ending 30 November 2020.
However, despite the positive cash generation, on 30 November 2020 the Group was in a net current liability position of
£9.0m. This was a result of loan facilities of £6.8m due to expire on 31 March 2021 and a shareholder loan of £3.0m due
for repayment by 30 June 2021.
The Group has prepared cashflow forecast for a period of at least 12 months from the date of approval of the financial
statements which show that the Group will have reasonable significant headroom and be in compliance with covenants.
The forecast has undergone sensitivity analysis and stress testing and the Directors have concluded that there is no
reasonable worst-case scenario that is likely which would mean the group would run out of cash or breach covenants.
The forecast has been strengthened by key actions taken by the Board. On 26 February 2021, the Group agreed the sale
of Starcom Technologies Limited (“Starcom”), our managed services unit, for £14.7m in cash. The sale generated over
£10 million of profit on disposal and following the sale the Group moved into a net cash position. On 26 March 2021 we
successfully agreed an extension to our Revolving Credit Facility with Barclays to March 2022 with an option to extend.
In addition, we are in advanced discussions with shareholders to convert the £3.0m of shareholder loans to equity in the
near future. These actions have put the Group in a net cash position as at 29 March 2021 and significantly reduced the
Group’s short-term liabilities.
The Directors therefore have a reasonable expectation that there are no material uncertainties that cast significant
doubt about the Group’s ability to continue in operation and meet its liabilities as they fall due for the foreseeable
future, being a period of at least 12 months from the date of approval of the financial statements.
60
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
Adoption of new and revised standards
New accounting standards adopted by the Group
The following IFRS have been adopted by the Group for the first time in these financial statements:
Amendments to References
The Group has adopted the amendments included in Amendments to
to the Conceptual
Framework in IFRS
Standards
References to the Conceptual Framework in IFRS Standards for the first time
in the current year. The amendments include consequential amendments to
affected Standards so that they refer to the new Framework.
Not all amendments, however, update those pronouncements with regard
to references to and quotes from the Framework so that they refer to the
revised Conceptual Framework. Some pronouncements are only updated to
indicate which version of the Framework they are referencing to (the IASC
Framework adopted by the IASB in 2001, the IASB Framework of 2010, or
the new revised Framework of 2018) or to indicate that definitions in the
Standard have not been updated with the new definitions developed in the
revised Conceptual Framework.
The Standards which are amended are IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS
1, IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and
SIC-32.
Amendments to IFRS 3
The Group has adopted the amendments to IFRS 3 for the first time in the
Definition of a business
current year. The amendments clarify that while businesses usually have
outputs, outputs are not required for an integrated set of activities and
assets to qualify as a business. To be considered a business an acquired
set of activities and assets must include, at a minimum, an input and a
substantive process that together significantly contribute to the ability
to create outputs. The amendments remove the assessment of whether
market participants are capable of replacing any missing inputs or processes
and continuing to produce outputs. The amendments also introduce
additional guidance that helps to determine whether a substantive process
has been acquired. The amendments introduce an optional concentration
test that permits a simplified assessment of whether an acquired set of
activities and assets is not a business. Under the optional concentration
test, the acquired set of activities and assets is not a business if substantially
all of the fair value of the gross assets acquired is concentrated in a single
identifiable asset or group of similar assets. The amendments are applied
prospectively to all business combinations and asset acquisitions for which
the acquisition date is on or after 1 January 2020. This has had no impact for
the Group for the year ending 30 November 2020.
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K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 1. ACCOUNTING POLICIES FOR TH E
GRO U P FINANCIAL STATEMENTS (co nt inued)
Amendments to IAS 1 and
The Group has adopted the amendments to IAS 1 and IAS 8 for the first
IAS 8 Definition of material
time in the current year. The amendments make the definition of material
in IAS 1 easier to understand and are not intended to alter the underlying
concept of materiality in IFRS Standards. The concept of 'obscuring'
material information with immaterial information has been included as
part of the new definition. The threshold for materiality influencing users
has been changed from 'could influence' to 'could reasonably be expected
to influence'. The definition of material in IAS 8 has been replaced by
a reference to the definition of material in IAS 1. In addition, the IASB
amended other Standards and the Conceptual Framework that contain a
definition of 'material' or refer to the term ‘material’ to ensure consistency.
New and revised IFRS Standards in issue but not yet effective
At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRS
Standards that have been issued but are not yet effective:
IFRS 17
IFRS 10 and IAS 28
(amendments)
Amendments to IAS 1
Amendments to IFRS 3
Amendments to IAS 16
Amendments to IAS 37
Insurance Contracts
Sale of Contribution of Assets between and Investor and it Associate or
Joint Venture
Classification of Liabilities as Current or Non-current
Reference to the Conceptual Framework
Property, Plant and Equipment—Proceeds before Intended Use
Onerous Contracts – Cost of Fulfilling a Contract
Annual Improvements to
Amendments to IFRS 1 First-time Adoption of International Financial
IFRS Standards 2018-2020
Reporting Standards, IFRS 9 Financial Instruments, IFRS 16 Leases, and IAS
Cycle
41 Agriculture
The directors do not expect that the adoption of the Standards listed above will have a material impact on the financial
statements of the Group in future periods.
62
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by
the Company (its subsidiaries) made up to 30 November each year. The company controls an investee if all three of the
following elements are present:
power over the investee;
exposure, or has rights, to variable returns from the investee; and
the ability of the investor to use its power to affect those returns.
Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements
of control.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the
Company loses control of the subsidiary.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies
used into line with the Group’s accounting policies.
All intragroup assets and liabilities, equity, income, expenses, and cash flows relating to transactions between the
members of the Group are eliminated on consolidation.
Business combinations
All business combinations are accounted for by applying the acquisition method. The consideration transferred in a
business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of
assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree.
and the equity interest issued by the Group in exchange for control of the acquiree. Acquisition-related costs are
recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired, and the liabilities assumed are recognised at their fair value at
the acquisition date, except that:
deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognised
and measured in accordance with IAS 12 and IAS 19 respectively;
liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based
payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree
are measured in accordance with IFRS 2 at the acquisition date (see below); and
assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 are measured in
accordance with that Standard.
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K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
1. ACCOUNTING POLICIES FOR TH E
GRO U P FINANCIAL STATEMENTS (co nt inued)
Business combinations (continued)
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling
interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any)
over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after
reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed
exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the
fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit
or loss as a bargain purchase gain.
When the consideration transferred by the Group in a business combination includes a contingent consideration
arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the
consideration transferred in a business combination. Changes in fair value of the contingent consideration that qualify
as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill.
Measurement period adjustments are adjustments that arise from additional information obtained during the
‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that
existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify
as measurement period adjustments depends on how the contingent consideration is classified. Contingent
consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent
settlement is accounted for within equity. Other contingent consideration is remeasured to fair value at subsequent
reporting dates with changes in fair value recognised in profit or loss.
When a business combination is achieved in stages, the Group’s previously held interests (including joint operations) in
the acquired entity are remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is recognised
in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been
recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate
if that interest were disposed of.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the
combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete.
Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities
are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition
date that, if known, would have affected the amounts recognised as of that date.
64
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 Goodwill
Goodwill is initially recognised and measured as set out opposite.
Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing,
goodwill is allocated to each of the Group’s subsidiaries or cash-generating units (or groups of cash-generating units)
expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated
are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the
recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the
unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is
not reversed in a subsequent period.
On disposal of a subsidiary or cash-generating unit, the attributable net book value of goodwill is included in the
determination of the profit or loss on disposal.
Revenue recognition
The Group contracts for products and services in a variety of contractual forms and deployment methods which impact
IFRS 15 revenue recognition. These include:
Reselling of 3rd party products for which following contracting the Group has no continuing performance
obligations for software and the customer controls the software. These are usually perpetual licenses with
customer on premise installations. Since the Group is reselling these all already functional products, services are
unbundled. Customers can also choose to take maintenance and support for these products or indeed obtain
services, support and maintenance from different suppliers.
K3 own software IP (Intellectual Property) that adds incremental vertical functionality and bolts onto Microsoft
Dynamics products and that is either sold directly to customer or via a channel partner. K3 does not control the
software after the contract and issue of access code, which is contemporaneous. There is an ongoing
performance obligation to maintain the product to ensure the functionality continues to bolt onto Microsoft
Dynamics products.
K3 own IP on products for which K3 controls and has ongoing performance obligations. These products are
typically SaaS (Software as a Service) based subscription products which include a right to access as the
customer continuously consumes functionality. The product offer is a typical bundle of software access,
maintenance and support. The contracts typically have a low level of services.
Software revenue:
Software licenses for 3rd party products are recognised at a point in time, on contract and issue of the initial license key
which is contemporaneous.
K3 bolt on own IP is recognised at a point in time, on contract and issue of the license key which is contemporaneous.
K3 own IP which is SaaS based is recognised over time and not in software but rather in maintenance and support for
the purposes of revenue disaggregation disclosures. Revenue is recognised over time as K3 controls the product, the
license is not distinct and the customer continually receives benefits.
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K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
1. ACCOUNTING POLICIES FOR TH E
GRO U P FINANCIAL STATEMENTS (co nt inued)
Services revenues
Services are linked to implementation and set up of own IP and 3rd party products, rather than product functionality
build. Services are contracted for on a time and materials basis, the customer takes ownership of the work delivered and
revenue is recognised as it is performed.
Hardware:
Hardware is peripheral to a number of contract implementations, the revenue is recognised when the customer takes
control of the asset on delivery.
Maintenance and Support:
Maintenance refers to the maintenance of the products and ensuring a right to upgrade whilst Support refers to
ongoing customer support including for example help desk access.
3rd party products maintenance and support are provided by the product’s author K3 has no performance obligation
and this is sold through K3 for a margin. Revenue is recognised for the term of the contract at a point in time when the
contract is signed. Support of 3rd party products is provided by K3 over time over the term of the contract.
K3 bolt on own IP is typically re-sold via channel partners who provide support. K3 has an ongoing performance
obligation for the maintenance of the product and recognises a portion of revenue associated with that over time.
K3 own IP SaaS / subscription products and usually hosted by K3 and typically a bundled offer of maintenance and
support is provided to customers which are both performance obligations for K3 and revenue is recognised over time.
Allocation of transaction price:
Transaction price is measured based on the consideration specified in a contract with a customer and, where applicable,
the best estimate of any consideration related to modifications to the contract which has yet to be agreed. Any
amounts expected to be paid to the customer, such as penalties for late delivery, are deducted from the consideration.
Where a transaction price must be allocated between multiple performance obligations, this is generally achieved
through allocating a proportion of total price against each using either standard list sales prices or an estimated cost
methodology.
Leases
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a
right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee,
except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets
(such as tablets and personal computers, small items of office furniture and telephones). For these leases, the Group
recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless
another systematic basis is more representative of the time pattern in which economic benefits from the leased assets
are consumed.
66
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 The lease liability is initially measured at the present value of the lease payments that are not paid at the
commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the
lessee uses its incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise:
Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable;
Variable lease payments that depend on an index or rate, initially measured using the index or rate at the
commencement date;
The amount expected to be payable by the lessee under residual value guarantees;
The exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate
the lease.
The lease liability is presented as a separate line in the consolidated statement of financial position.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease
liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset)
whenever:
The lease term has changed or there is a significant event or change in circumstances resulting in a change in
the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting
the revised lease payments using a revised discount rate.
The lease payments change due to changes in an index or rate or a change in expected payment under a
guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease
payments using an unchanged discount rate (unless the lease payments change is due to a change in a floating
interest rate, in which case a revised discount rate is used).
A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the
lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease
payments using a revised discount rate at the effective date of the modification.
The Group did not make any such adjustments during the periods presented.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at
or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently
measured at cost less accumulated depreciation and impairment losses.
Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it
is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision
is recognised and measured under IAS 37. To the extent that the costs relate to a right-of-use asset, the costs are
included in the related right-of-use asset, unless those costs are incurred to produce inventories.
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K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
1. ACCOUNTING POLICIES FOR TH E
GRO U P FINANCIAL STATEMENTS (co nt inued)
Leases (continued)
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a
lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects
to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset.
The depreciation starts at the commencement date of the lease.
The right-of-use assets are presented as a separate line in the consolidated statement of financial position.
The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified
impairment loss as described in the ‘Property, Plant and Equipment’ policy.
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 can 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.
68
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and
associates, except where the group can 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.
Dividends
Dividends are recognised when paid.
Property, plant and equipment
Items of property, plant and equipment are stated at cost less accumulated depreciation and accumulated
impairment loss.
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 recognised 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
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period,
with the effect of any changes in estimate accounted for on a prospective basis.
Right-of-use assets are depreciated over the shorter period of the lease term and the useful life of the underlying
asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the
Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the
underlying asset.
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K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
1. ACCOUNTING POLICIES FOR TH E
GRO U P FINANCIAL STATEMENTS (co nt inued)
Property, plant and equipment (continued)
Provision is made against the carrying value of items of property, plant, and equipment where impairment in value is
deemed to have occurred.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. The gain or loss arising on the disposal or retirement of an asset
is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in
profit or loss.
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
Contractual and non-contractual
5-15 years
customer relationships
Estimated discounted cash flow
Intellectual property rights
6-10 years
Estimated royalty stream if the rights
were to be licensed
were to be licensed
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 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.
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K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
The expenditure capitalised represents the cost of direct labour and third-party costs 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 of property, plant and equipment -and intangible assets excluding goodwill
At each reporting date, the Group reviews the carrying amounts of its property, plant and equipment and intangible
assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if
any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the
recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of
allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they
are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can
be identified.
