ANNUAL
REPORT
2019
PAGE 2
K3 CAPITAL GROUP PLC
ANNUAL REPORT 2019 | CONTENTS
PAGE 3
TABLE OF
CONTENTS
STRATEGIC REPORT
OTHER REPORTS
FINANCIAL
04 KEY
HIGHLIGHTS
24 BOARD OF
DIRECTORS
40 FINANCIAL
STATEMENTS
06 CHAIRMAN’S
STATEMENT
26 DIRECTORS’
REPORT
85 NOTICE OF
MEETING
10 CHIEF EXECUTIVE
OFFICER’S REPORT
32 CORPORATE
GOVERNANCE
STATEMENT
16 CHIEF FINANCIAL
OFFICER’S REPORT
35 CORPORATE SOCIAL
RESPONSIBILITY
36 INDEPENDENT
AUDITORS REPORT
PAGE 4
K3 CAPITAL GROUP PLC
BUSINESS
OVERVIEW
CONTINUED TURNOVER
GROWTH ACROSS
KNIGHTSBRIDGE AND KBS
CORPORATE BRANDS
DECLINE IN GROUP
TURNOVER AND PROFITS DUE
TO UNDER PERFORMANCE
OF CORPORATE FINANCE
DIVISION
£
IMPROVING KPIs ACROSS
OUR VOLUME BRANDS
NUMBER ONE ADVISOR
FOR UK DEAL VOLUME -
THOMSON REUTERS 2018 &
H1 2019 (REFINITIV)
SIGNIFICANT WIP PIPELINE
ACROSS THE GROUP
HEADING INTO FY20
CONTINUED INVESTMENT IN
OUR PEOPLE
165
STAFF MAY 19
ADDITIONAL OFFICE
PREMISES IDENTIFIED FOR
KNIGHTSBRIDGE BRAND
EVER IMPROVING QUALITY
OF EARNINGS THROUGH
PERFORMANCE IN VOLUME
BRANDS
STRATEGIC REPORT | KEY HIGHLIGHTS
PAGE 5
FINANCIAL
OVERVIEW
GROUP REVENUE
EBITDA
NET CASH
2018
£16.5m
2018
£7.4m
2018
£7.5m
2019
£13.6m
2019
£5.0m
2019
£5.8m
2019
37%
2018
45%
2019
9.43P
2018
14.10P
2019**
7.60P
2018
11.25P
*
**
EBITDA Margin is calculated as Operating Profit plus depreciation and amortisation, divided by revenue
2019 Dividend Per Share includes proposed Final Dividend
EARNINGS PER SHAREEBITDA MARGIN*DIVIDEND PER SHARE PAGE 6
K3 CAPITAL GROUP PLC
IAN MATTIOLI MBE | CHAIRMAN
IANMATTIOLIMBE STRATEGIC REPORT | CHAIRMAN’S STATEMENT
PAGE 7
CHAIRMAN’S
STATEMENT
INTRODUCTION
THE UK’S MOST ACTIVE DEALMAKER H1 2019
I am pleased to report a satisfactory year of trading at K3 Capital Group
plc and continued growth in the volume brands within the Group,
demonstrated by a 5% increase in the volume of new client mandates
and a 7% increase in the volume of completed transactions.
The trading period has seen significant increases in the volume of low
to mid value transactions; however, it has equally seen a significant
reduction in high value transactions.
As previously communicated, the continuing backdrop of economic and
political uncertainty, particularly surrounding Brexit, has impacted the
number of Corporate Finance transactions which have completed within
the reporting period.
£13.6M
GROUP
REVENUE
£5.0M
GROUP
EBITDA
I can therefore report revenues of £13.6m (FY18: £16.5m) and EBITDA of
£5.0m (FY18: £7.4m). I can also report a profit after tax of £4.0m (FY18:
£6.0m).
Given the growth of the volume brands, it is pleasing to report that the
Board has made significant progress in creating a more robust business
model with a reduced reliance on larger mandates, and given the strong
pipelines heading into the new financial year, I remain confident of
making further progress and delivering on expectations for FY20.
Throughout the financial year, K3 continued to build capacity within its
sales departments as well as refining its direct marketing approach. This
has yielded a 16% increase in non-contingent fee income to £8.1m (FY18:
£7.0m).
Due to various issues discussed later in this report, there has been a
reduction of Transaction Fee income in the year to £5.4m. However, our
KBS Corporate and Knightsbridge operations departments have had a
successful trading period with record levels of Group transactions, 7%
ahead of the comparative period. These departments have continued
to grow as a direct result of investment into people, management
and technology and we are delighted with the dedication of the team
throughout the year who remain highly focussed on delivering successful
outcomes for many clients.
RANK
ADVISOR
2019
DEALS
1
2
3
4
4
6
7
8
9
KBS Corporate
Redwoods Dowling Kerr
Deloitte
Grant Thornton
Bruce & Company Ltd
KPMG
PricewaterhouseCoopers
RSM Corporate Finance
Benchmark International
10
Kings
Source: Refinitiv Small Cap M&A
Review - H1 2019
60
48
41
34
33
32
32
26
24
18
Once again, we find ourselves excelling in national league tables, with
Refinitiv (formerly Thomson Reuters) naming us as the most active
dealmaker in the Small Cap Financial Advisory review for H1 2019 and
2018. Such accolades are testament to the dedication of the Board and
employees in having the drive and determination to improve performance
across the Group.
FINANCIALS
As reported, revenues for the year stood at £13.6m (FY18: £16.5m), and
in line with reduced Group expectations announced in April 2019.
We can report an EBITDA of £5.0m (FY18: £7.4m) and an Operating
Profit of £4.9m (FY18: £7.3m).
Net cash at the year end stands at £5.8m (FY18: £7.5m). It is pleasing to
report that ‘free cash’ (as detailed in the CFO report) has risen to £3.1m
(FY18: £2.2m).
Group net assets at FY19 were £7.2m (FY18: £8.3m) with current net
assets standing at £3.1m (FY18: £4.2m). This is largely due to a reduction
in cash balances as a result of the FY18 final dividend paid in October 18.
PAGE 8
K3 CAPITAL GROUP PLC
Year Ended 31 May 2019
EBITDA
Depreciation and amortisation of assets
Operating Profit
Finance income (costs)
Profit before taxation
2019
£’000
4,976
(103)
4,873
6
4,879
2018
£’000
7,386
(75)
7,311
4
7,315
RECOMMENDING A FINAL DIVIDEND
OF 4.0P PER SHARE
SUMMARY
Whilst the continuing economic and political uncertainty has led to a
downturn in transactions within the Corporate Finance division in the
reporting period, the Board is satisfied with the performance of the
Group as a whole.
The Directors believe the Group has ended the financial year with a more
robust business model which sees less reliance on larger transactions in
order to achieve future market expectations. The Board remains positive
for the outlook in FY20 due to significant pipelines and continued
increases in major KPIs across the Group, as detailed in the CEO report.
As a result, the Board is recommending a final dividend payment of 4.0p
per share. This results in a total dividend of 7.60p (FY18: 11.25p).
The Board remains committed to the dividend policy as set out on
admission and as detailed in the Chief Financial Officer’s report, whilst
maintaining an appropriate level of dividend cover. If approved, the final
dividend will be paid on 22 October 2019 to shareholders on the register
at the close of business on 3 October 2019.
EBITDA MARGIN*
EARNINGS PER SHARE
DIVIDEND PER SHARE
2019
37%
45%
2018
2019
2019**
9.43P
14.10P
2018
7.60P
11.25P
2018
*
**
EBITDA Margin is calculated as Operating Profit plus depreciation and amortisation, divided by revenue
2019 Dividend Per Share includes proposed Final Dividend
IAN MATTIOLI MBE
Chairman
16 September 2019
STRATEGIC REPORT | CHAIRMAN’S STATEMENT
PAGE 9
THROUGHOUT THE YEAR, K3 MAINTAINED ITS
NO.1 POSITION FOR THE VOLUME OF DEALS
COMPLETED IN THE UK.
PAGE 10
K3 CAPITAL GROUP PLC
JOHN RIGBY | CHIEF EXECUTIVE OFFICER
JOHNRIGBY STRATEGIC REPORT | CHIEF EXECUTIVE OFFICER’S REPORT
PAGE 11
CHIEF EXECUTIVE
OFFICER’S REPORT
INTRODUCTION AND HIGHLIGHTS
The reporting period has been set against a backdrop of significant
political and economic uncertainty, with the wider M&A market witnessing
a slowdown in both value and volume of completed transactions.
Despite these ongoing challenges I am pleased to report that within the
period, the Group has experienced an increase in the number of both
mandated clients and registered buyers, resulting in a rise in the volume
of completed transactions.
As an innovative and disruptive player within the fragmented business
and company sales marketplace, K3 Capital continued to outperform
the general market, completing 57% more deals than any other advisor
(Thomson Reuters Small Cap M&A Review 2018) to maintain its market
leading position as the UK’s most active deal maker. Amid the current
uncertainty around Brexit negotiations, this success gives me a great
deal of optimism, hinting at an even brighter future once there is more
certainty in the market.
57% MORE DEALS
THAN ANY OTHER
ADVISOR
We have continued with the implementation of our growth strategy,
predicated on effective use of data and industry leading marketing
strategies supported by our own proprietary technology and delivered
through our team of highly motivated and incentivised staff. The
Group’s performance is continually monitored through key performance
indicators, including the volume and average value of mandates,
completed transactions and average transaction fees.
The most pleasing result of FY19 comes from the fact that a growing
percentage of Group revenue and therefore Group profits are being
generated from within the volume brands of Knightsbridge and KBS
Corporate. Whilst this revenue delivers lower margins than the higher
value, lower volume Corporate Finance transactions, we see these
revenue streams as more predictable and sustainable, therefore of
higher quality due to them being derived from a high volume of lower
value transactions.
The technological initiatives launched in the previous financial year have
helped propel growth in FY19 and remain a key part of our ongoing
growth strategy to attract both more sellers and more buyers to the
Group. Continued investment in our people has led to increases in
both capacity and skill sets, which leaves us well placed to leverage
commercial advantage from our market leading position.
With the exception of our Corporate Finance division, the Group
has continued to deliver our ongoing ‘bigger and better’ strategy,
demonstrated by further increases in average retainer fees and
transaction fees within the Knightsbridge and KBS Corporate divisions.
INCREASES IN BOTH AVERAGE
RETAINER FEES AND
TRANSACTION FEES WITHIN
THE VOLUME BRANDS
I would like to once again thank my fellow Directors and all the staff
across the Group for their hard work and dedication over the last 12
months. In the face of adverse market conditions and uncertainty in the
wider macro-economic environment, to have achieved growth across
many areas of the Group is testimony to our increasingly robust business
model.
Our marketing spend has increased in line with our strategy to mandate
and transact ‘bigger and better’, higher value clients. The period has seen
a 9% increase in marketing spend to £1.0m and has driven new client
wins across KBS Corporate Finance, KBS Corporate and Knightsbridge,
many of which we hope will convert into transaction fee income as we
move into FY20.
PAGE 12
K3 CAPITAL GROUP PLC
OPERATIONS
With the creation of Knightsbridge Commercial came a separate
department to negotiate commercial transactions. Despite the time
lag from mandate to completion, this department has already added
significant value to the transaction fee income derived from the division,
something which we very much see gaining further traction as we move
into FY20 and beyond.
The growth across all operational KPIs included: monthly non-disclosure
agreements increasing by 72%, monthly buyer meetings increasing by
28%, and monthly offers increasing by 18%. Due to the new commercial
offering, the average transaction fee has increased by 15% against the
prior year, a trend which we expect to continue going forwards.
NDAS
BUYER MEETINGS
OFFERS
The new commercial department and an improved client journey,
combined with the above KPI improvements has seen a 17% increase in
transaction fee income from the department.
TRANSACTION FEE INCOME
+17%
SALES
During the prior financial year we repositioned the brand, launching
Knightsbridge Commercial in order to focus on the more profitable
commercial market, in addition to the ‘retail’ market, which Knightsbridge
has traditionally served. FY19 has seen the new Knightsbridge Commercial
brand gain significant traction. The recruitment of a further Regional
Sales Manager, increasing the team to eight, has created additional sales
capacity.
29% INCREASE IN
THE NUMBER OF NEW
CLIENT APPOINTMENTS
This has resulted in the number of new client appointments increasing
by 29%, the value of retainer fee (non-contingent fee) quotes increasing
by 121%, the number of new client mandates increasing by 20%, and the
average non-contingent fee increasing by 37%, when compared to the
prior year.
The new brand, investment into the team, and the above KPI improvements
have led to a 51% increase in non-contingent fee income in this division.
51% INCREASE IN NON-
CONTINGENT FEE
INCOME
2018201920182019+72%20182019+28%20182019+18% STRATEGIC REPORT | CHIEF EXECUTIVE OFFICER’S REPORT
PAGE 13
SALES
The launch of Knightsbridge Commercial, coupled with the growth of
the KBS Corporate regional sales team and the additional capacity this
has created, has allowed the brand to increase its focus on the delivery
of our ‘bigger and better’ strategy.
The ability to spend more time with clients in order to understand their
objectives and exit strategy allows us to better tailor our service offering
to the client’s needs. This has resulted in an increase of 7% in the value
of non-contingent fees quoted, and a further increase of 20% in the
average non-contingent fee received, when compared to the prior year.
20% INCREASE IN THE
AVERAGE FEE RECEIVED
As a result of the above, we have seen an 11% increase in non-contingent
fee income within the brand.
11% INCREASE IN NON-
CONTINGENT FEE INCOME
OPERATIONS
Our strategy of mandating higher value clients, combined with a
significant uplift in the number of registered buyers, due to our
investment into data, technology and buyer targeting, has continued to
deliver increases in both the volume of transactions completed and the
average fee relating to these transactions.
The investment in management, head count, data and systems has
delivered some pleasing results across all major operational KPIs. These
include monthly non-disclosure agreements (NDAs) received increasing
by 40%, the number of monthly buyer meetings increasing by 36%, and
the number of monthly offers received increasing by 38%, compared to
FY18.
NDAS
BUYER MEETINGS
OFFERS
All of the above has resulted in Transaction Fee income increasing by
47%*, completing 22%* more transactions, and has seen the average
transaction fee increase by 21%* compared to the prior year. We are
confident that the investment will deliver further revenue growth and
profitability in FY20.
TRANSACTION FEE INCOME*
+47%
*Transaction fee income and Transaction volumes are adjusted to reflect KBS
Corporate Sales clients invoiced through KBS Corporate Finance following an
enhanced service offering, as further detailed in the CFO report.
20182019+40%20182019+36%20182019+38%20182019
PAGE 14
K3 CAPITAL GROUP PLC
OPERATIONS
Despite our optimism during the year due to a number of significant
transactions expected to close, FY19 has ultimately been a disappointing
year for KBS Corporate Finance, resulting in a significant reduction
in both the volume and value of completed transactions within the
reporting period.
FY19 has seen a 60%* reduction in the volume of transactions, and an
87%* reduction in transaction fee income compared to FY18.
60% REDUCTION
IN VOLUME OF
TRANSACTIONS*
Whilst we do not believe that there is any one specific reason for these
transactions not completing within the period, we are of the belief that
the wider political and economic backdrop, and the uncertainty this has
created within the UK, has resulted in the tightening of bank lending
and a slowdown of private equity investment. This has led to some
investment decisions being delayed until outcomes are better known,
and has clearly had an impact on a buyer’s propensity to complete a
transaction in a timely manner; confidence in the market, after-all, is an
integral factor in people’s investment decisions.
We continue to receive interest from many UK and overseas investors,
private equity, and trade acquirers, which, when coupled with our strong
WIP (transactions in legal exclusivity), should underpin our forecasts
into FY20 and beyond.
UK AND OVERSEAS INVESTORS,
PRIVATE EQUITY, AND TRADE
ACQUIRER INTEREST REMAINS STRONG
There are several positive and encouraging KPIs within the division,
including a 33% increase in the total client mandates compared to the
prior year. In line with our ‘bigger and better’ strategy across the Group,
it is pleasing to note that KBS Corporate Finance has seen an 80%
increase in clients achieving £3-5m trading profit, and a 67% increase in
clients achieving over £5m trading profit.
33% INCREASE IN TOTAL
CLIENT MANDATES
80% INCREASE IN CLIENTS
ACHIEVING £3-5M
TRADING PROFIT
67% INCREASE IN CLIENTS
ACHIEVING £5M+ TRADING
PROFIT
*Transaction fee income and Transaction volumes are adjusted to reflect KBS
Corporate Sales clients invoiced through KBS Corporate Finance following an
enhanced service offering, as further detailed in the CFO report.
STRATEGIC REPORT | CHIEF EXECUTIVE OFFICER’S REPORT
PAGE 15
LOOKING AHEAD
A POSITIVE START
Our Group strategy for FY20 is in line with our previously stated strategy
of continuing to drive organic growth across the volume brands within
the Group, combined with the ongoing delivery of our ‘bigger and better’
mantra. This further reduces the reliance on the Corporate Finance
division delivering significant transactions within fixed accounting
periods. The improved quality of earnings derived from the higher
volume brands provides the Board with a more robust foundation from
which to forecast future performance.
We have started the year positively with the Group trading in line
with market expectations. The first quarter has already seen our KBS
Corporate Finance team complete the same number of transactions and
exceed the Transaction Fee income delivered during the entirety of FY19.
All three brands have brought forward strong WIP pipelines and whilst
the timing and certainty of transactions are not guaranteed, we are
excited by the prospects for the current financial year and beyond.
JOHN S RIGBY
Chief Executive Officer
16 September 2019
Whilst the Corporate Finance brand continues to present an exciting
opportunity to deliver significant transactions and therefore incremental
revenue and profits, it is the Board’s intention to continue the transition
towards a model where the happening of such fees represents upside
opportunity rather than downside risk.
We feel that this transition is well underway, evidenced by the fact that
a far greater proportion of revenue and profit in FY19 was created by
the volume brands of the Group, and also that forecasts for FY20 and
beyond contain a significantly reduced reliance on revenue and profit
created through the KBS Corporate Finance division.
To achieve this, we will continue to leverage our data, technology and
people to find more sellers, more buyers and complete more transactions
than any other UK advisor, with the intention of maintaining our position
as the UK’s number one advisor in the small cap market.
Our people remain at the core of our business. We continually strive to
recruit high quality, experienced people and we have recently identified
additional office space within our current business park in order to
relocate the growing Knightsbridge brand. This will provide it with a
further springboard to continue its growth strategy and provide KBS
Corporate with additional office space within the existing unit.
