ANNUAL
REPORT
2020
PAGE 2
K3 CAPITAL GROUP PLC
ANNUAL REPORT 2020 | CONTENTS
PAGE 3
TABLE OF
CONTENTS
STRATEGIC REPORT
OTHER REPORTS
FINANCIAL
04 KEY
HIGHLIGHTS
28 BOARD OF
DIRECTORS
46 FINANCIAL
STATEMENTS
06 CHAIRMAN’S
STATEMENT
30 DIRECTORS’
REPORT
101 NOTICE OF
MEETING
10 CHIEF EXECUTIVE
OFFICER’S REPORT
36 CORPORATE
GOVERNANCE
STATEMENT
16 CHIEF FINANCIAL
OFFICER’S REPORT
39 CORPORATE SOCIAL
RESPONSIBILITY
24 SECTION 172(1)
STATEMENT
42 INDEPENDENT
AUDITORS REPORT
PAGE 4
K3 CAPITAL GROUP PLC
BUSINESS
HIGHLIGHTS
INCREASE IN TURNOVER
AND PROFITS DESPITE
A CHALLENGING FINAL
QUARTER
THE UK’S NUMBER 1
ADVISOR STATUS
RETAINED FOR 3RD
YEAR RUNNING
SIGNIFICANT INCREASE IN
TRANSACTION FEE INCOME
DUE TO GROWING BUYER
VOLUMES
£
TWO TRANSFORMATIONAL
ACQUISITIONS COMPLETED
SINCE THE PERIOD END
† All figures relating to 9 months are unaudited
POSITIVE NINE MONTHS
PERFORMANCE† WITH
GROWTH ACROSS MAJORITY
OF KPIS
ROBUST AND NIMBLE
BUSINESS MODEL ALLOWED
COST REDUCTION AND
PROFITABILITY DURING
LOCKDOWN MONTHS
SUCCESSFUL FUNDRAISE
COMPLETED TO FUND THE
DIVERSIFICATION OF THE
GROUP
A GROUP OF
COMPLEMENTARY
PROFESSIONAL SERVICES
BUSINESS WITH A GREATER
DEGREE OF PREDICTABILITY
STRATEGIC REPORT | KEY HIGHLIGHTS
PAGE 5
FINANCIAL
HIGHLIGHTS
GROUP REVENUE
EBITDA
PROFIT BEFORE TAX
NET CASH
2019
2020
£13.6m
2019
£5.0m
2019
£4.9m
2019
£5.8m
£15.0m
2020
£6.8m
2020
£6.4m
2020
£8.3m
+10%
+36%
+31%
+43%
EBITDA MARGIN*
EARNINGS PER SHARE
DIVIDEND PER SHARE**
2019
37%
2020
45%
2019
9.43P
2020
12.37P
2019
7.60P
2020
**
7.47P
*
**
EBITDA Margin is calculated as Operating Profit plus depreciation and amortisation, divided by revenue
2020 is the interim dividend per share of 3.7p (calculated over 42m shares in issue) and the proposed final dividend per share of 3.8p
(calculated over 68.5m shares in issue).
PAGE 6
K3 CAPITAL GROUP PLC
IAN MATTIOLI MBE | CHAIRMAN
IANMATTIOLIMBE STRATEGIC REPORT | CHAIRMAN’S STATEMENT
PAGE 7
CHAIRMAN’S
STATEMENT
INTRODUCTION
I am pleased to report a highly satisfactory year of trading at K3 Capital
Group plc despite the economic challenges that the COVID-19 pandemic
has presented to companies and economies across the Globe. FY20 has
been a year which has shown promising evidence of continued growth
throughout all brands within the Group, demonstrated by a 54% increase
in the total value of Transaction Fees compared to FY19.
The trading period has seen an increase in both the volume and value of
high value transactions, supported by consistent numbers of completed
deals within the low to mid value range. As expected, the status of several
transactions has not been immune to the aforementioned economic
conditions, and whilst this has had a direct effect on the number of
completed transactions across the Group, we are hopeful that a number
of these transactions will duly complete as planned within FY21.
£15.0M
GROUP
REVENUE
£6.8M
GROUP
EBITDA
I can therefore report revenues of £15.0m (FY19: £13.6m) and EBITDA of
£6.8m (FY19: £5.0m). I can also report a profit after tax of £5.2m (FY19:
£4.0m).
It is also pleasing to report that the amount of interest received
from acquirers has remained resilient throughout the entire period,
demonstrated through a 34% increase in the number of NDAs signed
across the Group, and I remain confident that this will support future
Transaction Fee income as the effects of the COVID-19 pandemic on the
UK M&A market are fully understood.
K3 continued to both refine its direct marketing approach and build on
capacity within its sales departments throughout FY20. In the first nine
months of the financial year†, yielded an increase in Retainer Fee income
to £6.0m (Jun - Feb FY19: £5.9m). Due to the national pandemic and
lockdown, whilst the majority of operational employees were able to
work from home and continue delivering a service to willing clients, the
final months of the financial year saw a significant loss of appetite from
existing clients to continue with the delivery of services in the short term,
opting to wait until there was more certainty. As revenue is recognised in
line with the delivery of service, the impact of the three month national
lockdown has led to the deferral of services and therefore there was
effectively a pausing of recognised Retainer Fee income for the final two
months of FY20. We feel that this suspension was a prudent decision and
appropriate under the circumstances. Since the national lockdown was
† All figures relating to 9 months are unaudited
lifted post year end, we have resumed services to clients and therefore
reinstated the recognition of Retainer Fee income in line with prior
years. Therefore total Retainer Fee income stood at £6.6m (FY19: £8.1m),
however, throughout the first nine months† of the period, appointment
levels showed a 8% increase and total Retainer Fees showed a 3%
increase compared with the same period in FY19.
THE UK’S MOST ACTIVE DEALMAKER
RANK
ADVISOR
2020
DEALS
1
2
3
4
5
6*
6*
8*
8*
10
KBS Corporate
KPMG
PricewaterhouseCoopers
Redwoods Dowling Kerr
Rothschild & Co
Deloitte
Grant Thornton
Bruce & Company
RSM Corporate Finance
Benchmark International
Source: EMEA Mid-Market Insight - 2019
142
130
118
108
95
89
83
57
54
52
Our Group has once again found itself excelling in national league tables,
with Refinitiv naming us as the most active dealmaker in the Small Cap
Financial Advisory review for 2019, and the EMEA Mid-Market review
for the first seven months of 2020. 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 £15.0m (FY19: £13.6m), which
generated an EBITDA of £6.8m (FY19: £5.0m) and an Operating Profit of
£6.5m (FY19: £4.9m).
Net cash at the year end stood at £8.3m (FY19: £5.8m). It is pleasing
to report that ‘free cash’ (as detailed in the CFO report) rose to £4.3m
(FY19: £3.1m).
PAGE 8
K3 CAPITAL GROUP PLC
Group net assets at FY20 were £9.2m (FY19: £7.2m) with current net
assets standing at £5.0m (FY19: £3.1m).
Year Ended 31 May 2020
RECOMMENDING A FINAL DIVIDEND
OF 3.80P PER SHARE
EBITDA
Depreciation and amortisation of assets
Operating Profit
Finance income (costs)
Profit before taxation
2020
£’000
6,790
(331)
6,459
(22)
6,437
2019
£’000
4,976
(103)
4,873
6
4,879
As a result, the Board is recommending a final dividend payment of
3.80p per share. This results in a total dividend of 7.47p (FY19: 7.60p).
The Board remains committed to the dividend policy 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 27
October 2020 to shareholders on the register at the close of business
on 08 October 2020.
EBITDA MARGIN*
EARNINGS PER SHARE
DIVIDEND PER SHARE
2019
37%
2020
45%
2019
9.43P
2020
12.37P
2019
7.60P
2020**
**
7.47P
*
**
EBITDA Margin is calculated as Operating Profit plus depreciation and amortisation, divided by revenue
2020 is the interim dividend per share of 3.7p (calculated over 42m shares in issue) and the proposed
final dividend per share of 3.8p (calculated over 68.5m shares in issue).
SUMMARY
Whilst the UK experiences continuing economic challenges brought
about by the COVID-19 pandemic and ongoing Brexit negotiations the
Board is satisfied and encouraged with the performance of the Group as
a whole, especially throughout the first nine months of the financial year,
which reported increases across the majority of key metrics before the
impacts of COVID-19 took effect.
The Board remains positive for the outlook in FY21 due to a strong first
quarter of trading and the encouraging performance of major KPIs
across the Group, as detailed in the CEO report.
I would like to thank the Directors and senior management team for their
swift, decisive action as events around COVID-19 unfolded in March, not
least in respect of their personal sacrifices in salary and bonus to protect
jobs and support the Group.
Post year-end, we were delighted to welcome randd UK and Quantuma
to K3 Capital Group, diversifying our service offering into R&D tax
credits, pension advisory, forensic accounting and investigations and
restructuring and insolvency. These acquisitions were immediately
earnings enhancing for the group and will provide significant cross-
selling opportunities.
Following a restructure to our Board, which sees Martin Robinson move
into the role of Senior Independent Director and Stuart Lees assume the
role of Non-Executive Director, I would also like to take this opportunity
to welcome Carl Jackson of Quantuma to the Board, as well as Charlotte
Stranner as Non-Executive Director.
IAN MATTIOLI MBE
Chairman
21 September 2020
I.M.
STRATEGIC REPORT | CHAIRMAN’S STATEMENT
PAGE 9
FOR THE FINANCIAL 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 financial year ending May 2020 has been, as I am sure it has been
for many, a year which presented many obstacles and challenges, the
likes of which we have never experienced before. Whilst I feel that much
of the impact of the COVID-19 pandemic is yet to unwind; I am proud
of how we as a business have initially reacted and subsequently dealt
with these unprecedented circumstances. I am also confident that the
fundraise and subsequent acquisitions which we have concluded post
year end will serve to provide the now enlarged Group with a stronger
foundation and more diversified base from which to expand and grow
in the years ahead.
Despite the very difficult final quarter which saw lockdown imposed
across the UK with an obvious impact on trading activity, I am delighted
to report that Group revenues increased by 10% to £15.0m during
the financial year ending 31st May 2020 (FY19: £13.6m), with EBITDA
increasing by 36% to £6.8m (FY19: £5.0m). This was achieved despite
the final months of the reporting period being set against a backdrop of
significant economic uncertainty and unprecedented challenges which
have been brought upon us by the pandemic, with the wider M&A market
witnessing the effects of an economic contraction.
Whilst unwelcome, these challenges have enabled K3 to demonstrate
its resilient and robust business model. As previously reported, during
the lockdown period the Directors were able to significantly reduce
the operating costs of the Group and since the trading update on the
25 March, the Group has remained EBITDA positive during a most
challenging time. I am also pleased to report that within the period, the
Group has experienced an increase across several key metrics, resulting
in a 56% uplift in total Transaction Fee income (FY20: £8.4m, FY19:
£5.4m).
As an innovative and disruptive player within the fragmented business
and company sales marketplace, K3 continued to outperform the
general market, completing 22% more deals than any other advisor
(Refinitiv Global Small Cap M&A Review 2019) to maintain its market
leading position as the UK’s most active deal maker. Amid the current
economic uncertainty, I am also proud to announce that we retained this
status throughout the first seven months of 2020 in the Refinitiv EMEA
Mid-Market Insight, completing 15% more deals than our next nearest
competitor from January to July 2020.
The introduction of UK-wide ‘lockdown’ measures in March in light of
the COVID-19 pandemic meant that each department across all brands
within the Group were required to quickly adjust to remote working,
both for the wellbeing and safety of our employees and to adhere to
government guidelines. In the weeks leading up to ‘lockdown’, each
department piloted a work from home initiative in order to eliminate
as many potential operational inefficiencies in preparation for what we
envisioned would be an inevitable scenario. I am pleased to report that
the Board considers this to have been a resounding success, with our
ability to minimise disruption to our core operations seen as a pillar on
which we have built a strong start to FY21.
Throughout all the recent challenges we have endeavoured to continue
‘business as usual’ with the continuing implementation of our 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 Group’s technological initiatives remain a key part of our ongoing
growth strategy to attract both more sellers and more buyers to the Group.
Our rapid reaction to the changing conditions saw some adjustments to
our teams and a focus on controlling costs whilst remaining well placed
to leverage commercial advantage from our market leading position.
We remain committed to our ongoing ‘bigger and better’ strategy, which
has once more delivered an increase of 67% in average Transaction Fees
across the Group.
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
several areas of the Group is testimony to our increasingly robust
business model.
Marketing spend for the period saw a decrease of 18% to £0.9m (FY19:
£1.1m) as a direct result of the COVID-19 pandemic and the need to
pause several key marketing activities during the final quarter of FY20.
Although a reduction on the previous period, I am pleased to report
that marketing spend was in line with budgets throughout the first nine
months of the financial year, and has driven new client wins across the
Group, many of which we hope will convert into Transaction Fee income
as we move into FY21.
PAGE 12
K3 CAPITAL GROUP PLC
SALES / RETAINER FEES
With two brands now fully established within the ‘retail’ and ‘commercial’
arenas, the Knightsbridge sales department continued to deliver growth
across all key metrics throughout the first nine months of FY20, delivering
increases across several key performance indicators before the effects
of COVID-19 hit.