Intangible assets with an indefinite useful life are tested for impairment at least annually and whenever there is an
indication at the end of a reporting period that the asset may be impaired.
Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, 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.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the
carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is
recognised immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is
increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not
exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset
(or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss to
the extent that it eliminates the impairment loss which has been recognised for the asset in prior years.
71
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 1. ACCOUNTING POLICIES FOR TH E
GRO U P FINANCIAL STATEMENTS (co nt inued)
Financial instruments
Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group
becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable
to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at
fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities,
as appropriate, on initial recognition.
Financial assets
All recognised financial assets are measured subsequently in their entirety at either amortised cost or fair value,
depending on the classification of the financial assets.
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest
income over the relevant period.
For financial assets other than purchased or originated credit-impaired financial assets (i.e. assets that are credit-impaired
on initial recognition), the effective interest rate is the rate that exactly discounts estimated future cash receipts (including
all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other
premiums or discounts) excluding expected credit losses, through the expected life of the debt instrument, or, where
appropriate, a shorter period, to the gross carrying amount of the debt instrument on initial recognition
The amortised cost of a financial asset is the amount at which the financial asset is measured at initial recognition
minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference
between that initial amount and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a
financial asset is the amortised cost of a financial asset before adjusting for any loss allowance.
Interest income is recognised using the effective interest method for debt instruments measured subsequently at
amortised cost and at FVTOCI. For financial assets, other than purchased or originated credit-impaired financial assets,
interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset,
except for financial assets that have subsequently become credit-impaired (see below). For financial assets that have
subsequently become credit-impaired, interest income is recognised by applying the effective interest rate to the
amortised cost of the financial asset. If, in subsequent reporting periods, the credit risk on the credit-impaired financial
instrument improves so that the financial asset is no longer credit-impaired, interest income is recognised by applying
the effective interest rate to the gross carrying amount of the financial asset.
The Group recognises a loss allowance for expected credit losses on trade receivables and contract assets. The amount
of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of
the respective financial instrument.
The Group always recognises lifetime ECL for trade receivables and contract assets. The expected credit losses on these
financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for
factors that are specific to the debtors, general economic conditions, and an assessment of both the current as well as the
forecast direction of conditions at the reporting date, including time value of money where appropriate.
72
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life
of a financial instrument.
In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the
Group compares the risk of a default occurring on the financial instrument at the reporting date with the risk of a
default occurring on the financial instrument at the date of initial recognition. In making this assessment, the Group
considers both quantitative and qualitative information that is reasonable and supportable, including historical
experience and forward-looking information that is available without undue cost or effort. Forward-looking information
considered includes the future prospects of the industries in which the Group’s debtors operate, obtained from
economic expert reports, financial analysts, governmental bodies, relevant think-tanks and other similar organisations,
as well as consideration of various external sources of actual and forecast economic information that relate to the
Group’s core operations.
In particular, the following information is considered when assessing whether credit risk has increased significantly
since initial recognition:
existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a
significant decrease in the debtor’s ability to meet its debt obligations;
an actual or expected significant deterioration in the operating results of the debtor;
significant increases in credit risk on other financial instruments of the same debtor;
an actual or expected significant adverse change in the regulatory, economic, or technological environment of the
debtor that results in a significant decrease in the debtor’s ability to meet its debt obligations.
Irrespective of the outcome of the above assessment, the Group presumes that the credit risk on a financial asset has
increased significantly since initial recognition when contractual payments are more than 30 days past due, unless the
Group has reasonable and supportable information that demonstrates otherwise.
Despite the foregoing, the Group assumes that the credit risk on a financial instrument has not increased significantly
since initial recognition if the financial instrument is determined to have low credit risk at the reporting date. A financial
instrument is determined to have low credit risk if:
(1) The financial instrument has a low risk of default,
(2) The debtor has a strong capacity to meet its contractual cash flow obligations in the near term, and
(3) Adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the
ability of the borrower to fulfil its contractual cash flow obligations.
The Group writes off a financial asset when there is information indicating that the debtor is in severe financial difficulty
and there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into
bankruptcy proceedings, or in the case of trade receivables, when the amounts are over two years past due, whichever
occurs sooner. Financial assets written off may still be subject to enforcement activities under the Group’s recovery
procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss.
73
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
1. ACCOUNTING POLICIES FOR TH E
GRO U P FINANCIAL STATEMENTS (co nt inued)
Financial liabilities
All financial liabilities are measured initially at amortised cost using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating
interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated
future cash payments (including all fees and points paid or received that form an integral part of the effective interest
rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where
appropriate) a shorter period, to the amortised cost of a financial liability.
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or
have expired. The difference between the carrying amount of the financial liability derecognised and the consideration
paid and payable is recognised in profit or loss.
When the Group exchanges with the existing lender one debt instrument into another one with the substantially
different terms, such exchange is accounted for as an extinguishment of the original financial liability and the
recognition of a new financial liability. Similarly, the Group accounts for substantial modification of terms of an existing
liability or part of it as an extinguishment of the original financial liability and the recognition of a new liability
Equity instruments
Equity instruments issued by the group are recorded at the proceeds received, net of direct issue costs.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of
the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation
at the reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is
measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of
those cash flows (when the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third
party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received, and the amount
of the receivable can be measured reliably.
74
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 Restructuring
A restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring and
has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan
or announcing its main features to those affected by it. The measurement of a restructuring provision includes only the
direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the
restructuring and not associated with the ongoing activities of the entity.
Onerous contracts
Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is
considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under
the contract exceed the economic benefits expected to be received under it.
Restoration provisions
Provisions for the costs to restore leased assets to their original condition, as required by the terms and conditions
of the lease, are recognised when the obligation is incurred, either at the commencement date or as a consequence
of having used the underlying asset during a particular period of the lease, at the directors’ best estimate of the
expenditure that would be required to restore the assets. Estimates are regularly reviewed and adjusted as appropriate
for new circumstances.
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.
Share-based payments
The group issues equity-settled share-based payments to certain employees (i.e., share options). Equity-settled
share-based payments are measured at fair value at the date of grant. Fair value is measured by use of a trinomial lattice
model. The expected life used in the model has been adjusted, based on the group’s best estimate for the effects of
non-transferability, exercise restrictions and behavioural considerations.
The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the
group’s estimate of the number of shares that will eventually vest. Non-market vesting conditions are considered
by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the
cumulative amount recognised over the vesting period is based on the amount that eventually vest. Market vesting
conditions are factored into the fair value of the options and warrants granted. As long as all other vesting conditions
are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. Where group no
longer feels that the conditions will be met for the options to vest any charge is subsequently reversed.
75
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 1. ACCOUNTING POLICIES FOR TH E
GRO U P FINANCIAL STATEMENTS (co nt inued)
Warrants
Warrants issued which will be settled by the Group’s own equity, and not by cash or another financial asset, are classified
as equity instruments. The warrants are measured at fair value at the date of grant and initially recognised in equity. The
fair value determined at the grant date is expensed as a finance costs on a straight-line basis over the term of the loan.
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
The presentational currency is sterling.
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.
76
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 Critical accounting estimates and judgements
In applying the Group’s accounting policies above the directors are required to make judgements (other than
those involving estimations) that have a significant impact on the amounts recognised and to make estimates and
assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical experience and other factors that are considered to be
relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current and future periods.
The directors are of the opinion that there are no significant judgements to be disclosed except those over going
concern which are disclosed in detail in the basis of preparation accounting policy in note 1. The key sources of
estimation that have a significant impact on the carrying value of assets and liabilities are discussed below:
Impairment of goodwill and other intangibles
Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating units to
which goodwill has been allocated. The value in use calculation requires an entity to estimate the future cash flows
expected to arise from the cash generating unit. It also requires judgement as to a suitable discount rate in order to
calculate present value, i.e., the directors’ current best estimate of the weighted average cost of capital (“WACC”).
Other intangibles are assessed annually for impairment as well as when triggers of impairment arise. An impairment
review has been performed at the reporting date. More details including carrying values are included in note 15.
Capitalised development expenditure and subsequent amortisation
Where such expenditure meets the relevant criteria, the group is required to capitalise development expenditure.
In order to assess whether the criteria are met the Board is required to make estimates in relation to likely income
generation and financial and technical viability of the relevant development projects and the period over which the
group is likely to benefit from such expenditure. Development projects are subject to an investment appraisal process
with the product managers to assess the status of the development and the expected commercial opportunities.
Development costs are assessed for impairment which requires an estimation of the future expected revenues to be
generated from each product. This methodology, which is similar to that used to assess any impairment of goodwill, is
discussed further in note 15. Expenditure is only capitalised when the investment appraisal process has assessed that
the product is likely to benefit the Group in the future. More details including carrying values are included in note 15.
77
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 1. ACCOUNTING POLICIES FOR TH E
GRO U P FINANCIAL STATEMENTS (co nt inued)
Critical accounting estimates and judgements (continued)
Calculation of loss allowance
When measuring expected credit losses, the Group uses reasonable and supportable forward-looking information,
which is based on assumptions for the future movement of different economic drivers and how these drivers will affect
each other.
Loss given default is an estimate of the loss arising on default. It is based on the difference between the contractual
cash flows due and those that the lender would expect to receive, taking into account cash flows from collateral and
integral credit enhancements.
Probability of default constitutes a key input in measuring Expected Credit Losses (ECL). Probability of default is
an estimate of the likelihood of default over a given time horizon, the calculation of which includes historical data,
assumptions and expectations of future conditions.
If the ECL rates on trade receivables between 61 and 90 days past due had been 50 per cent higher as of November
2020, the loss allowance on trade receivables would have been £2k (2019: £15k) higher.
If the ECL rates on trade receivables between 31 and 60 days past due had been 50 per cent higher as of November
2019, the loss allowance on trade receivables would have been £11k (2019: £15k) higher.
Calculation of incremental borrowing rate and lease term in respect of IFRS 16
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term,
with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is
not readily determinable, in which case the group’s incremental borrowing rate on commencement of the lease is used.
The group’s incremental borrowing rate is calculated by reference to borrowing rates applicable to the group’s other
borrowings/financial liabilities and then adjusted for the specifics of the lease and asset. For every 0.5% increase in
the incremental borrowing rate the right of use asset and lease liability recognised would increase by approximately
£300,000, conversely an equivalent reduction in the incremental borrowing rate would decrease the right of use asset
and liability by approximately £300,000.
Lease term is ordinarily calculated by reference to the contractual terms of the group’s leases. Management may
change their estimates in respect of the term of any lease if the probability of an extension or termination option, within
the lease contract, being exercised changes. As a result of any change in estimate of the lease term the group adjusts
the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted
using a revised discount rate. An equivalent adjustment is made to the carrying value of the right-of-use asset, with the
revised carrying amount being amortised over the remaining (revised) lease term. If the carrying amount of the right-of-
use asset is adjusted to zero, any further reduction is recognised in profit or loss. Further details are provided in note 13.
78
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 Prior period restatement
On 21 April 2020, the UK Dynamics subsidiary was put into administration and has been classified as a discontinued
operation as it represented a major line of business for the Group. On 26 February 2021, the Group announced that it
had completed a sale of the Starcom Technologies Limited and is classified as a disposal group held for sale and as a
discontinued operation as it represented a major line of business of the Group. The 2019 comparatives have therefore
been restated to present UK Dynamics and Starcom as discontinued operations. The prior period restatement is
explained in note 11.
Government grants
Government grants are recognised in profit or loss on a systematic basis over the periods in which the entity recognises
expenses for the related costs for which the grants are intended to compensate.
2. REVE NUE
The group’s revenue comprises:
Software licence revenue
Services revenue*
Maintenance & support**
Hardware and other revenue
Revenue
* from installation, integration, and software development services.
**from software maintenance renewals, support contracts and software as a service (“SaaS”).
Year ended
30 November
2020
Year ended
30 November
2019 (restated)
£’000
£’000
5,764
17,821
23,715
1,519
48,819
5,902
18,508
23,201
2,483
50,094
79
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
3. LOSS FROM O PERATIONS
This has been arrived at after charging / (crediting):
Staff costs
Government Furlough Scheme Grant
Depreciation of property, plant, and equipment
(Profit)/loss on disposal of fixed assets
Depreciation of right-of-use assets
Amortisation of acquired intangible assets
Amortisation of development costs
Note
4
12
13
14
14
Exceptional impairment of Goodwill and Intangibles1
14/15
Exceptional reorganisation costs2
Exceptional customer settlement provisions
Loss allowance on trade receivables
Audit fees:
-Audit services
-Non-audit services
Year ended
30 November
2020
Year ended
30 November
(restated) 2019
£’000
£’000
26,950
(229)
730
(30)
1,727
1,791
2,456
16,855
934
-
122
171
23
24,487
-
794
-
1,737
2,482
2,895
-
362
400
(115)
166
6
1 The exceptional impairments arise from the value in use assessment as set out in notes 14 and 15.
2 During the year the Group continued to achieve operating efficiencies following on from the reorganisation programme of previous years. The total
reorganisation costs, predominantly redundancy, were £0.9m (2019: £0.4m).
4. STAFF COSTS
Staff costs (including directors) comprise:
Wages and salaries
Short-term non-monetary benefits
Defined contribution pension cost
Share-based payment (credit)/ expense (see note 10)
Employers national insurance contributions and similar taxes
Year ended
30 November
2020
Year ended
30 November
(restated) s2019
£’000
£’000
22,431
61
1,762
20
2,676
26,950
20,622
62
1,407
(103)
2,499
24,487
Of the above staff costs, £4.2m (2019: £3.5m) has been capitalised within development costs (see note 14).