The Company continues to look at potential bolt-on acquisitions that
the Board believe would be additive to the overall product offering with
a view to diversifying the Company’s revenue streams.
PAGE 16
K3 CAPITAL GROUP PLC
ANDREW MELBOURNE | CHIEF FINANCIAL OFFICER
ANDREW MELBOURNE STRATEGIC REPORT | CHIEF FINANCIAL OFFICER’S REPORT
PAGE 17
CHIEF FINANCIAL
OFFICER’S REPORT
INCOME STATEMENT
Group turnover for the year amounted to £13.6m (FY18: £16.5m). Previous
investment into staff and technology continues to deliver growth and
success from many areas of the Group.
Headcount has grown to 165 as at May 19 (May 18: 133), with additional
resource being given to all departments in order to maintain the high
levels of customer service we expect to deliver to our clients, both new
and existing.
In addition to this, the development of owned intellectual property
including KBS Globe (a bespoke CRM system), the Buyer Matching
Engine (proprietary buyer outreach software), and the Mandate Portal
(a secure platform for known investors to view opportunities) has led
to increases in major KPIs in FY19, with the Group mandating 5% more
clients, sourcing 49% more buyers (NDAs), and completing 7% more
transactions than in the corresponding period of FY18.
The year has seen the continued growth and development of the volume
brands within the Group, delivering what the Directors believe is a
more robust platform for the growth plan ahead, with an ever-reducing
reliance on high fee value transactions.
Due to the under performance of the Corporate Finance division against
a challenging backdrop of economic and political uncertainty, EBITDA
for FY19 closed on £5.0m (FY18: £7.4m), with a PAT result of £4.0m
(FY18: £6.0m).
revenue recognition policy continues to see the recognised figures take
into account the contractual nature of new client mandates, and spreads
income throughout the life of a contract. As in previous years, sat behind
this revenue recognition policy is ‘banked’ income. This ‘banked’ non-
contingent fee income has risen to £8.5m in FY19, an increase of £1.3m
from FY18 (£7.2m), demonstrating the ongoing success of the sales and
marketing team.
This continued growth in fee income is driven by a combination of
targeting and winning an increased quantity and quality of client
mandates, in line with the ‘bigger and better’ mantra that has been in
place for many years. The launch of ‘Knightsbridge Commercial’ has
allowed the Knightsbridge team to move upstream, which in turn has
allowed the KBS Corporate team to invest more time and focus on larger
profit clients. This has driven significant growth in both fee income and,
importantly, the pipeline of higher fee value mandates moving into the
operational departments across the Group.
FY19 saw the average Group retainer fee increasing by 13%, and the total
number of new client mandates raising by 5% compared to FY18.
13%
5%
AVERAGE GROUP
RETAINER FEE
NEW CLIENT
MANDATES
£13.6M
GROUP
REVENUE
£5.0M
GROUP
EBITDA
GROUP RETAINER FEE INCOME
Recognised retainer fee income (or non-contingent fee Income - see
note 5) grew by 16% to £8.1m, representing a £1.1m increase on the
previous year (FY18: £7.0m).
Following on from the FY18 report in which I was pleased to announce a
larger footprint through an expanded national sales team, FY19 has seen
this continue with the recruitment of additional regional sales staff to
further increase capacity. On average, the teams are sitting approaching
600 new client appointments each month. With additions to the regional
teams, we fully expect this capacity to increase going into FY20.
GROUP TRANSACTION FEE INCOME
FY19 saw the adoption of IFRS15 which was an area heavily scrutinised
by the Board prior to AIM listing. The revenue recognition policy for
non-contingent fees was updated in FY17 to be consistent with IFRS15;
therefore, there has been no impact on revenue following transition. The
Group Transaction Fee income (or contingent fee income) for FY19 was
£5.4m, a frustrating decline on FY18 (£9.5m). The headline movement has
come from the KBS Corporate Finance department, where no significant
transactions (fees in excess of £0.5m) were concluded in the period.
PAGE 18
K3 CAPITAL GROUP PLC
Whilst the department has seen a number of transactions conclude
in Q1 FY20, and carries forward a strong WIP pipeline, the FY19 under
performance does underline the caution we have previously exercised
in respect of the certainty and timing of these significant transactions.
The Board recognises this issue and has taken steps over recent years
to de-risk the Group from the natural uncertainty of low volume/high
value transactions, creating an internal department to address this. The
‘CF Lite’ team was created in FY17 with a view to taking KBS Corporate
clients through an enhanced service. This team is tasked with handling
transactions typically ranging from £2m to £10m+ of enterprise value.
Initially starting in FY17 with 3 employees, we have taken experienced
deal leaders from KBS Corporate Sales and teamed up with experienced
KBS Corporate Finance staff on specific transactions, in order to focus
on delivering the ‘bigger and better’ mantra on the operational side. This
department has grown to 10 employees in FY19 and has seen fee income
grow from £1.0m over 12 transactions in FY17, to £2.6m of income and 21
transactions in FY19. This increasing volume-based approach allows the
best of the Corporate department for sourcing buyers and marketing
client opportunities, to combine with senior Corporate Finance resource
to negotiate technical issues and enable clients to transact at higher
levels – whilst still allowing the KBS Corporate Finance team to work on
the progression of significant transactions.
This CF Lite team continues to grow in terms of mandate volumes and
potential fee value, with FY19 seeing a 62% increase in the number of
mandates within the team. The Board believes this provides a higher
quality of earnings by delivering an increasing number of these mid-
value transactions and a reduced reliance on large Corporate Finance
clients.
Due to the nature of this CF Lite service, some clients are invoiced through
KBS Corporate Sales Limited and some through KBS Corporate Finance
Limited dependant on the level of service provided and the employees
involved. FY19 saw 10 CF Lite clients and £1.9m of income invoiced
through KBS Corporate Finance Limited (FY18: £0.3m, 3 transactions).
When adjusted for this CF Lite allocation, the KBS Corporate Finance
team delivered £0.8m of fee income in FY19 (FY18: £6.3m), highlighting
the issues around the certainty and timing of significant transactions.
Given the strength of our KPIs and WIP pipeline, the Board believes this
income to be more sustainable and predictable, giving confidence into
FY20 and beyond.
In respect of Knightsbridge, the commercial offering has started to gain
traction. Transaction Fee income rose from £0.5m in FY18 to £0.6m –
with the teams completing more transactions at higher average fees
than the prior year, further demonstrating the positive transition to
Knightsbridge Commercial.
MARKETING COSTS
Group marketing spend has increased by 9% in FY19 to £1.1m (FY18
£1.0m). We have made efficiencies and reallocated marketing spend to
ensure we continue to increase the volume and quality of direct and
digital marketing without overspending. Continued investment into ‘high
profit’ and ‘Tripletrack’™ mailings, utilising high quality, glossy marketing
brochures and success stories to potential large clients, has seen further
success with new Corporate Finance mandates won in the year – an
increase of 33% on FY19.
33%
INCREASE IN NEW CORPORATE
FINANCE MANDATES
(FY18 - FY19)
A reallocation of spend has also seen a heightened focus on our buyer
contact strategy, playing a key role in sourcing buyers at all levels across
the Group.
OVERHEAD COSTS
Overheads have reduced in FY19 to £7.6m, from £8.2m in FY18. To
understand this, we can split these costs into two components. Overheads
excluding wages have increased by 3% in the year, following on from
the modest 2% increase in FY18. This again demonstrates the culture
throughout the Group of driving value and continually monitoring costs
to ensure efficiency in our spending.
However, this allocation equally sees the KBS Corporate Sales team
delivering £4.0m of fee income, a 48% increase on FY18 (£2.7m),
delivering 22% more transactions than the prior year at a higher average
fee.
The decrease in costs has therefore entirely come from Group wages,
declining from £6.6m in FY18 to £6.0m in FY19. Despite the rise in
headcount in the period, the remuneration culture within the Group has
always been that of rewarding people based largely on performance.
STRATEGIC REPORT | CHIEF FINANCIAL OFFICER’S REPORT
PAGE 19
The decline in transaction fee income has seen significantly less bonus
paid out in FY19 to operational employees. In addition, with Group
performance being below market expectations, many senior management
and Directors have not qualified for bonus within the period. This is in
contrast to FY18 when performance was significantly ahead of market
expectations.
FY19 saw a total of £1.4m paid out in bonuses to all employees, a significant
decline from £2.9m paid out in FY18. This statistic demonstrates the
robust nature of the business model, as the Board recalibrate bonus
structures across the business to align with market expectations annually.
Therefore fixed payroll costs (excluding bonus) have risen to £4.6m
(FY18: £3.7m) a 24% increase, matching the 24% increase in headcount.
As detailed in Note 3, IFRS16 is to be adopted in FY20, which will in
essence result in operating lease costs falling below the EBITDA line. A
full assessment has been carried out in respect of this and, whilst there
is not likely to be a material change to the PBT of the Group, this will
clearly have a positive impact on EBITDA and will be detailed in full on
future annual reports.
EBITDA
EBITDA for the period is £5.0m (FY18: £7.4m), with an EBITDA margin
of 37% (FY18: 45%). This movement in EBITDA margin is predominantly
caused by the reduction in the volume of significant transactions within
the Corporate Finance brand.
TAXATION
The effective tax rate is 18.5% which is marginally lower than the prior
year (FY18: 18.6%).
EARNINGS PER SHARE
Based on the closing 42.2m shares in circulation, the basic earnings per
share (see note 13) was 9.43p for the year (FY18: 14.10p).
EBITDA MARGIN
EARNINGS PER SHARE
DIVIDEND PER SHARE
37%
9.43P
7.60P
STATEMENT OF FINANCIAL POSITION
CASH
The Group cash balances have declined during the period due to
previously stated dividend policy of paying approximately 80% of profit
after tax. The year ends with £5.8m of cash (FY18: £7.5m).
The Group business model continues to be highly cash generative with
non-contingent fee income typically being paid in advance of services,
although is recognised in the accounts over a period of time. Due to the
month end processing of wages, and bonus payments being made after
receipt of income, this leaves minimal requirement for working capital in
the business.
There have been no exceptional cash items in the period.
As noted in previous reports, whilst a £5.8m cash balance appears high
for a Group with minimal working capital requirement, once a provision
for corporation tax, VAT and PAYE (£1.0m), and a provision for a final
dividend (£1.7m) are taken into account, this leaves a free balance
of £3.1m (FY18: £2.2m), approximately 4 months’ total overheads, which
the Directors feel is sufficient liquidity for the Group.
By exception, other points of note with regard to the statement of
financial position are:
• Significant decrease in other taxation and social security due to
quantum of year end bonuses for the Group processed in May 18
payroll vs May 19 payroll
• Trade receivables/payables are subject to the timing of transactions
and recognised income around the reporting date (see notes 17 &
20)
• Contract liabilities continues to grow in line with non-contingent fee
income to underpin future turnover (see note 22)
PAGE 20
K3 CAPITAL GROUP PLC
RISKS AND UNCERTAINTIES
Management consider the following issues to be the principal risks
potentially affecting the business:
Risk: Personnel
Management consider there could be a risk to the Group growth strategy
should it fail to retain or attract effective personnel.
Mitigation:
Subsequent to the AIM floatation, key members of staff were granted
share options as part of an LTIP as an incentive to retain talent within the
Group. This was widened within the previous financial year under an
additional scheme to bring a total of 30 employees into the schemes
at the end of FY19. The performance periods under these schemes
commenced 1 June 2017 and 1 December 2017, and both run for 3-year
cycles. There are currently 1,627,123 shares granted to staff under the
scheme (note 28).
In addition, K3 Capital Group has continued to search for employee
wellbeing incentives and during the year has established a Death In
Service policy for all members of staff, a Healthcare Plan and Employee
Discount Scheme. The year has also seen a full review and transfer of
pension provider to give employees a wider choice of investments,
security and visibility of their savings. This, combined with regular social
events, team incentives and rewards, is deemed to be sufficient for
improving and maintaining the attractiveness of employment within the
Group; however, Directors regularly review opportunities to improve.
Risk: Supply
The AIM floatation process uncovered some initial weaknesses in
contractual terms with clients and suppliers alike.
Mitigation:
Prior to AIM listing, a full review was carried out of all suppliers. Where
some suppliers had informal arrangements due to trading history, the
Group now has contractual terms to formalise arrangements. Any non-
limited supplier is requested to confirm their status as a UK tax payer
and provide a Unique Taxpayer Reference on each invoice submitted. In
addition to this, all new suppliers are checked to ensure trading names,
addresses, VAT registration and bank details are all correct before placing
an order. A revised supplier risk policy and CCO policy is expected in
FY20.
In respect of clients, a review of the standard terms of engagement was
carried out by our legal partners, with changes made to support the
Group position and update for current UK legislation on matters such as
data protection.
Risk: Regulation
With exception of KBS Capital Markets Ltd, K3 Capital Group
predominantly operates within a partially unregulated marketplace
and relies on a specific exemption from FCA in order to trade without
regulation.
Mitigation:
New client terms of business were put into circulation during FY18 to
make it explicitly clear that the main Group trading entities are not FCA
regulated and are not able to offer advice on minority share sales. There
has been an internal team established to monitor all transactions in
Heads of Agreement to ensure that the 50% threshold is not breached,
whilst at the same time, our legal partners have been written to asking
to inform the Group if a transaction falls below this level.
An additional mitigation to this risk comes from the FCA regulated
Group vehicle, KBS Capital Markets Limited. All Group contracts have the
right to assign a client to Group companies. This will allow K3 to act on
minority share sales and AIM listings in the future, where required. This
provides greater flexibility when operating around regulated markets.
Risk: Data Protection
There was a large change in May 2018 in respect of data protection that
could have threatened the marketing capabilities of businesses who
were not prepared. The General Data Protection Regulation (GDPR)
(Regulation (EU) 2016/679) is a regulation by which the European
Parliament, the Council of European Union and the European Commission
intend to strengthen and unify data protection for the individuals within
the European union (EU) and covers firms that hold client data.
Mitigation:
The taskforce formed in FY17 to ensure compliance with GDPR was
successful, with new processes and procedures put in place. Every new
employee now receives training on GDPR, with ongoing CPD sessions
to keep current employees updated. There are handouts for clients and
buyers alike to explain how the Group handles data, and their individual
rights.
This matter is addressed at each Board meeting to keep the Board aware
of any issues should they arise.
Risk: Economical & Political
Macro-economic conditions such as government regulation, political
instability or recession could cause volatility in the UK economy. The
wider economic impacts of the outcome of the EU referendum may also
be felt throughout the UK economy.
STRATEGIC REPORT | CHIEF FINANCIAL OFFICER’S REPORT
PAGE 21
Mitigation:
The continued Group policy of sourcing both clients and buyers from
all sectors and industries, across all geographic regions of the UK, is
expected to sufficiently spread this risk of downturn in individual markets
or areas. All income is derived from a diverse portfolio of clients, across
a broad range of sectors.
The economic impacts of the outcome of the EU referendum will
be monitored and mitigated where possible by the Board with the
appropriate action being taken in a timely manner.
Risk: Growth Management
The Group’s future success will depend, in part, on its ability to manage
anticipated expansion. Such expansion is expected to place significant
demands on management, support functions, accounting, sales and
marketing and other resources. If the Group is unable to manage its
expansion effectively, its business and financial results could suffer.
Mitigation:
Over the course of FY19, there have been various promotions to
management, and additional roles created to ensure appropriate
supervision of staff and continued high quality service delivery. Further
to this, a new unit on the existing business park has been identified
which is expected for FY20. This will allow Knightsbridge to have its own
premises and give room for expansion, whilst at the same time making
space for the rest of the Group to expand in the current Head Office.
Risk: Insurance Coverage
The Group seeks to cap its liability to clients under its standard terms
to the fees charged in respect of that client transaction. However, the
Group’s business may expose it to potential professional indemnity
and other risks. In the future, if the Group’s insurance is not adequate
or available to pay liabilities associated with its operations, or if there
is any failure to maintain adequate controls and processes in relation
to processing of confidential information and personal data, or if the
Group is unable to purchase adequate insurance at reasonable rates, it
may have a material adverse effect on the Group’s business, financial
condition, future trading performance, prospects and its ability to attract
and retain certain members.
Mitigation:
For the FY18 Group insurance renewal, a full market exercise was carried
out with a number of brokers to ensure that all policies are fit for purpose
and all relevant policies were in place. This market exercise confirmed
that all policies were indeed correct, and helped keep premium rises to
a minimum.
A similar exercise was carried out for the FY19 renewal, which saw a
number of providers changed in order to maintain appropriate levels of
coverage without huge rises in premiums.
Risk: Reputational
The ability of the Group to attract new business and to retain its existing
clients depends in part upon the maintenance of its reputation in the
market. The industry in which the Group operates demands a high level
of integrity. Client trust is paramount and the Group is thus susceptible
to adverse market perception. Any failure to satisfy the Group’s
responsibilities to its clients, any negative publicity resulting from such
activities or the association of such actions with the Group, could have
a material adverse effect on the financial condition, results or operations
of the company.
Mitigation:
Throughout the Group there are strict recruitment policies to ensure only
potential employees with an appropriate professional and cultural fit are
allowed to join. When combined with ongoing training, support, and
development, the Board believes that this professional and motivated
workforce will continue to deliver the exceptional levels of client service
that is expected from them. There is an internal complaints procedure
to ensure that any reports of client dissatisfaction are addressed at a
senior level until resolved, which are logged and discussed at regular
management meetings.
Social media sites and professional review pages are regularly monitored
to ensure the Group has a positive outward facing perception. These
average scores are reported in management meetings each month and
tracked against that of competitors.
SHAREHOLDERS’ DIVIDEND
The Board is recommending a final dividend of 4.00 pence per ordinary
share payable to shareholders on the register at 3 October 2019.
The final dividend, together with the January interim dividend of 3.60p,
gives an indicative total dividend of 7.60 pence per share for the year
(FY18: 11.25 pence).
On admission, the Board outlined an intention to pay approximately
80% of the Group’s post tax profits for the year weighted 1/3 on interim
results and 2/3 on final results. The 7.60p dividend represents 80.6% of
the Group’s post tax profits for the year.
Going forward, the Board expects to maintain its dividend policy as set
out on admission.
PAGE 22
K3 CAPITAL GROUP PLC
REVIEW OF DISTRIBUTABLE RESERVES AND
RECTIFICATION OF PRIOR DIVIDEND (THE
RELEVANT DIVIDEND)
Now we are aware of this issue, in addition to the Relevant Dividend,
whilst the Group has more than sufficient reserves on a consolidated
basis, the FY19 final accounts will also not show sufficient reserves at
Company level to allow the proposed FY19 final dividend.