NEW CLIENT APPOINTMENTS
FY19 (9 MTHS)
FY19 (12 MTHS)
FY20 (9 MTHS)
+10%
FY20 (12 MTHS)
-13%
OPERATIONS / TRANSACTION FEES
As expected and outlined in the last annual report, the Knightsbridge
Commercial team has started to see traction in FY20, recording an 8%
increase in total Transaction Fee income compared with FY19.
Despite the previously outlined downturn in Q4, three out of four of the
main operational KPIs showed increases over the full financial period,
including: monthly non-disclosure agreements increasing by 78%,
monthly buyer meetings increasing by 3%, and total Transaction Fees
increasing by 8%. The average number of monthly offers received saw a
13% decline over the 12 month period, however throughout the first nine
months†, this metric also showed an increase of 2%.
A prosperous start to the year resulted in the number of new client
appointments increasing by 10% from June to February† (overall FY
decrease of 13%), the value of Retainer Fee quotes increasing by 9%
(overall: -17%), and the number of new client mandates increasing by 6%
(overall: -19%).
8% INCREASE IN
RETAINER FEE INCOME
Despite a downturn in overall performance throughout the final three
months of the period, total Retainer Fee income increased by 8% in
FY20 compared to FY19.
The outlook for FY21 is cautiously optimistic; many key metrics are
showing significant signs of recovery, with appointment numbers and
instructions increasing by 57% and 53% respectively in Q1 FY21 compared
with Q4 FY20.
† All figures relating to 9 months are unaudited
OPERATIONS - 9 MONTHS†:
NDAS
BUYER MEETINGS
2019
OFFERS
2019
2019
2020
+111%
2020
+31%
2020
+2%
OPERATIONS - 12 MONTHS:
NDAS
2019
2020
+78%
BUYER MEETINGS
OFFERS
2019
2020
2019
+3%
2020
-13%
The Commercial department, which embodies our ’bigger and better’
mantra, as well as the above KPI improvements, has seen an 8% increase
in total Transaction Fee income over the entire reporting period, despite
the difficulties of the final quarter.
TRANSACTION FEES
FY19 (9 MTHS†)
FY19 (12 MTHS)
FY20 (9 MTHS†)
+54%
FY20 (12 MTHS)
+8%
STRATEGIC REPORT | CHIEF EXECUTIVE OFFICER’S REPORT
PAGE 13
SALES / RETAINER FEES
The continued success of the Knightsbridge Commercial brand in
handling smaller value mandates has allowed the KBS Corporate sales
department to focus on its ‘bigger and better’ mantra of securing higher
value mandates which have and will continue to fuel the success of the
transactional side of the business.
This has allowed the corporate sales department to spend more time
dealing with larger clients in order to better understand their objectives
and exit strategy. This enables us to further tailor our service offering
to the client’s needs, and resulted in an increase of 6% in the number
of monthly appointments throughout the first nine months of FY20 †
(overall: -12%).
6% INCREASE IN
APPOINTMENTS
(FIRST 9 MONTHS†)
The requirement to adopt a fully remote strategy for the sales
departments across the Group was perhaps the most crucial and
testing transition posed by the pandemic and subsequent lockdown. It
was imperative that we seamlessly adapted to fulfilling virtual meetings
with potential clients, both to honour the arrangements we had already
made with them to explore a company sale, and to ensure that the sales
department remains operational until which point physical meetings are
safe to attend once more.
I am pleased to report that this has been a resounding success, with
encouraging
levels of appointments maintained throughout the
‘lockdown’, and the first quarter of FY21 seeing notable increases
across all key metrics within the KBS Corporate sales department when
compared to Q4 FY20.
† All figures relating to 9 months are unaudited
OPERATIONS / TRANSACTION FEES
Our continued investment into data, technology and buyer targeting,
has again delivered increases in the volume of interested parties through
the completion of NDAs (up 13% in FY20) and the number of buyer
meetings arranged between KBS Corporate’s clients and potential
acquirers (up 4%). The effects of COVID-19 resulted in a slight decline
of 4% in the number of offers submitted per month, however it is worth
noting that from Q1 FY20 through to Q3 FY20, the number of offers
received showed an 18% increase on the same period of the prior year, a
direct result of the aforementioned increase in NDAs secured. We hope
to be able to continue to deliver this growth into FY21 and beyond, with
early KPIs supporting a quicker ‘return to form’ than we predicted.
OPERATIONS - 9 MONTHS†:
NDAS
BUYER MEETINGS
2019
OFFERS
2019
2019
2020
+22%
2020
+31%
2020
+18%
OPERATIONS - 12 MONTHS:
NDAS
2019
2020
+13%
BUYER MEETINGS
OFFERS
2019
2020
2019
2020
+4%
-4%
Despite the challenges faced, Transaction Fee* income increased by 20%
during the period to £4.8m in FY20 (FY19: £4.0m) which is a pleasing
result given the circumstances. I am pleased that the growth in KPIs over
previous periods has had a positive effect on Transaction Fee income.
*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.
20% INCREASE IN
TRANSACTION FEE INCOME*
PAGE 14
K3 CAPITAL GROUP PLC
OPERATIONS / TRANSACTION FEES
FY20 was a very positive year for KBS Corporate Finance, with a
significant number of transactions closing as expected, a welcome result
following a disappointing FY19.
Total Transaction Fees* increased by significantly from £0.8m in FY19 to
a much improved £2.9m in FY20, an increase of 263%.
We have carried forward a strong book of clients into FY21 and whilst
the wider M&A market faces some challenges, we continue to receive
strong interest from many UK and overseas investors, private equity, and
trade acquirers, supported by a 13% increase in monthly NDAs received
throughout the entire reporting period.
263% INCREASE IN TOTAL
TRANSACTION FEES* IN
FY20
*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.
LOOKING AHEAD IN OUR M&A BUSINESS
It is without doubt a challenging time to predict the future however we
have certainly been very encouraged by the demand for our services
and buyer activity in the post lockdown period. The first quarter of FY21
has seen significant increases across all key metrics within the volume
brands of the Group when compared with the final three months of
FY20.
The strategy of our M&A business for FY21 is in line with our previously
stated strategy of continuing to drive the volume of transactions across
the Knightsbridge and KBS Corporate brands, combined with the
ongoing delivery of our ‘bigger and better’ mantra. Whilst the economic
challenges which are faced by UK SMEs and the wider economy present
challenges when completing M&A transactions, the resilient and nimble
nature of our business, together with the strong pipeline of clients
brought forward by all three brands gives us confidence in delivering
on our forecasts for the year ahead. Early performance indicators from
Q1 FY21 suggest all brands are well underway in rebuilding towards the
levels of performance seen throughout the first three quarters of FY20.
Whilst the Corporate Finance brand continues to present an exciting
opportunity to deliver significant transactions and therefore incremental
revenue and profits, as previously stated; 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.
To achieve this, we will continue to leverage our data, technology and
people to find more sellers, more buyers and aim to 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.
ACQUISITIONS OF RANDD AND QUANTUMA
During the period we continued to develop our strategic plan of
diversifying revenue streams by acquiring complementary professional
services businesses. A comprehensive ‘market mapping’ exercise was
conducted within two target segments, those being specialist tax
reclaim and business restructuring / insolvency. Following successful
identification of two preferred targets, a thorough due diligence process
was conducted over the summer together with a successful fundraise,
whereby £30.5 million was raised by way of the issue of new ordinary
shares to support our strategy.
STRATEGIC REPORT | CHIEF EXECUTIVE OFFICER’S REPORT
PAGE 15
I am therefore delighted to report that during the first quarter of FY21, K3
Capital Group plc completed the acquisitions of both randd UK Limited,
a research and development tax reclaim specialist, and Quantuma
Advisory Limited, a business advisory firm specialising in corporate
finance, financial advisory, pension advisory, forensic accounting and
investigations, and restructuring and insolvency.
Following these acquisitions, K3 Capital Group plc has become a broader
professional services business which incorporates the UK market leader
in company sales, one of the longest established R&D tax reclaim
businesses in the UK and one of the UK’s fastest growing restructuring,
insolvency and advisory firms, creating a Group with diversified income
streams, recurring revenues, multiple and complementary channels to
market and significant cross selling opportunities.
The acquisitions were immediately earnings enhancing and give the
Group a more diverse revenue and profit profile, bringing significant
growth potential and providing a greater degree of visibility and
predictability in the ‘post covid’ world.
Directors and senior management across the Group are working through
a 100 day plan to ensure smooth integration of the acquisitions. In
addition, we aim to streamline and consolidate certain Group functions
such as finance, human resources and marketing to create some cost
synergies.
Following the acquisitions, we were pleased to welcome Carl Jackson,
the Chief Executive Officer of Quantuma, to the plc Board and we also
further strengthened and balanced the Non-Executive function of our
Board through the appointment of Charlotte Stranner, Stuart Lees’
change to Non-Executive Director and the appointment of Martin
Robinson as Senior Independent Director. I believe this provides the
Group with a well-balanced Board of four Executive Directors, and four
Non-Executive Directors.
existing accountancy and professional services referral networks. We
remain committed to our medium-term strategy to build a wider Group
of growing and complementary professional services businesses to
provide SMEs with high quality advice across specialist disciplines, and
continually evaluate organic and acquisitive opportunities.
A POSITIVE START
We have started the year with a positive approach to the ‘post lockdown
era’ and a revised forecast in place which shows significant growth in
both revenue and EBITDA across the wider Group. Early months’ trading
is very much in line with market expectations and we are excited by the
potential to deliver our growth strategy across the new Group.
The first quarter has already seen encouraging signs within our M&A
businesses, with significant improvement across all major KPIs in
comparison to Q4 FY20, which was heavily impacted by lockdown.
We are encouraged by the demand for our M&A services from both
sellers and buyers, and whilst the full effects of the pandemic are yet to
unfold, we are delighted with the level of new client wins and completed
transactions which gives us confidence in the year ahead.
The randd team have also started the year positively with strong
performance over the first quarter as part of the wider Group, supported
by a number of cross referrals from the existing KBS and Quantuma
client base.
With the additional contribution of Quantuma trading for the final
month, the first quarter of FY21 has resulted in turnover (unaudited)
of £5.6m, delivering EBITDA (excluding exceptional transactional costs,
unaudited) of £2.3m. We remain confident in delivering performance in
line with market expectations.
The Board is considering changing the name of the Group to reflect
the Group’s wider service offering following the recent acquisitions and
with the changing nature of the Group’s revenue and profits, the Board
will also be considering how it reports on performance and will develop
an appropriate suite of KPIs in order to communicate its future results.
J.R.
JOHN S RIGBY
Chief Executive Officer
21 September 2020
We are working on a number of new initiatives to take advantage of
the complementary nature of all businesses within the Group and we
plan to launch several direct marketing strategies for Quantuma and
randd in FY21, in addition to expanding and leveraging the Group’s
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 RETAINER FEE INCOME
I am delighted to report a welcome 10% increase in Group turnover for
the year with a result of £15.0m (FY19: £13.6m). The financial year saw
a significant increase in operational activity and transactional income,
largely due to prior year investments in technology and people, which
helped drive significant growth through the period despite an uncertain
final quarter.
The year saw continued investment into our industry leading client
service levels, and average headcount growing to 166 during FY20
(FY19: 153), with additional resource being given to all departments in
order to further the high levels of customer service we expect to deliver
to our clients, both new and existing.
There was clear disruption to the end of FY20 due to the effects of
COVID-19 which is detailed in the CEO report. Despite this, when
reviewing the first 9 months† of FY20 compared to the same period in
FY19, the Group has seen significant uplift in Key Performance Indicators,
with 8% more client meetings delivering a 3% increase in Retainer Fee
income from the sales function, with a 51% increase in buyer registrations,
leading to a 32% increase in buyer meetings, delivering a substantial 74%
increase in Transaction Fee income from the operational function.
Due to the COVID-19 pandemic and the Government decision to
impose a national lockdown in March 20, the final quarter of FY20
was an uncertain time for all in the Group. The Board welcomed the
Government’s Coronavirus Job Retention Scheme (CJRS) as this allowed
the Board time to better understand the impact of the pandemic and
make informed decisions – which ultimately has led to minimal staff loss
over the period and the retention of a significant number of jobs as the
scheme intended.
The Group achieved EBITDA of £6.8m, an uplift of 36% on the prior year
(FY19: £5.0m) despite the challenges faced in Q4.
£15.0M
GROUP
REVENUE
£6.8M
GROUP
EBITDA
† All figures relating to 9 months are unaudited
£6.4M
PROFIT
BEFORE
TAX
Recognised Retainer Fee income (see note 3) for the first 9 months† of
the financial year showed a 3% increase compared with the same period
of FY19.
However due to lockdown restrictions imposed throughout the final
quarter, recognised Retainer Fee income (see note 5) declined in the
period by 18% to £6.6m (FY19: £8.1m). In line with IFRS15 the Retainer
Fee income is recognised over a period of time linked to the delivery of
service on client contract. Due to the national pandemic and lockdown,
whilst the majority of operational employees were able to work from
home and continue delivering a service to willing clients, the final months
of the financial year saw a significant loss of appetite from existing clients
to continue with the delivery of services in the short term, opting to wait
until there was more certainty. As revenue is recognised in line with the
delivery of service, the impact of the three month national lockdown
has led to the deferral of services and therefore there was effectively
a pausing of recognised Retainer Fee income for the final two months
of FY20. We feel that this suspension was a prudent decision and
appropriate under the circumstances. Since the national lockdown was
lifted post year end, we have resumed services to clients and therefore
reinstated the recognition of Retainer Fee income in line with prior years.