80
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
The average number of employees in continuing operations during the year was:
Consultants and programmers
Sales and distribution
Administration
Year ended
30 November
2020
Year ended
30 November
(restated) 2019
Number
Number
353
58
62
473
306
62
86
454
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 page 24 and the
divisional directors.
Key management personnel remuneration consists of:
Remuneration
Company contributions to defined contribution pension schemes
Share-based payment expense (note 10)
Employers' national insurance contributions and similar taxes
Year ended
30 November
2020
Year ended
30 November
(restated) 2019
£’000
1,614
76
20
101
1,811
£’000
1,402
113
-
110
1,625
No share options were exercised during the year, hence there were no gains on exercise of share options (30 November
2019: £nil).
Included in the totals above is directors’ remuneration:
Directors’ remuneration consists of:
Emoluments
Contributions to personal pension schemes
Total per remuneration report (page 35)
Employers national insurance contributions and similar taxes
Year ended
30 November
2020
Year ended
30 November
(restated) 2019
Number
Number
604
45
649
31
680
647
51
698
35
733
81
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
4. STA FF COSTS (continued)
Directors and key management personnel remuneration (continued)
Remuneration in respect of the highest paid director:
Aggregate Emoluments
Pension contributions
Year ended
30 November
2020
Year ended
30 November
(restated) 2019
Number
Number
287
28
315
309
30
339
There were 4 directors in defined contribution pension schemes (2019: 4). 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 this note.
5. SEGME NT INFORM ATION
We have restated the 2019 segment information to remove the discontinued activities of UK Dynamics and Starcom
Technologies Limited. In addition, we have restated 2019 in order to recognise the new segment, Global Accounts.
During the past two financial years the group has moved to a more streamlined organisation with management
resource and central services focused on working across the group in a more unified manner to increase the strategic
focus on the level of our own IP sales. Reporting is now based on product K3 own IP, Global Accounts and 3rd party
products revenue and gross margin. Overheads and administrative expenses are included as a central cost given
resource works across these three segments. The activities and products and services of the operating segments are
detailed in the Strategic Report on pages 2 to 21.
Transactions between operating segments are on an arms-length basis.The CODM (Chief Operating Decision Maker,
the Board) primarily assesses the performance of the operating segments based on product revenue, gross margin
and group adjusted EBITDA*1. The segment results for the year ended 30 November 2020 and for the year ended 30
November 2019, reconciled to loss for the year.
*See note 29 on page 122 for further details
82
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
Year ended 30 November 2020
K3 Own IP
products
Global
Accounts
3rd party
products
£’000
20,100
(3,951)
3,248
1,169
10,308
1,424
16,149
(3,909)
12,240
75.8%
£’000
19,479
(2,220)
718
13,472
3,045
24
17,259
(9,845)
7,414
43.0%
£’000
16,146
(735)
1,798
3,180
10,362
71
15,411
(6,356)
9,055
58.8%
Central
Costs
£’000
458
(458)
-
-
-
-
-
-
-
-
Total
£’000
56,183
(7,364)
5,764
17,821
23,715
1,519
48,819
(20,110)
28,709
58.8%
Total segment revenue
Less Inter-segment revenue
Software licence revenue
Services revenue
Maintenance & support
Hardware and other revenue
External revenue
Cost of sales
Gross profit
Gross margin
Underlying administrative expenses*7
-
-
(24,744)
(24,744)
(24,744)
Adjusted EBITDA*1 from
continuing operations
Depreciation and amortisation
Amortisation of acquired intangibles
Exceptional impairment
Exceptional reorganisation costs
Exceptional customer
settlement provision
Share-based payment (charge)/credit
12,240
7,414
9,055
(24,744)
3,965
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(4,500)
(1,471)
(16,855)
(934)
-
(20)
(4,500)
(1,471)
(16,855)
(934)
-
(20)
Loss from operations
12,240
7,414
9,055
(48,524)
(19,815)
Finance expense
-
-
-
(1,124)
(1,124)
Loss before tax and
discontinued operations
12,240
7,414
9,055
(49,648)
(20,939)
Tax expense
Loss from discontinued operations
-
-
-
-
-
-
(7)
(184)
(7)
(184)
Loss for the year
12,240
7,414
9,055
(49,839)
(21,130)
83
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
5. SEGM ENT INFORMATION (con tinu ed)
Year ended 30 November 2019 (restated^)
K3 Own IP
products
Global
Accounts
3rd party
products
Total segment revenue
Less Inter-segment revenue
Software licence revenue
Services revenue
Maintenance & support
Hardware and other revenue
External revenue
Cost of sales
Gross profit
Gross margin
£’000
22,335
(4,459)
3,024
1,011
11,482
2,359
17,876
(5,233)
12,643
70.7%
Underlying administrative expenses*7
-
£’000
17,765
(2,037)
707
12,786
2,223
-
15,728
(9,574)
6,154
39.1%
-
Central
Costs
£’000
-
-
-
-
-
-
-
-
-
-
Total
£’000
59,921
(9,827)
5,902
18,508
23,201
2,483
50,094
(21,341)
28,753
57.4%
£’000
19,821
(3,331)
2,171
4,699
9,496
124
16,490
(6,534)
9,956
60.4%
-
(21,604)
(24,744
Adjusted EBITDA*1 from
continuing operations
12,643
6,154
9,956
(21,604)
Depreciation and amortisation
Amortisation of acquired intangibles
Exceptional reorganisation costs
Exceptional customer
settlement provision
Share-based payment (charge)/credit
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(4,260)
(2,161)
(362)
(400)
103
Loss from operations
12,643
6,154
9,956
(28,684)
Finance expense
-
-
-
(776)
Loss before tax and
discontinued operations
12,643
6,154
9,956
(29,460)
Tax expense
Loss from discontinued operations
-
-
-
-
-
-
(424)
(14,316)
7,149
(4,260)
(2,161)
(362)
(400)
103
69
(776)
(707)
(424)
(14,316)
Loss for the year
12,643
6,154
9,956
(44,200)
(15,447)
^ The 2019 segmentation has been restated to present UK Dynamics and Starcom Technologies Limited as discontinued operations (see Note 11 for
further details) and to present the results based on the new segments of K3 Own IP, Global Accounts and 3rd party products.
84
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
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 55. As no
measure of assets or liabilities for individual segments is reviewed regularly by the CODM, no disclosure of total assets
or liabilities has been made, in accordance with the amendment to paragraph 23 of IFRS 8.
The accounting policies of the operating segments are the same as those described in the summary of significant
accounting policies. Transactions between segments are accounted for at cost.
The Group has one customer relationship which accounts for 32% (2019: 30%) of external Group revenue.
Analysis of the group's external revenues (by customer geography) and non-current assets by geographical location are
detailed below:
External Revenue by End Customer Geography
External Revenue
Non-current assets
Year ended
30 November
2020
Year ended
30 November
2019 (restated)
£’000
18,980
9,153
1,245
10,110
1,641
4,503
1,017
2,170
48,819
61%
£’000
18,908
9,468
1,737
11,000
3,076
3,936
1,003
966
50,094
61%
2020
£’000
30,667
420
10,861
(318)
-
274
19
-
2019
£’000
52,693
918
8,243
(48)
-
52
21
-
41,923
61,879
United Kingdom
Netherlands
Ireland
Rest of Europe
Middle East
Asia
USA
Rest of World
% of non-UK revenue
External Revenue by Business Unit Geography
2020
External Revenue by Market
Software Licence Revenue
Services Revenue
Maintenance & Support
Hardware and other Revenue
Total
Other UK
£’000
2,430
3,063
12,781
541
18,815
Non UK
£’000
3,334
14,758
10,934
978
30,004
Total
£’000
5,764
17,821
23,715
1,519
48,819
85
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
5. SEGM ENT INFORMATION (con tinu ed)
External Revenue by Business Unit Geography
Software
Licencing
£’000
2,508
2,966
16
274
5,764
Services
Revenue
£’000
3,300
13,985
375
161
17,821
Maintenance
& Support
Revenue
Hardware &
Other Revenue
£’000
13,563
6,589
534
3,029
23,715
£’000
424
112
71
912
1,519
United Kingdom
Netherlands
Ireland
Rest of Europe
External Revenue by Revenue Recognition Category
Software
Licencing
£’000
5,764
-
-
Goods Transferred at
a point in time
Services transferred at
a point in time
Services transferred
over time
Maintenance
& Support
Revenue
Hardware &
Other Revenue
Services
Revenue
£’000
-
17,821
£’000
-
7,881
-
15,834
£’000
1,519
-
-
Total
£’000
19,795
23,652
996
4,376
48,819
Total
£’000
7,283
25,702
15,834
Total
5,764
17,821
23,715
1,519
48,819
Revenue to be recognised in the future, related to agreed performance obligations that are unsatisfied or
partially satisfied as at 30 November 2020, was as follows;
Software Licence Revenue
Services Revenue
Maintenance & Support
Hardware and other Revenue
2021
£’000
226
321
5,066
333
5,946
2022
£’000
226
-
-
-
Later
£’000
324
-
-
-
226
324
Total
£’000
776
321
5,066
333
6,496
86
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
2019
(restated)
External Revenue by Market
Software Licence Revenue
Services Revenue
Maintenance & Support Revenue
Hardware and other Revenue
Other UK
£’000
2,406
2,921
11,063
131
16,521
Non UK
£’000
3,496
15,587
12,138
2,352
33,573
External Revenue by Business Unit Geography
Software
Licencing
£’000
2,648
2,715
258
281
5,902
Services
Revenue
£’000
2,931
14,771
457
349
18,508
Maintenance
& Support
Revenue
Hardware &
Other Revenue
£’000
11,605
8,057
1,044
2,495
23,201
£’000
128
144
-
2,211
2,483
United Kingdom
Netherlands
Ireland
Rest of Europe
External Revenue by Revenue Recognition Category
Software
Licencing
£’000
5,902
-
-
Goods Transferred at
a point in time
Services transferred at
a point in time
Services transferred
over time
Maintenance
& Support
Revenue
Hardware &
Other Revenue
Services
Revenue
£’000
-
18,508
£’000
-
2,590
-
20,611
£’000
2,483
-
-
Total
£’000
5,902
18,508
23,201
2,483
50,094
Total
£’000
17,312
25,687
1,759
5,336
50,094
Total
£’000
8,385
21,098
20,611
Total
5,902
18,508
23,201
2,483
50,094
87
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
5. SEGM ENT INFORMATION (con tinu ed)
Revenue to be recognised in the future, related to agreed performance obligations that are unsatisfied or
partially satisfied as at 30 November 2019, was as follows;
Software Licence Revenue
Services Revenue
Maintenance & Support
Hardware and other Revenue
2020
£’000
244
8,928
505
9,677
2021
£’000
Later
£’000
-
-
-
-
-
-
-
-
Revenue recognised and included within contract assets can be reconciled as follows;
At 1 December 2019
Transfers in the period from contract assets to trade receivables
Excess of revenue recognised over cash (or rights to cash) being recognised during the period
At 30 November 2020
Revenue recognised and included within contract liabilities can be reconciled as follows;
At 1 December 2019
Amounts included in contract liabilities that was recognised as revenue during the period
Cash received in advance of performance and not recognised as revenue during the period
Reclassified as held for sale
At 30 November 2020
Total
£’000
244
8,928
505
9,677
2020
£’000
3,956
(3,956)
3,220
3,220
2020
£’000
9,677
(9,677)
7,815
(1,319)
6,496
88
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
6. FI NA NCE INCO M E AND EXPEN S E
Finance expense
Bank borrowings
Interest expense on lease liabilities
Finance charges for warrants
Other finance costs
Net finance expense
7. TA X EX PENSE
Year ended
30 November
2020
Year ended
30 November
2019
(restated)
£’000
£’000
356
272
375
121
1,124
317
344
-
115
776
Year ended
30 November
2020
Year ended
30 November
2019
(restated)
£’000
£’000
Current tax expense/(credit)
Income tax of overseas operations on profits/(losses) for the period
Adjustment in respect of prior periods
Total current tax expense
Deferred tax income
Origination and reversal of temporary differences
Total tax (credit)/expense in the current year
Income tax expense attributable to continuing operations
Income tax expense/(credit) attributable to discontinued operations
397
(59)
338
(622)
284
7
(291)
(284)
532
92
624
307
931
424
507
931
89
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
7. TA X EXPENSE (continued)
The Finance Act 2016 had previously enacted provisions to reduce the main rate of UK corporation tax to 17% from
1 April 2020 and accordingly the deferred tax at 30 November 2019 had been calculated at this rate. However, in the
March 2020 Budget it was announced that the reduction will not occur, and the Corporation Tax Rate will be held at 19%.
The Provisional Collection of Taxes Act was used to substantively enact the revised 19% tax rate on 17 March 2020 and
accordingly the deferred tax balances have been re-calculated to 19% at the year end.
The March 2021 Budget announced a further increase to the main rate of corporation tax to 25% from April 2023. This
rate has not been substantively enacted at the balance sheet date, as a result deferred tax balances as at 30 November
2020 continue to be measured at 19%. If all the deferred tax was to reverse at the amended 25% rate the impact on the
closing DT position would be to increase the net deferred tax asset by £57,000.