During the FY19 audit process, the Board has been made aware of
certain technical issues relating to the levels of distributable reserves
within the Company and the payment of the interim dividend by the
parent company to our shareholders in February 2019 (‘the Relevant
Dividend’).
In order to remedy both of these issues, we will file interim accounts at
Company level for K3 Capital Group plc as at 30 November 2018, and
as at 30 August 2019, both of which demonstrate sufficient funds were/
are available to allow the Relevant Dividend and proposed FY19 final
dividend respectively.
K3’s Group structure is that the trading subsidiaries generate profits for
the Group and, from time to time, such reserves are distributed to K3
Capital Group plc as the parent entity. K3 Capital Group plc is itself a
non-trading holding company. Throughout this period at all times, K3
Capital Group plc had adequate distributable reserves at Company level
from current relevant management accounts to enable payment of the
Relevant Dividend, following interim inter-company dividends declared
and documented in the period.
In addition to this, new resolutions will be put to shareholders at the
forthcoming Annual General Meeting to be held on 18 October 2019
which, if passed, would put all potentially affected parties, in so far as
possible, in the position they were always intended to have been, had
the Relevant Dividend been paid in accordance with the requirements
of the Companies Act 2006. Full details are included in the circular and
notice of Annual General Meeting to be sent to shareholders as set out
at page 81 of this document.
However, a review by our auditors has uncovered a technical irregularity.
At the time of the Relevant Dividend, the last published accounts at
Company level for K3 Capital Group plc were the FY18 results, which
detailed £4.3m of distributable reserves. The final dividend paid in
October 2018 of £3.5m, when combined with the Relevant Dividend paid
in February 2019 of £1.5m, saw distributions exceed the level stated in
the last published accounts at Company level. To be clear, the Company
did have sufficient distributable reserves which were shown in the latest
relevant management accounts when declaring and paying the Relevant
Dividend (in the spirit of the Companies Act 2006). However, the Board
was not aware that the Companies Act 2006 required the publication of
interim accounts to demonstrate the sufficiency of distributable reserves
at Company level if this could not be shown by reference to the last filed
accounts.
We have undertaken a series of procedural steps in order to rectify this
issue and put the Company and its subsidiaries in the position whereby
all reserves are periodically distributed up to K3 Capital Group plc
(subject to due compliance with the Companies Act 2006 in each case).
The effect of this will be that in respect of dividends from FY19 onwards
the Company will publish interim accounts for the Company (as well as
the Group) in order to support any interim dividends, or final dividends,
which cannot be justified by reference only to the filed annual accounts
of the Company.
SHARE PRICE
The K3 Capital Group plc share price closed the financial year at 135.5
pence (31 May 18: 318.0 pence).
GOING CONCERN
After making enquiries, the Directors have formed a judgement, at the
time of approving the financial statements, that there is a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. For this reason, the
Directors continue to adopt the going concern basis in preparing the
financial statements.
STRATEGIC REPORT
The Strategic Report on pages 4 to 21 was approved by the Board of
Directors on 16 September 2019 and signed on its behalf by:
ANDREW MELBOURNE
Chief Financial Officer
16 September 2019
STRATEGIC REPORT | CHIEF FINANCIAL OFFICER’S REPORT
PAGE 23
PAGE 24
K3 CAPITAL GROUP PLC
BOARD OF
DIRECTORS
IAN MATTIOLI MBE
NON-EXECUTIVE CHAIRMAN
JOHN RIGBY
CHIEF EXECUTIVE OFFICER
ANDREW MELBOURNE FCMA
CHIEF FINANCIAL OFFICER
Ian has over 30 years’ experience in the financial
John joined the Group in 2000 following a
Andrew joined the Group in 2012 following
services sector, and co-founded the Mattioli
career in commercial and corporate banking.
10 years in various financial accounting roles
Woods Group in 1991 where he is the Chief
John has over 18 years of operational, sales
across various industries including media,
Executive Officer and remains responsible
and commercial management experience
leisure and property management. Andrew
for the vision and operational management
within the sector and developed the national
possesses strong financial, strategy and
of the Group. Ian has been awarded an MBE
sales infrastructure of the Group. John became
commercial management skills including HR,
and also won the London Stock Exchange AIM
Managing Director of the Group in 2010 and
IT and special projects. Andrew is a fellow
Entrepreneur of the Year award in 2007.
has been responsible for driving growth and
of the Chartered Institute of Management
is integral in the development of the low cost,
Accountants and has an MSC in Strategic
Ian was appointed on 11 April 2017 upon AIM
process driven delivery platform.
Financial Management.
floatation and is a member of the Audit,
Remuneration and Nomination committees.
OTHER REPORTS | BOARD OF DIRECTORS
PAGE 25
TONY FORD FCA
EXECUTIVE VICE-CHAIRMAN
STUART LEES FCA
EXECUTIVE DIRECTOR
MARTIN ROBINSON FCA
NON-EXECUTIVE DIRECTOR
Tony
is a chartered accountant and
Stuart joined K3 as a Non-Executive Director
Martin is a highly experienced private and
experienced corporate financier. He founded
in September 2015 to assist with the
public company director with over 30 years’
K3 and led its investment in KBS in 2007.
development of the strategic direction of the
experience
in financial services. He has
He was subsequently responsible for the
Group, becoming an Executive Director in July
previously served on the board of a number
overall strategic direction of the Group and,
2017. Stuart is a highly respected corporate
of the subsidiary companies of AIM-quoted
previously as Chairman, he oversaw a period
financier and was previously Managing Director
Brooks Macdonald Group Plc, the integrated
of strong growth and internal development.
of Altium and head of corporate finance at
wealth management group. Martin is a Fellow
Tony possesses
significant directorship
Arthur Andersen in the UK. Stuart has a wealth
of the Institute of Chartered Accountants in
experience across a broad range of industries
of business experience and held the position
England and Wales and was previously on
including corporate finance, financial services,
of Group CEO of Latium Holdings Limited
the AIM Advisory Committee as a founder
technology and business services.
from 2004 to 2009, acquiring Ultraframe plc,
member, overseeing the development and
Spectus Systems, Kestrel Building Products
regulation of the market in 1995. Martin was
and the successful disposal of Everest Home
appointed to the K3 Capital Group board on
Improvements.
17 July 2017 and is a member of the Audit,
Remuneration and Nomination committees.
PAGE 26
K3 CAPITAL GROUP PLC
DIRECTORS’
REPORT
The directors present their report and the audited financial statements
of the Group for the year ended 31 May 2019.
DIRECTORS INTERESTS
The directors who served the Company during the year and to the date
of this report were as follows:
List of Directors interests is as follows:
Ian Mattioli
John Rigby
Andrew Melbourne Anthony Ford
Stuart Lees
Martin Robinson
I T Mattioli
A R Melbourne
A J Ford
J Rigby
S Lees
W M Robinson
ATTENDANCE AT MEETINGS
I T Mattioli
W M Robinson
S Lees
A J Ford
J S Rigby
A R Melbourne
Board
Audit
Remuneration Nomination
6/6
6/6
6/6
6/6
6/6
6/6
2/2
2/2
-
-
-
-
1/1
1/1
-
-
-
-
2/2
2/2
-
-
-
-
TIME COMMITMENTS OF DIRECTORS
The Group embraces the benefits that are brought from a Board with
a range of business backgrounds and experiences. The Board also
recognises that it is imperative that Board members dedicate sufficient
time to the Company
Ian Mattioli’s time commitment to K3 averages 1-2 days per month.
Martin Robinson’s time commitments to K3 averages 1-2 days per month
Amati Global
Investors Limited
K3 Business
Services Limited
Abersoch Marine
and Charter Ltd
Facetspera Limited
Boyd Coughlan
Limited
K3 Estates LLP
Abersoch Property
Holdings LLP
Housingagent
Services Limited
Custodian Capital
Limited Trustees
Limited
T Force (Registered
Charity 1179920)
Caulfield Group
Limited
NSS Maintenance
Limited
ASC Healthcare
Limited
ASC Real Estate
Investments
Limited
Braemar
Agricultural Land
Investments
Limited (Guernsey)
Braemar Group
PCC Limited
(Guernsey)
Coastwalk
Properties Limited
Pranglin Limited
K3 Business
Services Limited
Tasker Investments
Limited
DB Holdings
Housing Limited
K3 Estates LLP
Signia Corporate
Finance Limited
GRIF Cosec Limited
Oliver Twist
Productions LLP
Spectus Systems
(Dormant) Limited
Hambledon
Vineyard plc
Triskell LLP
SST Trading
Limited
Hambledon
Wineries Limited
Three Popes
Limited
Mundell Robinson
Projects Limited
Wilmslow Plastic
Properties LLP
Tomorrow
Cardiovascular
Screening Limited
Custodian Real
Estate Limited
Custodian Reit PLC
John Bradley
Financial Services
Limited
Lanson House
Limited
Mainsforth Devel-
opments Limited
Mattioli Woods
(New Walk) Limited
Mattioli Woods PLC
Limited
MDL First Limited
Pension Consulting
Limited
Professional Inde-
pendent Pension
Trustees Limited
Taylor Patterson
Associates Limited
Taylor Patterson
Financial Planning
Limited
Taylor Patterson
Group Limited
Taylor Patterson
Trustees Limited
TCF Global
Independent
Financial Services
Limited
OTHER REPORTS | DIRECTORS’ REPORT
PAGE 27
FINANCIAL RISK MANAGEMENT OBJECTIVES
AND POLICIES
Business risks and uncertainties are included within the Chief Financial
Officer’s Report on pages 19 to 21 and financial risks are set out in notes
4 and 27 to the financial statements.
• Energy and enthusiasm
• A strong desire to satisfy our customers
• New and innovative ideas
• Commitment and loyalty
• Common sense and intelligence
• People who strive to succeed in whatever they do
• Ambition
DIRECTORS’ REMUNERATION
Directors’ remuneration payable in year ended 31 May 2019:
£000
Salary
& Fees
Benefits
in Kind
Bonus payable
in respect of
FY19
Pension
Contributions
Total
FY19
Total
FY18
I T Mattioli
A J Ford
J S Rigby
A R Melbourne
S Lees
W M Robinson
Total
74
160
240
90
41
34
639
-
-
2
9
-
-
11
-
-
-
-
-
-
-
-
1
1
1
-
-
3
74
161
243
100
41
34
653
74
521
397
153
101
24
1,270
Bonuses which are not guaranteed accrue to the executive directors and
certain senior executives based on pre-determined performance targets.
Bonuses disclosed as payable in respect of the year are paid in May.
RESULT AND DIVIDEND
The Groups results for the year are set out in the Consolidated Statement
of Comprehensive Income on page 40
The Directors recommendation for dividends is set out in the Chairman’s
Statement on page 8.
EMPLOYEES
At K3 Capital Group, we recognise that we need to attract, motivate
and develop good quality people. As a Company we aim to become one
of the employers of choice within the local area and to be recognised
as an organisation where you can work in a challenging and rewarding
environment whilst having fun, developing a career and growing with
the business.
As a Company, we value the following:
• Honesty and integrity
We aim to provide a professional, friendly and safe work environment
where our colleagues can develop as individuals and as part of the
winning team, sharing the rewards of our success. The Group’s policy
is to recruit and promote on the basis of aptitude and ability without
discrimination of any kind. Applications for employment by disabled
people are always fully considered bearing in mind the qualification and
abilities of the applicants. In the event of employees becoming disabled,
every effort is made to ensure their continued employment.
POLITICAL DONATIONS
There were no political donations in either FY19 or FY18
SHARE CAPITAL AND SHARE STRUCTURE
Details of the share capital, together with details of the movements in
the share capital during the year, are shown in note 24 to the accounts.
The Company has one class of ordinary shares which carry no right to
fixed income. Each share carries the right to one vote at general meetings
of the Company. There are no other classes of share capital. No person
has any special rights of control over the Company’s share capital and
all issued shares are fully paid.
SHARE OPTIONS
The Directors consider that an important part of the Group’s remuneration
policy should include equity incentives through the grant of share options
to Directors and employees. Accordingly, the Company has adopted an
Option Plan. On admission, a total of 7 employees were awarded options
at the admission price subject to performance criteria, totalling 2.5% of
the enlarged share capital.
In January 2018, a second wave of awards were granted to an additional
25 key employees of the Group consisting of 1.2% of the enlarged share
capital of the Group. The criteria was set on the same basis to that of
the first plan, with targets for Earnings Per Share and Total Shareholder
PAGE 28
K3 CAPITAL GROUP PLC
Return over the 3 year period.
THE BOARD
At May 2019, there were a total of 30 current employees (18% of May 2019
Group employees) participating in the Option Plans with a combined
grant equivalent to 3.71% of the enlarged share capital of the Group.
Prior to Admission, it was the intention of Directors to open a Save
As You Earn share scheme, however a subsequent investigation of
employee appetite and administration costs delivered the conclusion it
was not appropriate at this time to open the scheme. This was reviewed
in the FY18 and FY19 financial years, whilst costs have been reduced,
appetite was still not sufficient to justify the costs. This will continue to
be reviewed periodically.
It is the intention of the Directors to grant further options to current and
future employees of the Group. The maximum number of Ordinary Shares
which will be subject to options granted to Directors and employees
under the Option Plan, ShareSave Plan and any other employee share
plan adopted by the Company will not exceed 10 per cent. of the
Company’s issued share capital from time to time in any rolling 10 year
period.
HEALTH, SAFETY AND THE ENVIRONMENT
The Directors consider the health, safety and environmental protection
aspects of the business to be of great importance, in addition to the
prevention of any personal injury, avoidance of damage to health and the
protection of the environment, which are important business and social
responsibilities. Management practices within the Group are designed to
ensure so far as is reasonably practicable, the health, safety and welfare
at work of employees, contractors and visitors and the implementation
of environmentally aware and friendly policies.
CORPORATE GOVERNANCE
This is our first year of reporting on our compliance with the Quoted
Company Alliance Corporate Governance Code for Small and Mid-Size
Quoted Companies (the QCA Code) and as a Board we recognise the
importance of applying sound governance principles in the successful
running of the Group.
The Board believes that it complies with the principles of the QCA Code
within a corporate governance framework which is proportional to the
size, risks and operations of the business, and is in line with the Group’s
values. Further details are set out on page 32.
The Board comprises a Non-Executive Chairman, four Executive Directors
and one Non-Executive Director. Their names and biographical details
are set out on pages 22 and 23. The Board considers the Non-Executive
Director, WM Robinson, to be independent. The posts of Chairman
and Chief Executive are held by different individuals. The Chairman is
responsible for the Board and the Chief Executive for the operating
performance of the Group.
The Board is scheduled to meet four times each year, with additional
meetings called if required. The Board’s main responsibilities are to
agree Group strategy, approve annual budgets, review management
performance, financial results, board appointments and dividend
policy. A comprehensive board pack is distributed to all directors prior
to each scheduled Board meeting. Directors are able, if necessary,
to take independent professional advice, at the Group’s expense,
in the furtherance of their duties. The Board has delegated specific
responsibilities to Audit, Remuneration, and Nomination Committees.
REMUNERATION COMMITTEE
The Remuneration Committee is chaired by I T Mattioli, its other member
is W M Robinson. The Remuneration Committee reviews the performance
of the Executive Directors and makes recommendations to the Board
on matters relating to their remuneration and terms of employment.
The Remuneration Committee also makes recommendations to the
Board on proposals for the granting of share options and other equity
incentives pursuant to any share option scheme or equity incentive
scheme in operation from time to time. The remuneration and terms
and conditions of appointment of the Non-executive Directors of the
Company are set by the Board. Details of directors’ remuneration are set
out in the directors’ report on page 26.
AUDIT COMMITTEE
The Audit Committee is chaired by W M Robinson, its other member is
I T Mattioli.
The Audit Committee has primary responsibility for monitoring the
quality of internal controls and ensuring that the financial performance
of the Company is properly measured and reported on. It receives and
reviews reports from the Company’s management and auditors relating
to the interim and annual accounts and the accounting and internal
control systems in use throughout the Company. The Audit Committee
meets at least twice a year and has unrestricted access to the Company’s
auditors.
OTHER REPORTS | DIRECTORS’ REPORT
PAGE 29
NOMINATIONS COMMITTEE
AUDITORS
The Nominations Committee is chaired by I T Mattioli, its other member
is W M Robinson. The Nomination Committee assists the Board in
discharging its responsibilities relating to the composition of the Board,
performance of Board members, induction of new directors, appointment
of committee members and succession planning for senior management.
The Nomination committee is responsible for evaluating the balance
of skills, knowledge, diversity and experience on the Board, the size,
structure and composition of the Board, retirements and appointments
of additional and replacement directors and makes appropriate
recommendations to the Board on such matters. The Nomination
Committee prepares a description of the role and capabilities required
for a particular appointment. The Nomination Committee meets formally
at least twice a year and otherwise as required.
In accordance with Section 489 of the Companies Act 2006 a resolution
will be proposed at the Annual General Meeting that BDO LLP be re-
appointed auditors.
Each of the persons who is a director at the date of approval of this
report confirms that:
• so far as they are aware, there is no relevant audit information of
•
which the group and the Company’s auditor is unaware; and
they have taken all steps that they ought to have taken as a director
to make themselves aware of any relevant audit information and to
establish that the group and the Company’s auditor is aware of that
information.
SCHEME INTERESTS AND OUTSTANDING
SHARE AWARDS
FUTURE DEVELOPMENTS
Director
Description Options Granted
during the Year
Outstanding interest
at 31 May 2019
Outstanding interest
at 31 May 2018
The Board intends to continue to persue its business strategies as
outlined in the strategic report on pages 7 to 22.
Andrew Melbourne
LTIP Option
0
325,531
325,531
The above Share Option scheme has a performance period which
commenced on 1 June 2017.
SUMMARY OF DIRECTORS INTERESTS IN
THE COMPANY
A summary of directors’ interests in the Company are shown in the table
below. All figures relate to shares owned outright.
Director
Class of Share
Shareholding at
end of Year
Shareholding at
start of Year
I T Mattoili
A J Ford
J S Rigby
A R Melbourne
S Lees
W M Robinson
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
634,622
6,347,895
7,597,895
464,802
688,125
36,900
637,825
7,597,895
7,597,895
464,802
800,000
36,900
PAGE 30
K3 CAPITAL GROUP PLC
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.