GROUP TRANSACTION FEE INCOME
The continued growth of the volume brands and improved performance
of the Corporate Finance (“CF”) team saw a significant increase in
Group Transaction Fee income (see note 5) for FY20, delivering £8.4m,
representing a 56% increase on prior year (FY19: £5.4m). The headline
movement has come from the KBS Corporate Finance department.
Following the frustrations of FY19 delivering £0.8m with the slowing of
larger transactions, this year has seen an improvement in the quality
of client mandates leading to a number of transactions completing to
deliver £2.9m of Transaction Fee income in FY20.
In FY19 the Group reported the pleasing growth of the ‘CF Lite’ team,
which, from a standing start delivered £2.6m of income in the period. I
am pleased to report that this department continues to deliver growth
with FY20 delivering £3.3m of income, a 33% increase from the prior
year, further demonstrating the ‘bigger and better’ mantra that has been
the Group objective for many years.
Whilst COVID-19 has undoubtedly resulted in a slowing of transactions
PAGE 18
K3 CAPITAL GROUP PLC
since March, the Group has continued to complete a number of
transactions pre and post the lockdown period. Since year end we have
seen a significant improvement in buyer activity displaying encouraging
signs for FY21. Although the timing and certainty of transactions can
never be guaranteed, the Directors are confident the Group is well
positioned to utilise its data, marketing and proactive approach in order
to keep ahead of its peers in attracting buyers for our clients’ businesses.
EBITDA
It is pleasing to see EBITDA for the period growing to £6.8m (FY19:
£5.0m), with an improved EBITDA margin of 45% (FY19: 37%). This
movement in EBITDA margin is predominantly caused by the increase
in value of transactions in the period alongside cost reduction measures
taken in the final quarter.
MARKETING COSTS
PROFIT BEFORE TAXATION
Group marketing spend has declined by 18% in FY20 to £0.9m (FY19
£1.1m). As a direct result of the COVID-19 lockdown, the Board took
the decision to curb all unnecessary expenditure across the Group in
order to protect the business and mitigate potential redundancies. The
final two months of FY20 saw a significant reduction in the average
monthly marketing spend (down 88%), demonstrating the agile nature
of expenditure control.
The period has seen profit before tax of £6.4m delivered (FY19: £4.9m)
TAXATION
The effective tax rate is 18.9% which is marginally higher than the prior
year (FY19: 18.5%).
OVERHEAD COSTS
EARNINGS PER SHARE
Overheads for FY20 reduced slightly to £7.3m (FY19: £7.5m). This can
be broken down into two separate cost areas – being payroll costs and
general overheads. In March, following the ‘grounding’ of sales staff in
line with lockdown, as with marketing expenditure all non essential spend
was cancelled or postponed. As such, general overheads were reduced
to £1.3m (FY19: £1.5m) – with the final two months of FY20 averaging
£75k down from £113k over the rest of the financial year.
As detailed in Note 3, IFRS16 was implemented in FY20, which resulted
in lease costs falling below the EBITDA line. A full assessment has been
carried out in respect of this and, there has been no material change to
the PBT of the Group.
In respect of Group wages, staff numbers continued to grow during
the period, and the uplift in turnover on prior year also resulted in an
increase in bonus payments to staff. However, in the final two months of
the year a portion of the workforce was placed on CJRS, in addition to
all Directors taking significant pay reductions to mitigate potential job
losses due to COVID-19. These significant measures taken by the Board
resulted in a drop in average payroll costs from £570k a month down
to £142k a month for April and May, as a result the FY20 payroll cost
equated to £6.0m which was flat on FY19 (£6.0m).
Based on the closing 42.2m shares in issue, the basic earnings per share
(see note 13) was 12.37p for the year (FY19: 9.43p).
STATEMENT OF FINANCIAL POSITION
CASH
The Group cash balances have significantly improved during the period
due to the uplift in performance in FY20. The year ended with £8.3m of
cash (FY19: £5.8m).
As always, the Group business model continues to be highly cash
generative with Retainer Fee income typically being paid in advance of
services. 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.
The Directors regularly review Group cash balances to ensure appropriate
STRATEGIC REPORT | CHIEF FINANCIAL OFFICER’S REPORT
PAGE 19
application of funds. As noted in previous reports, whilst a £8.3m
cash balance appears high for a Group with minimal working capital
requirement, once a provision for corporation tax, VAT and PAYE (£1.4m),
and a provision for a final dividend (£2.6m) are taken into account, this
leaves a free balance of £4.3m (FY19: £3.1m), which, despite increasing
uncertainty across the globe, the Directors feel is sufficient liquidity for
the Group.
By exception, other points of note with regard to the statement of
financial position are:
•
•
•
Introduction of Right-of-use assets totalling £0.9m relating to
the capitalisation of property and vehicle leases in accordance
with IFRS16. This is balanced with £0.9m of Lease Liabilities in
current and non-current liabilities.
Trade receivables/payables are subject to the timing of
transactions and recognised income around the reporting date
(see notes 18 & 21)
Contract liabilities have declined at year end following the
slowing of Retainer Fees received over the lockdown period,
though remain at significant levels (£1.4m) to underpin
future turnover (see note 23)
EBITDA MARGIN
EARNINGS PER SHARE
DIVIDEND PER SHARE
45%
12.37P
7.47P
COVID-19 MITIGATION MEASURES
As detailed above, the Group took part in the Coronavirus Job Retention
Scheme (CJRS) under which it received £344k of government support.
At the same time, management sacrificed salary and bonus payments
amounting to £611k, representing 177% of the funds received through
the CJRS. The commitment and understanding of the management
team, complemented by the assistance offered by the CJRS, drastically
mitigated the potential number of redundancies.
A significant majority (69%) of the CJRS grant was within our sales and
marketing functions; the government lockdown which commenced in
March 2020 meant that no face to face meetings were possible, and
consequently many client appointments were cancelled. A small number
of the team continued working throughout the period, and introduced
new ways of undertaking client appointments remotely to ensure some
continuity of services.
Throughout the lockdown period, other staff within the company were
able to remain active in order to manage relationships with existing
clients. This meant that in the departments where staff were required,
much less government support was needed.
The CJRS, along with the personal sacrifices of both the Board and senior
management (by way of salary sacrifice and bonus reduction) provided
the Board with time to further understand the impact of Covid-19 upon
the business and thereby avoid making hasty decisions with respect to
redundancies.
As a direct result of these combined measures, we have undoubtedly
seen a significant reduction in the potential number of job losses across
the Group. As demand for our services gained momentum in the first
quarter of FY21, staff were brought back to work into positions retained
thanks to the CJRS and the personal sacrifices made by the Board and
senior management. We estimate that in excess of 80% of potential
redundancies have been avoided, and as at the date of this report, no
employees remain on furlough.
PAGE 20
K3 CAPITAL GROUP PLC
RISKS AND UNCERTAINTIES
Management consider the following issues to be the principal risks
potentially affecting the business:
Risk: COVID-19
Risk Classification: High
The recent outbreak and global spread of the COVID-19 may have a
significant and prolonged impact on global economic conditions, reduce
confidence within the marketplace, increase employee absenteeism and
adversely impact Group operations. Governments and public bodies
in affected countries have introduced temporary emergency public
measures such as travel bans, quarantines and public lockdowns.
Mitigation:
The UK Government has provided significant financial help for many
Companies like K3. The announcement of the CJRS meant that the
government would subsidise 80% of a relevant employee’s salary. This
was a welcome aid, helping us retain our much-valued workforce. At
the date of this report, there are no employees on the furlough scheme.
In addition to this, it is noted that all Directors in the Group agreed
to significant pay cuts over the period in order to support cash flow
and protect jobs, alongside significant cuts in marketing spend and
overheads.
Whilst the COVID-19 pandemic has caused major uncertainty in many
businesses across the UK, the Board at K3 have taken the dynamic
approach to see the current situation as an opportunity to diversify
and expand the business, spreading the risk and retaining shareholder
confidence in the K3 Group. Completing two substantial acquisitions, K3
has expanded its reach across various new sectors, creating synergies
and huge opportunities for the near future.
K3 continues to work closely with all its clients to provide the
outstanding service that K3 prides itself on. With a wealth of expertise
across the Group, retaining close relationships with clients and providing
professional insight where appropriate, we aim to help our clients
through this difficult period.
Following updated Government advice, the Board is now thrilled to
invite employees back into the Head Office which has now fully ‘Covid
Compliant’. With some staff still working from home, we are hoping this
is a step back into normality.
Risk: Economical & Political
Risk Classification: Medium
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.
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 leaving the EU will be monitored and mitigated
where possible by the Board with the appropriate action being taken in
a timely manner.
Risk: Personnel
Risk Classification: Low
Management consider there could be a risk to the Group growth strategy
should it fail to retain or attract effective personnel.
Mitigation:
As detailed in previous reports, the Group’s admission to AIM resulted
in two LTIP schemes being issued. At the end of FY20 there were 29
employees (20% of May 20 headcount) part of these two schemes, seen
as a significant incentive to retain talent within the Group. Following
year end, two further schemes have been issued, 1 further LTIP and the
introduction of Growth Shares, that now see 65 employees of the wider
Group with capital value linked to the success of the Group.
The performance periods under these schemes run for 3-year cycles. At
31 May 20 there were 1,617,123 shares granted to staff (see note 28), which
has increased to 4,359,695 post year end following the acquisitions of
randd and Quantuma, representing 5.98% of the enlarged share capital.
The Group continues to look for innovative ways to reward all members
of staff, with a Death In Service policy, Healthcare Plan and Employee
Discount Scheme for all members of staff. In addition, January saw
the introduction of Wellbeing Days, with a series of events aimed at
improving mental health and the general wellbeing of staff that was well
received.
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, the Directors regularly review
opportunities to improve.
Risk: Regulation
Risk Classification: Low
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.
STRATEGIC REPORT | CHIEF FINANCIAL OFFICER’S REPORT
PAGE 21
Mitigation:
Terms of business introduced in FY18 and reviewed on an annual basis
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 stage to ensure that the 50% threshold is not
breached, whilst at the same time, our legal partners have been written
to asking them 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
Risk Classification: Low
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: Growth Management
Risk Classification: Low
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 FY20 there have been a number of appointments
through the Group aimed at supporting Directors and management to
ensure that growth is managed carefully with the client always at the
centre of attention. The end of the period saw a significant number of
employees working from home locations, which whilst a challenge for
the IT department, has shown how versatile the Group can be in difficult
times. As a result of home working, there have been many efficiencies
created in a number of teams leading to increases in productivity and a
reduction in physical office space required.
Risk: Insurance Coverage
Risk Classification: Low
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
the 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:
The Group continues to work closely with our insurance brokers and
underwriters to form long term relationships and ensure continuity of
cover. These long standing relationships ensure that all policies are fit
for purpose and all relevant policies are in place. Additional policies have
been taken out post year end to further protect the Group from the
impact of cyber and criminal activities.
Risk: Reputational
Risk Classification: Low
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 Group.
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, and are logged and discussed at regular
management meetings.
Social media sites and professional review pages are regularly monitored
PAGE 22
K3 CAPITAL GROUP PLC
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.
Risk: Acquisitions
Risk Classification: Low
Following the post year end acquisitions of randd UK and Quantuma,
the Group’s success will partially depend upon the Group’s ability to
integrate the acquired businesses without significant disruption to
its existing business. The integration of these businesses may divert
management’s attention from the ordinary course operation of the Group
and raise unexpected issues and may take longer or prove more costly
than anticipated. Although the Directors believe that such disruption
is unlikely, issues may come to light during the course of integrating
the businesses into the Group that may have an adverse effect on the
financial condition and results of operations of the Group.
There is no assurance that the Group will realise the potential benefits
of any acquisitions made, both current and future, including, without
limitation, potential synergies and cost savings (to the extent and within
the time frame contemplated). If the Group is unable to integrate the
recent and any future acquisitions successfully into the Group then
this could have a negative impact on the results of operations and/or
financial condition of the Group. Whilst the Directors do not expect
that any acquisition will lead to any loss of clients, there is no certainty
that clients of the Group (including the acquired businesses’ clients) will
continue to be clients of the Group following any acquisition, particularly
if client service is affected whether before or after completion of any
acquisition.
Mitigation:
Prior to both acquisitions, Directors held meetings with shareholders
and investors to discuss the rationale for the strategic changes and
gained wide spread support for the opportunities. For both acquisitions,
the Board considered the interests of investors, employees and other
stakeholders of the Group for the short, mid, and long term impact
especially in light of the unfolding Covid-19 pandemic on M&A.
The recent acquisitions were subject to rigorous internal and external
due diligence prior to completion to ensure appropriate use of capital.