The reasons for the difference between the actual tax charge for the period and the standard rate of corporation tax in
the UK applied to profits/(losses) for the year are as follows:
Loss before taxation from continuing operations
Loss before taxation from discontinued operations (note 11)
(Loss)/profit before tax
Expected tax charges based on the standard rate of
corporation tax
Effects of:
Items not deductible
Adjustment to tax charge in respect of prior periods
Differences between overseas tax rates
Movements in temporary differences not recognised
Effect of deferred tax rate difference
Year ended
30 November
2020
%
Year ended
30 November
2019
%
£’000
(20,939)
(475)
(21,414)
£’000
(707)
(13,809)
(14,516)
(4,069) 19.0
(2,758) 19.0
3,508
(229)
111
435
(40)
2,611
103
88
809
78
Total tax expense in current period
(365)
1.3
931
(6.4)
Deferred tax recognised directly in equity was £nil (2019: £596,000 credit). Current tax recognised in equity
was nil (2019: £nil). None of the items within other comprehensive income in the Consolidated Statement of
Comprehensive Income have resulted in a tax expense or tax income.
90
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
8. DI VID ENDS
Final dividend of 0p (2019: 1.54p) per ordinary share proposed and paid
during the period relating to the previous period’s results
No dividend in respect of the year ended 30 November 2020 will be proposed.
9. ( LOSS)/ EA RN IN GS PER SHAR E
Year ended
30 November
2020
Year ended
30 November
2019
£’000
-
£’000
661
2020
Number
of shares
2019
Number
of shares
Denominator
Weighted average number of shares used in basic and diluted EPS
42,899,598
42,879,926
Certain employee options and warrants have not been included in the calculation of diluted EPS because their
exercise is contingent on the satisfaction of certain criteria that had not been met at the end of the year.
Loss after tax from continuing operations
Loss after taxation from discontinued operations
Loss attributable to ordinary equity holders of the parent for basic
and diluted earnings per share
Basic and diluted
Year ended
30 November
2020
Year ended
30 November
2019
(20,946)
(184)
(21,130)
(1,131)
(14,316)
(15,447)
The alternative earnings per share calculations have been computed because the directors consider that they
are useful to shareholders and investors. These are based on the following profits/(losses) and the above number
of shares.
91
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
9. (LOS S)/EARNINGS PER SHARE (co ntin ued)
Profit/(loss) after tax from continuing operations
(20,946)
(1,131)
Basic and diluted
before other tiems
Year ended
30 November
2020
Year ended
30 November
2019
(restated)
Add back Other Items:
Amortisation of acquired intangibles
Exceptional reorganisation costs
Exceptional impairment costs
Exceptional settlement provision
Shared-based payment charge
Tax charge related to Other Items
(Loss)/profit attributable to ordinary equity holders of the parent
for basic and diluted earnings per share from continuing operations
before other items
1,471
934
16,855
-
20
(405)
(2,071)
2,161
362
-
400
(103)
(558)
1,131
Year ended
30 November
2020
Year ended
30 November
2019
(restated)
Profit/(loss) per share
Basic and diluted earnings/(loss) per share
Basic and diluted earnings/(loss) per share from continuing operations
(49.3)
(48.8)
(36.0)
(2.6)
Adjusted earnings per share
Basic and diluted earnings/(loss) per share from continuing operations
before other items
(4.8)
2.6
10. SH AR E- BASE D PAYMENTS
As disclosed in note 23, K3 Business Technology Group plc operates an equity-settled share-based remuneration
scheme for employees: the K3 Long Term Incentive Plan ("LTIP") for certain senior management including executive
directors. On 13 November 2020, the Remuneration Committee granted 1,800,000 new options under the terms
of a new K3 Long Term Incentive Plan Option Scheme ("2020 LTIP Options"). As a condition of this award the option
awards under the 2018 scheme for those participants were waived and released. The 2020 LTIP Options are subject
to performance conditions based on the achievement of certain 60-day Volume Weighted Average Price (‘VWAP’)
thresholds of K3 ordinary shares measured between the third and fourth anniversary of the date of option grant. The
60-day VWAP measurement will be applied to any consecutive 60 trading days during the 12-month testing period.
The group also operates a Save As You Earn ("SAYE") scheme for employees.
92
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
Outstanding at beginning of the year
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at the end of the year
2020
Weighted
exercise
price (pence)
34.6
25.0
-
34.6
25.0
2019
options
(number)
3,255,522
1,800,000
-
(3,225,983)
1,829,539
Weighted
exercise
price (pence)
35.4
25.0
-
25.0
34.6
options
(number
3,005,522
350,000
-
(100,000)
3,255,522
Of the above share options outstanding at the end of the year nil (2019: nil) are exercisable at 31 December 2020. No
options had vested or were exercisable at the end of either period. The options outstanding at 31 December 2020
had a weighted average price of LTIP:25p, SAYE 295.5p (2019: LTIP 25p, SAYE 295.5p) and their weighted average
contractual life was 6.95 years (2019 8.46 years). In the year nil (2019: nil) options were exercised.
The assumptions used in the models used to calculate the fair value of the LTIP options granted in the year are as follows:
Share price (on date of official grant)
Exercise price
Expected volatility
Actual life
Risk free rate
Dividend yield
Model used
Expected percentage options exercised versus granted at date of grants
The share-based remuneration expense (note 4) comprises:
Equity-settled schemes
2020 LTIP award
(13 November
2020)
114p
25p
2.39%
4 years
(0.69)%
1.40%
Black Scholes
100%
Year ended
30 November
2020
Year ended
30 November
2019
£’000
20
£’000
(103)
In 2019 the accumulated charge for the K3 Long Term Incentive Plan was reversed as it was concluded that the
conditions for vesting would not be met. On 13 November 2020, the Remuneration Committee granted 1,800,000
new options to certain Persons Discharging Managerial Responsibilities (“PDMRs”) for which a charge of £20k has
been recognised in 2020.
The group did not enter into any share-based payment transactions with parties, other than employees, during the
current or previous period other than warrants issued as part of the shareholder loans received (see note 24).
93
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
11. DISCO NTINU ED OPER ATION S
On 21 April 2020, the UK Dynamics subsidiary was put into administration and has been classified as a discontinued
operation as it represented a major line of business for the Group. No assets or liabilities relating to UK Dynamics were
held by the Group at 30 November 2020.
The results of the UK Dynamics business for the year up to its administration are presented below.
Revenue
Cost of sales
Gross profit
Administrative expenses
Impairment losses on financial assets
Loss from operations
Finance income/(expense)
Loss before taxation from discontinued operations before group costs
Impairment of UK Dynamics Goodwill
Cost incurred with the disposal of UK Dynamics
Loss before taxation from discontinued operations
Tax credit/(expense)
Loss for the year from discontinued operations
Year ended
30 November
2020
Year ended
30 November
2019
£’000
3,789
(3,533)
256
(1,375)
-
(1,119)
60
(1,059)
-
(229)
(1,288)
269
(1,019)
£’000
18,974
(13,351)
5,623
(7,238)
(974)
(2,589)
(63)
(2,652)
(12,188)
-
(14,840)
(381)
(15,221)
Basic and diluted loss per share from discontinued operations
2020
(2.4)
2019
(35.5)
94
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
The net cashflows incurred by UK Dynamics are as follows:
Operating
Financing
Net cash inflow/(outflow)
Year ended
30 November
2020
Year ended
30 November
2019
£’000
(1,603)
(15)
(1,618)
£’000
452
(5)
447
On 26 February 2021, the Group announced that it had completed a sale of the Starcom business for consideration of
£14.7m. At 30 November 2020 Starcom is classified as a disposal group held for sale and as a discontinued operation
as it represented a major line of business of the Group. The carrying amount of the disposal group is lower than its fair
value less costs to sell and therefore no impairment loss is recognised.
The results of the Starcom business for the year are presented below:
Year ended
30 November
2020
Year ended
30 November
2019
Total Revenue
Less inter-segment revenue
External revenue
Cost of sales
Gross profit
Administrative expenses
Impairment losses on financial assets
Amortisation of acquired intangibles
Profit from operations
Finance expense
Profit after taxation from discontinued operations
Tax credit/(expense)
Profit for the year from discontinued operations
Basic and diluted loss per share from discontinued operations
£’000
10,229
(710)
9,519
(3,966)
5,553
(4,320)
(25)
(322)
886
(73)
813
22
835
2020
1.9
£’000
10,025
(681)
9,344
(3,684)
5,660
(4,280)
(12)
(322)
1,046
(15)
1,031
(126)
905
2019
2.1
95
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
11. DISCOUNTINUED OPERATION S (con tin ued)
The major classes of assets and liabilities of the Starcom business classified as held for sale as at 30 November 2020
are as follows:
The results of the UK Dynamics business for the year up to its administration are presented below.
2020
£’000
237
332
2,373
690
136
1,871
1,260
6,899
(3,196)
(60)
(316)
(3,572)
3,327
Year ended
30 November
2020
Year ended
30 November
2019
£’000
1,096
(155)
(133)
808
2020
(0.5)
£’000
(53)
(266)
(214)
(533)
2019
(33.4)
Property, plant, and equipment
Right-of-use assets
Goodwill
Other intangible assets
Deferred tax assets
Trade and other receivables
Cash and cash equivalents
Assets classified as held for sale
Trade and other payables
Provisions
Lease liabilities
Liabilities directly associated with assets classified as held for sale
Net Assets directly associated with disposal group
The net cashflows incurred by Starcom are as follows:
Operating
Investing
Financing
Net cash inflow/(outflow)
The total loss per share from discontinued activities was:
Basic and diluted loss per share from discontinued operations
96
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
Total
£’000
7,749
666
(92)
8,323
712
(1,186)
12. PROPE RT Y, PL AN T AN D EQ U I PMEN T
Long leasehold
land and buildings
Leasehold
improvements
Plant, fixtures
and equipment
£’000
£’000
£’000
750
-
-
47
-
-
6,952
666
(92)
Cost
At 30 November 2018
Additions
Effect of movements in foreign
exchange rate
At 30 November 2019
750
47
Additions
Disposals
Reclassified at held for sale
Effect of movements in foreign
exchange rate
-
-
-
-
-
-
-
-
7,526
712
(1,186)
(1,648)
(1,648)
95
95
At 30 November 2020
750
47
5,499
6,296
Accumulated depreciation
At 30 November 2018
Depreciation charge
Impairment loss
Effect of movements in foreign
exchange rate
At 30 November 2019
Depreciation charge
Disposals
Reclassified at held for sale
Effect of movements in foreign
exchange rate
At 30 November 2020
Net book value
At 30 November 2018
At 30 November 2019
At 30 November 2020
117
10
-
-
127
10
-
-
-
137
633
623
613
47
-
-
5,259
784
73
5,423
794
73
-
(74)
(74)
47
6,042
-
-
-
-
720
(1,183)
(1,412)
6,216
730
(1,183)
(1,412)
79
79
47
4,246
4,430
-
-
-
1,693
1,484
1,253
2,326
2,107
1,866
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.
97
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
13. RIGHT-OF- U SE ASSETS
Cost
At 1 December 2018
Additions
At 30 November 2019
Additions
Disposals
Reclassified at held for sale
At 30 November 2020
Accumulated depreciation
At 1 December 2018
Depreciation charge
At 30 November 2019
Depreciation charge
Disposals
Reclassified at held for sale
Effect of movements in foreign exchange rate
At 30 November 2020
Net book value
At 30 November 2019
At 30 November 2020
Buildings
£’000
3,798
610
4,408
254
(280)
(550)
3,832
-
1,208
1,208
1,075
(47)
(270)
(35)
1,931
3,200
1,901
Equipment and
motor vehicles
£’000
972
415
1,387
646
(36)
(217)
1,780
-
529
529
652
(20)
(165)
(34)
962
858
818
Total
£’000
4,770
1,025
5,795
900
(316)
(767)
5,612
-
1,737
1,737
1,727
(67)
(435)
(69)
2,893
4,058
2,719
The Group leases several assets including buildings, motor vehicles and equipment. The average lease term is 2.1
years (2019: 2.1 years).
The Group’s obligations are secured by the lessors’ title to the leased assets for such leases.
Amounts recognised in profit and loss
Depreciation expense on right-of-use assets
Interest expense on lease liabilities
98
2020
£’000
1,727
304
2019
£’000
1,737
347
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
14. I NTANGIBLE AS SETS
Goodwill
Development
costs
Contractual
and non-
contractual
customer
relationships
Distribution
agreements
Intellectual
property
rights
£’000
£’000
£’000
£’000
£’000
Total
£’000
Cost or valuation
At November 2018
51,187
Additions
Effect of movements in
foreign exchange rate
-
(669)
23,333
4,080
-
24,099
10,557
4,310
113,486
-
(230)
-
-
-
(128)
4,080
(1,027)
At 30 November 2019
50,518
27,413
23,869
10,557
4,182
116,539
Additions
Disposals
Reclassified at held
for sale
Effect of movements in
foreign exchange rate
-
4,516
(10,051)
(2,373)
797
-
-
21
-
-
(1,734)
-
-
-
-
-
-
4,516
(10,051)
(4,107)
298
202
154
1,472
At 30 November 2020
38,891
31,950
22,433
10,759
4,335
108,369
Accumulated
amortisation
At 30 November 2018
Amortisation charge
Impairment
Effect of movements in
foreign exchange rate
-
-
10,051
-
13,448
2,895
1,356
339
18,009
1,955
655
(172)
10,557
2,101
-
-
-
527
-
(71)
44,115
5,377
12,062
96
At 30 November 2019
10,051
18,038
20,447
10,557
2,557
61,650
Amortisation charge
Disposals
Impairment
Reclassified at held
for sale
Effect of movements in
foreign exchange rate
(10,051)
12,759
2,456
-
2,585
1,296
356
(1,044)
-
-
495
1,155
4,247
(10,051)
16,855
(1,044)
-
(235)
246
202
96
309
At 30 November 2020
12,759
22,844
21,301
10,759
4,303
71,966
Net book value
At 30 November 2018
51,187
At 30 November 2019
40,467
At 30 November 2020
26,132
9,885
9,375
9,106
6,090
3,422
1,132
-
-
-
2,209
1,625
69,371
54,889
33
36,403
99
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
14. INTANGIBLE ASSETS (contin ued)
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 6 years, for contractual and non-contractual
customer relationships is between 0 and 8 years and for intellectual property rights is between 0 and 4 years. The 2020
£2.6m impairment of Development costs relates to older technology assets held by our Growth IP CGU (2019 £2.9m
impairment related to assets held by UK Dynamics).