By order of the Board
A R MELBOURNE FCMA
Company Secretary
16 September 2019
DIRECTORS’ RESPONSIBILITIES STATEMENT
The directors are responsible for preparing the strategic report and
the directors’ report and the financial statements in accordance with
applicable law and regulations. Company law requires the directors to
prepare financial statements for each financial year.
in accordance with
Under that law the directors have elected to prepare the financial
International Financial Reporting
statements
Standards (IFRSs) as adopted by the European Union. 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 and
profit or loss of the Company and Group for that period.
The directors are also required to prepare financial statements in
accordance with the rules of the London Stock Exchange for companies
trading securities on the Alternative Investment Market. 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;
• prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Company will continue in
business.
The directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the financial position of
the Company and enable them to ensure that the financial statements
comply with the requirements of the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection of fraud and
other irregularities.
OTHER REPORTS | DIRECTORS’ REPORT
PAGE 31
OUR ADVISORS
Registered Office:
KBS House
5 Springfield Court
Summerfield Road
Bolton
BL3 2NT
Registered Number:
06102618
OUR ADVIS0RS
Auditors:
BDO LLP
3 Hardman Street
Spinningfields
Manchester
M3 3AT
Accountants:
Beever & Struthers
St. George’s House
215 - 219 Chester Road
Manchester
M15 4JE
Solicitors:
TLT LLP
3 Hardman Square
Manchester
M3 3EB
Nominated Advisor and Broker:
finnCap Ltd
60 New Broad Street
London
EC2M 1JJ
Registrars:
Computershare Investor Services PLC
The Pavillions
Bridgwater Road
Bristol
BS99 6ZZ
PAGE 32
K3 CAPITAL GROUP PLC
CORPORATE
GOVERNANCE STATEMENT
The K3 Capital Group plc Board recognises its responsibility towards
good and competent corporate governance. The Board is aligned in
promoting long-term shareholder value and as such has adopted the
Quoted Companies’ Alliance Corporate Governance Code (QCA Code).
The Board feels that the QCA Code is appropriate to allow K3 Capital
Group plc to fulfil its obligations to stakeholders.
The QCA Code states that corporate governance is fundamentally about
culture. Throughout FY19, K3 Capital Group has continued to promote
a healthy and proactive ethos ensuring that all stakeholders are at the
forefront of decision making. Further detail surrounding this can be
found on the K3 Capital website www.k3capitalgroupplc.com
ROLES & RESPONSIBILITIES
Ian Mattioli, as Group Chairman, assumes responsibility for leading the
Board and ensuring that the Group’s corporate governance is appropriate
and effective. The Chairman is also responsible for ensuring the Board
agenda is effective in recognising the financial and operational matters
allowing for effective delivery of the Group strategy.
The Chairman is not responsible for the day to day operations of K3
Capital Group plc; such responsibilities are managed by the Group CEO,
John Rigby.
EXECUTIVE & NON-EXECUTIVE DIRECTORS
K3 Capital Group plc has an independent Non-Executive Director
(NED) whose responsibility is to provide scrutiny and direction of the
performance of the Executive Directors. The NED also chairs the Audit
committee and is a member of both the Remuneration and Nomination
committees.
The four Executive Directors have the responsibility of delivering the
Board strategy on a day to day basis and reporting back on their progress.
The ten principles that form the QCA Code are outlined on the following
pages, with commentary on how K3 Capital Group plc complies with
each principle:
1. ESTABLISH A STRATEGY AND BUSINESS MODEL WHICH PROMOTE
LONG-TERM VALUE FOR SHAREHOLDERS
• The Group’s strategy is set out on page 15.
• The Group’s Executive Directors and senior management team have
regular meetings throughout the year to focus on the Group’s three
year rolling strategic plan. The strategy is communicated to all staff
members at corporate team briefs and separate team meetings.
2. SEEK TO UNDERSTAND AND MEET SHAREHOLDER NEEDS AND
EXPECTATIONS
• The CEO and CFO meet our shareholders on a number of occasions
throughout the year and have open dialogue to receive feedback.
Investor roadshow meetings are undertaken at least twice a year,
within different UK locations, following the interim and annual report
announcements.
•
• Shareholders are invited to the AGM held each year where Board
members interact with our shareholders on a one to one basis and
take questions as they arise.
• The Executive Directors are available to meet shareholders on request
and a number of ad-hoc meetings may be held during the year. They
also regularly conduct phone conversations with shareholders when
required.
• Shareholder feedback is discussed at Board meetings.
3. TAKE INTO ACCOUNT WIDER STAKEHOLDER AND SOCIAL
RESPONSIBILITIES AND THEIR IMPLICATIONS FOR LONG-TERM
SUCCESS
EMPLOYEES
• Regular meetings take place with staff groups to share Group strategy
and seek feedback.
• Staff surveys are often conducted throughout K3. Recent surveys
include ‘ones to watch best companies’ and another as part of the
Investors in People accreditation. Survey results are interpreted
and discussed by Directors and strategies implemented to further
enhance staff engagement and welfare.
• As previously outlined, in order to motivate and retain employees,
the Group currently has 30 members of staff enrolled in the LTIP
(18%).
OTHER REPORTS | CORPORATE GOVERNANCE STATEMENT
PAGE 33
CLIENTS
Relationships with our clients are fundamental to our success, as it allows
us to successfully conclude transactions. The K3 team have continuous
communications with clients and processes to monitor feedback, and
reviews are in place and are acted upon when required.
SUPPLIERS
Suppliers allow K3 to undertake new client mandates, and to deliver
our services. We have long term relationships in place, and these are
maintained through regular communication and review meetings with
senior employees.
OUR COMMUNITY
The Group cares about its community and regularly undertakes
fundraising events that generate high levels of employee engagement.
Throughout the financial year, money raised by staff has been
supplemented with donations from the Group, which has benefitted
charities and organisations such as Royal Bolton Hospital and Bolton
Hospice.
ENVIRONMENT
K3 is aware of its environmental responsibilities and where possible,
promotes a paperless office. Systems introduced in recent years have
eliminated the need for all documents to be printed and held in paper
files. Confidential waste is shredded and recycled.
4. EMBED EFFECTIVE RISK MANAGEMENT, CONSIDERING BOTH
OPPORTUNITIES AND THREATS, THROUGHOUT THE ORGANISATION
• The Group risk register is maintained by the Board and senior
management team.
• Risk is a fixed item on the management team agenda
• The register is subject to a bi-monthly review.
• Risks and uncertainties are disclosed in the Strategic Review within
the Chief Financial Officer’s report on pages 16 to 22.
5. MAINTAIN THE BOARD AS A WELL-FUNCTIONING, BALANCED
TEAM LED BY THE CHAIR
• The Board is led by our Non-Executive Chairman, Ian Mattioli.
• The Board includes an independent Non-Executive Director, Martin
Robinson, who has significant experience of public and private
directorships.
• The Board currently has three sub-committees: the Audit Committee,
the Nominations Committee and the Remuneration Committee,
which are chaired by either Ian Mattioli or Martin Robinson. Details of
the number of meetings held and attendance by Directors are noted
in the Directors’ Report on pages 26 to 30.
• Non-Executive Directors communicate directly with Executive
Directors and senior management between formal Board meetings.
The Board met 6 times in the year. In addition, the Board held
strategy days to review growth opportunities and priorities across
the medium to longer term. Directors are expected to attend all
meetings of the Board, and of the Committees on which they sit,
and to devote sufficient time to the Group’s affairs to enable them to
fulfill their duties as Directors.
6. ENSURE THAT BETWEEN THEM THE DIRECTORS HAVE THE
NECESSARY UP-TO-DATE EXPERIENCE, SKILLS AND CAPABILITIES
• The current K3 Board has adequate sector, financial and plc
experience.
• Between them, the Executive Directors have many decades of
experience in the company sales industry. Biographies on all Directors,
giving details of their experience and roles on the Board, are shown
on pages 24 and 25.
• With the support of our Nominated Advisor, Auditors and other
advisors, the Board training and development needs are maintained.
7. EVALUATE BOARD PERFORMANCE BASED ON CLEAR AND
RELEVANT OBJECTIVES, SEEKING CONTINUOUS IMPROVEMENT
• Whilst the Board performance is considered to be good, historically
there has not been a formal evaluation of the Board.
• The Board was reviewed prior to listing in 2017 and is continually
monitored; this can be demonstrated by the appointment of Martin
Robinson as Non Executive Director in July 2017, with Stuart Lees
becoming an Executive Director.
• The Remuneration Committee evaluates Executive Director
performance alongside remuneration and reward.
• With regards to financial performance, the Auditors meet with
the Audit Committee (comprising the Non-Executive Directors)
biannually and beyond the audit report, to comment on the systems,
procedures and efficacy of management.
PAGE 34
K3 CAPITAL GROUP PLC
• The plc website also includes historical announcements.
• K3 undertake Capital Markets days when required and senior
management are available to provide any additional information
surrounding the marketing, data and operations functions of the
Group.
• A rigorous recruitment process is undertaken for new Directors prior to
their proposal and election. In terms of re-election, their performance
is reconsidered prior to them being proposed, to ensure they remain
effective in their role and that they retain their independence.
• Re-election is considered by the shareholders at the AGM at which
shareholders have the opportunity to approve Board membership.
Each Board member is elected for a period of three years on a rolling
cycle. At each AGM, at least two members of the existing Board
would need to be re-elected. Succession planning for the Board is an
ongoing topic of discussion.
8. PROMOTE A CORPORATE CULTURE THAT IS BASED ON ETHICAL
VALUES AND BEHAVIOURS
K3 is proud to promote a culture that puts the client at the heart of
its operations with a mantra of ‘achieving maximum value’. Such values
are embedded within the Group’s working practices from the senior
management, right through to each department’s recruitment strategies.
9. MAINTAIN GOVERNANCE STRUCTURES AND PROCESSES THAT
ARE FIT FOR PURPOSE AND SUPPORT GOOD DECISION MAKING BY
THE BOARD
• The K3 Board generally meets 6 times a year (minimum of 4) and the
Audit and Remuneration Committees meet at least two times a year.
• The controls are subject to review internally by individual teams
within the Company.
• A culture of challenge and continuous improvement is encouraged
to ensure that controls evolve with the business.
• The plc website and annual reports describe the roles and terms of
reference for the Committees.
10. COMMUNICATE HOW THE COMPANY IS GOVERNED AND
PERFORMING BY MAINTAINING A DIALOGUE WITH SHAREHOLDERS
AND OTHER RELEVANT STAKEHOLDERS
• Communications with shareholders are explained in point (2) above.
In addition to the interim and full year investor roadshows, regular
•
meetings and phone calls are held with analysts, retail investor groups
and prospective investors.
In addition, the plc website contains information about the business
activities, access to all RNS announcements and copies of the Report
and Accounts.
•
• The work of the Audit, Nominations and Remuneration Committees
is described on pages 28 and 29.
OTHER REPORTS | CORPORATE SOCIAL RESPONSIBILITY
PAGE 35
PAGE 35
CORPORATE SOCIAL
RESPONSIBILITY
COMMUNITY AND CHARITABLE WORK
Throughout FY19, K3 Capital Group plc supported a number of local
charities and community groups. Directors and staff alike came together
on numerous occasions to raise money for great causes. K3 Capital Group
often matches the sums raised by staff so employees are encouraged
and empowered to set up fundraising initiatives knowing that their
contributions will be further enhanced.
ROYAL BOLTON HOSPITAL.
Their consultant-led team of doctors, nurses and other professional staff
provide expert care and support for local people with terminal or life-
limiting illnesses and their families, in the hospice and at home. They not
only take care of patients’ physical needs, but consider their emotional,
spiritual and social needs too and support families and close friends,
both during illness and in bereavement.
The hospice is an independent charity mainly funded by the people of
Bolton. To continue providing free care and support they need to raise
£4 million a year through donations, fundraising and gifts in wills.
At Christmas the Group embarked on the charity campaign to give
something back to the community, a cause which is close to the hearts
of many K3 employees.
Other local charities and organisations have also benefited from the
fundraising efforts of our employees, including, Bolton Futsal Club, Bury
& Elton Swimming Club, Mian Mian Celtic and Turton School.
The K3 team visited the hospital to donate 119 presents to the children’s
ward, which will go a long way to cheering up those who unfortunately
had to spend the holiday period in hospital.
Alongside running a very successful toy appeal, the team at K3 have also
held a fund raiser to make a cash donation to the hospital. A number of
raffles were held, with prizes including a holiday to Alicante, a signed
Manchester United football, and vouchers, amongst other prizes.
Employees also participated in fancy dress competitions and quizzes
to raise money, which was great fun for all involved. We are pleased
to report the final total raised was over £6,000, something which will
drastically improve the quality of care provided to the children on the
ward for years to come.
Jayne Monaghan, Ward Manager, commenting on the donation by K3
said, “A generous contribution like this will definitely make a difference.
Even though they are unable to be with their families at home, the
children will not be forgotten and can still celebrate. We are very thankful
and grateful for what K3 Capital have done for the children.”
OTHER CAUSES
Bolton Hospice is a charity close to the hearts of many K3 employees;
the staff regularly organise fundraising events in order to contribute to
the amazing work that they do.
Bolton Hospice aims to improve the lives of people whose illness may
not be curable. They help people to live as actively as possible after
diagnosis to the end of their lives, however long that might be, placing
the highest value on respect and choice.
PAGE 36
K3 CAPITAL GROUP PLC
INDEPENDENT
AUDITOR’S REPORT
OPINION
We have audited the financial statements of K3 Capital Group Plc
(the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year
ended 31 May 2019 which comprise the consolidated statement of
comprehensive income, the consolidated and company statement of
financial position, the consolidated and company statement of changes
in equity, the consolidated and company statement of cash flows 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 financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union and, as regards the Parent Company financial
statements, as applied in accordance with the provisions of the
Companies Act 2006.
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 31 May 2019 and
of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union ;
the Parent Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the
Companies Act 2006; 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.
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 judgment,
were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including
those which had the greatest effect on: the overall audit strategy, the
allocation of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Key audit matter
Refer to the Accounting Policies,
Note 4 and Note 5.
Total Group revenue is £13.6m
(2018 - £16.5m). The Group’s
significant revenue streams are:
•
retainer fees of £8.1m (2018:
£7.0m) typically paid by
clients upon commencement
of a contract with the
Group, which is deferred
and recognised as revenue
over the period in which the
initially specified services are
provided
How we addressed the Key Audit Matter in
the Audit
In respect of both revenue streams, we
reviewed a sample of customer contracts and
agreements to determine the service being
delivered by the Group.
In addition, we checked that the accounting
policy for the two separate elements of
revenue has been appropriately applied, by
undertaking the following audit procedures in
relation to revenue:
•
interrogated the system to identify any
manual journals made to revenue to
ascertain if any were outside the normal
course of business, as well as reviewing
the nominal ledger revenue accounts
for unusual activity and corroborated to
evidence to ensure appropriate;
OTHER REPORTS | INDEPENDENT AUDITOR’S REPORT
PAGE 37
•
transaction fees of £5.4m
(2018: £9.5m) payable
upon the completion of a
transaction
The directors are required
to estimate the period over
which services linked to
the retainer fee are to be
provided and accordingly
recognise revenue based
on that estimate. This leads
to the contract liabilities
at period ends, which
the directors assess for
reasonableness based on
the stage of completion of
services at that point in time.
Revenue on the transaction
fee element of the contract
is only recognised when the
performance conditions have
been met and the group has
the right to consideration,
which is on completion of the
transaction.
In accordance with the
auditing standards and in
view of the judgements and
estimates involved above, as
well as management being
in a position to be able to
override controls, we have
presumed a risk of fraud and
misstatement within this area.
• performed substantive testing, on a
sample basis, of transaction fee revenue
across the year to provide evidence for the
completeness, occurrence and accuracy
of recorded transactions by agreeing to
completion per Companies House and cash
receipt;
• performed detailed cut off procedures to
test transaction fee income by agreeing a
sample of transaction fees around the year
end to originating documentation to provide
evidence that transactions were recorded in
the correct financial period;
• a test of control was performed for retainer
fees over the cash reconciliation performed
by management in which agreement to
signed contracts is evidenced. This ensures
the completeness of cash receipts received
for the inception of the Group’s retainer
services;
• performed detailed testing over a sample of
retainer arrangements, through verification
to signed contracts and recalculation of the
amounts recognised as revenue in the year
and deferred at year end to confirm they
are appropriate. This was with reference to
evidencing key service delivery milestones
and checking that management’s revenue
recognition policy estimates are accurate in
line with work performed;
•
• performed detailed cut-off testing for a
sample selected around the year end to
ensure that retainer fees are recorded in the
correct period. This involved corroborating
key delivery milestone completion dates
to evidence external from the accounting
software;
for a sample of credit notes raised in the
financial year and post year end we have
obtained an understanding to what services
they relate and to whether accounted for in
the correct financial period; and
reviewed the year end contract liabilities
balance for completeness and accuracy by
re-performing the release calculation and
corroborating inputs of the calculation to
supporting evidence.
•
Key observations: Based on the procedures we
performed, we noted no material instances of
inappropriate revenue recognition.
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. Materiality is assessed on both
quantitative and qualitative grounds.
Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Group materiality
Basis for materiality
£240,000 (2018: £230,000)
5% of profit before tax (2018: 3% profit before
tax on a 3 year average)
Rationale for the benchmark
adopted
Pre-tax profit is determined to be a stable
basis of assessing business performance and
is considered to be a significant determinant
of performance used by shareholders.
A 3 year average basis, after adjusting for
AIM listing fees incurred in 2017 which were
considered exceptional costs, was utilised
in 2018 given the significant growth in profit
before tax in the three year period 2016 –
2018. For 2019 we have utilised profit before
tax for 2019 only to reflect the decrease in
this measure in the current year.
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 £182,000 (2018:
£172,000), representing 75% (2018: 75%) of materiality. The performance
materiality threshold was selected based on the expected low level
of misstatements and the relatively low number of accounts that are
subject to management estimation.
PAGE 38
K3 CAPITAL GROUP PLC
INDEPENDENT
AUDITOR’S REPORT
Component materiality ranged from £97,000 to £158,000 (2018: £92,000
to £172,500) with a similar restriction of 75% for performance materiality
(2018: 75%). Parent Company materiality was £93,000 (2018: £165,000).
We agreed with the audit committee that we would report to the
committee all individual audit differences identified during the course of
our audit in excess of £7,000 (2018: £11,500). 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 and component level.