Management due diligence carried out gave the Board comfort of
suitable cultural compatibility, especially when aligned with LTIP/Growth
Shares and the structure of earn out payments in the mid term, whilst
other due diligence streams gave comfort that both businesses were
well managed with robust reporting and control channels.
and the potential for up-sell and cross-sell across the Group’s portfolio
of products is maximised. Directors and senior management across
the Group are currently working through a 100 day plan to ensure the
smooth integration of the recent acquisitions.
SHAREHOLDERS’ DIVIDEND
The Board is recommending a final dividend of 3.80 pence per ordinary
share, based on 68,549,055 shares in circulation at the date of this report
(FY19: 42,210,526) payable to shareholders on the 27 October 202 who
are on the register on 9 October 2020 (with an associated ex dividend
date of 8 October 2020), subject to shareholder approval at the Group’s
Annual General Meeting on Friday 16 October 2020.
The final dividend, together with the January interim dividend of 3.67p
(based on 42,210,526 in circulation at the date of the dividend), gives an
indicative total dividend of 7.47 pence per share for the year (FY19: 7.60
pence, 42,210,526 shares).
On admission of the Group’s ordinary shares to trading on AIM in April
2017, the Board outlined an intention to pay approximately 80% of the
Group’s adjusted post tax profits for the year weighted 1/3 on interim
results and 2/3 on final results. This final dividend of c£2.6m in addition
to the interim dividend of c£1.6m represents approximately 80% of the
Group’s post tax profits for the year.
The Board assessed the payment of a final dividend in context of having
received funds under the Government’s CJRS. As noted earlier in this
report, the Board and senior management’s personal contribution with
salary and bonus sacrifice was far greater than the government support
received, and the combined measures mitigated a significant number
of job losses, The decision to pay a final dividend has been taken in the
context of the above, together with the post year end acquisitions of
Quantuma and randd UK, which have significantly enhanced the Group’s
future prospects due to the counter cyclical nature of the Quantuma
model and the contracted and recurring nature of the randd revenues.
CHANGE IN DIVIDEND POLICY
As discussed with shareholders during the recent fundraise, and as
outlined by the Board in recent announcements following the acquisitions
of randd UK and Quantuma, K3 is committed to maintaining an attractive
dividend policy, now expected to be in the region of 75% of adjusted
post tax profits.
Post-acquisition, focus is placed on ensuring management reporting
lines are clear, operational functions of acquired entities are supported,
enhanced or consolidated in to wider Group functions as appropriate,
This is to remain broadly consistent with the intentions established on
AIM listing whilst taking into consideration future commitments linked
to earn outs and working capital requirements of the Group.
STRATEGIC REPORT | CHIEF FINANCIAL OFFICER’S REPORT
PAGE 23
SHARE PRICE
The K3 Capital Group plc share price closed the financial year at 175.5
pence (31 May 19: 135.5 pence).
Based on the above, together with available market information and
the Directors’ knowledge and experience of the Group’s client portfolio
and markets, the Directors continue to adopt the going concern basis in
preparing the accounts for the year ended 31 May 2020.
GOING CONCERN
STRATEGIC REPORT
The Strategic Report on pages 4 to 27 was approved by the Board of
Directors on 21 September 2020 and signed on its behalf by:
AM
ANDREW MELBOURNE
Chief Financial Officer
21 September 2020
The Directors confirm they have a reasonable expectation that the
Company has adequate resources to continue in operational existence
for at least 12 months from the date of signing these financial statements.
As at the end of FY20, the K3 balance sheet contained £8.3m of cash
reserves and has remained profitable for the period since. The acquisitions
post balance sheet were funded through shareholder investment with
new share issues, to cover both the purchase prices and all related costs
of acquisition to conserve the cash reserves.
This confirmation is made after having reviewed assumptions about
future trading performance, valuation projections, capital expenditure,
asset sales and debt requirements contained within the Group’s current
five-year plan. In addition to this, the Board has prepared detailed cash
flow forecasts for the period to 31 May 2022 for the wider Group. Under
these worst case scenarios, the Group is still expected to remain cash
positive at least the next 12 months. The Directors also considered
potential risks and uncertainties in the business, such as credit, market
and liquidity risks, including the availability of bank facilities. Further
stress testing has been carried out to ensure the Group has sufficient
cash resources to continue in operation for at least the next 12 months
following the short term performance issues relating to COVID-19.
This stress testing included extreme downside scenarios with materially
reduced levels of cash receipts over this period. These downside
scenarios excluded any mitigating actions that the Board would be able
to take to reduce costs – as the Board have demonstrated in the final
months of FY20, the business has a low fixed cost base with the ability
to significantly reduce marketing spend, general overheads, and even
payroll costs with senior management sacrifice in times of need. Under
these scenarios, the Group would still expect to remain cash positive for
at least the next 12 months from the date of this report. The Directors
have not identified any material uncertainties that may cast significant
doubt about the Group’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.
PAGE 24
K3 CAPITAL GROUP PLC
SECTION 172(1)
STATEMENT
The revised UK Corporate Governance Code (‘2018 Code’) was published
in July 2018 and applies to accounting periods beginning on or after
January 1, 2019. The Companies (Miscellaneous Reporting) Regulations
2018 (‘2018 MRR’) require Directors to explain how they considered the
interests of key stakeholders and the broader matters set out in section
172(1) (A) to (F) of the Companies Act 2006 (‘S172’) when performing
their duty to promote the success of the Company under S172. This
includes considering the interest of other stakeholders which will have an
impact on the long-term success of the company. The Board welcomes
the direction of the UK Financial Reporting Council (the ‘FRC’). This S172
statement, which is reported for the first time, explains how K3 Directors:
have engaged with employees, suppliers, customers and others;
•
and
have had regard to employee interests, the need to foster the
•
Company’s business relationships with suppliers, customers
and other, and the effect of that regards, including on the
principal decisions taken by the Company during the financial
year.
The S172 statement focuses on matters of strategic importance to K3,
and the level of information disclosed is consistent with the size and the
complexity of the business.
GENERAL CONFIRMATION OF DIRECTORS’
DUTIES
K3’s Board has a clear framework for determining the matters within its
remit and has approved Terms of Reference for the matters delegated
to its Committees. Certain financial and strategic thresholds have been
determined to identify matters requiring Board consideration and
approval. The Financial Position and Prospects Procedures paper created
at the time of the Company’s AIM admission sets out the delegation and
approval process across the broader business and is reviewed on an
annual basis to ensure adequacy. More information on K3’s Controls and
Procedures can be found within the Corporate Governance Statement
contained within this report.
When making decisions, each Director ensures that he/she acts in the
way he/she considers, in good faith, would most likely promote the
Company’s success for the benefit of its members as a whole, and in
doing so have regard (among other matters) to:
S172(1) (A) “The likely consequences of any decision in the long term”
The Directors understand the business and the evolving environment
in which we operate, including the changes in market conditions, tax
legislation, Brexit, Covid19 and the challenges these bring. Based on
K3’s purpose to provide an outstanding advisory service, the strategy
set by the Board is intended to strengthen our position as a leading
professional services company by providing a quality service through
expertise and close relationships while keeping social responsibility
fundamentals a core element of our business approach. In FY20, to help
achieve the business objectives, the Board have continued the dynamic
approach and the gradual expansion of the business whilst retaining the
core values upon which it is built.
The ever-changing market conditions have presented both challenges
and opportunities throughout the year. K3 operates within almost all
markets, each of which experience varied growth. With the dynamic
approach of the Board and the wealth of experience it has, K3 is well
placed to provide the best possible support to its clients with the
objective to increase long-term value for shareholders recognising that
the long-term success of the business is dependent our reputation and
success completing mandates.
S172(1) (B) “The interests of the company’s employees”
The Directors recognise that K3 employees are fundamental and core to
our business and delivery of our strategic ambitions. The success of our
business depends on attracting, retaining and motivating employees.
From ensuring that we remain a responsible employer, from pay and
benefits to our health, safety and workplace environment, the Directors
factor in the implications of decisions on employees and the wider
workforce, where relevant and feasible.
S172(1) (C) “The need to foster the company’s business relationships
with suppliers, customers and others”
Delivering our strategy requires strong mutually beneficial relationships
with clients, and potential investors for our clients. The Board recognises
that our reputation is pivotal to our success and maintaining relationships
with the above groups is essential. Actively maintaining relationships
with potential investors from all groups is an effective strategy in line
with the business’ long term goal of delivering consistent growth and
generating a return to shareholders.
STRATEGIC REPORT | SECTION 172(1) STATEMENT
PAGE 25
Culture
The Board recognises that it has an important role in assessing and
monitoring that our desired culture is embedded in the values, attitudes
and behaviours we demonstrate, including in our activities and
stakeholder relationships. The Board has established honesty, integrity
and respect for people as K3’s core values. The onboarding process,
Employee Handbook, and supportive management team help everyone
at K3 act in line with these values and comply with relevant laws and
regulations.
The Board considers the Investors In People survey to be one of its
principal tools to measure employee engagement, motivation, affiliation
and commitment to K3. It provides insights into employee views and has
a consistently high response rate. The Board also utilises this engagement
to understand how survey outcomes are being leveraged to strengthen
K3 culture and values.
Stakeholder engagement (including employee engagement)
The Board strongly believes that K3 will only succeed by working with
clients, business partners, investors and other stakeholders. Working
together is critical, particularly at a time when society, including
businesses, governments and consumers, faces issues as challenging as
an economic downturn.
We believe that working together and sharing knowledge and experience
with others offers us greater insight into our business. We also appreciate
our long-term relationships with our investors and acknowledge the
positive impact of ongoing engagement and dialogue.
The Directors receive information updates and valuable data on a variety
of topics, including KPI data, reviews, and feedback from management,
clients, and investors that provide useful information on specific
stakeholders.
S172(1) (D) “The impact of the company’s operations on the community
and the environment”
As part of K3’s social responsibilities, the Company has always had
a focus on recruiting locally and providing opportunities to the local
community. K3 aims 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 enjoying the
role, developing a career and growing with the business. Prior to the
post-year end acquisitions of randd and Quantuma, the vast majority
of the business’ employees were based out of a single Head Office,
where culture can be demonstrated effectively, which was supported
by recognition from Investors In People. Following the acquisitions, the
Group’s employee base is now more geographically spread, however the
focus on culture and local community will remain key to the Group.
S172(1) (E) “The desirability of the company maintaining a reputation
for high standards of business conduct”
K3 aims to retain its position as the largest M&A advisory firm in the
UK on volume, alongside delivering excellent client service with industry
leading market expertise. The Board periodically reviews and approves
clear frameworks, such as, K3’s Code of Conduct, specific Ethics &
Compliance manuals, and its Modern Slavery Statements, to ensure
that its high standards are maintained both within K3 businesses and
the business relationships we maintain. This when complemented by
the ways the Board is informed and monitors compliance with relevant
governance standards help assure its decisions are taken and that K3
companies act in ways that promote high standards of business conduct.
S172(1) (F) “The need to act fairly as between members of the
company”
After weighing up all relevant factors, the Directors consider which
course of action best enables delivery of our strategy through the long-
term, taking into consideration the impact on stakeholders. In doing
so, our Directors act fairly between the Company’s members but are
not required to balance the Company’s interest with those of other
stakeholders.
PAGE 26
K3 CAPITAL GROUP PLC
Principal decisions
Investing in new business and acquisitions
In the tables to the right and on page 25 we outline some of the principal
decisions made by the Board over the year, explain how the Directors
have engaged with, or in relation to, the different key stakeholder groups
and how stakeholder interests were considered over the course of
decision-making.
What
was the
outcome?
To remain concise, we have categorised our key stakeholders into six
groups. Where appropriate, each group is considered to include both
current and potential stakeholders.
a)
b)
c)
d)
e)
f)
Investor Community
Employees/Workforce/Pensioners
Regulators/Governments/NGOs
Communities
Customers
Suppliers/Strategic Partners
We define principal decisions taken by the Board as those decisions
in FY20 that are of a strategic nature and that are significant to any of
our key stakeholder groups. As outlined in the FRC Guidance on the
Strategic Report, we include decisions related to capital allocation and
dividend policy.
How were stakeholders considered
We describe how regard was given to likely long-term consequences
of the decision including how stakeholders were considered during the
decision-making process.
How were
stakeholders
considered?
Acquisition
of randd UK
Limited
What was the outcome
We describe which accommodations/ mitigations were made, if any,
and how Directors have considered different interests and the factors
taken into account.
Acquisition
of Quantuma
Advisory
Limited
Over the course of the year, the Board discussed and
approved several new opportunities and projects
outside of existing operations. The Board focused
on diversifying into different markets to strengthen
the K3 brand and utilise the contacts each company
has to create synergies across the Group. The Board
continues to demonstrate its dynamic and forward-
thinking approach in an effort to drive the business
forward and create long-term growth for the business.
The Board acted in the best interest of all Stakeholders,
from protecting employees through to synergistic
opportunities and maintaining share price. Due to the
COVID-19 pandemic, K3 needed to act boldly, diversify
into different markets and expand the Group into an
all-encompassed nation-wide advisory firm.
An industry leading R&D claims firm with an outstanding
reputation created clear synergistic opportunities for
K3. With a proven track record, dynamic management
team and consistent steady growth, randd was a clear
target for K3. Working closely with the shareholders
throughout the process, their aspirations were aligned
with the K3 Board’s that is to thrive in a difficult market
and to be resilient to external pressures.