15. GOOD W ILL AN D IMPA IRME NT
Goodwill acquired in business combinations is allocated at acquisition to the cash generating units (“CGUs”) that are
expected to benefit from that business combination.
The carry value of goodwill in respect of all CGUs is set out below. These are fully supported by either value in use
calculations in the year or the fair value less cost to sell for CGUs held for sale.
DdD Retail
Global Accounts*
Integrated Business Solutions (IBS)
IP
Retail Systems Group (RSG)
Sage
SSL and Starcom**
Syspro
Unisoft
Walton
Goodwill carrying amount
2019
2020
£’000
-
9,729
771
-
-
-
400
13,677
-
1,555
26,132
£’000
4,812
9,247
770
396
1,707
4,556
2,905
13,680
839
1,555
40,467
*In 2019 this CGU was named Dynamics International but following the administration of UK Dynamics, and the strategic focus now on own IP this has
been renamed as Global Accounts.
**In 2019 this CGU was named hosting and managed services but has been renamed as SSL and Starcom in order to reflect the divestment away from
this market.
The Group tests goodwill and the associated intangible assets and property, plant, and equipment of CGUs annually for
impairment, or more frequently if there are indications that an impairment may be required.
100
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
The movement within the SSL and Starcom CGU relates wholly to Starcom Technologies Limited. Starcom
Technologies Limited is classified as held for sale at 30 November 2020. The carrying value of Goodwill of £2,505k is
fully supported by the fair value less costs to sell based on agreed sales proceeds. The fair value measurement is based
on agreed enterprise value for the business as per the completed sale on 26 February 2021.
The recoverable amounts of the remaining CGUs are determined from value in use calculations. The key assumptions
for these calculations are discount rates, sales growth, gross margin, and admin expense growth rates. The assumptions
for these calculations reflect the current economic environment. The discount rate represents the current market
assessment of the risks specific to the Group, taking into consideration the time value of money and individual risks of
the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based
on the specific circumstances of the Group and its operating segments and is derived from the weighted average cost of
capital (WACC). Other assumptions used are based on external data and management's best estimates.
For all the CGUs where the recoverable amount is determined from value in use, the Group performs impairment
reviews by forecasting cash flows based upon the Board 3-year plan starting in the 2021, which anticipates sales, gross
margin and admin cost growth based on management's best estimates. A projection of sales and cash flows based
upon a blended inflation rate (1.5%) is then made for a further two years.
The recoverable amounts of the remaining CGUs are determined from value in use calculations. The key assumptions
for these calculations are discount rates, sales growth, gross margin, and admin expense growth rates. The assumptions
for these calculations reflect the current economic environment. The discount rate represents the current market
assessment of the risks specific to the Group, taking into consideration the time value of money and individual risks of
the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based
on the specific circumstances of the Group and its operating segments and is derived from the weighted average cost of
capital (WACC). Other assumptions used are based on external data and management's best estimates.
For all the CGUs where the recoverable amount is determined from value in use, the Group performs impairment
reviews by forecasting cash flows based upon the Board 3-year plan starting in the 2021, which anticipates sales, gross
margin and admin cost growth based on management's best estimates. A projection of sales and cash flows based
upon a blended inflation rate (1.5%) is then made for a further two years.
The pre-tax cash flow forecasts used the following key assumptions:
DdD Retail, RSG and Walton – these CGUs relate to older products and the forecasts for DdD Retail and RSG
have a year-on-year attrition of revenue by 10% in FY22 and FY23 as the Group’s decision to cease investing in
these products with a plan to transitioning customers, wherever possible, to the K3|imagine platform. Walton has
no revenue growth in FY22 and FY23. From FY24 we are assuming no revenue from these legacy products with a
plan to migrate to the K3|imagine platform
Sage, Syspro, IBS and Unisoft – no revenue growth with gross margin maintained at current rates.
Own IP – as this is where the Group’s strategy is focused, strong growth rates of 124% to 57% over the next three
years from a low base
Global Accounts – revenue growing by 43.8% over the 5-year forecast period with gross margin maintained at
current performance
101
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
15. GOODWIL L AND IMPAIRMEN T (con tinued)
The rate used to discount the forecast pre-tax cash flows is 12.1% (2019: 13.6%) and represents the Directors’ current
best estimates of the weighted average cost of capital (“WACC”). The Directors consider that there are no material
differences in the WACC for different CGUs.
Having calculated the value in use, the following impairments, against goodwill and other intangible assets, have been
recognised along with any remaining headroom:
DdD Retail
Global Accounts
Integrated Business
Solutions (IBS)
IP
Retail Systems Group (RSG)
Sage
SSL and Starcom
Syspro
Unisoft
Walton
Goodwill
£’000
(5,064)
-
-
(416)
(1,707)
(4,690)
-
-
(882)
-
Impairment
Other
Intangibles
Development
Costs
£’000
£’000
(1,105)
-
-
-
(242)
(164)
-
-
-
-
-
-
-
(2,585)
-
-
-
-
-
-
Total
£’000
(6,169)
-
-
(3,001)
(1,949)
(4,854)
-
-
(882)
-
Headroom
£’000
-
43,494
225
90
-
-
-
12,938
-
55
(12,759)
(1,511)
(2,585)
(16,855)
56,802
The impairments have been recognised in the reportable segments as follows:
Goodwill
Impairment
Other
Intangibles
Development
Costs
Total
Own IP
Global Accounts
Third-party products
£’000
(8,069)
-
(4,690)
(12,759)
£’000
(1,347)
-
(164)
(1,511)
£’000
£’000
(2,585)
(12,001)
-
-
-
(4,854)
(2,585)
(16,855)
102
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
16. TR ADE AND OTH ER RECEIVA B LES
Trade receivables
Loss allowance
Trade receivables – net
Current taxes
Other receivables
Contract assets
Prepayments and stock
2020
£’000
8,268
(1,329)
6,939
-
177
3,220
1,859
12,195
2019
£’000
16,407
(1,889)
14,518
-
186
3,955
2,087
20,746
The fair value of trade and other receivables approximates to book value at 30 November 2020 and 30 November 2019.
Of the above, trade receivables of £nil (2019: £nil) and contract assets of £1.8m (2019: £1.89m) are 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.2,400 customers at the period end spread across various industries, although
predominantly in the retail, manufacturing, and distribution sectors. The Group has one customer relationship that
accounts for over 32% of total Group revenue but the relationships is spread across different territories and markets.
The group assesses the credit rating for new customers to minimise the credit risk.
The average credit period on sales is 30 days. No interest is charged on outstanding trade receivables.
The Group measures the loss allowance for trade receivables at an amount equal to the lifetime ECL. The expected
credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the
debtor and an analysis of the debtor's current financial position, adjusted for factors that are specific to the debtors,
general economic conditions of the industry in which the debtors operate and an assessment of both the current as
well as the forecast direction of conditions at the reporting date.
The group writes off a trade receivable when there is information indicating that the debtor is in severe financial
difficulty and there is no realistic prospect of recovery, e.g., when the debtor has been placed under liquidation or has
entered bankruptcy proceedings, or when the trade receivables are over two years past due, whichever occurs earlier.
103
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
16. TRADE AND OTHER REC EIVABLES (continu ed)
The carrying amounts of the Group's trade and other receivables are denominated in the following currencies:
Pound Sterling
Euro
Other
2020
£’000
3,616
7,869
710
12,195
2019
£’000
11,171
8,584
991
20,746
The following table details the risk profile of trade receivables and contract assets based on the Group's provision
matrix. As the Group's historical credit loss experience does not show significantly different loss patterns for different
customer segments, the provision for loss allowance based on past due status is not further distinguished between the
Group's different customer segments.
30 November 2020
Trade Receivables and Contract Assets receivables – days past due
Not past
due
£’000
0.3%
7,159
(21)
<30
£’000
0.8%
1,749
(14)
31-60
£’000
2.6%
829
(22)
Expected credit loss rate
Estimated total gross carrying
amount at default
Lifetime ECL
61-90
£’000
>90 days
£’000
Total
£’000
2.4%
80.2%
11.6%
169
(4)
1,582
(1,268)
Trade receivables - net
Contract Assets
Total
10,159
104
11,488
(1,329)
10,159
6,939
3,220
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
30 November 2019
Trade Receivables and Contract Assets receivables – days past due
Not past
due
£’000
1.7%
12,892
(217)
<30
£’000
2.3%
3,790
(88)
31-60
£’000
2.9%
1,131
(33)
61-90
£’000
>90 days
£’000
5.0%
78.1%
602
(30)
1,947
(1,521)
Expected credit loss rate
Estimated total gross carrying
amount at default
Lifetime ECL
Trade receivables - net
Contract Assets
Total
£’000
9.3%
20,362
(1,889)
18,473
14,518
3,955
Movements on the group provision for impairment of trade receivables are as follows:
At beginning of year
Prior year adjustment arising from IFRS 9 implementation
Restated brought forward balance
Provided during the period
Exceptional provision provided during the period
Utilised during the period
Unused amounts released
At end of year
Total
18,473
2020
£’000
1,889
-
1,889
149
-
(398)
(311)
1,329
2019
£’000
1,075
926
2,001
470
400
(690)
(292)
1,889
The movement on the provision for impaired receivables and contract assets 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.
105
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
17. TRA DE AND OTHE R PAYAB LES
Trade payables
Other payables
Accruals
Total financial liabilities, excluding loans and borrowings,
classified as financial liabilities measured at amortised cost
Other tax and social security taxes
Contract liabilities
2020
£’000
2,376
1,222
4,269
7,867
4,782
6,496
19,145
2019
£’000
4,645
1,630
5,016
11,291
4,040
9,677
25,008
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The
average credit period taken for trade purchases is 60 days. The Group has financial risk management policies in place to
ensure that all payables are paid within the pre-agreed credit terms.
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 2020 and 30 November 2019.
18. BORROW INGS
Non-current
Bank loans (secured)
Current
Bank overdrafts (secured)
Bank loans (secured)
Shareholder loans (unsecured)
Total borrowings
106
2020
£’000
-
-
3,000
6,771
2,672
12,443
12,443
2019
£’000
6,262
6,262
4,385
-
-
4,385
10,647
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
The Group's bank overdrafts are secured by cross guarantees and debentures (fixed and floating charges over the
assets of all the Group companies). The Group's bankers have a formal right to set-off and provide a net overdraft
facility across the Group of £250,000 (2019: £2,000,000) on 31 March 2020 the group secured £3.0m of loans from its
two major shareholders, Kestrel Partners LLP (“Kestrel”) and Johan Claesson, also a non-executive director. Kestrel
and Johan Claesson (together “the Lenders”) are providing an unsecured term loan of £3.0m until 30 June 2021
(“Shareholder Loan”). The Shareholder Loan is split equally between the two Lenders. Mr Claesson provided his part of
the loan via his associated company, CA Fastigheter AB and Kestrel’s loan is provided via its discretionary clients.
The main terms of the Shareholder Loan are as follows:
unsecured and subordinated to all indebtedness with Barclays.
8.0% annual coupon, with interest rolling up on a quarterly basis; and
1 warrant issued for every £2.50 of Shareholder Loan. Warrants are over ordinary shares of 25p each are
transferrable, have a 10-year duration and a strike price of 25p. We are in advanced discussions with shareholders
to convert the £3.0m of shareholder loans to equity in the near future.
Currency
Nominal rate %
Year of
maturity
Security
2021
See below
Secured bank loan
Unsecured shareholder loan
GBP
GBP
2.1% - 6.00 %
over LIBOR
8.00%
2021
N/A
Bank borrowings of £6.8m (2019: £6.3m long term liabilities) are included in short term liabilities. The Facilities include a
monthly draw down and a multi-currency overdraft facility. Shareholder loans of £3.0m (2019: £nil) are included in short
term liabilities.
Maturity analysis of borrowings:
In less than one year
In more than one year but not more than two years
2020
£’000
12,443
-
12,443
2019
£’000
4,385
6,262
10,647
107
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
18. BORROWING (continued)
Bank borrowings
The bank loans are secured by a fixed charge over the Group's leasehold property and floating charges over the
remaining assets of the Group.
The Group has undrawn committed banking facilities available at 30 November 2020 of £6.2m (2019: £3.7m) for which
all conditions have been met. It is a revolving loan facility on which interest is charged at a floating rate linked to LIBOR.
For the purposes of reporting, fair value is equivalent to the carrying value of the borrowings.
The currency profile of the group’s loans and borrowings is as follows:
Pound sterling
Euro
2020
£’000
8,621
3,822
2019
£’000
5,931
4,716
12,443
10,647
19. FI NANCI AL IN ST RUM ENTS
Risk Management
The group is exposed through its operations to one or more of the following financial risks:
Market risk
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.
108
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
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 overdrafts.
Loans from related parties.
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 leases with a net book value of £3.0m. The fixed rate applicable on lease
liabilities is 6%.