The Group manages its operations from one location in the UK, and has
common financial systems, processes and controls covering all significant
components. The audit of all significant components was performed by
the Group audit team.
In assessing the risk of material misstatement in the Group financial
statements, and to ensure we had adequate quantitative coverage of
significant accounts in the financial statements, our Group audit scope
focused on the Group’s significant components: KBS Corporate Sales
Limited, KBS Corporate Finance Limited and Knightsbridge Business
Sales Limited, which were subject to a full scope audit. Together with the
Parent Company and its Group consolidation, which was also subject to
a full scope audit, these components represent the principal business
units of the Group and account for 100% of the Group’s revenue, 100% of
the Group’s profit before tax and 98.1% of the Group’s net assets.
The Group’s newly formed subsidiary KBS Capital Markets Limited has
not traded in the year and was subject to limited scope procedures only
performed by the Group audit team.
Other information
The Directors are responsible for the other information. The other
information comprises the information included in the annual report,
other than the financial statements and our auditor’s report thereon. Our
opinion on the financial statements does not cover the other information
and, except to the extent otherwise explicitly stated in our report, we do
not express any form of assurance conclusion thereon.
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 OF 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.
OTHER REPORTS | INDEPENDENT AUDITOR’S REPORT
PAGE 39
RESPONSIBILITIES OF DIRECTORS
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
16th September 2019
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
As explained more fully in the Directors’ responsibilities statement, within
the Directors’ report, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for
assessing the Group’s and the Parent Company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or the Parent Company or
to cease operations, or have no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE
AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of
our auditor’s report.
PAGE 40
K3 CAPITAL GROUP PLC
FINANCIAL
STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MAY 2019
Year Ended 31 May 2019
Revenue
Distribution Costs
Administrative expenses
EBITDA (before exceptional costs)
Depreciation of tangible assets
Amortisation of intangible assets
Operating Profit
Finance income
Finance costs
Profit before taxation
Taxation
Profit and total other comprehensive income for the financial year
Attributable to the owners of the Company
Earnings per share:
Basic and Diluted EPS
All the activities of the Group are from continuing operations
2019
£’000
13,564
(1,065)
(7,626)
4,976
(87)
(16)
4,873
6
-
4,879
(901)
3,978
3,978
Note
5
7
11
12
13
2018
£’000
16,485
(979)
(8,195)
7,386
(69)
(6)
7,311
9
(5)
7,315
(1,362)
5,953
5,953
£0.09
£0.14
FINANCIAL | FINANCIAL STATEMENTS
PAGE 41
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FOR THE YEAR ENDED 31 MAY 2019
31 May 2019
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Total non-current assets
Current assets
Trade and other receivables
Other assets
Cash and cash equivalents
Total current assets
TOTAL ASSETS
Current liabilities
Trade and other payables
Current tax liabilities
Contract liabilities
Total current liabilities
Non-current liabilities
Deferred tax liabilities
Total non-current liabilities
TOTAL LIABILITIES
NET ASSETS
EQUITY
Equity attributable to owners of the Company:
Issued capital and share premium
Share option reserve
Retained Earnings
TOTAL EQUITY
Note
14
15
17
19
20
21
22
23
24
2019
£000
4,065
88
4,153
443
380
5,753
6,176
10,329
1,130
288
1,645
3,063
35
35
3,098
7,231
2,413
75
4,743
7,231
2018
£000
3,992
102
4,094
199
337
7,522
8,058
12,152
1,589
849
1,416
3,854
23
23
3,877
8,275
2,413
32
5,830
8,275
These financial statements were
approved by the board of directors
and authorised for issue on 16
September 2019 and are signed on
behalf of the board by:
ANDREW MELBOURNE FCMA
Company Secretary
16 September 2019
PAGE 42
K3 CAPITAL GROUP PLC
COMPANY STATEMENT OF FINANCIAL POSITION
FOR THE YEAR ENDED 31 MAY 2019
K3 Capital Group plc (06102618) - 31 May
2019
2018
Note
£000
£000
ASSETS
Non-current assets
Intangible assets
Investments
Total non-current assets
Current assets
Trade and other receivables
Other financial assets
Other assets
Cash at bank and in hand
Total current assets
TOTAL ASSETS
Current liabilities
Trade and other payables
Total current liabilities
NET ASSETS
EQUITY
Equity attributable to owners of the Company:
Issued capital and share premium
Share-based payments reserve
Retained Earnings
TOTAL EQUITY
14
16
17
18
19
20
24
1,100
5,667
6,767
8
-
24
126
158
6,925
3,181
3,181
3,744
2,413
75
1,256
3,744
1,100
5,667
6,767
24
2,231
68
109
2,432
9,199
2,423
2,423
6,776
2,413
32
4,331
6,776
An income statement is not provided for the parent company as permitted by s408 of the Companies Act 2006.
The profit for the financial year of the parent company was £1,990,000 (2018: £3,958,000)
These financial statements were
approved by the board of directors
and authorised for issue on 16
September 2019, and are signed on
behalf of the board by:
ANDREW MELBOURNE FCMA
Company Secretary
16 September 2019
Registered number 06102618
FINANCIAL | FINANCIAL STATEMENTS
PAGE 43
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MAY 2019
Year Ended 31 May 2019
Share capital
Share
premium
Share option
reserve
Retained
earnings
Balance at 1 June 2017
Profit and total comprehensive income for the year
Transactions with owners
Share Based Payments
Dividends
Balance at 31 May 2018
Profit and total comprehensive income for the year
Transactions with owners
Share based payments
Dividends
As at 31 May 2019
£000
422
-
-
-
£000
1,991
-
-
-
422
1,991
-
-
-
-
-
-
422
1,991
£000
-
-
32
-
32
-
43
-
75
£000
2,937
5,953
-
(3,060)
5,830
3,978
-
(5,065)
4,743
Total
£000
5,350
5,953
32
(3,060)
8,275
3,978
43
(5,065)
7,231
PAGE 44
K3 CAPITAL GROUP PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MAY 2019
Year Ended 31 May 2019
Share capital
Share
premium
Share option
reserve
Retained
earnings
Balance at 1 June 2017
Profit and total comprehensive income for the year
Transactions with owners:
Share Based Payment
Dividends
Balance At 31 May 2018
Profit and total comprehensive income for the year
Transactions with owners:
Share-based payments
Dividends
At 31 May 2019
£000
422
-
-
-
£000
1,991
-
-
-
422
1,991
-
-
-
-
-
-
422
1,991
-
-
32
-
32
-
43
-
75
Total
£000
5,846
3,958
£000
3,433
3,958
-
32
(3,060)
(3,060)
4,331
1,990
6,776
1,990
-
43
(5,065)
(5,065)
1,256
3,744
FINANCIAL | FINANCIAL STATEMENTS
PAGE 45
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MAY 2019
Year Ended 31 May 2019
Cash flows from operating activities
Profit for the financial year
Adjustments for:
Depreciation and amortisation
Finance income
Finance costs
Income tax expense
Expense recognised in respect of equity-settled share-based payments
Movement in working capital:
Decrease / (Increase) in trade and other receivables
(Increase) in other assets
(Decrease) / Increase in trade and other payables
Increase in contract liabilities
Cash generated from operations
Finance costs paid
Finance income received
Income taxes paid
Net cash from operating activities
Investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Net Cash used in investing activities
Financing activities
Repayment of bank borrowings
Dividends paid to owners of the Company
Net cash used in financing activities
Net (Decrease) / increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and equivalents at end of year
Note
7
11
13
17
19
20
22
15
15
30
2019
£000
3,978
103
(6)
-
901
43
5,019
155
(43)
(459)
229
4,901
-
6
(1,450)
3,457
(72)
(89)
(161)
-
(5,065)
(5,065)
(1,769)
7,522
5,753
2018
£000
5,953
75
(9)
5
1,362
32
7,418
(94)
(51)
536
279
8,088
(5)
9
(835)
7,257
(25)
(20)
(45)
(431)
(3,060)
(3,491)
3,721
3,801
7,522
PAGE 46
K3 CAPITAL GROUP PLC
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MAY 2019
Year Ended 31 May 2019
Cash flows from operating activities
Profit for the financial year
Adjustments for:
Income from shares in Group undertakings
Finance costs
Investment income
Expense recognised in respect of equity-settled share based payments
Movement in working capital:
Increase in trade and other receivables
Increase in other assets
Increase in trade and other payables
Cash used in operations
Finance costs paid
Net cash used in operating activities
Investing activities
Interest received
Net cash outflow on acquisition of subsidiaries
Net Cash used in investing activities
Financing activities
Dividends received from Group undertakings
Settlement of amounts due from / (to) related parties
Increase in amounts owed to Group undertakings
Repayment of bank borrowings
Amounts loaned from Group undertakings
Dividends paid to owners of the Company
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and equivalents at end of year
Note
2019
£000
1,990
2018
£000
3,958
(3,000)
(5,500)
17
19
20
18
25
30
-
-
43
(967)
16
44
(351)
(1,258)
-
(1,258)
-
-
-
3,000
2,231
1,109
-
-
(5,065)
1,275
17
109
126
4
(5)
32
(1,511)
(6)
(49)
269
(1,297)
(4)
(1,301)
5
(70)
(65)
5,500
(1,385)
-
(431)
826
(3,060)
1,450
84
25
109
FINANCIAL | FINANCIAL STATEMENTS
PAGE 47
NOTES TO THE FINANCIAL
STATEMENTS
PAGE 48
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019
1.
General Information
K3 Capital Group PLC (formerly K3 Capital Group Limited) is incorporated in England and Wales under the Companies Act, listed on the
Alternative Investment Market, with the registered number 06102618. The address of the registered office is KBS House, 5 Springfield Court,
Summerfield Road, Bolton, BL3 2NT.
The principal activity of K3 Capital Group PLC is to act as Business Sales Specialists.
2.
Presentation of financial statements
The financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting
Standards and Interpretations (collectively ‘’IFRSs’’) issued by the International Accounting Standards Board (‘’IASB’’) as adopted by the
European Union (‘’adopted IFRSs’’).
The financial statements have been presented in Pounds Sterling (£, GBP) as this is the currency of the primary economic environment that
the Company operates in.
3.
Basis of preparation
The principal accounting policies applied in the preparation of the financial statements are set out below. These policies have been consistently
applied to all periods presented.
Basis of consolidation
The Group financial statements consolidate the results of the Company, K3 Capital Group plc, and its subsidiaries (together referred to as the
“Group”).
Subsidiary undertakings acquired are included using the acquisition method of accounting. Under this method the consolidated statement of
comprehensive income, consolidated statement of financial position and consolidated statement of cash flows included the results and cash
flows of subsidiaries from the date of acquisition and to the date of sale outside the Group in the case of disposals of subsidiaries.
Where the company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following
elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power
to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these
elements of control.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 49
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
New standards, amendments to and interpretations to published standard
New standards that the Group has adopted in the annual financial statements for the year ended 31 May 2019 are:
IFRS 9 Financial Instruments (IFRS 9); and
IFRS 15 Revenue from Contracts with Customers (IFRS 15)
IFRS 9 has impacted the way in which the group accounts for certain financial assets and financial liabilities. The standard has introduced an
expected credit loss model, when assessing impairment of financial assets. Historically, the directors would have considered trade receivables
to be potentially impaired if they were not settled within the credit terms stated on the invoice. The expected credit loss methodology is
forward looking and requires the calculation of an expected credit loss of which will arise in the future. The K3 Capital group has a low value of
trade receivables and the application of IFRS 9 has not had a material impact.
With respect to the classification and measurement of financial assets, the number of categories of financial assets under IFRS 9 has been
reduced compared to IAS 39. Under IFRS 9, the classification of financial assets is based both on the business model of which the asset is held
and the contractual cashflow characteristics of the asset. There are three principal classification categories for financial assets that are debt
instruments: (i) amortised cost, (ii) fair value through other comprehensive income (FVTOCI) and (iii) fair value through profit or loss (FVTPL)
IFRS 9 had no effect on the classification of financial instruments held by the group.
Intercompany loans are considered in line with the general approach, under IFRS 9. This involves taking into account all available relevant
information about the subsidiary undertakings current and expected operating performance and cash flow. The group has chosen not to
restate comparatives on adoption of IFRS 9 as there has been no material impact on the calculation of the impairment provision under the
expected loss model. As a result of this, there has been no adjustment recorded in respect of the IFRS 9 transition in opening equity at 1 June
2018.
In respect of IFRS 15 the directors had pre-determined at the date of the float of the company on the AIM market that IFRS 15 would have no
material impact on revenue recognition as the revenue recognition policy adopted at the time met the requirements of both IAS 18 and IFRS
15. This assessment has been subject to ongoing review. In determining that the impact of adopting IFRS 15 would not be material to the group
the directors have made the following judgements:
•
The performance obligation of recognising contingent fee revenue is the completion of a successful transaction. Under IAS 18 income
recognition for contingent fees was on the basis that the income was virtually certain, which would only be known on completion of a
corporate finance transaction. The directors determine that the revenue recognition criteria have not changed.
There is one performance obligation within Transaction Fee income. There are multiple services involved in a retainer, such as providing
marketing documents in respect of the business for sale. These services are not individually distinct. The service provided creates a
bespoke asset for the customer, of which has no alternative use. K3 Capital Group are also entitled to payment, for the work carried out
on these retainers, to date. Under IAS 18 where services are provided under a contract, income was recognised by reference to the level
of contract progression. As a result, the Directors have determined the revenue recognition under IFRS 15 for Retainer Fee income is
not materially different to that under IAS 18.
•
PAGE 50
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
As a result the only noticeable change has been to provide more extensive disclosures for the group’s revenue transactions and to amend
reference to deferred revenue to contract liabilities on the face of the statement of financial position and in the notes.
Other new and amended standards and Interpretations issued by the IASB that will apply for the first time in the annual financial statements
are not expected to impact the group as they are either not relevant to the group’s activities or require accounting which is consistent with the
group’s current accounting policies.
New standards, amendments to and interpretations to published standards not yet effective
There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in
future accounting periods that the group has decided not to adopt early. The most significant of these is:
IFRS 16 Leases (mandatorily effective for periods beginning on or after 1 January 2019)
The group has progressed its projects dealing with the implementation of this key new accounting standard and is able to provide the
following information regarding their likely impact:
IFRS 16 Leases
Adoption of IFRS 16 will result in the group recognising right-of-use assets and lease liabilities for all contracts that are, or contain, a lease. For
leases currently classified as operating leases, under current accounting requirements the group does not recognise related assets or liabilities,
and instead spreads the lease payments on a straight-line basis over the lease term, disclosing in its annual financial statements the total
commitment.
The Board has decided it will apply the modified retrospective adoption method in IFRS 16, and, therefore, will only recognise leases on
balance sheet as at 1 June 2019. In addition, it has decided to measure right-of-use assets by reference to the measurement of the lease
liability on that date. This will ensure there is no immediate impact to net assets on that date. At 31 May 2019 operating lease commitments
amounted to £522,000 (see note 29), which is not expected to be materially different to the amount which is expected to be disclosed at 1
June 2019. The effect of discounting those commitments is anticipated to result in right-of-use assets and lease liabilities of approximately
£1.4 million being recognised on 1 June 2019. The Board have decided that early terminations or extensions to leases are unlikely at this stage.
There is no impact on the parent Company on the adoption of IFRS 16.
Instead of recognising an operating expense for its operating lease payments, the group will instead recognise interest on its lease liabilities
and amortisation on its right-of-use assets. This will increase reported EBITDA by the amount of its current operating lease cost, which for the
year ended 31 May 2019 was approximately £0.3 million had IFRS 16 been early adopted.
Other
The Group does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on the group.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 51
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MAY 2019
Going Concern
The financial statements have been prepared on the basis that the Group will continue as a going concern.
After making enquiries, the Directors consider that the Group has adequate resources and committed borrowing facilities to continue
in operational existence for the foreseeable future. Consequently, they have adopted the going concern basis in preparing the financial
statements.
Revenue Recognition
Revenue comprises revenue recognised by the Group in respect of services supplied during the year, exclusive of Value Added Tax.
The Group recognises revenue from the following major sources:
Non-contingent fees arising from customers for professional advice
Transaction fees arising from business sales arranged by the group companies
Revenue is measured based on the consideration to which the Group expects to be entitled in a contract with a customer and excludes
amounts collected on behalf of third parties. The Group recognises revenue when it transfers control of a product or service to a customer.
There is one performance obligation associated with retainer fee income. Although there are different services provided, none of these are
individually distinct. These services include the drafting of an information memorandum, as well as performing research to obtain a buyer for
the client. Revenue is recognised over time because the work performed does not create an asset of which has an alternate use, and the K3
Capital Group have an enforceable right to payment for the work of which has been performed. There is no variable consideration.
Due to revenue being recognised over time, and agreements overlapping the period end, contract liabilities are recognised when invoiced
revenue is recognised in advance of delivery of the remaining service of the retainer. As these contracts are similar in nature, the review of
milestone completion and calculation of contract liabilities is done on a portfolio basis.
The transaction price is determined at inception of the contract. The transaction price is allocated to the performance obligation in line with
the stage of completion of the retainer.
There is one performance obligation within Transaction Fee income. This obligation is the completion of a Transaction as defined in K3 terms
of business, being the transfer of shares or assets from a client to a 3rd party, with fees settled from the sale proceeds. No contract liabilities
arise with transaction fee income, and there is no variable consideration. Further detail on revenue recognition policies is provided in the
critical accounting estimates section in note 4.
PAGE 52
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
Employee Benefits
i.
ii.
Short-term benefits
Wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued in the period in which the associated
services are rendered by employees of the Group.
Defined Contribution plans
The Group operates a defined contribution pension scheme for employees. The assets of the scheme are held separately from those
of the Group. The annual contributions are charged to the Statement of Comprehensive Income. The Group also contributes to the
personal pension plans of the Directors at the Group’s discretion.
Operating Profit
Operating profit is stated after all expenses, including those considered to be exceptional, but before finance income or expenses. Distribution
costs relate to marketing expenses. All other operational costs are classified as administrative expenses.
EBITDA
EBITDA is utilised as a key performance indication for the Group and is calculated utilising profit before tax, adjusted for finance income and
costs, amortisation and depreciation on non-current assets.
Operating Lease Agreements
Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged against
profits on a straight line basis over the full period of the lease. Any lease incentives are spread on a straight line basis over the full period of the
lease.
Business Combinations and Goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the
consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. Acquisition
related costs are expensed as incurred and included in administrative expenses.
When the Group acquires a business, it assesses the assets and liabilities assumed for appropriate classification and designation in accordance
with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.