Whilst completing outside of this reporting period, the
Board are delighted to strengthen the robustness of
K3 finances with a recurring revenue line not previously
owned.
Quantuma is a well-respected firm in the restructuring
& insolvency, corporate finance, financial advisory,
pensions advisory and forensic accounting sectors,
experiencing huge growth in recent years. With a focus
on delivering a quality service, with a genuine care for
all clients, Quantuma have made a great addition to the
K3 family. With 17 offices located in the UK and more
overseas, this acquisition has expanded the geographic
reach of K3 and presented further opportunities for the
Group to grow.
The acquisition of this advisory firm post year end
addresses a number of shareholder concerns in recent
times in respect of possible cyclical risk of the M&A
market.
STRATEGIC REPORT | SECTION 172(1) STATEMENT
PAGE 27
Investing in new business and acquisitions (cont.)
Effects of COVID-19 on staff planning
The COVID-19 pandemic created uncertainty across all market spaces
within which K3 operate, leaving the Board with the difficult decision
as to whether to make redundancies. Following careful planning by
the Board and an agreement for all Directors and senior management
team to take significant pay reductions in order to save jobs, a detailed
consultation with staff took place and the difficult decision was made
to proceed with a redundancy plan across all departments throughout
the Group, in March. Additionally all senior management agreed to
cancel bonus payments for FY20.
However, as noted earlier in this report, the Group took part in the
government’s CJRS, thereby placing some staff on furlough who
have since been brought back into the business. Opting to utilise
the CJRS has undoubtedly saved a huge amount of jobs across the
Group, allowing a period of time whilst some of the uncertainty around
COVID-19 became more apparent, resulting in the retention of skilled
staff and fewer redundancies than were originally envisaged in March.
Prior to both of these acquisitions, the Board engaged with existing
and potentially new institutional investors to discuss the potential
strategy and gain support before proceeding to completion.
With K3 now an industry leading M&A advisory firm, R&D tax specialist
and restructuring advisory firm, each arm of the Group can provide
business for the other, creating the potential for accelerated growth
for in the years to come.
Shareholder Distributions
What was the outcome?
How were stakeholders
considered?
The Board confirmed the final
dividend in October 2019 following
the AGM, and further issued an
interim dividend in February 2020
following another outstanding
financial performance for the K3
Group. A final dividend is proposed
for October 2020 which will be
subject to shareholder approval at
the AGM.
A number of metrics underpinned
this decision. A forward-thinking
firm, K3’s priority is to create
long-term growth for the Group.
It is key that shareholders see a
return on their investment, whilst
the Company retains adequate
reserves, for their confidence in
the firm and to encourage further
investment as the Group grows.
As no government support will be
utilised at the point of declaring
the final dividend
for FY20,
it is deemed by the Board as
appropriate for all stakeholders.
PAGE 28
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 19 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 29
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 30
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 2020.
BOARD MEMBERS’ DIRECTORSHIPS
The Directors who served the Company during the year were as follows:
A list of Board Members’ directorships is as follows:
Ian Mattioli
John Rigby
Andrew Melbourne Anthony Ford
Stuart Lees
Martin Robinson
I T Mattioli
A J Ford
J S Rigby
A R Melbourne
S Lees
W M Robinson
Mattioli Woods plc
Custodian Capital
Limited
Custodian REIT plc
K3 Business
Services Limited
K3 Estates LLP
T Force (Reg-
istered Charity
1179920)
Abersoch Marine
and Charter Ltd
Facetspera Limited
Abersoch Property
Holdings LLP
Housingagent
Services Limited
Caulfield Group
Limited
NSS Maintenance
Limited
ATTENDANCE AT MEETINGS
Amati Global
Investors Limited
Coastwalk
Properties Limited
Pranglin Limited
ASC Healthcare
Limited
ASC Real Estate
Investments
Limited
Braemar
Agricultural Land
Investments
Limited (Guernsey)
Braemar Group
PCC Limited
(Guernsey)
Board
Audit
Remuneration Nomination
Care Hires Limited
I T Mattioli
W M Robinson
S Lees
A J Ford
J S Rigby
A R Melbourne
6/6
6/6
5/6
6/6
6/6
6/6
3/3
3/3
-
-
-
3/3
1/1
1/1
-
-
-
-
1/1
1/1
-
-
-
-
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 commitment to K3 averages 1-2 days per month
Professional
Independent
Pension Trustees
Limited
Custodian Real
Estate Limited
MDL First Limited
Mainsforth
Developments
Limited
Mattioli Woods
(New Walk)
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
21 Capital Limited
Three Popes
Limited
Mundell Robinson
Projects Limited
My Rent Rewards
Ltd
Wilmslow Plastic
Properties LLP
Bridge Housing
Solutions Limited
Lima Group
Holdings Limited
Tomorrow
Cardiovascular
Screening Limited
21 Capital Limited
POST YEAR END CHANGES
During the acquisition of randd UK and Quantuma, a comprehensive
review of Board composition was carried out with support from our
advisors. As a result of this there have been a number of changes to the
plc Board post year end.
From 3rd August 2020, we welcome to the Board Carl Jackson (CEO
of Quantuma) as an Executive Director and Charlotte Stranner as a
Non Executive Director. The review has also seen Stuart Lees move
from Executive Director to Non Executive Director and Martin Robinson
promoted to Senior Independent Director in order to balance the Board
of four Executive and four Non Executive. Further information can be
found on our plc website.
OTHER REPORTS | DIRECTORS’ REPORT
PAGE 31
FINANCIAL RISK MANAGEMENT OBJECTIVES
AND POLICIES
Business risks and uncertainties are included within the Chief Financial
Officer’s Report on pages 17 to 23 and financial risks are set out in note
27 to the financial statements.
DIRECTORS’ REMUNERATION
Directors’ remuneration payable in year ended 31 May 2020:
£
Salary &
Fees
Benefits in
Kind
Bonus payable
in respect of
FY20
Pension
Contributions
Total
FY20
I T Mattioli
A J Ford
J S Rigby
61,458
133,333
-
-
200,000
2,055
A R Melbourne
91,667
9,503
-
-
-
-
S Lees
W M Robinson
33,333
29,167
-
-
27,000
-
-
61,458
1,097
134,430
-
202,055
329
846
-
101,499
61,180
29,167
• Honesty and integrity
• 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
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
Total
548,958
11,558
27,000
2,272
589,788
There were no political donations in either FY20 or FY19.
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 Group’s results for the year are set out in the Consolidated Statement
of Comprehensive Income on page 46.
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 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:
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 26 to the financial
statements.
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 the Company’s admission to AIM in April
2017 (“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
PAGE 32
K3 CAPITAL GROUP PLC
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
Return over the 3 year period.
At May 2020, there were a total of 29 current employees (20% of
May 2020 Group employees) participating in the Option Plans with a
combined grant equivalent to 3.69% of the enlarged share capital of the
Group.
As detailed within our Admission Document, it was the intention of
Directors to open a Save As You Earn share scheme, following the
indicated uptake at the time, balanced against the administrative
costs, it was not considered appropriate. However, following the recent
acquisitions and now enlarged staff base, the Board now considers FY21
an appropriate time to launch the scheme.
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, Save As You Earn share scheme 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.
In light of the COVID-19 pandemic, and the subsequent return to the
office for certain members of staff, a thorough risk assessment was
undertaken to ensure a safe environment for all employees and visitors.
Further information can be found in the CFO’s Report.
CORPORATE GOVERNANCE
Reporting on our compliance with the Quoted Company Alliance
Corporate Governance Code for Small and Mid-Size Quoted Companies
(the QCA Code) was adopted in FY19 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 pages 36-38.
THE BOARD
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 28 and 29. The Board considers the Non-Executive
Director, W M 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.
Subsequent to year end, and detailed on our website there have been
two additions to the Board in CS Jackson (Executive Director) and CA
Stranner (Non Executive Director). S Lees has become Non Executive.
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. Subsequent to year end the committee has been joined
by S Lees.
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 31.
OTHER REPORTS | DIRECTORS’ REPORT
PAGE 33
AUDIT COMMITTEE
The Audit Committee is chaired by W M Robinson, its other member is I
T Mattioli. Subsequent to year end the committee has been joined by S
Lees and C A Stranner.
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.
NOMINATIONS COMMITTEE
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
683,794
6,247,895
7,597,895
464,802
688,125
36,900
634,622
6,347,895
7,597,895
464,802
688,125
36,900
The Nominations Committee is chaired by I T Mattioli, its other member
is W M Robinson. Subsequent to year end the committee has been joined
by S Lees and C A Stranner.
AUDITORS
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 once
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 2020
Outstanding interest
at 31 May 2019
The Board intends to continue to pursue its business strategies as
outlined in the strategic report on pages 7 to 27.
Andrew Melbourne
LTIP Option
0
325,531
325,531
The performance periods of the above Share Option scheme commenced
on 1 June 2017 and 1 December 2017.
POST BALANCE SHEET DEVELOPMENTS
A detailed report of post balance sheet events is reported in note 32 of
the financial statements on pages 96 to 100
PAGE 34
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
AM
A R MELBOURNE FCMA
Company Secretary
21 September 2020
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 35
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
One Bartholomew Close
London
EC1A 7BL
Registrars:
Computershare Investor Services PLC
The Pavillions
Bridgwater Road
Bristol
BS99 6ZZ
PAGE 36
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 FY20, 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
At the date of this report, K3 Capital Group plc has a Non-Executive
Chaiman and two independent Non-Executive Directors (NED), led by
a Senior Independent Director (SID) whose responsibility is to provide
scrutiny and direction of the performance of the Executive Directors.
The SID 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 14 & 15.
• The Group’s Executive Directors and senior management team have
regular meetings throughout the year to focus on the Group’s five
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.
•
• Management will provide a live presentation to investors relating
to the Preliminary results for FY20 via the Investor Meet Company
platform.
• 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 and video 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.
In order to motivate and retain employees, at the date of this report
the Group currently had 65 members of staff enrolled in the LTIP
scheme or with Growth Options.
• The Group’s Investors In People status was positively reviewed during
FY20, resulting in the retention of our accredited status for a further
12 months.
OTHER REPORTS | CORPORATE GOVERNANCE STATEMENT
PAGE 37
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 as detailed on page 40.
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 17 to 23.
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 a Senior 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 30 to 34.
• 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. The time commitments of the board
are detailed on page 30
• The board has been strengthened post year end, and the Non-
Executive function of our Board has been balanced further through
the appointment of Charlotte Stranner, Stuart Lees’ change to Non-
Executive Director and appointment of Martin Robinson as Senior
Independent Director
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 28 and 29.
• 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.
• As detailed throughout this report a comprehensive review of the
Board structure was carried out post year end, and is further detailed
on our website.
• 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 38
K3 CAPITAL GROUP PLC
• 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 one third of members on 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. Such values are embedded within the Group’s working
practices from the senior management, right through to each
department’s recruitment strategies.
We are committed to equal opportunities in every part of our business
and we promote team members on merit. We recruit, train, promote
and retain skilled and motivated people regardless of gender, age,
marital status, disability, sexual orientation, race and religion, or ethnic
or national origin. In line with this, we also promote a culture of openness
and responsibility in our business.
Our people are key to our success and we want them to be successful
both as individuals and in the teams they operate. We are very proud
of the culture we have across the Group and the way that our team
members work and collaborate together to create a unique environment
that what we believe is a great place to work. We support a number
of initiatives and activities that focus on the health and well-being of
our people, diversity and inclusion, personal development opportunities
and charitable activities within the communities where we work. Other
factors, such as employee attrition, are also monitored closely to identify
potential trends and issues
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 once 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 / video 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 Annual
Report.
•
• The work of the Audit, Nominations and Remuneration Committees
is described on pages 32 and 33.
• 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.
OTHER REPORTS | CORPORATE SOCIAL RESPONSIBILITY
PAGE 39
CORPORATE SOCIAL
RESPONSIBILITY
STREAMLINED ENERGY AND CARBON REPORTING (SECR)
Our carbon emissions are relatively low compared to many other sectors
however, we believe it is important for us to play our part in recognising
the effects of climate change and its potential impact on the company,
economy, and environment.
FY20 is our first year of reporting on Greenhouse Gases (GHG) that we
contribute through our operations, this means that this report will not
include a comparative year. In FY21 we will have more procedures in
place to capture more data to give us a wider understanding of our total
emissions and how we can continuously minimise our environmental
impact.
OUR AIM
10% reduction in TCO2e per FTE by 2025.
•
• Minimising our business travel by
improving our operational
efficiencies and promoting the use of video conferencing.
• Widen our understanding of total emissions.
FY20 GHG HIGHLIGHTS
COVID-19 has challenged the way in which the market operates which
has given us the opportunity to look at other means for meeting with
clients. This has not only saved time and money but has also drastically
reduced the amount of business miles, leaving a positive effect on the
GHG we produce. Scope 1 business mileage through rep’s cars being
our number one source of emissions (64%), this is the key area for us to
focus on to meet our aim of reducing TCo2e per FTE by 2025. To help
achieve this we have put extensive training into place to maximise the
utilisation of technology.
During the year we also moved from one energy provider to another,
with our current provider sourcing 56% of its fuel mix in 2019-20 from
renewable energy; a vast improvement on our previous providers 27%
mix from renewable energy. Although this does not directly impact
our GHG report, we find it an important step towards minimising our
environmental impact.