Bank debt totalling £6.8m (2019: £6.3m) 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 Barclays 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 with which the Group was compliant during the year and the Group’s forecasts indicate that it will remain
within the set parameters.
The principal terms of the group’s borrowings are set out in note 18.
109
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
19. FINANC IAL INSTRUMENTS (co ntinu ed)
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 16.
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
2020
£’000
29,915
(2,623)
27,292
2019
£’000
49,257
(1,558)
47,699
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 that interest rates are likely to remain low and unlikely to increase. A small increase of 0.1%
movement in the interest rate could be reasonably possible as at the reporting date and would cause additional annual
interest charges of £10k, assuming the Banking Facility is fully drawn.
The group’s foreign exchange risk is dependent on the movement in the Euro to sterling exchange rate. The directors
consider a 3% movement in the Euro rate to be reasonably possible as at the reporting date. The effect of a 3%
strengthening or weakening in the Euro against sterling at the balance sheet date on the Euro denominated debt would
be immaterial.
110
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
Financial Instruments by category
The carrying value of the Group’s financial instruments are analysed as follows:
Notes
Amortised cost
At FVTPL
£’000
£’000
As at 30 November 2020
Assets
Trade and other receivables:
Trade receivables
Other non-derivative financial assets
Contract assets
Cash and cash equivalents
Assets classified as held for sale
Total assets
Liabilities
Borrowings:
Current
Non-current
Trade and other payables:
Trade payables
16
16
16
11
18/22
18/22
17
Other non-derivative financial liabilities 17
Liabilities directly associated with assets
classified as held for sale
11
Total liabilities
6,939
177
3,220
9,306
3,131
22,773
(13,368)
(1,735)
(2,376)
(5,491)
(3,195)
(26,165)
(3,392)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
£’000
6,939
177
3,220
9,306
3,131
22,773
(13,368)
(1,735)
-
(2,376)
(5,491)
(3,195)
(26,165)
(3,392)
111
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
19. FINANC IAL INSTRUMENTS (co ntinu ed)
Financial Instruments by category
The carrying value of the Group’s financial instruments are analysed as follows:
As at 30 November 2019
Assets
Trade and other receivables:
Trade receivables
Other non-derivative financial assets
Contract assets
Cash and cash equivalents
Total assets
Liabilities
Borrowings:
Current
Non-current
Trade and other payables:
Trade payables
Other non-derivative financial liabilities
Total liabilities
Notes
Amortised cost
At FVTPL
£’000
£’000
16
16
16
18/22
18/22
17
17
14,518
186
3,955
8,226
26,885
(5,795)
(8,769)
(4,645)
(6,646)
(25,855)
1,030
-
-
-
-
-
-
-
-
-
-
-
-
Total
£’000
14,518
186
3,955
8,226
26,885
(5,795)
(8,769)
-
(4,645)
(6,646)
(25,855)
1,030
There were no financial instruments measured subsequent to initial recognition at fair value at the end of either period.
20. DI L APIDATIO N PROVIS ION
Non-Current
£’000
Current
£’000
294
44
27
111
(60)
416
120
-
-
(111)
-
9
Total
£’000
414
44
27
-
(60)
425
As at 30 November 2019
Additions
Interest
Transfer from Current to Non-Current
Reclassified as Held for Sale
At 30 November 2020
112
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
21. DE FE RR ED TA X
Deferred tax assets
Continuing operations
Disposal group held for sale (Note 11)
Deferred tax liabilities
Continuing operations
2020
£’000
935
136
(889)
182
2019
£’000
825
-
(1,115)
(290)
Recognised deferred tax assets and liabilities and attributable to the following:
£000’s Assets Liabilities Net
2020
2019
2020
2019
Plant & Equipment
Other temporary
differences
Business combinations
Deferred tax assets /
(liabilities)
535
493
43
1,071
265
519
41
825
-
-
(889)
(889)
-
-
(1,115)
(1,115)
2020
535
493
(846)
182
2019
265
519
(1,074)
(290)
Movement in deferred tax during the year
£000’s
1 December
Plant & Equipment
Other temporary differences
Business combinations
Deferred tax assets / (liabilities)
2019
265
519
(1,074)
(290)
Recognised
in income
Disposal
30 November
2020
355
39
228
622
(85)
(65)
-
(150)
535
493
(846)
182
The Group have not recognised a deferred tax asset on £1.4m (2019: £1.9m) of tax losses and short-term timing
differences carried forward due to uncertainties over recovery.
No deferred tax liability is recognised on temporary differences of £15k (2019: £nil) relating to the unremitted earnings
of overseas subsidiaries as the Group can control the timing of the reversal of these temporary differences and it is
probable that they will not reverse in the foreseeable future.
113
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
22. LEAS E LIABILITIES
Analysed as:
Non-current
Current
Maturity analysis
Year 1
Years 2 to 5
Onwards
2020
£’000
1,735
925
2,660
2020
£’000
925
1,516
219
2,660
2019
£’000
2,507
1,410
3,917
2019
£’000
1,410
2,007
500
3,917
The Group does not face a significant liquidity risk with regard to its lease liabilities. Lease liabilities are monitored within
the Group’s treasury function.
Lease obligations are denominated in Sterling, Euros, Singapore Dollars or Icelandic Krona.
114
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
23. SH ARE CA PI TAL
Issued and fully paid
2020 2019
Number
£’000
Number
£’000
Ordinary shares of 25p each
At beginning of the year
42,946,665
10,737
42,946,665
At end of the year
42,946,665
10,737
42,946,665
10,737
10,737
All shares have equal voting rights and there are no restrictions on the distribution of dividends or repayment of capital.
No shares were allocated under the employee share option schemes during the year.
Own shares held
2020
Number
2019
Number
47,067
66,739
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. 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.
1,200,000 warrants for ordinary shares of 25p were issued on 31 March 2020 following the receipt by the Group of
£3,000,000 in shareholders loans. The warrants are split as follows:
CA Fastigheter AB 600,000
Kestrel Partners LLP discretionary clients 600,000
The warrants are over ordinary shares of 25p, are transferrable with a strike price of 25p and expire on 31 March 2030.
At 30 November 2020 none of these warrants had been exercised.
115
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
23. SH ARE CAPITAL (continued)
217,497 options were under the SAYE 2016 scheme (no options granted during the either the year ended 30 November
2020, or the year ended 30 November 2019). None of these options have been exercised during either period. At 30
November 2020 there was 29,539 outstanding options under the SAYE 2016 scheme.
On 13 November 2020, the Remuneration Committee granted 1,800,000 new options to certain Persons Discharging
Managerial Responsibilities (“PDMRs”) under the terms of a new K3 Long Term Incentive Plan Option Scheme ("2020
LTIP Options"). As a condition of this award the option awards under the 2018 scheme for those participants were
waived and released.
The 2020 LTIP Options are subject to performance conditions based on the achievement of certain 60-day Volume
Weighted Average Price (‘VWAP’) thresholds of K3 ordinary shares measured between the third and fourth anniversary
of the date of option grant. The 60-day VWAP measurement will be applied to any consecutive 60 trading days during
the 12-month testing period.
The 2020 LTIP Options vest based on the following performance targets:
25% vest at VWAP of 200p;
50% vest at VWAP of 225p; and
100% vest at VWAP of 250p,
with a straight line vesting between these thresholds
Subject to meeting the above performance targets, the LTIP Options may be exercised as follows:
50% on or after the fourth anniversary of the date of grant
50% on or after the fifth anniversary of the date of grant.
The LTIP Options will remain exercisable until the seventh anniversary of the original date of grant, at which point they
will lapse.
24. WA RR AN TS
1,200,000 warrants for ordinary shares of 25p were issued on 31 March 2020 following the receipt by the Group of
£3,000,000 in shareholders loans. The warrants are split as follows:
CA Fastigheter AB 600,000
Kestrel Partners LLP discretionary clients 600,000
At the issue date the fair value, net of exercise price, of each warrant was £0.59. The total value of the warrants at 31
March 2020 was £703,320 and was deducted from the value of the Shareholder loans. This value is amortised on a
straight-line basis over the life of the Shareholder loans up to 30 June 2021 and recognised as a finance expense.
116
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
The assumptions used in the models used to calculate the fair value of the LTIP options granted in the year are
as follows:
Share price (on date of official grant)
Exercise price
Expected volatility
Actual life
Risk free rate
Dividend yield
Model used
Expected percentage warrants exercised versus issued
25. RET IR EM ENT B ENEFITS
Warrants
31 March 2020
86p
25p
2.38%
1.25 years
(1.29)%
1.40%
Black Scholes
100%
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 year to 30 November 2020 are £2.2m (2019: £2.3m) of which
£0.5m (2019: £0.9m) has been recognised within discontinued operations.
26. REL AT E D PART Y TRA NSACTIO NS
Details of directors and key management compensation are given in the Remuneration Report on pages 34 to 36.
Included within the fees/basic salary amount for Mr T Crawford was £34,223 (2019: £nil) in relation to consultancy
services to evaluate the K3 strategy and provide advice and support to the CEO on execution and commercialisation.
The balance owed to T Crawford at 30 November 2020 was £nil (2019: £nil)
Included within the fees/ basic salary amount for Mr JP Manley was £nil (2019: £19,250) in relation to consultancy on the
own IP positioning and development and for management of internal systems. The balance owed to JP Manley at
30 November 2020 was £nil (2019: 12k).
Non-Executive Director fees due to Mr O Scott are paid to Kestrel Partners, where O Scott is a founding partner.
Fees paid to Kestrel in the year were £12k (2019: £nil) and the balance owed to Kestrel at 30 November 2020 was £nil
(2019: £nil).
117
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
26. REL ATED PART Y TRANSACT IONS (co ntinu ed)
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:
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.
On 31 March 2020 the group secured £3.0m of loans from its two major shareholders, Kestrel Partners LLP and Johan
Claesson, also a non-executive director. Kestrel and Johan Claesson are providing an unsecured term loan of £3.0m
until 30 June 2021 (“Shareholder Loan”). The Shareholder Loan is split equally between the two Lenders. Mr Claesson
provided his part of the loan via his associated company, CA Fastigheter AB and Kestrel’s loan is provided via its
discretionary clients. See Note 18 for the terms of the Shareholder Loan.
1,200,000 warrants for ordinary shares of 25p were issued on 31 March 2020 following the receipt by the Group of
£3,000,000 in shareholders loans. The warrants are split as follows:
CA Fastigheter AB 600,000
Kestrel Partners LLP discretionary clients 600,000
All 1,200,000 warrants remain outstanding and are exercisable until 31 March 2030.
27. EVE NTS AF T ER T HE R EPORTI NG DAT E
On 26 February 2021 K3 announced the sale of its managed services unit, Starcom Technologies Limited ("Starcom"),
to Node4 Ltd, the UK‐based infrastructure and services company backed by private equity investment firm, Bowmark
Capital. The total consideration for the disposal was £14.7 million, including £0.5m cash on the balance sheet, paid
entirely in cash on completion. The transaction generated a significant profit on disposal, in excess of £10 million, which
will be accounted for as an exceptional contribution to results in the current financial year to 30 November 2021.
On 26 March 2021 we successfully agreed an extension to our Revolving Credit Facility with Barclays, with a facility of
£3.5m, to March 2022 with an option to extend.
118
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
28. NOT ES TO THE C ASH FLOW STATEM EN T
Cash and cash equivalents
Cash and bank balances available on demand
Bank overdrafts
Cash at bank and on hand – Held for Sale
2020
£’000
9,306
(3,000)
1,260
7,566
2019
£’000
8,226
(4,385)
-
3,841
Cash and cash equivalents comprise cash and bank balances available on demand. The carrying amount of these assets
is approximately equal to their fair value. Cash and cash equivalents at the end of the reporting period as shown in the
consolidated statement of cash flows can be reconciled to the related items in the consolidated reporting position as
shown above.
Non-cash transactions
Additions to buildings, motor vehicles and equipment during the year amounting to £900k were financed by new leases.
Adjusted cash generated from operations
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:
Year ended
30 November
2020
Year ended
30 November
2019
Cash generated from operating activities
Add:
Exceptional reorganisation costs
Adjusted cash generated from operations
£’000
8,232
934
9,166
£’000
5,882
362
6,244
119
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
29. NOT ES TO THE STRAT EGI C R EPORT
*1 Adjusted EBITDA – is the loss from continuing activities adjusted to exclude depreciation and amortisation of
development costs £4.5m (2019: £4.3m), amortisation of acquired intangibles £1.5m (2019: £2.2m), exceptional
impairment costs £16.9m (2019: £nil), exceptional reorganisation costs £0.9m (2019: £0.4m), exceptional customer
settlement provisions £nil (2019: £0.4m) and share-based charges £0.1m (2019: £0.1m credit)
*2 Recurring or predictable revenue – Contracted support, maintenance and services revenues with a frame
agreement of 2 years or more, as % of total revenue
*3 Own IP revenue as a percentage of total revenue – Own IP revenue (which includes initial and annual software
licences), £16.1m (2019: £17.9m), as a percentage of total Group revenue, £48.8m (2019: £50.1m)
*4 Own IP gross profit as a percentage of total gross profit - Own IP gross profit, £12.2m (2019: 12.6m), as a
percentage of total Group gross profit, £28.7m (2019: £28.8m)
*5 Net debt comprises Bank Loans, Shareholder Loans and Overdrafts less Cash and cash equivalents, including Cash
and cash equivalents held for sale.