Goodwill is measured as the excess of the aggregate of the consideration transferred and the amount recognised for the non-controlling
interest over the fair value of the identifiable net assets acquired and liabilities assumed.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 53
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
After initial recognition, goodwill is not amortised and is measured at cost less any accumulated impairment losses. For the purpose of
impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to a cash generating unit that is
expected to benefit from the combination. For each period covered in these financial statements the Group has one cash generating unit,
related to Business Sales.
Other Intangible Assets
The group classifies website costs as an intangible asset. Such intangible assets are initially recorded at cost, and are subsequently stated at
cost less any accumulated amortisation and impairment losses.
Amortisation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as
follows:
Website and software costs
-
33% straight line
If there is an indication that there has been a significant change in amortisation rate, useful life or residual value of an intangible asset, the
amortisation is revised prospectively to reflect the new estimates.
Property, Plant and Equipment
Property, plant and equipment is initially recorded at cost, and subsequently stated at cost less any accumulated depreciation and impairment
losses.
Depreciation is calculated so as to write off the cost or valuation of an asset, less its residual value, over the useful economic life of that asset
as follows:
Long leasehold property
Fixtures and fittings
Equipment
-
-
-
Over the lease term
33% straight line
33% straight line
Investments
Fixed asset investments, including those in subsidiary undertakings, are initially recorded at cost, and subsequently stated at cost less any
accumulated impairment losses.
Financial Instruments
Under IFRS 9, the classification of financial assets is based both on the business model of which the asset is held and the contractual cashflow
characteristics of the asset. There are three principal classification categories for financial assets that are debt instruments: (i) amortised cost,
PAGE 54
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
(ii) fair value through other comprehensive income (FVTOCI) and (iii) fair value through profit or loss (FVTPL) IFRS 9 had no effect on the
classification of financial instruments held by the group.
Financial assets
Initial recognition and measurement
The Group’s financial assets include cash and cash equivalents, trade and other receivables that arise from the business operations, as well as
non-derivative other financial assets.
Cash and cash equivalents comprise deposits with banks and bank and cash balances, subject to insignificant risk of changes in value. All
other financial assets are recognised initially at fair value and subsequently at amortised cost using the effective interest method, less provision
for impairment. Interest is recognised by applying the effective interest method, except for short term receivables when the recognition of
interest would be immaterial.
Financial liabilities and equity instruments
Classification as debt or equity
Financial liabilities and equity instruments issued by the Company are classified according to the substance of the contractual arrangements
entered into and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity
instruments are recorded at the proceeds received, net of direct issue costs.
Financial liabilities and equity components
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual
arrangement and in conjunction with the application of IFRS. Financial instruments issued by the Group are treated as equity only to the
extent that they meet the following two conditions:
a)
b)
they include no contractual obligations upon the Company (or Group as the case may be) to deliver cash or other financial assets or
to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Company
(or Group); and
where the instruments will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no
obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the Company’s
exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified
takes the legal form of the Company’s own shares, the amounts presented in these financial statements for called up share capital and share
premium account exclude amounts in relation to these shares.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 55
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if there is a currently
enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the
liabilities simultaneously.
Impairment of assets
Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. IFRS 9 involves
the use of an expected credit loss model when assessing for potential impairment. This takes into consideration increased credit risk,
probabilities of default, and deteriorations in the macro-economic environment.
With respect to intercompany loans, at initial recognition, the parent company makes an assessment as to the initial credit risk of the amounts
owed by subsidiary undertakings by taking into account available relevant information about subsidiary undertakings current and expected
operating performance and cashflow position. This incorporates forward looking information such as the general economic environment,
consumer confidence and inflation, changing consumer demands and the competitive environment.
The parent company has defined a default of amounts owed by subsidiary undertakings to be when there is evidence that the borrower is in
significant financial difficulty such that it will have insufficient liquid assets to repay the loan when due. This is assessed based on a number of
factors including key liquidity and solvency ratios. An assessment is made of significant increases in credit risk since initial recognition, using
a qualitative assessment focusing on a comparison of forecast KPIs over the expected life of the amounts owed by subsidiary undertakings
at initial recognition to forecast KPIs over the remaining expected life of the amounts owed by subsidiary undertakings at the reporting date
(taking into account forward looking information such as the updated economic and business environment). The parent company has also
considered credit impaired indicators and define this to be when amounts owed by subsidiary undertakings meets the definition of a default.
A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the
estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and
present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss is recognised in profit or
loss.
PAGE 56
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
Non-financial assets
The carrying amounts of the Group’s non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine
whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For assets that
have indefinite lives, the recoverable amount is estimated at each reporting date.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. 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 risk specific to the asset. For the purpose of impairment testing, assets are grouped together into
the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets
or groups of assets. The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating
units that are expected to benefit from the synergies of the combination.
An impairment loss is recognised if the carrying amount of an asset or its cash generating unit exceeds its estimated recoverable amount.
Impairment losses are recognised in the profit or loss. Impairment losses recognised in respect of cash generating units are allocated first to
reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (or
group of units) on a pro rata basis.
Income Tax
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the statement of
comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes
items that are not taxable or tax deductible.
The Group’s liability for current tax is calculated using tax rates (and tax laws) that have been enacted or substantively enacted by the end of
the financial period.
Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the balance sheet date where
transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more tax.
Deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable
taxable profits from which the future reversal of the underlying temporary differences can be deducted.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which temporary differences
reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date
FINANCIAL | FINANCIAL STATEMENTS
PAGE 57
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
Share Capital
Ordinary shares are recorded at nominal value and proceeds received in excess of nominal value of shares issued, if any, are accounted for as
share premium. Both ordinary shares and share premium are classified as equity. Costs incurred directly to the issue of shares are accounted
for as a deduction from share premium, otherwise they are charged to the Statement of Comprehensive Income.
Dividends
Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared by
the directors. In the case of final dividends, this is when approved by the shareholders at the AGM.
Events After the Balance Sheet Date
Post period-end events that provide additional information about the Group’s position at the balance sheet date are reflected in the financial
statements. Post period-end events that are not adjusting events are disclosed in the notes when material.
Related Parties
Parties are considered to be related if one party has the ability (directly or indirectly) to control the other party or exercise significant influence
over the other party in making financial and operating decisions. Parties are also considered related if they are subject to common control or
common significant influence. Related parties may be individuals or corporate entities.
Contingent Liabilities and Contingent Assets
A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or
non-occurrence of one or more uncertain future events not wholly within the control of the Company. It can also be a present obligation
arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of
obligation cannot be measured reliably.
A contingent liability is not recognised but is disclosed in the notes to the accounts. When a change in the probability of an outflow occurs so
that the outflow is probable, it will then be recognised as a provision.
A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-
occurrence of one or more uncertain events not wholly within the control of the Company. Contingent assets are not recognised but are
disclosed in the notes to the accounts when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.
PAGE 58
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
Exceptional Items
Exceptional items are disclosed separately in the financial statements in order to provide further understanding of the financial performance of
the entity. They are material items of income or expense that have been shown separately because of their nature or amount.
Share-based payment
When share options are awarded to employees, the fair value of the options at the date of grant is charged to the statement of comprehensive
income over the vesting period. Where share options vesting is contingent on a future event a charge is recognised only if the future event is
considered probable. Fair value is measured by the use of an appropriate valuation model, which takes into account conditions attached to the
vesting and exercise of the equity instruments. The expected life used in the model is adjusted, based on management’s best estimate, for the
effects of non-transferability, exercise restrictions and behavioural considerations. The volatility in the model is calculated by reference to an
implied volatility of a group of listed entities that have similar characteristics and are in the same industry sector.
4.
Critical Accounting Estimates and Sources of Estimation Uncertainty
In applying the accounting policies, the directors may at times require to make critical accounting judgements, estimates and assumptions
about the carrying amount of assets and liabilities. These estimates and assumptions, when made, are based on historical experience and
other factors that the directors considers are relevant.
The key estimates and assumptions concerning the future and other key sources of estimation uncertainty at the end of the financial year,
that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are
reviewed are as stated below.
Revenue recognition
Revenue is recognised by the Group in respect of services supplied to clients of the Group in presenting the clients’ sales opportunity to
market, sourcing potential acquirers and project managing transactions to completion.
In relation to the services provided, a non-contingent fee (“retainer fee”) is typically paid by clients upon commencement of a contract with
the Group, which is included in contract liabilities and recognised as revenue over the period in which performance obligations are met. The
critical judgement on retainer fee income is that there is one performance obligation. This judgement is made on the fact that as part of a
retainer, there are different services provided, none of which are individually distinct. This has been detailed within note 3. For retainer fees
there is one performance obligation and revenue is recognised over time due to the services performed creating a bespoke asset, for which
the customer has no alternative use.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 59
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
The directors are required to estimate the period over which the service commences and the performance obligation is met and accordingly
recognise revenue based on that estimate. This involves estimation of the point of time in which specific services are carried out as part of the
retainer. The directors have made this estimate based upon the amount of time taken to perform these specific services. The time period that
retainer fee income is recognised is regularly reviewed. This leads to the recognition of contract liabilities at period ends, which the directors
estimate based on the stage of completion of services at that point in time by reference to the performance obligations set.
Linked to the non-contingent fee at the commencement of a contract is a commission fee payable to employees for sourcing the contract.
The commission costs are incremental and recognised over the same period as the revenue, and thus are released in line with the release of
retainer fee income from contract liabilities. Commission costs deferred are accounted for within prepaid contract costs.
A contingent fee (“transaction fee”) is payable upon the completion of a transaction. Judgement is applied in regards to the number of
performance obligations. There is one performance obligation, the sale of shares or assets to a third party. This fee is typically a percentage
of the transaction value and therefore varies by client. Revenue on the transaction fee element of the contract is only recognised when the
performance obligation has been satisfied, at completion of the transaction.
Assessing Goodwill for potential impairment
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating unit to which the assets have been
allocated. The value in use calculation requires management to estimate the future cash flows expected to arise from the cash-generating unit
and a suitable discount rate in order to calculate present value (see note 14).
PAGE 60
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
5.
Revenue
The Group’s revenue arises from the provision of services in fulfilling the principal activities. An analysis of revenue by subsidiary company is
shown below:
Revenue
Year Ended 31 May 2019
KBS Corporate Sales Limited
KBS Corporate Finance Limited
Knightsbridge Business Sales Limited
2019
£000
8,693
2,671
2,200
13,564
A further breakdown of revenue by type is shown below:
Revenue
Year Ended 31 May 2019
Non-contingent fees
Transaction fees
2019
£000
8,130
5,434
13,564
2018
£000
8,319
6,589
1,577
16,485
2018
£000
6,965
9,520
16,485
The Group’s revenue is recognised when performance obligations are satisfied, further details of which are included in the accounting policies.
As a result contract liabilities arise when performance obligations have not been met details of which are included in note 22. The contract
liabilities from 31 May 2018 have been fully recognised in the reported revenues for the year end 31 May 2019 due to the satisfaction of the
associated performance obligation.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 61
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
6.
Segment Information
The Group has 3 operating segments based on the subsidiaries identified above, but one reporting segment due to the nature of services
provided across the whole Group being the same, being business sales derived solely from the UK. Every client contract contains the right
to assign that client to other Group companies. Clients can be transferred to another operating segment most likely to deliver a successful
transaction. The Group’s revenues, costs, assets, liabilities and cash flows are therefore totally attributable to this reporting segment.
Internal management reports are reviewed by the directors on a monthly basis, including revenue information by subsidiary. Such revenue
information alone does not constitute sufficient information upon which to base resource allocation decisions.
Performance of the reporting segment is assessed based on a number of financial and non-financial KPI’s as well as on EBITDA.
The Group is not reliant on a major customer or group of customers.
As the Group only has one reportable segment, all segmented information is provided by the consolidated income statement, the consolidated
statement of financial position, the consolidated statement of changes in equity and the consolidated statement of cash flows.
7.
Operating Profit
Operating profit or loss is stated after charging:
Year Ended 31 May 2019
Amortisation of intangibles - website costs
Depreciation of owned assets
Auditor remuneration
Equity - settled share based payments expenses
Operating lease charge
2019
£000
16
86
31
43
235
2018
£000
6
69
30
32
192
PAGE 62
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
8.
Auditors Remuneration
The analysis of the Auditor’s remuneration is as follows:
Year Ended 31 May 2019
BDO LLP
Fees payable to the Company’s Auditor and their associates
for the audit of the Company’s annual accounts
Total Auditors Remuneration
No non-audit services were provided.
2019
£000
31
31
2018
£000
30
30
FINANCIAL | FINANCIAL STATEMENTS
PAGE 63
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
9.
Employee Benefit Expense
The average number of persons employed by the Group during the year, including the directors, amounted to:
Year Ended 31 May 2019
Management
Sales
Marketing / Administration
2019
No.
10
71
72
153
2018
No.
9
57
55
121
The aggregate payroll costs incurred during the year by the Group, relating to the above, were:
Year Ended 31 May 2019
Wages, salaries, bonuses & benefits in kind
Share-based payments
Social security costs
Other pension costs
2019
£000
5,416
43
526
54
2018
£000
5,907
32
670
24
6,039
6,633
The aggregate payroll costs incurred during the year by the Company relating to the above, were:
Year Ended 31 May 2019
Wages, salaries, bonuses & benefits in kind
Share-based payments
Social security costs
Other pension costs
2019
£000
651
43
82
3
779
2018
£000
1,035
32
113
2
1,182
The average number of persons employed by the Company during the year, including Directors amounted to:
Year Ended 31 May 2019
Management
2019
No.
7
2018
No.
6
PAGE 64
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
10.
Directors’ and Key Management Remuneration
Group
The directors’ aggregate remuneration in respect of qualifying services was:
Year Ended 31 May 2019
Group
Wages, salaries, bonuses & benefits in kind
Share-based payments
Social security costs
Other pension costs
2019
£000
1,072
43
139
7
1,261
Remuneration of highest paid director in respect of qualifying services:
Year Ended 31 May 2019
Group
Wages, salaries, bonuses & benefits in kind
Social security costs
Other pension costs
Company
2019
£000
242
32
1
275
2018
£000
1,267
6
167
3
1,443
2018
£000
520
71
1
592
The directors’ aggregate remuneration in respect of qualifying services was:
Year Ended 31 May 2019
Wages, salaries, bonuses & benefits in kind
Share-based payments
Social security costs
Other pension costs
2019
£000
651
8
82
3
744
2018
£000
1,035
6
113
2
1,156
The directors are considered to be key management personnel.
In FY19 there were 6 Directors in defined contribution pension schemes (FY18: 6)
FINANCIAL | FINANCIAL STATEMENTS
PAGE 65
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
Remuneration of highest paid director in respect of qualifying services:
Year Ended 31 May 2019
Wages, salaries, bonuses & benefits in kind
Social security costs
Other pension costs
Finance costs
11.
Year Ended 31 May 2019
Interest on bank loans
2019
£000
242
32
1
275
2019
£000
-
-
2018
£000
520
71
1
592
2018
£000
5
5
PAGE 66
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
12.
Tax on Profit
Major components of tax expense
Year Ended 31 May 2019
Current tax:
UK current tax expense
Adjustments in respect of prior periods
Total current tax
Deferred tax:
Origination and reversal of timing differences (note 26)
Impact of change in tax rate
Tax on profit
Reconciliation of tax expense
2019
£000
889
-
889
12
-
901
2018
£000
1,379
(8)
1,371
(8)
(1)
1,362
The tax assessed on the profit on ordinary activities for the year is lower than (2018: lower than) the standard rate of corporation tax in the UK
of 19% (2018: 19%)
Reconciliation of tax expense
Year Ended 31 May 2019
Profit on ordinary activities before taxation
Profit on ordinary activities by rate of tax
Adjustment in respect of prior periods
Effect of expenses not deductible for tax purposes
Effect of capital allowances and depreciation
Effect of research and development relief
Tax on profit
Changes Affecting Future Tax Rates
2019
£000
4,879
927
-
3
-
(29)
901
2018
£000
7,315
1,390
(8)
11
(2)
(29)
1,362
In the Budget on 8 July 2015, the Chancellor announced additional planned reductions to 19 per cent, with effect from 1 April 2017, and to 18
per cent, with effect from 1 April 2020. This rate was subsequently revised downwards to 17 per cent, with effect from 1 April 2020 in the 2016
Budget. These changes were substantially enacted on 26 October 2015 and 6 September 2016 respectively.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 67
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
13.
Earnings per Share
Basic earnings per share amounts are calculated by dividing the profit for the year attributable to equity holders of the Company by the
weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share are calculated by dividing the profit attributable to ordinary equity holders of the Company by the weighted
average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would have been
issued on the conversion of all dilutive potential ordinary shares into ordinary shares at the start of the year, or, if later, the date of issue.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
Net profit attributable to equity holders of the Company
2019
£000
3,978
2018
£000
5,953
Initial weighted average of ordinary shares
42,210,526
42,210,526
Basic earnings per share
9.43p
14.10p
The weighted average number of ordinary shares for the purposes of diluted earnings per share reconciles to the weighted average number of
shares used in the calculation of basic earnings per share as follows:-
2019
£000
2018
£000
Weighted average number of ordinary shares used in the
calculation of basic earnings per share
42,210,526
42,210,526
Dilutive effect of share options
142,322
595,501
Dilutive weighted average number of ordinary shares
42,352,848
42,806,027
Diluted earnings per share
9.39p
13.91p
PAGE 68
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
14.
Intangible Assets
Group
Year Ended 31 May 2019
Cost
At 1 June 2017
Additions
At 31 May 2018
Additions
At 31 May 2019
Amortisation
At 1 June 2017
Charge for the year
At 31 May 2018
Charge for the year
At 31 May 2019
Carrying amount
At 31 May 2019
At 31 May 2018
Goodwill
£000
5,812
-
5,812
-
5,812
1,885
-
1,885
-
1,885
3,927
3,927
Website and
software Costs
£000
90
20
110
89
199
39
6
45
16
61
138
65
Total
£000
5,902
20
5,922
89
6,011
1,924
6
1,930
16
1,946
4,065
3,992
£2,827,000 of goodwill relates to the cash generating unit that arose from the business combination that took place when the Group acquired
KBS Corporate Sales Limited in the year ended 31 May 2008 and £1,100,000 relates to the business combination when the company acquired
the trade and assets of Triskell LLP in the year ended 31 May 2017.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 69
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
Company
Cost
At 31 May 2018 and May 2019
Carrying amount
At 31 May 2019
At 31 May 2018
Goodwill
£000
1,100
1,100
1,100
As explained in the accounting policies, the Group tests goodwill annually for impairment, or more frequently if there are indications that
goodwill might be impaired. The recoverable amounts of the goodwill are determined by value-in-use calculations. The key assumptions for
the value-in-use calculation are those regarding discount rates and growth rates as well as expected changes to costs and the forecast level of
demand from clients wishing to engage in the group’s services.