Our offices do not use natural gas as a means of heat, we use electricity as
it is much more sustainable. All wastepaper is placed into the shredding
box which is taken away and securely disposed of and recycled back
into paper, resulting in saving 38 trees and 5.17 m3 of landfill.
K3 Capital Group Plc has committed to tackling our emissions head on
by including scope 3 emissions in the SECR report to not only be as
transparent as possible but to also have a true understanding of our
environmental footprint.
Scope 1
Owed/Leased car business travel
Total - Scope 1
Scope 2
Electricity
Total - Scope 2
Scope 3
Business Related Car travel
Paper
Water
T&D Electricity
Total - Scope 3
Total Gross Emissions
Emissions Intensities
Average headcount
TCO2e per average employee
2019/20
TCO2e
TOTAL EMISSIONS
0.05, <1%
2.38, 1%
120.11
120.11
28.04
28.04
37.46
0.05
0.13
2.38
40.02
188.17
166
1.13
0.13, <1%
37.46, 20%
28.04, 15%
120.11, 64%
Owed/Leased car business travel
Electricity
Business Related Car travel
Water
Paper
T&D Technology
• Scope 1 comprises vehicle emissions in relation to business travel for client meetings.
Natural gas has been excluded as it is not used at our premises.
• Scope 2 comprises our energy consumption from electricity purchased.
• Scope 3 comprises of Business travel from employee owned cars, Paper usage and
Transmission and Distribution losses from power plant to office.
SUMMARY
K3 Capital Group Plc has chosen to define its emissions boundaries
through operational control. The methodology used to calculate our
emissions is based on the UK Government (Defra) guideline along with
the Defra conversions factors for 2019. Emissions reported correspond
with our financial year and all emissions are within the UK and none are
generated offshore. In order to express our GHG emissions in relation to
a quantifiable factor that has the best fit for our activities, we have used
Tonnes of CO2 per full time employee averaged over the year as our
intensity ratio as this will be in line with growth.
PAGE 40
K3 CAPITAL GROUP PLC
Our emissions predominately arise from the fuel consumption for means
of business travel to and from meetings with clients. This will be our key
area for focus.
Throughout FY20, the Group also made charitable donations to Children
in Need, through a staff fancy dress event, Bury and Elton Swimming
Club, Miam Miam FC and Cats Protection.
K3 Capital Group plc is committed to analysing the synergies between
cost saving and energy efficiencies. The Group will continue to manage
its carbon footprint and find new solutions to reducing its greenhouse
gases where practical.
In addition to the work done within K3 Capital Group plc, each of the
Directors on the Board have personal commitments to local community
and charity projects.
COMMUNITY AND CHARITABLE WORK
Throughout FY20, 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 plc 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.
Employees of the Group took part in the annual Save the Children
‘Christmas Jumper Day’, where all staff were encouraged to wear a
Christmas themed jumper to work and asked to make a donation towards
a cause that the Group supports every year.
OTHER REPORTS | CORPORATE SOCIAL RESPONSIBILITY
PAGE 41
PAGE 42
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 2020 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 2020 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
Revenue recognition
Refer to the Accounting Policies, Note
4 and Note 5.
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. In the current year an additional
area of estimate is the impact of
Covid-19 and delay in the provision of
services by the Group.
How we addressed the Key Audit Matter in
the Audit
In respect of both retainer fees and transaction fees,
we reviewed a sample of customer contracts and
agreements to determine the service being delivered
by the Group.
We verified that the accounting policy for the two
separate elements of revenue have been appropriately
applied by undertaking the following audit procedures
in relation to revenue:
•
performed testing, on a sample basis, of
transaction fee revenue across the year by
agreeing the recorded transactions to completion
documents such as Companies House or legal
documents, signed customer contracts and proof
of cash receipts;
OTHER REPORTS | INDEPENDENT AUDITOR’S REPORT
PAGE 43
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 view of the judgements and
estimates involved above, as well
as management being in a position
to be able to override controls, we
considered this to be an area in
which there was a significant risk
of misstatement.
•
•
•
•
•
•
•
performed testing, on a sample basis, of transaction
fee revenue across the year by agreeing the recorded
transactions to completion documents such as
Companies House or legal documents, signed
customer contracts and proof of cash receipts;
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;
For a sample of retainer fees we checked the control
over cash banked to signed contracts as is evidenced
by management on a monthly basis.
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 by reference to evidence of key service delivery
milestones;
performed detailed cut-off testing for a sample
selected around the year end to test whether
retainer fees are recorded in the correct period.
This involved corroborating key delivery milestone
completion dates to evidence external from the
accounting software;
tested the year end deferred income balance by re-
performing the release calculation and corroborating
inputs of the calculation to supporting evidence.
We also considered management’s assessment of
impact of Covid-19 on the expected timing of services
provided.
interrogated the system to identify any manual
journals posted to revenue to ascertain if any were
outside the normal course of business. This was in
addition to reviewing the nominal ledger revenue
accounts for unusual activity and corroborating to
evidence to ensure appropriate where outliers were
identified.
Key observations
Based on the procedures we performed, we consider the
judgements and estimates made by management are
reasonable in respect of revenue recognition.
Going concern
Refer to the Accounting Policies
note 3.
In respect of this key audit matter we carried out the
following procedures:
Coronavirus has had a notable
impact on the group’s operations in
the current financial year as it has
•
Challenged the appropriateness of management’s
assessment of going concern with regard to relevant
financial forecasts by testing the mechanical
accuracy, assessing historical forecasting accuracy,
understanding management’s consideration of
caused a reduction in the number
of transactions which have
occurred in the final quarter and
delayed the abil-ity to provide
retainer fee services. Due to the
level of uncertainty with regard to
the medium and long term, and the
significant assumptions required
to be made by management in
considering going concern, a
significant audit risk has been
identified and accordingly going
concern has been considered to be
a key audit matter.
Carrying value of goodwill
•
downside sensitivity and the impact on cash flow;
Reviewed management’s stress tests and applied
•
further sensitivities to key assumptions such as
forecast revenue;.
Reviewed the feasibility of mitigating actions
and cost savings that have been proposed by
management and considered management’s ability to
implement them;
Considered the consistency of management’s
forecasts with other areas of the audit, such as
impairment models; and
Considered the adequacy of the disclosures in the
financial statements
•
•
Refer to the Accounting Policies
note 3 and note 14.
In respect of this key audit matter we carried out the
following procedures:
Management are required to
review the carrying value of
goodwill and test it annually for
impairment. Management exercise
judgement in determining the
underlying assumptions used
in the impairment review; the
assumptions include the discount
rate used and the future cash flows
attributed to a cash generating
unit (CGU).
Due to the uncertainty around
the potential impact of Covid 19
on future performance, and the
significant judgement required to
be applied by management, we
have considered this to be a key
audit matter
• We challenged the calculations prepared by
management in the impairment review, specifically
the discount rate;
• We assessed the reasonableness of the assumptions
underlying management’s assessment of goodwill,
including the pipeline and cashflow forecasts for the
CGU;
• We performed sensitivity analysis on the discount
rate and reductions in cashflow forecast.;
• We compared actual results for year ended 31 May
2020, which included the immediate impact of
Covid-19 in the final quarter of the financial year, and
actual post year end trading results to the forecasts
to assess the reasonableness of the growth and
assumptions in the forecast.
Key observations:
We consider the judgements and assumptions supporting
the cash flows of the CGU to be appropriately identified
and reasonable. We considered management’s
assessment of no impairment being necessary, as
reasonable.
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.
PAGE 44
K3 CAPITAL GROUP PLC
INDEPENDENT
AUDITOR’S REPORT
We determined materiality for the financial statements as a whole as
follows:
Group materiality
Basis for materiality
£321,000 (2019: £243,000)
5% of profit before tax (2019: 5% profit before
tax)
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.
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 £241,000 (2019:
£182,000), representing 75% (2019: 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.
Component materiality ranged from £129,000 to £209,000 (2019:
£97,000 to £158,000) with a similar restriction of 75% for performance
materiality (2019: 75%). Parent Company materiality was £228,000
(2019: £93,000).
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 £9,600 (2019: £7,000). We also agreed to report
differences below these thresholds that, in our view, warranted reporting
on qualitative grounds.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our Group audit was scoped by obtaining an understanding of the Group
and its environment, including Group-wide controls, and assessing the
risks of material misstatement at the Group 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 99% of the Group’s net assets.
The Group’s newly formed subsidiary KBS Capital Markets Limited 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.
OTHER REPORTS | INDEPENDENT AUDITOR’S REPORT
PAGE 45
MATTERS OF WHICH WE ARE REQUIRED TO
REPORT BY EXCEPTION
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.
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.
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.
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.
RESPONSIBILITIES OF DIRECTORS
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,
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.
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
21 September 2020
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
PAGE 46
K3 CAPITAL GROUP PLC
FINANCIAL
STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MAY 2020
Year Ended 31 May 2020
Revenue
Distribution costs
Administrative expenses
EBITDA
Depreciation of tangible assets
Amortisation of intangible assets
Operating profit
Finance income
Finance costs
Profit before taxation
Taxation
Profit and total 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
Note
5
7
11
12
13
2020
£’000
14,994
(938)
(7,597)
6,790
(277)
(54)
6,459
7
(29)
6,437
(1,215)
5,222
5,222
2019
£’000
13,564
(1,065)
(7,626)
4,976
(87)
(16)
4,873
6
-
4,879
(901)
3,978
3,978
£0.12
£0.09
FINANCIAL | FINANCIAL STATEMENTS
PAGE 47
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FOR THE YEAR ENDED 31 MAY 2020
31 May 2020
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assets
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
Lease liabilities
Total current liabilities
Non-current liabilities
Lease 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
16
18
20
21
22
23
24
24
25
26
2020
£000
4,046
56
871
4,973
5
266
8,271
8,542
13,515
1,080
924
1,369
200
3,573
671
25
696
4,269
9,246
2,413
118
6,715
9,246
2019
£000
4,065
88
-
4,153
43
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
These financial statements were
approved by the Board of Directors
and authorised for issue on 21
September 2020 and are signed on
behalf of the board by:
AM
ANDREW MELBOURNE FCMA
Company Secretary
21 September 2020
PAGE 48
K3 CAPITAL GROUP PLC
COMPANY STATEMENT OF FINANCIAL POSITION
FOR THE YEAR ENDED 31 MAY 2020
K3 Capital Group plc (06102618) - 31 May
2020
2019
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 the owners of the Company:
Issued capital and share premium
Share option reserve
Retained earnings
TOTAL EQUITY
14
17
18
19
20
21
26
1,100
5,667
6,767
18
2,834
29
99
2,980
9,747
628
628
9,119
2,413
118
6,588
9,119
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
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 £8,581,000 (2019: £1,990,000).
These financial statements were
approved by the Board of Directors
and authorised for issue on 21
September 2020, and are signed on
behalf of the board by:
AM
ANDREW MELBOURNE FCMA
Company Secretary
21 September 2020
Registered number 06102618
FINANCIAL | FINANCIAL STATEMENTS
PAGE 49
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MAY 2020
Year Ended 31 May 2020
Share capital
Share
premium
Share option
reserve
Retained
earnings
Balance at 1 June 2018
Profit and total comprehensive income for the year
Transactions with owners
Share Based Payments
Dividends
Balance at 31 May 2019
Profit and total comprehensive income for the year
Transactions with owners
Share based payments
Dividends
As at 31 May 2020
£000
422
-
-
-
£000
1,991
-
-
-
422
1,991
-
-
-
-
-
-
422
1,991
£000
32
-
43
75
-
43
-
118
£000
5,830
3,978
-
(5,065)
4,743
5,222
-
(3,250)
6,715
9,246
Total
£000
8,275
3,978
43
(5,065)
7,231
5,222
43
(3,250)
PAGE 50
K3 CAPITAL GROUP PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MAY 2020
Year Ended 31 May 2020
Share capital
Share
premium
Share option
reserve
Retained
earnings
Balance at 1 June 2018
Profit and total comprehensive income for the year
Transactions with owners:
Share Based Payment
Dividends
Balance At 31 May 2019
Profit and total comprehensive income for the year
Transactions with owners:
Share-based payments
Dividends
At 31 May 2020
£000
422
-
-
-
£000
1,991
-
-
-
422
1,991
-
-
-
-
-
-
422
1,991
32
-
43
-
75
-
43
-
118
Total
£000
6,776
1,990
£000
4,331
1,990
-
43
(5,065)
(5,065)
1,256
8,582
3,744
8,582
-
(3,250)
43
(3,250)
6,588
9,119
FINANCIAL | FINANCIAL STATEMENTS
PAGE 51
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MAY 2020
Year Ended 31 May 2020
Cash flows from operating activities
Profit for the financial year
Adjustments for:
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortisation of intangible assets
Finance income
Finance Costs
Income tax expense
Expense recognised in respect of equity-settled share-based payments
Movements in working capital:
Decrease in trade and other receivables
Decrease/(increase) in other assets
(Decrease) in trade and other payables
(Decrease)/increase in contract liabilities
Cash generated from operations
Finance income received
Income taxes paid
Net cash from operating activities
Investing activities
Purchases of property, plant and equipment
Purchases of intangible assets
Net cash used in investing activities
Financing activities
Dividends paid to owners of the Company
Lease liability interest paid
Repayment of the lease liabilities
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
7
7
7
11
12
18
20
21
23
15
14
30
24
2020
£000
5,222
58
219
54
(7)
29
1,215
43
6,833
38
114
(50)
(276)
6,659
7
(589)
6,077
(26)
(35)
(61)
(3,250)
(29)
(219)
(3,498)
2,518
5,753
8,271
2019
£000
3,978
87
-
16
(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
PAGE 52
K3 CAPITAL GROUP PLC
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MAY 2020
Year Ended 31 May 2020
Cash flows from operating activities
Profit for the financial year
Adjustments for:
Income from shares in Group undertakings
Expense recognised in respect of equity-settled share based payments
Movements in working capital:
(Increase)/decrease in trade and other receivables
(Increase)/decrease in other assets
Decrease in trade and other payables
Cash used in operations
Net cash used in operating activities
Financing Activities
Dividends received from Group undertakings
Settlement of amounts due from related parties
Advances to Group undertakings
(Decrease)/increase in amounts owed to Group undertakings
Dividends paid to owners of the Company
Net cash generated by financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
18
20
21
19
21
2020
£000
8,581
(9,500)
43
(876)
(10)
(5)
(32)
(923)
(923)
9,500
-
(2,834)
(2,520)
(3,250)
896
(27)
126
99
2019
£000
1,990
(3,000)
43
(967)
16
44
(351)
(1,258)
(1,258)
3,000
2,231
-
1,109
(5,065)
1,275
17
109
126
FINANCIAL | FINANCIAL STATEMENTS
PAGE 53
NOTES TO THE FINANCIAL
STATEMENTS
PAGE 54
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020
1.