*6 Adjusted loss/earnings per share – basic loss per share from continuing operations adjusted to exclude
amortisation of acquired intangibles £1.5m (2019: £2.2m), exceptional impairment costs £16.9m (2019: £nil),
exceptional reorganisation costs £0.9m (2019: £0.4m), exceptional customer settlement provisions £nil (2019:
£0.4m) and share-based charges £0.1m (2019: £0.1m credit) net of the related tax charge £0.4m (2019: £0.6m).
*7 Underlying support/admin costs – administrative expenses adjusted to exclude adjusted to exclude depreciation
and amortisation of development costs £4.5m (2019: £4.3m), amortisation of acquired intangibles £1.5m (2019:
£2.2m), exceptional impairment costs £16.9m (2019: £nil), exceptional reorganisation costs £0.9m (2019: £0.4m),
exceptional customer settlement provisions £nil (2019: £0.4m) and share-based charges £0.1m (2019: £0.1m credit).
120
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
30. SUB SID IARIES
The trading subsidiaries of K3 Business Technology Group plc, all of which have been included in these consolidated
financial statements are as follows:
Name
Country of
incorporation
Proportion of ownership
interest and ordinary
share capital held
K3 BTG Limited
UK
K3 Business Technology Group Trustees Company Limited UK
K3 FDS Limited
K3 Syspro Limited
K3 Systems Support Limited
Retail Systems Group Limited
Starcom Technologies Limited
FDS Technology Systems Limited
Integrated Manufacturing Software Limited
K3 Business Technologies Ireland Limited
K3 Business Solutions BV
K3 Software Solutions BV
K3 Solutions BV
K3 Business Solutions Pte Limited
K3 Business Solutions SDN BHD
K3 Business Solutions ehf
K3 Software Solutions LLC
DdD Retail A/S
DdD Retail Norway A/S
DdD Retail Germany AG
Detalj Data i Sverige AB
UK
UK
UK
UK
UK
Ireland
Ireland
Ireland
Netherlands
Netherlands
Netherlands
Singapore
Malaysia
Iceland
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%
The principal activity of all the above subsidiary undertakings is the supply of computer software and consultancy
except for the following: Starcom Technologies Limited which is a hosting and managed services provider; K3 Business
Technology Group Trustees Company Limited which is the trustee for the group’s employee share ownership plan.
Details of movements in investments are recorded in note 6 of the company financial statements.
121
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
30. SU BSIDARIES (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:
Name
K3 Business Solutions BV
K3 Software Solutions BV
K3 Solutions BV
Registered Office
Gildeweg 9b, 2632 BD Nootdorp, The Netherlands
Gildeweg 9b, 2632 BD Nootdorp, The Netherlands
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 SDN BHD
First Avenue, One Utama, 47800 Petaling Jaya, Kuala Lumpur, Malaysia
K3 Business Solutions ehf
K3 Software Solutions LLC
DdD Retail A/S
DdD Retail Norway A/S
DdD Retail Germany AG
Detalj Data i Sverige AB
Austurstræt 12, 101 Reykjavik , Iceland
33S 6th St., Suite 4200, Minneapolis MN 55402, USA
Theilgaards Allé 2, 4600 Køge, Denmark
195, Stensarmen 4, 3112, Tonsberg, Norway
Weilstrasse 41, 89143 Balubeuren, Germany
Vallhal Park, Stjernsvards Alle 52, 262 74 Angelholm, Sweden
122
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020 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
Country of
incorporation
Proportion of ownership
interest and ordinary
share capital held
Clarita Support Limited
Colne Investments Limited
Fashion Cloud Software.com, LLC
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
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
Retail Support International ApS
UK
UK
USA
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
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%
123
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
3.8 COM PANY BAL A NC E S HEET
FOR THE YEAR END ED 30 NOVE MBE R 20 2 0
REGIST ERED NUMBER: 2641001
Fixed assets
Tangible assets
Investments
Current assets
Debtors
Cash at bank and in hand
Deferred tax
Creditors: Amounts falling due within one year
Net current assets
Creditors: Amounts falling due after more than one year
Net assets
Capital and reserves
Called-up share capital
Share premium account
Other reserve
Profit and loss account
Equity shareholders’ funds
Notes
5
6
7
10
8
9
11
2020
£’000
563
29,348
29,911
2019
£’000
459
41,251
41,710
18,851
18,254
351
98
-
31
19,300
18,285
(21,512)
(11,677)
(2,212)
-
27,699
10,737
28,897
11,027
(22,962)
27,699
6,608
(6,262)
42,056
10,737
28,897
10,324
(7,902)
42,056
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 loss for the year dealt with in the financial statements of the parent company was £15,040,000 (2019:
£26,623,000).
The financial statements on pages 124 to 133 were approved and authorised for issue by the board of directors on 29
March 2021 and signed on its behalf by:
RD Price
Director
The notes on pages 126 to 133 form part of these financial statements.
124
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
3.9 COM PANY STAT EMENT OF
CHA NG ES IN EQUIT Y
At 30 November 2018
Changes in equity for year
ended 30 November 2019
Loss for the year
Total comprehensive expense
Share based payment
Dividends paid to equity holders
At 30 November 2019
Changes in equity for year
ended 30 November 2020
Loss for the year
Total comprehensive expense
Share based payment
Issue of warrants
Share
capital
£’000
10,737
-
-
-
-
Share
premium
Other
reserve
Retained
earnings
£’000
£’000
£’000
Total
equity
£’000
28,897
10,324
19,485
69,443
-
-
-
-
-
-
-
-
(26,623)
(26,623)
(103)
(661)
(26,623)
(26,623)
(103)
(661)
10,737
28,897
10,324
(7,902)
42,056
-
-
-
-
-
-
-
-
-
-
-
703
(15,040)
(15,040)
(15,040)
(15,040)
(20)
-
(20)
703
At 30 November 2020
10,737
28,897
11,027
(22,962)
27,699
Of the above reserves, the directors only consider the profit and loss account to be distributable. The dividends paid in
the previous year were voted and approved when the company had sufficient distributable reserves based on published
accounts at the time.
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. Own shares represent 47,067 (2019: 66,739) shares held under
an employee share ownership plan which will be issued to the employees when they choose to withdraw them. The
market value of these shares as at 30 November 2020 was £55,304 (2019: £103,445).
The notes on pages 126 to 133 form part of these financial statements.
125
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
3.10 N OT ES FORMIN G PART
OF T HE CO MPAN Y FIN AN C IAL
STATEM ENTS
1. ACCOUNTING POLICIES FOR TH E
COMPA NY F INANCIAL STAT EMEN TS
The principal accounting policies are summarised below where they differ from those in the consolidated financial
statements on pages 59 to 123. They have all been applied consistently throughout the current year and the
preceding period.
Basis of accounting
The financial statements have been prepared in accordance with Financial Reporting Standard 101, Reduced Disclosure
Framework (“FRS 101”).
The financial statements have been prepared under the historical cost convention. 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 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.
126
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
Financial instruments
Financial assets and financial liabilities are recognised in the company’s statement of financial position when the
company becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable
to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the
financial assets or financial liabilities, as appropriate, on initial recognition.
Intercompany loans are subsequently measured at amortised cost. Interest income is recognised using the effective
interest method.
The carrying amount of financial assets and liabilities that are denominated in a foreign currency is determined in
that foreign currency and translated at the spot rate at the end of each reporting period. For financial assets and
liabilities measured at amortised cost that are not part of a designated hedging relationship, exchange differences are
recognised in profit or loss.
2. PROF IT/(LOSS) FROM OPER ATI ON S
This has been arrived at after charging / (crediting):
Staff costs
Depreciation of property, plant, and equipment
Exceptional impairment of Dynamics UK
Exceptional impairment of RSG
Exceptional impairment of FDS
Exceptional impairment of K3 Holdings BV
Exceptional reorganisation costs
Foreign exchange (income)/costs
Notes
3
5
2020
£’000
4,326
174
-
598
10,339
967
(1,950)
(237)
2019
£’000
2,577
128
25,550
-
-
-
20
335
127
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
3. STAFF NUMB ERS
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
2020
Number
2019
Number
22
8
25
55
2020
£’000
3,417
425
343
20
121
4,326
-
-
35
35
2019
£’000
2,125
242
167
(103)
146
2,577
4. DI RECTORS’ REM U NERAT ION, I N TER ESTS
AND TR ANSACT ION S
Directors’ remuneration is disclosed in note 4 to the consolidated financial statements.
Directors’ share options are disclosed in the Remuneration Report on pages 34 to 36.
128
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
5. TANG IBL E F IXE D ASSETS
Cost
At 1 December 2018
Additions
At 1 December 2019
Additions
At 30 November 2020
Depreciation
At 1 December 2018
Depreciation charge
At 1 December 2019
Depreciation charge
At 30 November 2020
Net book value
At 30 November 2020
At 30 November 2019
At 30 November 2018
Plant, office
equipment
and fixtures
£’000
554
168
722
278
1,000
135
128
263
174
437
563
459
419
129
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
6. FIXED ASSET IN VESTM ENTS
Subsidiary undertakings
2020
£’000
29,348
2019
£’000
41,251
The trading subsidiaries of K3 Business Technology Group plc are disclosed in note 30 to the consolidated financial
statements. All subsidiary undertakings are wholly owned, and all shares consist of ordinary shares only.
Cost
At 1 December 2019
Impairments
At 30 November 2019
Net book value
At 30 November 2020
At 30 November 2019
Cost of
investment
£’000
41,251
(11,903)
29,348
29,348
41,251
Total
£’000
41,251
(11,903)
29,348
29,348
41,251
The impairment relates to the impairment of various business units’ details of which can be found in note 15 of the
consolidated financial statements.
Under section 479A of the Companies Act 2006 the Group’s subsidiaries, listed below, are claiming exemption from
audit. The parent undertaking, K3 Business Technology Group plc, registered number 02641001, guarantees all
outstanding liabilities to which each subsidiary is subject at the end of the financial year (being the year ended 30
November 2020 for each company listed below). The guarantee is enforceable against the parent undertaking by any
person to whom the subsidiary undertaking is liable in respect of those liabilities.
Colne Investments Limited
K3 BTG Limited
K3 Systems Support Limited
Retail Systems Group Limited
03563989
06338304
08497112
01763900
130
K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
7. DE BTORS
Amounts falling due within one year:
Amounts owed by subsidiary undertakings
Trade debtors
Other debtors
Taxation and social security
Prepayments
2020
£’000
2019
£’000
18,271
17,902
63
4
-
513
-
24
119
209
18,851
18,254
Interest is charged on amount owed by subsidiary undertakings at 3.75% (2019: 4.25%) which is deemed to be a market
rate. The company impaired £2,251k on the inter company receivables from Unisoft and K3 FDS (2019: £18,550k from
K3 Business Technologies Limited and Colne Investments Limited) .
8. CRED ITORS: AMO UNTS FA LL IN G D U E
WITHIN ONE YEAR
Bank loans (secured)
Shareholder loans (unsecured) (see note 18 in the Group financial statements)
Bank loans and overdrafts
Trade creditors
Amounts owed to subsidiary undertakings
Taxation and social security
Other creditors
Accruals
2020
£’000
6,771
2,672
787
315
8,777
962
276
952
2019
£’000
-
-
890
308
9,628
-
417
434
21,512
11,677
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 3.75% (2018: 4.25%) which is deemed to be a
market rate.
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9. CRED ITORS: AMO UNTS FA LL IN G D U E
AF TER M ORE T HAN ONE YEA R
At the year end, other borrowings were repayable as follows:
Bank loans (secured) (see note 18 in the Group financial statements)
Bank loans
On demand or within one year
Between one and two years
10. DEF E RRE D TA X ATION
Accelerated capital allowances
Other timing differences
Deferred tax asset
The movements in deferred tax assets (liabilities) during the year are:
2020
£’000
-
-
-
-
2020
£’000
74
24
98
At 1 December 2019
Charged to profit and loss
At 30 November 2020
Accelerated
capital
allowances
£’000
(9)
83
74
Other timing
differences
£’000
40
(16)
24
2019
£’000
6,262
-
6,262
6,262
2019
£’000
(9)
40
31
Total
£’000
31
67
98
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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K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
11. CA LLED -UP SHARE C APITA L
2020
£’000
2019
£’000
Allotted, called-up and fully-paid
42,946,665 ordinary shares of 25p each (2019: 42,946,665)
10,737
10,737
See note 23 to the consolidated financial statements for details of the movements in called-up share capital and of
outstanding warrants.
12. SHARE- BASE D PAYMENT
K3 Business Technology Group plc operates an equity-settled share-based renumeration scheme for employees: the
K3 Long Term Incentive Plan (“LTIP”) for certain senior management including executive directors, and a Save As You
Earn (SAYE) scheme for employees. See note 10 to the consolidated financial statements for details regarding share-
based payments.
13. PE NSION AR RANGEMEN TS
The Company operates a defined contribution scheme and makes contributions to personal pension schemes of
certain senior employees and directors for which the total pension cost charge for the year amounted to £343,000
(2019: £167,000).
14. REL AT E D PART Y TRA NSACTIO NS
Related party transactions are disclosed in note 26 to the consolidated financial statements. There were no other
transactions with related parties during the year.
15. CO NT INGENT LIAB IL IT Y
The Company has entered into a cross-guarantee with fellow group undertakings in relation to liabilities with Barclays
Bank plc. At the period end the liabilities covered by the guarantee totalled £9,771,000 (2019: £10,647,000) of which
£7,558,000 (2019: £7,153,000) is included within the Company’s accounts.
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3.11 N OT ICE OF AN NUA L
GEN ERAL 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.