The key assumptions for the value-in-use calculation are shown below:
31 May 2019
31 May 2018
Period on which management approved forecasts are based
5 years
5 years
Growth rate applied beyond approved forecast period
Pre-tax discount rate
2%
15%
2%
15%
Management has estimated the discount rate taking account of the way the market would assess specific risks inherent within the Group’s
estimated future cash-flows.
The growth rates used in the value in use calculation reflect the long term economic growth rates in the UK.
No impairment was identified and furthermore, a reasonably possible change in the assumptions applied would not result in any impairment.
PAGE 70
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
15.
Tangible Assets
Group
Cost
At 1 June 2017
Additions
At 31 May 2018
Additions
At 31 May 2019
Depreciation
At 1 June 2017
Charge for the year
Disposals
At 31 May 2018
Charge for the year
At 31 May 2019
Carrying amount
At 31 May 2019
At 31 May 2018
The Company has no tangible assets
Long Lease-
hold property
Fixtures and
fittings
Equipment
£000
£000
£000
12
22
34
-
34
3
8
11
11
22
12
23
98
-
98
39
137
20
33
53
43
96
41
45
98
3
101
33
134
39
28
67
32
99
35
34
Total
£000
208
25
233
72
305
62
69
131
86
217
88
102
FINANCIAL | FINANCIAL STATEMENTS
PAGE 71
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
16.
Investments
The Group has no investments.
Company
Cost
At 31 May 2018 and 2019
Impairment
At 1 Jun 2017, 31 May 2018 and 31 May 2019
Carrying amount
At 1 Jun 2018
At 1 Jun 2019
Shares in group
undertakings
£000
5,667
-
5,667
5,667
Subsidiaries, associates and other investments
Details of the investments in which the parent Company has an interest in are as follows:
Year Ended 31 May 2018
Class of Share
Percentage of shares
held
Subsidiary undertakings
KBS Corporate Sales Limited
KBS Corporate Finance Limited
Knightsbridge Business Sales Limited
KBS Capital Markets Limited
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100
100
100
100
PAGE 72
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
The Registered Office address of the subsidiaries is:
KBS House
5 Springfield Court
Summerfield Road
Bolton
England
BL3 2NT
During 2018 the Company established a new subsidiary, KBS Capital Markets Limited, by subscribing for 100% of the equity for £70,000. This
is an FCA regulated entity established with a view to broadening the Group service offering by allowing the provision of advice on AIM listings
and minority share sales.
Trade and Other Receivables
17.
Year Ended 31 May 2019
Group
Company
Trade receivables
Allowance for doubtful debts
Other receivables
2019
£000
43
-
43
-
43
2018
£000
199
-
199
-
199
2019
£000
-
-
-
8
8
The carrying amount of trade and other receivables approximates to their fair value.
Other Financial Assets
18.
Year Ended 31 May 2019
Amounts owed by Group undertakings
Group
Company
2019
£000
-
-
2018
£000
-
-
2019
£000
-
-
2018
£000
-
-
-
24
24
2018
£000
2,231
2,231
The amounts owed by group undertakings are stated at the undiscounted amount as the amounts were repayable on demand. No interest is
charged on the balances.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 73
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
19.
Other Assets
Year Ended 31 May 2019
Group
Company
Prepayments and contract assets
20.
Trade and Other Payables
2019
£000
380
2018
£000
337
2019
£000
24
Year Ended 31 May 2019
Group
Company
Trade payables
Amounts due to Group undertakings
Accruals
Other taxation and social security
Other payables
2019
£000
112
-
293
690
35
2018
£000
291
-
365
926
7
2019
£000
3
3,095
53
26
4
2018
£000
68
2018
£000
111
1,986
71
255
-
The carrying amount of trade and other payables approximates to their fair value due to their short term nature.
The amounts due to group undertakings are stated at the undiscounted amount as they are repayable on demand. No interest is paid/payable
and the balances are not secured.
1,130
1,589
3,181
2,423
PAGE 74
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
21.
Current Tax Liabilities
Year Ended 31 May 2019
Group
Company
Corporation tax payable
22.
Contract Liabilities
2019
£000
288
2018
£000
849
2019
£000
-
Year Ended 31 May 2019
Group
Company
Arising from client contracts
2019
£000
1,645
2018
£000
1,416
2019
£000
-
2018
£000
-
2018
£000
-
The contract liabilities arises from the non-contingent contracts provided to certain customers in respect of providing services including
business marketing and research to these clients. Revenue is recognised in accordance with services provided within contract terms. All
contract liabilities as at 31 May 2019 will be recognised within revenue in full in the next financial year.
23.
Deferred Tax Liability
Year Ended 31 May 2019
Group
Company
Liability at 1 June 2017
Charge for the year
Liability at 31 May 2018
Credit for the year
Liability at 31 May 2019
£000
(32)
9
(23)
(12)
(35)
£000
-
-
-
-
-
FINANCIAL | FINANCIAL STATEMENTS
PAGE 75
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
24.
Share Capital
Allotted, called up and fully paid
Year Ended 31 May 2019
Group
Amounts presented in equity:
Ordinary shares
25.
Financial Instruments
2019
2018
No.
£000
No.
£000
42,210,526
42,210,526
422
422
42,210,526
42,210,526
422
422
The Group’s principal financial instruments comprise cash and cash equivalents, trade and other receivables and trade and other payables.
The Group’s accounting policies and method adopted, including the criteria for recognition, the basis on which income and expenses are
recognised in respect of each class of financial asset, financial liability and equity instrument are set out in note 3 to the financial statements.
The Group does not use financial instruments for speculative purposes.
The fair values and the carrying values of financial assets and liabilities are the same. The principal financial instruments used by the Group,
from which financial instrument risk arises, are as follows:
Year Ended 31 May 2019
Group
Financial assets measured at amortised cost
Trade receivables
Cash and cash equivalents
Total financial assets
Financial liabilities measured at amortised cost
Trade and other payables
Total financial liabilities
Total financial instruments
2019
£000
43
5,753
5,796
440
440
5,356
2018
£000
199
7,522
7,721
663
663
7,058
PAGE 76
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
Year Ended 31 May 2019
Company
Financial assets measured at amortised cost
Amounts owed by Group undertakings
Trade and other receivables
Cash and cash equivalents
Total financial assets
Financial liabilities measured at amortised cost
Trade and other payables
Amounts owed by Group undertakings
Total financial liabilities
Total financial instruments
2019
£000
-
32
126
158
86
3,095
3,181
(3,023)
2018
£000
2,231
92
109
2,432
437
1,986
2,423
9
There are no fair value adjustments to assets or liabilities through profit and loss. All trade and other payables are due to be paid within
contracted terms.
Capital management
The Group manages its capital to ensure that it will be able to continue as a going concern while attempting to maximise the return to
stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of issued capital and
retained earnings.
Credit risk
Credit risk is the risk that a counter-party will cause a financial loss to the Group by failing to discharge its obligations to the Group. The Group
manages its exposure to this risk by applying limits to the amount of credit exposure to any one counterparty and employs strict minimum
credit worthiness criteria as to the choice of counterparty. The maximum exposure to credit risk for receivables and other financial assets is
represented by their carrying amount. The Group considers credit risk to be low due as trade receivables are insignificant and amounts are
settled from business sales proceeds brokered by the Group via the legal process of completion agreements.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of the trade and other receivables
as appropriate. The allowance comprises a provision against individually significant exposures.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 77
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
Ageing analysis
The ageing analysis of the Group’s trade receivables is as follows
Year Ended 31 May 2019
Current
Up to 30 days
30 to 60 days
60 days and older
Bad debt provision
Group
2019
£000
28
10
1
4
43
-
43
2018
£000
193
6
-
-
199
-
199
These receivables are not secured by any collateral or credit enhancement. Normal credit terms are 30 days.
The maximum exposure to credit risk at each balance sheet date was:
Year Ended 31 May 2019
Group
Net trade receivables
Cash and cash equivalents
2019
£000
43
5,753
5,796
2018
£000
199
7,522
7,721
For banks and financial institutions, only independently rated parties with minimum rating “A” are accepted.
Fair values
The directors have assessed that the fair values of cash and short-term deposits, trade receivables, trade payables and other current liabilities
approximate to their carrying amounts largely due to the short-term maturities of these instruments.
The principal interest rate risks of the Group arise in respect of borrowings. As the interest expense on variable rate financial instruments is
immaterial, the Group does not actively manage the exposure to this risk.
PAGE 78
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
Interest rate risk
The Group’s policy is to fund its operations through the use of retained earnings and equity. The Group’s exposure to changes in interest rates
relates primarily to cash at bank. Cash is held either on current or short-term deposits at a floating rate of interest determined by the relevant
bank’s prevailing base rate.
Interest rate sensitivity
There would be no material impact resulting from a reasonably possible change in interest rates.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market
risk comprises three types of risk:
• commodity price risk
interest rate risk; and
•
foreign currency risk.
•
Financial instruments affected by market risk include deposits, trade receivables, trade payables and accrued liabilities.
Foreign currency exchange risks
The Group has no foreign currency risk currently as its operations and transactions are all denominated in Sterling.
Liquidity risks
Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will encounter difficulty in meeting its
financial obligations as they fall due.
The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due.
The maturity profile of the Group’s trade and other payables, and other financial liabilities are, at each period end, due within one year.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 79
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
26.
Share-based payments
Employee share option plan of the Company
Details of the employee share option plan of the Company
The Company has a share option scheme for executives and senior employees of the Company and its subsidiaries. In accordance with the
terms of the plan executives and senior employees may be granted options to purchase ordinary shares.
Each employee share option converts into one ordinary share of the Company on exercise. No amounts are paid or payable by the recipient
on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of
vesting to the date of their expiry.
The number of options granted is calculated in accordance with the performance-based formula approved by the remuneration committee.
The formula rewards executives and senior employees to the extent of the Group’s and the individual’s achievement judged against both
qualitative and quantitative criteria from the following financial measures:
•
•
improvement in adjusted earnings per share
improvement in return to shareholders
The following share-based payment arrangements were in existence during the current and prior years:
Option series
Number
Grant Date
Expiry Date
Exercise
Price
Fair value at
grant date
(1)
(2)
Granted on 11 April 2017
Granted on 17 January 2018
1,193,611
552,022
11/04/17
17/01/18
11/04/27
17/01/28
0.95
1.81
0.11
0.28
All options vest over a 3 year performance period. The performance period start date for series 1 was 1 June 2017, and for series 2 1 December
2017. The earliest expected date for exercise would be after publication of the Group’s annual results for the year ending 31 May 2020, in
respect of series 1 and publication of the group interim results for the period ended 30 November 2020, in respect of series 2.
The share-based payment expense recognised in respect of employee services received during the year ended 31 May 2019 was £43,000
(2018: £32,000).
PAGE 80
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
Movements in share options in the year
The following reconciles the share options outstanding at the beginning and end of the year.
2019
Number of options
Weighted average
exercise price
2018
Number of options
Weighted average
exercise price
Balance at beginning of year
Granted during the year
Forfeited during the year
1,735,633
-
(108,510)
1,627,123
£
1.22
0.95
1.24
1,193,611
552,022
(10,000)
1,735,633
£
0.95
1.81
1.81
1.22
All outstanding options are currently vesting, such that no options were exercisable at 31 May 2019.
Share options outstanding at the end of the year
The share options outstanding at the end of the year had a weighted average exercise price of £1.24 (2018: £1.22) and a weighted average
remaining contractual life of 2,966 days (2018:3,325).
27.
Related Party Transactions
Group
Key management personnel compensation has been disclosed in note 10. In addition to the related party information disclosed elsewhere in
the financial information, the following were significant related party transactions during the current and prior year and at terms and rates
agreed between the parties:
During the year the Group was recharged rent from K3 Estates LLP (of which Anthony Ford and John Rigby are designated members).
Rent
Company
2019
£000
99
2018
£000
95
K3 Capital Group Plc is the parent entity of the group. The group has taken advantage of the exemption available under IAS 24 not to disclose
transactions with wholly owned subsidiary undertakings.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 81
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
28.
Dividends
Year Ended 31 May 2019
Dividends paid on equity shares
Ordinary shares
Total
Dividend per share (unadjusted)
Ordinary shares
Dividend per share (adjusted)
Ordinary shares
29.
Commitments
2019
£000
5,065
5,065
2019
12.00p
2019
12.00p
2018
£000
3,060
3,060
2018
7.25p
2018
7.25p
The total future minimum lease payments under non-cancellable operating leases are as follows:
Year Ended 31 May 2019
Group
Company
Not later than 1 year
Later than 1 year and not later than 5 years
2019
£000
238
284
522
2018
£000
220
411
631
2019
£000
-
-
-
2018
£000
-
-
-
PAGE 82
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2019 (CONTINUED)
30.
Audit exemption statement
Under section 479A of the Companies Act 2006 the Group’s subsidiaries, listed below, are claiming exemption from audit. The parent
undertaking, K3 Capital Group plc, registered number 06102618, guarantees all outstanding liabilities to which each subsidiary company is
subject at the end of the financial year (being the year ended 31 May 2019 for each company listed below). The guarantee is enforceable
against the parent undertaking by any person to whom the subsidiary company is liable in respect of those liabilities.
KBS Corporate Sales Limited
KBS Corporate Finance Limited
Knightsbridge Business Sales Limited
KBS Capital Markets Limited
04141555
08924449
08924297
11164985
31.
Controlling party
In the opinion of the directors, the Group has no overall controlling party.
FINANCIAL | NOTICE OF MEETING
PAGE 83
NOTICE OF ANNUAL
GENERAL MEETING
Notice is hereby given that the third Annual General Meeting of K3 Capital
Group plc (Company) will be held at TLT LLP’s Manchester office, 3 Hardman
Square, Manchester M3 3EB on Friday 18 October 2019 at 11.00am.
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 and 10 will be
proposed as Special Resolutions.
ORDINARY BUSINESS
Resolution 1 – To receive the Company’s annual accounts for the year ended
31 May 2019 together with the directors’ report and auditor’s report on those
accounts.
Resolution 2 – To declare a final dividend in the sum of 4.00 pence per Ordinary
Share for the year ended 31 May 2019.
holdings; and
(ii) to holders of other equity securities as required by the rights of those
securities or as the directors otherwise consider it necessary;
and so that the directors may make such exclusions or other arrangements as
they consider expedient in relation to treasury shares, fractional entitlements,
record dates, shares represented by depositary receipts, legal or practical
problems under the laws in any territory or the requirements of any relevant
regulatory body or stock exchange or any other matter;
8.2. this authority shall expire on the earlier of the date 15 months from the
passing of this Resolution 8 or the conclusion of the next Annual General Meeting
of the Company after the passing of this Resolution 8 (whichever is the earlier)
save that the Company may make offers and enter into agreements during the
relevant period which would, or might, require shares or rights to subscribe
for or to convert any security into shares in the Company to be allotted after
the authority ends and the Board may allot shares or rights to subscribe for
or to convert any security into shares in the Company under any such offer or
agreement as if the authority had not expired; and
8.3. all previous authorities granted under Section 551 of the Act be revoked.
Resolution 3 – To re-appoint Martin Robinson as a non-executive director of the
Company.
SPECIAL BUSINESS
Resolution 4 – To re-appoint John Rigby as a director of the Company.
Resolution 5 – To receive the Report on Directors’ Remuneration as set out in
the Company’s annual report and accounts for the year ended 31 May 2019.
Resolution 6 – To re-appoint BDO LLP as the Company’s auditor to hold office
from the conclusion of this meeting until the conclusion of the next annual
general meeting at which accounts are laid before the Company.
Resolution 7 – To authorise the directors to determine the auditor’s remuneration.
Resolution 8 – That:
8.1. in accordance with section 551 of the Companies Act 2006 (Act) the
directors be generally and unconditionally authorised to allot shares in the
Company, and to grant rights to subscribe for or to convert any security into
shares in the Company:
(a) up to an aggregate nominal amount of £140,701.75 (such amount to be
reduced by the nominal amount allotted or granted under paragraph (b)
below in excess of such sum); and
(b) comprising equity securities (as defined in Section 560 of the Act) up
to an aggregate nominal amount of £281,403.50 (including within such
limit any shares allotted or rights granted under paragraph (a) above) in
connection with an offer by way of a rights issue as follows:
(i) to holders of ordinary shares of 1 pence each in the capital of the
Company in proportion (as nearly as may be practicable) to their existing
Resolution 9
9.1. That subject to the passing of Resolution 8 above, the Board be authorised
to allot equity securities (as defined in section 560(1) of the Companies Act
2006) for cash under the authority given by that Resolution and/or to sell
ordinary shares held by the Company as treasury shares for cash as if section
561 of the Act did not apply to any such allotment or sale, provided that such
authority shall be limited to:
9.1(a)the allotment of equity securities and sale of treasury shares for cash
in connection with an offer of, or invitation to apply for, equity securities
(but, in the case of the authority granted under Resolution 8.1(b)(ii), by way
of a rights issue only):
9.1(a)(i) to the holders of ordinary shares in proportion (as nearly as
may be practicable) to their respective holdings;
9.1(a)(ii) 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
may deem necessary or expedient in relation to treasury shares,
fractional entitlements, record dates, legal or practical problems in or
under the laws of any territory or the requirements of any regulatory
body or stock exchange; and/or
9.1(b) the allotment of equity securities or sale of treasury shares (otherwise
than pursuant to Clause 9.1(a) of this Resolution) to any person up to an
aggregate nominal amount of £21,105.26.
The authority granted by this Resolution 9 shall expire on the earlier of the date
15 months from the passing of this Resolution 9 or the conclusion of the next
Annual General Meeting of the Company after the passing of this Resolution 9
PAGE 84
K3 CAPITAL GROUP PLC
NOTICE OF ANNUAL
GENERAL MEETING
(whichever is the earlier) save that such authority shall extend to the making
before such expiry of an offer or arrangement that would, or might, require
equity securities to be allotted after such expiry and the directors may allot
equity securities in pursuance of that offer or arrangement as if the authority
conferred hereby had not expired.