General Information
K3 Capital Group PLC is incorporated in England and Wales under the Companies Act, listed on AIM, the market of that name operated by
the London Stock Exchange, 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 in the reporting period was 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.
Accounting Policies
Basis of preparation
The principle 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 55
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
New standards, amendments to and interpretations to published standards
Impact of initial application of IFRS 16 Leases
In the current year, the Group has applied IFRS 16 Leases (as issued by the IASB in January 2016) that is effective for annual periods that begin
on or after 1 January 2019.
IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to lessee accounting
by removing the distinction between operating and finance lease and requiring the recognition of a right-of-use asset and a lease liability at
commencement for all leases, except for short-term leases and leases of low value assets when such recognition exemptions are adopted. In
contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged.
The impact of the adoption of IFRS 16 on the Group’s consolidated financial statements is described below.
The date of initial application of IFRS 16 for the Group is 1 June 2019.
The Group has applied IFRS 16 using the modified retrospective approach which:
•
Requires the Group to recognise the cumulative effect of initially applying IFRS 16 as an adjustment to the opening balance of retained
earnings at the date of initial application.
•
Does not permit restatement of comparatives, which continue to be presented under IAS 17 and IFRIC 4.
The right of use asset is equal to the lease liability, adjusted for prepaid or accrued lease payments
Impact of the new definition of a lease
The Group has made use of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a lease.
Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to be applied to those leases entered or changed
before 1 June 2019.
The change in definition of a lease mainly relates to the concept of control. IFRS 16 determines whether a contract contains a lease on the
basis of whether the customer has the right to control the use of an identified asset for a period of time in exchange for consideration. This is
in contrast to the focus on ‘risks and rewards’ in IAS 17 and IFRIC 4.
The Group applies the definition of a lease and related guidance set out in IFRS 16 to all lease contracts entered into or changed on or after 1
June 2019. In preparation for the first-time application of IFRS 16, the Group has carried out an implementation project. The project has shown
that the new definition in IFRS 16 will not significantly change the scope of contracts that meet the definition of a lease for the Group.
PAGE 56
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
Impact on Lessee Accounting
IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were off balance sheet.
Applying IFRS 16, for all leases, the Group:
a)
b)
c)
Recognises right-of-use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present
value of the future lease payments;
Recognises depreciation of right-of-use assets and interest on lease liabilities in the consolidated statement of profit or loss;
Separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within
financing activities) in the consolidated statement of cash flows.
Lease incentives (e.g. rent free period) are recognised as part of the measurement of the right-of-use assets and lease liabilities whereas under
IAS 17 they resulted in the recognition of a lease incentive, amortised as a reduction of rental expenses on a straight line basis.
Under IFRS 16, right-of-use assets are tested for impairment in accordance with IAS 36.
The Group has used the following practical expedients when applying the modified retrospective approach to leases previously classified as
operating leases applying IAS 17.
•
The Group has applied a single discount rate to a portfolio of leases with reasonably similar characteristics.
Financial impact of initial application of IFRS 16
The weighted average lessee’s incremental borrowing rate applied to lease liabilities recognised in the statement of financial position on 1 June
2019 is 3%.
The following table shows the operating lease commitments disclosed applying IAS 17 at 31 May 2019, discounted using the incremental
borrowing rate at the date of initial application and the lease liabilities recognised in the statement of financial position at the date of initial
application.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 57
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MAY 2020
Operating lease commitments at 31 May 2019
Present value of the lease payments due in periods covered by extension options that are included in the lease
term and not previously included in operating lease commitments
Effect of discounting the above amounts
Lease liabilities recognised at 1 June 2019
The Group has recognised £1,064,000 of right-of-use assets and £1,064,000 of lease liabilities upon transition to IFRS 16.
£’000
522
646
(104)
1,064
IFRIC 23 Uncertainty over Income Tax Treatments
The Group has adopted IFRIC 23 for the first time in the current year. IFRIC 23 sets out how to determine the accounting tax position
when there is uncertainty over income tax treatments. The Interpretation requires the Group to:
•
•
determine whether uncertain tax positions are assessed separately or as a group; and
assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an entity in its
income tax filings:
•
•
If yes, the Group should determine its accounting tax position consistently with the tax treatment used or planned to be used in
its income tax filings.
If no, the Group should reflect the effect of uncertainty in determining its accounting tax position using either the most likely
amount or the expected value method.
In the current year, the Group has applied a number of amendments to IFRS Standards and Interpretations issued by the IASB that are
effective for an annual period that begins on or after 1 June 2019. Their adoption has not had any material impact on the disclosures or on the
amounts reported in these financial statements.
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.
IFRS 17
IFRS 10 and IAS 28 (amendments)
Amendments to IFRS 3
Amendments to IAS 1 and IAS 8
Conceptual Framework
-
-
-
-
-
Insurance Contracts
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
Definition of a business
Definition of material
Amendments to References to the Conceptual Framework in IFRS Standards
PAGE 58
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the
Group in future periods
Going Concern
The financial statements have been prepared on the basis that the Group will continue as a going concern.
Based on financial performance to date and forecasts along with significant cash reserves coupled with no debt in the Group, there is a
reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group
therefore continues to adopt the going concern basis of accounting in preparing the annual financial statements. The Board has prepared cash
flow forecasts for the period to 31 May 2022. Under this base case scenario, the Group is expected to continue to have significant headroom
relative to the cash reserves available. The Board has also considered various other severe downside scenarios, including the possibility of a
second lockdown as a result of a second wave of Covid-19. These downside scenarios included significant reductions in expected turnover
levels in all trading subsidiaries of the Group, and excluded any mitigating actions that the Board would be able to take to reduce costs. Under
these scenarios, the Group would still expect to have sufficient cash reserves to operate. The Group therefore continues to adopt the going
concern basis of accounting in preparing the annual 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:
•
•
Retainer 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 has 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.
As detailed on page 17 of this report, due to the impact of lockdown and the fact that the Company utilised the CJRS, the decision was taken
to review the estimates applied to revenue recognition following the national lockdown and impact on the delivery of services, as a result there
was a deferral of 2 months retainer fee income at the end of FY20.
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.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 59
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
There is one performance obligation within Transaction Fee income. This obligation is the completion of a Transaction as defined in K3’s terms
of business, being the transfer of shares or assets from a client to a third 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.
Leases
The Group has applied IFRS 16 using the modified retrospective approach and therefore comparative information has not been restated and is
presented under IAS 17. The details of accounting policies under both IAS 17 and IFRS 16 are presented separately on the following pages.
Policies applicable from 1 June 2019
The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a
corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases
with a lease term of 12 months or less) and leases of low value assets (such as tablets and personal computers, small items of office furniture
and telephones). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term
of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are
consumed.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by
using the rate implicit in the lease. If this rate cannot be readily determined, the lessee uses its incremental borrowing rate.
Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable;
Lease payments included in the measurement of the lease liability comprise:
•
•
•
•
•
The amount expected to be payable by the lessee under residual value guarantees;
The exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
The lease liability is presented as a separate line in the consolidated statement of financial position.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective
interest method) and by reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
•
The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of
exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised
discount rate.
The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in
•
PAGE 60
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
which cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the
lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
•
A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is
remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at
the effective date of the modification.
The Group did not make any such adjustments during the periods presented.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the
commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated
depreciation and impairment losses.
Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the
underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37. To
the extent that the costs relate to a right-of use asset, the costs are included in the related right-of-use asset.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership
of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-
use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.
The right-of-use assets are presented as a separate line in the consolidated statement of financial position.
The Group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described
in the ‘Property, Plant and Equipment’ policy.
As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated
non-lease components as a single arrangement. The Group has not used this practical expedient. For a contract that contains a lease
component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease
component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease
components.
Policies applicable prior to 1 June 2019
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the
lessee. All other leases are classified as operating leases.
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease except where
another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 61
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit
of incentives is recognised as a reduction of rental expense on a straight-line basis over the lease term, except where another systematic basis
is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Government grants
Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them
and that the grants will be received.
Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the
related costs for which the grants are intended to compensate.
Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate
financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable.
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 and right of use assets.
PAGE 62
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
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. To the extent
these cannot be capitalised, acquisition related costs are expensed as incurred and included in administrative expenses, though seperated as
exceptional items within reports.
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.
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:
FINANCIAL | FINANCIAL STATEMENTS
PAGE 63
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
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
Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group becomes a party to the
contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or
issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added
to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly
attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or
loss.
Financial assets
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).
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.
Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the
financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains
substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest
PAGE 64
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership
of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the
proceeds received.
On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the
consideration received and receivable is recognised in profit or loss. In addition, on derecognition of an investment in a debt instrument
classified as at FVTOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or
loss. In contrast, on derecognition of an investment in an equity instrument which the Group has elected on initial recognition to measure at
FVTOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserve is not reclassified to profit or loss, but is
transferred to retained earnings.
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 65
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (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.
The Group recognises a loss allowance for expected credit losses on trade receivables. The amount of expected credit losses is updated at
each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument.
The Group always recognises lifetime ECL (expected credit losses) for trade receivables. The expected credit losses on these financial assets
are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the
debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting
date, including time value of money where appropriate.
For all other financial instruments, the Group recognises lifetime ECL when there has been a significant increase in credit risk since initial
recognition. However, if the credit risk on the financial instrument has not increased significantly since initial recognition, the Group measures
the loss allowance for that financial instrument at an amount equal to 12-month ECL.
PAGE 66
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial
instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial
instrument that are possible within 12 months after the reporting date.
(i) Significant increase in credit risk
In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Group compares
the risk of a default occurring on the financial instrument at the reporting date with the risk of a default occurring on the financial
instrument at the date of initial recognition. In making this assessment, the Group considers both quantitative and qualitative
information that is reasonable and supportable, including historical experience and forward-looking information that is available without
undue cost or effort. Forward-looking information considered includes the future prospects of the industries in which the Group’s
debtors operate, obtained from economic expert reports, financial analysts, governmental bodies, relevant think-tanks and other similar
organisations, as well as consideration of various external sources of actual and forecast economic information that relate to the
Group’s core operations.
In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial
recognition:
•
•
an actual or expected significant deterioration in the financial instrument’s external (if available) or internal credit rating;
significant deterioration in external market indicators of credit risk for a particular financial instrument, e.g. a significant increase in the
credit spread, the credit default swap prices for the debtor, or the length of time or the extent to which the fair value of a financial asset
has been less than its amortised cost;
existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in
the debtor’s ability to meet its debt obligations;
an actual or expected significant deterioration in the operating results of the debtor;
significant increases in credit risk on other financial instruments of the same debtor; and
an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that results in
a significant decrease in the debtor’s ability to meet its debt obligations.
•
•
•
•
Irrespective of the outcome of the above assessment, the Group presumes that the credit risk on a financial asset has increased significantly
since initial recognition when contractual payments are more than 30 days past due, unless the Group has reasonable and supportable
information that demonstrates otherwise.
Despite the foregoing, the Group assumes that the credit risk on a financial instrument has not increased significantly since initial recognition if
the financial instrument is determined to have low credit risk at the reporting date. A financial instrument is determined to have low credit risk
if:
1.
2.
3.
the financial instrument has a low risk of default;
the debtor has a strong capacity to meet its contractual cash flow obligations in the near term; and
adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower
to fulfil its contractual cash flow obligations.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 67
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
The Group considers a financial asset to have low credit risk when the asset has external credit rating of ‘investment grade’ in accordance with
the globally understood definition or if an external rating is not available, the asset has an internal rating of ‘performing’. Performing means
that the counterparty has a strong financial position and there is no past due amounts.