COVID-19 and AGM proceedings
In light of the UK Government's responses to the COVID-19 outbreak, which currently includes restrictions on all non-
essential travel and gatherings of more than six people, the Company is adopting the following annual general meeting
arrangements in order to ensure that the health and safety of our shareholders, directors, employees and other key
stakeholders is protected:
In accordance with the Company’s articles of association, the quorum necessary to constitute the annual general
meeting is two members in person or proxy, therefore two members will be in attendance to form the quorum and
conduct the business of the meeting.
The annual general meeting will only address the formal matters contained in this Notice of Annual General Meeting.
Attendance by additional shareholders is not considered as “essential for work purposes” and so would not be
permitted under the Stay-at-Home Measures. Shareholders may not attend in person and will be refused entry to
the annual general meeting given the Stay-at-Home Measures.
There will be no form of broadcast, website, videoconference or dial in for the annual general meeting for all
shareholders due to complexity and cost.
All shareholders are urged to appoint the Chairman of the meeting as their proxy, with voting instructions.
Please refer to the Notes to this Notice of Annual General Meeting for more information regarding proxy voting.
It is emphasised that any forms of proxy being returned via a postal service should be submitted as soon as
possible to allow for any delays to or suspensions of postal services in the United Kingdom as a result of measures
being implemented by the Government of the United Kingdom.
Please note that as shareholders will not be able to attend this year’s annual general meeting the Company is
proposing to allow shareholders the opportunity to raise any issues or concerns arising from the business
proposed to be conducted at the meeting. Appropriate questions on the business of the meeting should be
emailed to companysecretarial@k3btg.com before close of business on 17 May 2021. The Company may not
be able to provide an answer if (a) to do so would interfere unduly with the preparation for the meeting or involve
the disclosure of confidential information, (b) the answer has already been given on a website in the form of an
answer to a question, or (c) it is undesirable in the interests of the Company or the good order of the meeting that
the question be answered.
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In order to ensure a more accurate reflection of the views of shareholders and ensure that your proxy votes are
recognised, voting on all resolutions to be proposed at the annual general meeting will be by way of a poll as
permitted by the Company’s articles of association. Resolutions 1 to 8 are proposed as ordinary resolutions. An
ordinary resolution will be passed on a poll if it is passed by shareholders representing a simple majority of the total
voting rights of shareholders who (being entitled to do so) vote at the annual general meeting. Resolutions 9
to 11 are proposed as special resolutions. A special resolution will be passed on a poll if it is passed by a majority
of shareholders representing not less than 75% of the total voting rights of shareholders who (being entitled to do
so) vote at the annual general meeting.
The UK Government may change current restrictions or implement further measures relating to the holding of general
meetings prior to the annual general meeting. Any changes to the annual general meeting (including the arrangements
outlined above) will be made available on the Company’s website and by means of the Regulatory Information Service.
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 19 May 2021 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 8 will be proposed as ordinary
resolutions and resolutions 9 to 11 will be proposed as special resolutions.
Ordinary Resolutions
To consider and, if thought fit, pass the following resolutions which will be proposed as ordinary resolutions:
1. To receive, consider and adopt the annual accounts for the period ended 30 November 2020, together with the
directors’ and auditors’ reports on those accounts.
2. To re-elect Mr P J Claesson as a director of the Company in accordance with Articles 22.5 and 22.6 of the articles
of association.
3. To re-elect Mr R D Price as a director of the Company in accordance with Articles 22.5 and 22.6 of the articles
of association.
4. To elect Mr T Crawford as a director of the Company (in accordance with Articles 22.5 and 22.6 of the articles
of association) who was appointed by the Board since the last annual general meeting.
5. To elect Mr M Vergani as a director of the Company (in accordance with Articles 22.5 and 22.6 of the articles
of association) who was appointed by the Board since the last annual general meeting.
6. 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 general meeting at which financial statements are laid before the Company.
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7. To authorise the directors of the Company to determine the auditor's remuneration.
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 £3,727,698 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.
Special Resolutions
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 and/or to sell ordinary shares held by
the Company as treasury shares as if section 561(1) of the Act did not apply to such allotment, provided that this
power shall be limited to:
9.1. the allotment of equity securities 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 directors 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. the allotment of equity securities or sale of treasury shares (otherwise than pursuant to sub-paragraph 9.1 above)
up to an aggregate nominal amount of £559,155
and, unless previously renewed, revoked or varied by the Company in general meeting, the authority granted by
this resolution shall expire on 19 August 2022, 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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K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
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 4,473,238;
(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 2022 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.
Amendment to the Articles of Association regarding Non-Executive Director Remuneration
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
23 April 2021
K3 Business Technology Group plc
By order of the Board
Baltimore House
50 Kansas Avenue
Manchester M50 2GL
K Curry
Company Secretary
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3.11 NOTICE OF ANNUAL GENE RAL MEET IN G (co ntinue d)
Explanatory Note to the Resolutions proposed in the Notice of the Annual General Meeting
Please refer to notes 9 to 24 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 year ended 30 November 2020 together with the Director’s and Auditor’s
reports on such accounts.
2. Resolutions 2 and 3- In compliance with Article 22.5 of the Company's current articles of association any non-
executive director who has held office for nine years or more shall retire at each annual general meeting.
Accordingly, Mr P J Claesson will retire at the 2021 annual general meeting. In addition, in compliance with Article
22.5, any director who has not been appointed or re-appointed at either of the two previous annual general
meetings shall retire at the 2021 annual general meeting. Accordingly, Mr R D Price will also retire at the 2021
annual general meeting. Mr P J Claesson and Mr R D Price will each offer themselves for re-election as a director
at the 2021 annual general meeting and they are recommended by the Board for re-election. Mr P J Claesson was
originally appointed as a non-executive director of the Company in March 2001. Mr R D Price was originally
appointed as a director of the Company in July 2017. Biographical details of Mr P J Claesson and Mr R D Price are
available on the Company’s website at https://www.k3btg.com/investor-centre/the-executive-board/.
3. Resolutions 4 and 5 - In compliance with Article 22.5 of the Company's current articles of association any
director appointed by the board since the previous annual general meeting shall retire at the annual general
meeting of the Company next following his appointment. Mr T Crawford was appointed by the Board as a
director of the Company in October 2020 and Mr M Vergani was appointed by the Board as a director of the
Company on 30 March 2020. Accordingly, Mr T Crawford and Mr M Vergani will each retire and offer himself for
re-election as a director at the 2021 annual general meeting and they are recommended by the Board for
re-election. Biographical details of Mr T Crawford and Mr M Vergani are available on the Company’s website at
https://www.k3btg.com/investor-centre/the-executive-board/.
4. Resolutions 6 and 7- 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 6 reappoints BDO LLP as the Auditor of the Company and Resolution 7 authorises the
Directors to fix their remuneration.
5. 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 £3,727,698 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 the date of
the notice of annual general meeting 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.
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6. Resolution 9 (proposed as a special resolution) 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 or sell treasury
shares 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 or sale of treasury shares up to an aggregate nominal amount of £559,155 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 on 19 August 2022, 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).
7. 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
4,473,238 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 2022 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).
8. Resolution 11 proposes the adoption of new articles of association (the “New Articles”) in substitution for the
Company's existing articles of association. The only proposed change to the current articles of association is to
amend the annual cap on the remuneration of non-executive Directors in Article 21 of the articles of association
from £200,000 plus RPI to £300,000 plus RPI (see Article 21). The new articles of association as proposed to be
adopted pursuant to resolution 11 will take effect from the conclusion of the annual general meeting.
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, subject to restrictions in place for COVID-19
safety in accordance with UK Government guidelines. 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, subject to restrictions in place for COVID-19 safety in accordance with UK Government guidelines.
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3.11 NOTICE OF ANNUAL GENE RAL MEET IN G (co ntinue d)
Notes to the Notice of Annual General Meeting
Entitlement to attend and vote
9. 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.
10. The Company specifies that only those members registered on the Company's register of members at:
close of business on 17 May 2021; or,
if this Meeting is adjourned, at close of business on the day two days prior to the adjourned meeting (excluding
non-business days),
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.
Issued shares and total voting rights
11. As at close of business on the date of the notice of annual general meeting, the Company's issued share capital
comprised 44,732,379 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 the date of the notice of annual general meeting is 44,732,379.
Documents on display
12. 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, subject to restrictions in place for COVID-19 safety in
accordance with UK Government guidelines:
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
13. If you are a member of the Company at the time set out in note 10 above, you are entitled to appoint a proxy
to exercise all or any of your rights to attend, speak and vote at the Meeting. You can only appoint a proxy using the
procedures set out in these notes and the notes to the proxy form.
14. 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 Chair 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 Chair) and give your instructions directly to them.
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15. 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 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 selecting the box provided if the proxy instruction is one of multiple instructions being given.
16. 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
Register their proxy appointment electronically (see note 17).
If a CREST member, register their proxy appointment by utilising the CREST electronic proxy appointment
service (see note 18).
Request a hard copy form of proxy directly from the registrars, Link Group on Tel: 0371 664 0300 (see note 19).
Proxy voting using the Registrar's share portal
17. 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 17th May 2021.
CREST proxy voting (uncertificated shareholders)
18. (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
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3.11 NOTICE OF ANNUAL GENE RAL MEET IN G (co ntinue d)
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 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 Group, PXS 1, Link Group, Central Square, 29 Wellington Street, Leeds, LS1 4DL or delivered to
Link Group, 10th Floor, Central Square, 29 Wellington Street, Leeds LS1 4DL (multiple forms should be
returned in the same envelope); and
received by Link Group no later than 10.30 am on 17 May 2021.
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.
Calls to Link Group are charged at the standard geographic rate and will vary by provider. Calls outside the United
Kingdom will be charged at the applicable international rate. Lines are open between 09:00 – 17:30, Monday to
Friday excluding public holidays in England and Wales.
Appointment of proxy by joint members
20. 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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Changing proxy instructions
21. 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 Group on 0371 664 0300. Calls to Link Group are charged at
the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the
applicable international rate. Lines are open between 09:00 – 17:30, 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
22. 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 Group, PXS 1, Link Group, Central Square,
29 Wellington Street, Leeds, LS1 4DL. 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 Group, PXS 1, Link Group, Central Square, 29 Wellington Street,
Leeds, LS1 4DL no later than 10.30 am on 17 May 2021.
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
23. 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.
24. Notwithstanding the information contained in notes 9 to 23 above and the rights of shareholders set out in the Act
and the Company's articles of association, the Directors' strong recommendation is that shareholders do not
attend the annual general meeting in person this year and, instead, submit proxy votes appointing the Chair of
the annual general meeting as your proxy as set out in this notice of annual general meeting. Moreover, the
Directors would like to reiterate that, if any shareholder (or other proxy appointed by a shareholder other than the
Chair of annual general meeting) does, nonetheless, travel to attend the meeting in person, it is highly likely that
they will be denied access to it based on the prevailing circumstances and, as a result, will not be able to participate
in the business to be transacted at the annual general meeting.
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K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
3.11 NOTICE OF ANNUAL GENE RAL MEET IN G (co ntinue d)
Enquiring about your shareholding
If you want to ask, or need information, about your shareholding, please contact our registrar, Link Group, on 0371 664
0300. Calls to Link Group are charged at the standard geographic rate and will vary by provider. Calls outside the United
Kingdom will be charged at the applicable international rate. Lines are open between 09:00 – 17:30, 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 Group, PXS 1,
Link Group, Central Square, 29 Wellington Street, Leeds, LS1 4DL. 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 plcAnnual Report and Financial Statements for the year ended 30 November 2020 3.12 COMPANY IN FORMATION
Registered Office
Baltimore House
50 Kansas Avenue
Manchester
M50 2GL
Company Website
www.k3btg.com
Directors
T Crawford (Chairman)
M Vergani
R D Price
P J Claesson (non-executive)
J P Manley (non-executive)
O Scott (non- executive)
Company Secretary
K J Curry
Country of
Incorporation
of Parent Company
England and Wales
Company Number
2641001
Legal Form
Public limited company
Advisors
Legal advisors to the Group
Squire Patton Boggs LLP
No1 Spinningfields
1 Hardman Square
Manchester
M3 3EB
DWF LLP
1 Scott Place
2 Hardman Street
Manchester
M3 3AA
Nominated Advisor
finnCap Limited
Cardinal Place
60 New Broad Street
London
EC2M 1JJ
Auditors
BDO LLP
3 Hardman Street
Spinningfields
Manchester
M3 3AT
Accountants
Beever and Struthers
St George’s House
215-219 Chester Road
Manchester
M15 4JE
Bankers
Barclays Bank plc
1st Floor
3 Hardman Street
Spinningfields
Manchester
M3 3HF
Registrars
Link Group
Unit 10
Central Square
29 Wellington Street
Leeds
LS1 4DL
Financial PR
KTZ Communications
No.1 Cornhill
London
EC3V 3ND
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K3 Business Technology Group plcAnnual Report and Financial Statements for the year ended 30 November 2020
K3 has been at the forefront of the retail technology industry
for the last 30 years. As a leading supplier of software
solutions, we have serviced countless clients across the globe.
We blend our own IP with third-party solutions and leverage
the flexibility of our future-facing K3|Imagine platform to
create an indispensable end-to-end IT infrastructure for
businesses of all sizes.
K3|Imagine is a flexible, adaptable and extensible foundation
from which our customers can holistically build
and integrate boundless areas of connected interaction,
intelligence and services.
In a world full of uncertainty, K3 provides an absolute resolution
to today’s biggest challenges and empowers businesses to be
ready for the now.
We are truly fundamental to a healthy business.
To find out more, visit www.k3btg.com
K3 Business Technology Group plc
Baltimore House,
50 Kansas Avenue,
Manchester, M50 2GL