9.2. That subject to the passing of Resolution 8, the directors be authorised in
addition to any authority granted under Clause 9.1 of this Resolution 9 to allot
equity securities (as defined in section 560(1) of the Companies Act 2006)
for cash under the authority conferred by Resolution 8 and/or to sell ordinary
shares held by the Company as treasury shares as if section 561 of the CA 2006
did not apply to any such allotment or sale, provided that such authority shall
be:
(a) limited to the allotment of equity securities or sale of treasury shares up
to an aggregate nominal amount of £21,105.26; and
(b) used only for the purpose of financing (or refinancing, if the authority is to
be used within 6 months after the original transaction) a transaction which
the directors determine to be an acquisition or other capital investment
of a kind contemplated by the Statement of Principles on Disapplying Pre
Emption Rights most recently published by the Pre-Emption Group prior
to the date of this notice.
The authority granted by this Resolution shall expire on the earlier of the date
15 months from the passing of this Resolution or the conclusion of the next
Annual General Meeting of the Company after the passing of this Resolution
(whichever is the earlier) save that such authority shall extend to the making
before such expiry of an offer or arrangement that would, or might, require
equity securities to be allotted after such expiry and the directors may allot
equity securities in pursuance of that offer or arrangement as if the authority
conferred hereby had not expired.
9.3. The Resolutions in Clause 9.1 and Clause 9.2 revoke and replace all
unexercised powers previously granted to the directors to allot equity securities
or sell treasury shares as if section 561 of the CA 2006 did not apply but without
prejudice to any allotment of equity securities or sale of treasury shares already
made or agreed to be made pursuant to such authorities.
Resolution 10
10.1. That in relation to the interim cash dividend of 3.60 pence per share paid
by the Company on 15 February 2019 (the Relevant Dividend):
(a) the appropriation of distributable profits of the Company (as shown
in the audited financial statements of the Company for the year ended 31
May 2019) to the payment of the interim cash dividend of 3.60 pence per
share paid on 15 February 2019 be and is hereby authorised and confirmed
by reference to the same record date as the original accounting entry for
such dividend;
(b) any and all claims which the Company has or may have arising out of or
in connection with the payment of the Relevant Dividend against its current
and former shareholders who appeared on the register of shareholders on
the record date for the Relevant Dividend, (or the personal representatives
and their successors in title (as appropriate) of a shareholder’s estate
if he or she is deceased) be entered into by the Company in the form
produced to the Annual General Meeting and initialled by the Chairman
for the purposes of identification and any Director in the presence of a
witness, any two Directors or any Director and the Company Secretary
be authorised to execute the same as a deed poll for and on behalf of the
Company;
(c) any and all claims which the Company has or may have against each
of its Directors and former Directors or the personal representatives and
their successors in title (as appropriate) of his or her estate if such Director
or former Director is deceased, arising out of or in connection with the
approval, declaration or payment of the Relevant Dividend be waived and
released and that a deed of release in favour of each of such Directors and
former Directors (or the personal representatives and their successors in
title of his or her estate if such Director or former Director is deceased), be
entered into by the company in the form produced to the Annual General
Meeting and initialled by the Chairman for purposes of identification and
any Director in the presence of a witness, any two Directors or any Director
and the Company Secretary be authorised to execute the same as a deed
poll for and on behalf of the Company;
(d) any distribution involved in the giving of the release referred to in
paragraph 10.1(b) above in relation to the Relevant Dividend be made out
of the relevant distributable profits of the Company appropriated to the
Relevant Dividend by reference to a record date identical to the record
date for each Relevant Dividend; and
(e) any and all restrictions contained in Articles 95.1 and/or 96.1 of the
Articles in relation to the ability of any Director to vote and be counted
in the quorum in respect of meetings of Directors (or any committee of
the Directors) be suspended for the purposes of this resolution 10 (the
Relevant Distribution Resolution) and the decisions of the Directors (or
of any committee of the Directors) resulting in the proposals contained in
the Relevant Distribution Resolution being put to the Company in general
meeting, be and are hereby ratified and confirmed.
By Order of the Board
ANDREW MELBOURNE FCMA
Company Secretary
16 September 2019
Registered Office: K3 Capital Group plc,
KBS House,
5 Springfield Court,
Summerfield Road,
Bolton BL3 2NT
(Registered in England, Number: 06102618)
FINANCIAL | NOTICE OF MEETING
PAGE 85
NOTICE OF ANNUAL
GENERAL MEETING
NOTES
1. Appointment of proxies
A member entitled to attend and vote at the Meeting is entitled to appoint one
or more proxies to attend and (on a poll) vote instead of him. A shareholder may
appoint more than one proxy in relation to the Annual General Meeting provided
that each proxy is appointed to exercise the rights attached to a different
share or shares held by that shareholder. A proxy need not be a member of
the Company. A proxy form may be used to make such an appointment. Please
find a proxy form enclosed with this notice. The notes on the proxy form give
instructions on the appointment of a proxy.
2. CREST proxy voting
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.
In order for a proxy appointment or instruction made using the CREST service
to be valid, the appropriate CREST message (CREST Proxy Instruction) must
be properly authenticated in accordance with Euroclear UK & Ireland Limited’s
specifications, and must contain the information required for such instruction,
as described in the CREST Manual (available via www.euroclear.com). The
message, regardless of whether it constitutes the appointment of a proxy or is
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 our Registrars,
Computershare Investor Services (ID 3RA50) by 11.00am on 16 October 2019
(excluding non-working days). For this purpose, the time of receipt will be
taken to be the time (as determined by the time stamp applied to the message
by the CREST application host) from which the issuer’s agent is able to retrieve
the message by enquiry to CREST in the manner prescribed by CREST. After
this time any change of instruction 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 providers should note that Euroclear UK & Ireland Limited does not
make available special procedures in CREST for any particular message.
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, 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 system 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.
3. Return date for proxies
To be effective a proxy form must be deposited with the Registrar to the
Company not less than 48 hours before the time fixed for the meeting i.e. by
11.00am on 16 October 2019.
4. Documents available for inspection
Copies of service contracts of the directors of the Company, together with the
draft deed of release referred to in Resolutions 10.1 (b) and 10.1 (c) may be
inspected at the registered office of the Company, at all times during normal
business hours and at the place of the Annual General Meeting for a period of
15 minutes immediately prior to the Annual General Meeting until its conclusion.
5. Record date for voting
Only members whose names appear on the register of members of the
Company at the close of business on 16 October 2019 at 5.30pm or, if the AGM
is adjourned, at close of business on the day two days prior to the adjourned
meeting (excluding any part of the day that is not a working day) shall be
entitled to attend the Annual General Meeting either in person or by proxy and
the number of ordinary shares then registered in their respective names shall
determine the number of votes such persons are entitled to cast at the Annual
General Meeting. Changes to the register after the close of business on the
relevant data shall be disregarded in determining the rights of any person to
attend or vote at the meeting or any adjourned meeting.
6 . Voting by corporate representatives
Any corporation which is a member can appoint one or more corporate
representatives who may exercise on its behalf all of its powers as a member
provided that they do not do so in relation to the same shares.
7. Information Rights
Any person to whom this notice is sent who is a person nominated under
section 146 of the Companies Act 2006 to enjoy information rights (Nominated
Person) may, under an agreement between him/her and the shareholder by
whom he/she was nominated, have a right to be appointed (or to have someone
else appointed) as a proxy for the Annual General Meeting. If a Nominated
Person has no such proxy appointment right or does not wish to exercise it,
he/she may, under any such agreement, have a right to give instructions to the
shareholder as to the exercise of voting rights.
8. Shareholders rights & proxies
The statement of the rights of shareholders in relation to the appointment of
proxies in paragraph 1 above does not apply to Nominated Persons. The rights
described in these paragraphs can only be exercised by shareholders of the
PAGE 86
K3 CAPITAL GROUP PLC
NOTICE OF ANNUAL
GENERAL MEETING
Company.
9. Shareholder’s right to ask questions
A member attending the meeting has the right, as if section 319A of the
Companies Act applied to the Company, to ask questions in relation to the
business of the meeting. The Company must cause to be answered any such
question relating to the business being dealt with at the meeting but no such
answer need be given 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.
12. Electronic address restrictions
Any electronic address provided either in this Notice or any related documents
(including the Chairman’s letter and proxy form) may not be used to communicate
with the Company for any purposes other than those expressly stated.
13. Total voting rights
As at 16 September 2019 (being the last practicable date prior to the printing
of this Notice) the Company’s issued share capital consisted of 42,210,526
ordinary shares, carrying one vote each. No shares were held in treasury by the
Company. Therefore the total voting rights in the Company as at 16 September
2019 are 42,210,526.
10. Copy of Notice available on website
A copy of this Annual General Meeting Notice, and other information required
by section 311A of the Companies Act 2006, can be found at https://www.
k3capitalgroupplc.com/investor-relations/regulatory-news/
14. Explanatory notes
The Explanatory Notes to the resolutions included in this Notice of Annual
General Meeting are for the information of shareholders only and do not form
part of the resolutions to be proposed to the meeting.
11. Shareholders’ power to require website publication of audit concerns
Shareholders should note that the Company will treat section 527 of the
Companies Act 2006 as applying to it, and consequently that it is possible that,
pursuant to requests made by shareholders, the Company may be required to
publish on a website a statement setting out any matter relating to the audit
of the Company’s accounts (including the auditor’s report and the conduct of
the audit) that are to be laid before the Annual General Meeting. The Company
may not require the shareholders requesting such website publication to pay its
expenses. Where the Company is required to place a statement on a website,
it must forward the statement to the Company’s auditor not later than the time
when it makes the statement available on the website. The business which may
be dealt with at the Annual General Meeting includes any statement that the
Company has been required to publish on a website as if section 527 of the
Companies Act 2006 applied to the Company.
AGM
18
OCTOBER
D I V I D E N D
2 2
O C T O B E R
FINANCIAL | NOTICE OF MEETING
PAGE 87
NOTICE OF ANNUAL
GENERAL MEETING
EXPLANATORY NOTES TO THE NOTICE OF MEETING
Notice of the third annual general meeting of K3 Capital Group plc (Company)
to be held at TLT LLP’s Manchester office, 3 Hardman Square, Manchester M3
3EB on Friday 18 October 2019 at 11.00am is set out at pages 83 to 86. The
directors consider that all the resolutions to be put to the meeting are in the
best interests of the Company and its shareholders as a whole; accordingly the
Company’s board of directors will be voting in favour of them and unanimously
recommends that all shareholders do so as well.
Resolutions 1 to 8 are ordinary resolutions; this means that for each of those
resolutions to be passed, more than half of the votes cast must be cast in
favour.
Resolution 1 – annual accounts and report
The directors have to lay copies of the Company’s annual accounts, the strategic
report, directors’ report and the auditor’s report on those accounts and reports
before you at a general meeting; this is a legal requirement.
Resolution 2 – final dividend
The directors are recommending a final dividend of 4.00 pence per share for
the year ended 31 May 2019. Subject to approval being given, the final dividend
is expected to be paid on 22 October 2019 to shareholders on the register at the
close of business on 3 October 2019 (ex div date).
Resolutions 3 and 4 – appointment or reappointment of directors
Each of Martin Robinson and John Rigby will be retiring automatically from the
office of director at the meeting; this is because in the case of each of those
directors, they are required to submit themselves for retirement in accordance
with the articles. Both being eligible, they are seeking re-appointment by the
Company’s shareholders.
Both of these individuals are seeking re-appointment and their brief biographical
details are on page 24 to 25.
Resolution 5 – report on Directors’ Remuneration
The shareholders will be asked to cast an advisory vote on the Report on
Directors’ Remuneration as set out in the Company’s annual report and accounts
for the year ended 31 May 2019. Since Resolution 5 is an advisory resolution
only, it does not affect the remuneration paid to any director.
Resolution 6 – re-appointment of auditors
An auditor is required to be appointed for each financial year of the Company.
BDO LLP, the Company’s current auditor, has agreed to serve for the current
financial year and its re-appointment is therefore being proposed.
Resolution 7 – auditor’s remuneration
In accordance with normal practice, the directors are asking for your authority
to determine the auditor’s remuneration.
Resolution 8 - renewal of authority to allot shares
This resolution effectively seeks renewal of the directors’ existing authority to
allot shares and grant rights. Paragraph (a) of this resolution would give the
directors the authority to allot shares or grant rights to subscribe for, or to
convert any securities into, shares up to an aggregate nominal amount equal to
£140,701.75 – this amount represents approximately one-third of the Company’s
issued share capital as at 16 September 2019 (but would be reduced by the
nominal amount of any shares allotted or rights granted under paragraph (b) of
this resolution in excess of £140,701.75).
In line with guidance issued by the Investment Association, paragraph (b) of
this resolution would give the directors authority to allot shares or grant rights
to subscribe for, or to convert any securities into, shares in connection with
a rights issue in favour of shareholders up to an aggregate nominal amount
equal to £281,403.50, as reduced by the nominal amount of any shares allotted
or rights granted under paragraph (a) of this resolution - this amount (before
any reduction) represents approximately two-thirds of the Company’s issued
share capital as at 16 September 2019. Therefore the maximum nominal amount
of shares and rights that may be allotted or granted under this resolution is
£281,403.50.
The authorities sought under paragraphs (a) and (b) of this resolution will expire
at the end of next year’s annual general meeting or on the date 15 months from
the date of passing of the resolution, if earlier. The directors have no present
intention of exercising either of the authorities sought under this resolution
other than in respect of any one or more of the Company’s share schemes.
However, it is considered prudent to maintain the flexibility that this authority
provides. As at the date of the notice, no shares are held by the Company in
treasury.
Resolutions 9 and 10 are special resolutions; this means each of these resolutions
to be passed, at least three-quarters of the votes cast must be cast in favour.
Resolution 9 - dis-application of pre-emption rights
This resolution effectively seeks renewal of the directors’ existing power to allot
shares (or sell any shares which the Company elects to hold in treasury) for
cash without first offering them to existing shareholders in proportion to their
PAGE 88
K3 CAPITAL GROUP PLC
NOTICE OF ANNUAL
GENERAL MEETING
existing shareholdings. This authority would be limited to allotments or sales of
up to an aggregate nominal amount of £21,105.26:
SHAREHOLDER ENQUIRIES
a) in connection with pre-emptive offers and offers to holders of other
equity securities if required by the rights of those shares or as the directors
otherwise consider necessary; and
b) in connection with financing or refinancing of a specific transaction.
This aggregate nominal amount represents approximately 5% of the
Company’s issued share capital as at 9 September 2019. The power sought
under this resolution will expire at the end of next year’s annual general
meeting (or, if earlier, the date 15 months from the passing of the resolution).
Resolution 10
As explained in the Directors’ report on page 22 of the 2019 Annual Report
and Accounts, following the identification of a technical irregularity regarding
the timing of intra-group movements of reserves and the payment of the 2019
interim dividend by the Company, this dividend was paid at a time when the
relevant accounts of the Company for the purposes of the Companies Act
2006 did not show sufficient distributable reserves. Sufficient reserves were
available within the Group and the Company following the declaration of
intra-group dividends to the Company by its subsidiaries, but separate interim
accounts of the Company were not prepared and filed contemporaneously to
show that those reserves were available at Company level. This resolution asks
shareholders to approve the appropriation of the historic profits of the Company
to the dividend payment concerned and to release the current and former
shareholders and directors from any claim by the Company for repayment of
the interim dividend. The purpose of the resolution is to put the shareholders
and directors into the position in which they were always intended to be.
The address and contact details for the Company’s registrar, Computershare
Investor Services plc are The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ. Tel:
0370 707 1431 (Lines are open 8.30am to 5.30pm Monday to Friday, excluding
public holidays in England and Wales).
HOW TO GET THERE
BY CAR
Postcode for Sat Nav: M3 3EB
The best car park is Manchester Spinningfields
Post Code: M3 3BE
From the car park, walk up Gartside Street and Bagel Nash will be to the left.
3 Hardman Square is the building facing Bagel Nash.
ATTENDING THE MEETING, WHAT TO BRING
BY TRAIN
Please bring your attendance card with you. It will confirm your right to attend,
speak and vote and will speed up your admission to the meeting. Please be
advised that if you own shares through a nominee account, you will be required
to provide the Company with a letter from the nominee confirming your
shareholding. If you are unable to obtain this letter we cannot guarantee that
you will be able to vote at the AGM.
ACCESSIBILITY
The office of TLT LLP is easily accessible by wheelchair users and has lift access
inside.
The office is located approximately 15 minutes’ walk from Manchester Piccadilly
Railway Station. A taxi is recommended.
BY BUS
There are numerous buses which stop in or around Manchester Spinningfields.
Please visit www.tfgm.com for further details.
BY TRAM
There are numerous tram services which stop in central Manchester, with a walk
to the office from the stop. Please visit www.metrolink.co.uk for further details.
FINANCIAL | NOTICE OF MEETING
PAGE 89
GLOSSARY
OF TERMS
Term
Sales
Appointments
Quotes
Retainer Fee
Definition
A face to face meeting between a regional director and a potential Client Mandate.
The Retainer Fee quoted following an Appointment to the potential client.
Or Non-Contingent Fee. The fee paid by the client upon engaging K3 to sell their business.
Non-contingent Fee
Or Retainer Fee. The fee paid by the client upon engaging K3 to sell their business.
Client Mandate
Regional Director
A new client signing terms and conditions to engage K3 services.
K3 Employee, not office based and who visit potential clients who may wish to engage our services.
Client Trading Profits
The profits from a client’s business, not fee income to K3.
Operations
NDA
Meetings
Offers
WIP
Transaction Fee
Non Disclosure Agreement. A signed agreement that determines an expression of interest in a sales mandate.
A meeting between a K3 client (the seller) and a potential buyer exploring the possibility of an acquisition.
A written offer from a potential buyer to a K3 client.
Or Transactions in Legal Exclusivity. Clients and potential Transaction Fee values attributed to Offers agreed in
principal and progressing with lawyers.
Or Contingent Fee. Income derived from the successful sale of shares or assets of a K3 client.
Significant Transaction Fee
A Transaction Fee in excess of £0.5m
Deal
General
LTIP
Net Cash
The successful sale of shares or assets of a K3 client.
Long Term Incentive Plan. An employee benefit scheme linked to a 3 year performance period of K3.
Group cash balances less debt.
Contract Liabilities
Or Deferred Income. Retainer Fee income recognised over a period of time in line with IFRS15.
KBS HOUSE
5 SPRINGFIELD COURT
SUMMERFIELD ROAD
BOLTON
BL3 2NT
INFO@K3CAPITALGROUPPLC.COM
WWW.K3CAPITALGROUPPLC.COM