The Group regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in credit risk and
revises them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk before the amount becomes
past due.
(ii) Definition of default
The Group considers the following as constituting an event of default for internal credit risk management purposes as historical experience
indicates that financial assets that meet either of the following criteria are generally not recoverable:
•
•
information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the
when there is a breach of financial covenants by the debtor; or
Group, in full.
Irrespective of the above analysis, the Group considers that default has occurred when a financial asset is more than 90 days past due unless
the Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.
(iii) Credit-impaired financial assets
A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that
financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events:
a)
b)
c)
significant financial difficulty of the issuer or the borrower;
a breach of contract, such as a default or past due event (see (ii) above);
the lender(s) to the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the
borrower a concession(s) that the lender(s) would not otherwise consider;
it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or
the disappearance of an active market for that financial asset because of financial difficulties.
d)
e)
(iv) Write-off policy
The Group writes off a financial asset when there is information indicating that the debtor is in severe financial difficulty and there is no
realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or in the
case of trade receivables, when the amounts are over two years past due, whichever occurs sooner. Financial assets written off may still be
subject to enforcement activities under the Group’s recovery procedures, taking into account legal advice where appropriate. Any recoveries
made are recognised in profit or loss.
(v) Measurement and recognition of expected credit losses
The measurement of expected credit losses is a function of the probability of default, loss given default (i.e. the magnitude of the loss if
there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data
PAGE 68
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
adjusted by forward-looking information as described above. As for the exposure at default, for financial assets, this is represented by the
assets’ gross carrying amount at the reporting date.
For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows that are due to the Group in
accordance with the contract and all the cash flows that the Group expects to receive, discounted at the original effective interest rate.
If the Group has measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous reporting period,
but determines at the current reporting date that the conditions for lifetime ECL are no longer met, the Group measures the loss allowance at
an amount equal to 12-month ECL at the current reporting date, except for assets for which the simplified approach was used.
The Group recognises an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying
amount through a loss allowance account.
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.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 69
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
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 timing differences
reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date
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.
PAGE 70
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
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.
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 be required 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.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 71
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
In relation to the services provided, a 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.
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 Retainer 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 has been determined after
management reviewed a sample of contracts in respect of Transaction Fee income. This review was conducted after consideration of the
requirements within IFRS 15 and concluded that there is one performance obligation. 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).
Calculation of incremental borrowing rate and lease term in respect of IFRS 16
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount
rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case
the Group’s incremental borrowing rate on commencement of the lease is used. The Group’s incremental borrowing rate is estimated by
management based on an assessment of market rates for equivalent assets and the Group’s ability to leverage debt and then adjusted for the
specifics of the lease and asset. For every 0.5% increase in the incremental borrowing rate the right of use asset and lease liability recognised
would increase by approximately £16,000, conversely an equivalent reduction in the incremental borrowing rate would decrease the right of
use asset and liability by approximately £16,000.
PAGE 72
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
Lease term is ordinarily calculated by reference to the contractual terms of the Group’s leases. Management may change their estimates in
respect of the term of any lease if the probability of an extension or termination option, within the lease contract, being exercised changes.
As a result of any change in estimate of the lease term the Group adjusts the carrying amount of the lease liability to reflect the payments to
make over the revised term, which are discounted using a revised discount rate. An equivalent adjustment is made to the carrying value of the
right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term. If the carrying amount of the
right-of-use asset is adjusted to zero, any further reduction is recognised in profit or loss. Further details are provided in note 24.
Significant increase in credit risk
As explained in note 3, expected credit losses are measured as an allowance equal to 12-month ECL for stage 1 assets, or lifetime ECL for stage
2 or stage 3 assets. An asset moves to stage 2 when its credit risk has increased significantly since initial recognition. IFRS 9 does not define
what constitutes a significant increase in credit risk. In assessing whether the credit risk of an asset has significantly increased the Group takes
into account qualitative and quantitative reasonable and supportable forward looking information.
Calculation of loss allowance
When measuring expected credit losses the Group uses reasonable and supportable forward looking information, which is based on
assumptions for the future movement of different economic drivers and how these drivers will affect each other.
Loss given default is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and those
that the lender would expect to receive, taking into account cash flows from collateral and integral credit enhancements.
Probability of default constitutes a key input in measuring ECL. Probability of default is an estimate of the likelihood of default over a given
time horizon, the calculation of which includes historical data, assumptions and expectations of future conditions.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 73
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (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 2020
KBS Corporate Sales Limited
KBS Corporate Finance Limited
KBS Capital Markets Limited
Knightsbridge Business Sales Limited
2020
£000
7,091
5,473
50
2,380
14,994
A further breakdown of revenue by type is shown below:
Revenue
Year Ended 31 May 2020
Retainer Fees (over time)
Transaction Fees (point in time)
2020
£000
6,643
8,351
14,994
2019
£000
8,693
2,671
-
2,200
13,564
2019
£000
8,130
5,434
13,564
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 23. The contract
liabilities from 31 May 2019 have been fully recognised in the reported revenue for year end 31 May 2020.
PAGE 74
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (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 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 2020
Amortisation of intangibles – website costs
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Government grants in respect of CJRS
Auditor remuneration
Equity – settled share based payments expenses
Operating lease charge
2020
£000
54
58
219
(344)
33
43
-
2019
£000
16
86
-
-
31
43
235
FINANCIAL | FINANCIAL STATEMENTS
PAGE 75
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
8.
Auditors Remuneration
The analysis of the Auditor’s remuneration is as follows:
Year Ended 31 May 2020
BDO LLP
Fees payable to the Company’s Auditor and their associates for the
audit of the Company’s annual accounts
Fees payable to the Company’s Auditor and its associates for other
services:
Corporate finance services
Total Auditors Remuneration
2020
£000
2019
£000
33
5
38
31
-
31
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 2020
2020
2019
Management
Sales
Marketing / Administration
No.
11
73
82
166
No.
10
71
72
153
The aggregate payroll costs incurred during the year by the Group, relating to the above, were:
Year Ended 31 May 2020
Wages, salaries and bonuses
Share – Based Payments
Social security costs
Other pension costs
2020
£000
5,299
43
565
74
5,981
2019
£000
5,416
43
526
54
6,039
PAGE 76
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
The aggregate payroll costs incurred during the year by the Company relating to the above, were:
Year Ended 31 May 2020
Wages and salaries
Bonuses
Share-based payments
Social Security Costs
Other Pension Costs
2020
£000
561
27
43
74
2
707
2019
£000
651
-
43
82
3
779
The average number of persons employed by the Company during the year, including Directors amounted to:
Year Ended 31 May 2020
Management
2020
No.
6
2019
No.
7
10.
Directors’ and Key Management Remuneration
Group
The Directors’ aggregate remuneration in respect of qualifying services was:
Year Ended 31 May 2020
Group
Wages, salaries, bonuses & benefits in kind
Share – based payments
Social security costs
Pension contributions
2020
£000
1,294
43
166
6
1,509
2019
£000
1,072
43
139
7
1,261
FINANCIAL | FINANCIAL STATEMENTS
PAGE 77
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
Remuneration of highest paid Director in respect of qualifying services:
Year Ended 31 May 2020
Group
Wages, salaries, bonuses & benefits in kind
Social security costs
Pension contributions
Company
2020
£000
285
38
-
323
2019
£000
242
32
1
275
The Directors’ aggregate remuneration in respect of qualifying services was:
Year Ended 31 May 2020
Wages, salaries, bonuses & benefits in kind
Share-based payments
Social security costs
Other pension Costs
2020
£000
588
8
74
2
672
2019
£000
651
8
82
3
744
The Directors are considered to be key management personnel. In FY20 there were 3 Directors in defined contribution pension schemes
(FY19: 6)
Remuneration of highest paid Director in respect of qualifying services:
Year Ended 31 May 2020
Wages, salaries, bonuses & benefits in kind
Social security costs
Pension Contributions
2020
£000
202
27
-
229
2019
£000
242
32
1
275
PAGE 78
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
11.
Finance costs
Year Ended 31 May 2020
Interest on lease liabilities
12.
Tax on Profit
Major components of tax expense
Year Ended 31 May 2020
Current tax:
UK current tax expense
Adjustments in respect of prior periods
Total current tax
Deferred tax:
Origination and reversal of temporary differences (Note
25)
Impact of change in tax rate
Tax on profit
2020
£000
29
2019
£000
-
2020
£000
1,233
(8)
1,225
(10)
-
1,215
2019
£000
889
-
889
12
-
901
FINANCIAL | FINANCIAL STATEMENTS
PAGE 79
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
Reconciliation of tax expense
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% (2019: 19%)
Reconciliation of tax expense
Year Ended 31 May 2020
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
Utilisation of tax losses
Effect of research and development relief
Tax on profit
Changes Affecting Future Tax Rates
2020
£000
6,437
1,223
(8)
1
(1)
-
1,215
2019
£000
4,879
927
-
3
-
(29)
901
In November 2019, the Prime Minister announced that he intended to cancel the future reduction in corporation tax rate from 19% to 17% which
was due to be effective from 1 April 2020. This was announced in the Budget on 11 March 2020 and was substantially enacted on 17 March
2020. Deferred taxes at the balance sheet date have been measured using these enacted tax rates and reflected in these financial statements.
PAGE 80
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (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
2020
£000
5,222
2019
£000
3,978
Initial weighted average of ordinary shares
42,210,526
42,210,526
Basic earnings per share
12.37p
9.43p
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:-
2020
£000
2019
£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
Dilutive weighted average number of ordinary shares
481,052
42,691,578
142,322
42,352,848
Diluted earnings per share
12.23p
9.39p
FINANCIAL | FINANCIAL STATEMENTS
PAGE 81
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
14.
Intangible Assets
Group
Year Ended 31 May 2020
Cost
At 1 June 2018
Additions
At 31 May 2019
Additions
At 31 May 2020
Amortisation
At 1 June 2018
Charge for the year
At 31 May 2019
Charge for the year
At 31 May 2020
Carrying amount
At 31 May 2020
At 31 May 2019
Goodwill
£000
5,812
-
5,812
-
5,812
1,885
-
1,885
-
1,885
3,927
3,927
Website and
software Costs
£000
110
89
199
35
234
45
16
61
54
115
119
138
Total
£000
5,922
89
6,011
35
6,046
1,930
16
1,946
54
2,000
4,046
4,065
£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 .
PAGE 82
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
Company
Cost
At 31 May 2019 and May 2020
Carrying amount
At 31 May 2020
At 31 May 2019
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 2020
31 May 2019
Period on which management approved forecasts are based
5 years
5 years
Growth rate applied beyond approved forecast period
Pre-tax discount rate
1%
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,
which have been reduced in the current financial year to 1% to reflect increased economic uncertainty. Further to this, a series of sensitivities
were applied to base case budgets, including significant reductions to all income streams, with no compensating cost saving measures
activated, to establish appropriate levels of headroom in the carrying amount. Following these stress tests and other reasonable investigations,
no impairment was identified and none of the reasonable changes in key assumptions would be expected to result in any impairment.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 83
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
15.
Tangible Assets
Group
Cost
At 1 June 2018
Additions
At 31 May 2019
Additions
At 31 May 2020
Depreciation
At 1 June 2018
Charge for the year
At 31 May 2019
Charge for the year
At 31 May 2020
Carrying amount
At 31 May 2020
At 31 May 2019
The Company has no tangible assets
Long Lease-
hold property
Fixtures and
fittings
Equipment
£000
£000
£000
34
-
34
-
34
11
11
22
9
31
3
12
98
39
137
-
137
53
43
96
25
121
16
41
101
33
134
26
160
67
32
99
24
123
37
35
Total
£000
233
72
305
26
331
131
86
217
58
275
56
88
PAGE 84
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
16. Right-of-use assets
Cost
At 1 June 2019
Additions
At 31 May 2020
Depreciation
At 1 June 2019
Charge for the year
At 31 May 2020
Carrying amount
At 31 May 2020
Buildings
£000
Motor
vehicles
£000
829
-
829
-
101
101
728
235
26
261
-
118
118
143
Total
£000
1,064
26
1,090
-
219
219
871
The Group leases several assets including buildings and motor vehicles. The average term is 2.4 years.
The Group has options to purchase certain manufacturing equipment for a nominal amount at the end of the lease term. The Group’s obliga-
tions are secured by the lessors’ title to the leased assets for such leases.
Approximately one tenth of the leases for property, plant and equipment expired in the current financial year. The expired contracts were re-
placed by new leases for identical underlying assets. This resulted in additions to right-of-use assets of £26,000 in 2020. The maturity analysis
of lease liabilities is presented in note 24.
Amounts recognised in profit and loss
Depreciation expense on right-of-use assets
Interest expense on lease liabilities
31 May 2020
£000
219
29
The total cash outflow for leases amount to £220,000.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 85
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
17.
Investments
The Group has no investments.
Company
Cost
At 31 May 2019 and 2020
Impairment
At 1 Jun 2018, 31 May 2019 and 31 May 2020
Carrying amount
At 31 May 2019
At 31 May 2020
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 2020
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
The Registered Office address of the subsidiaries is:
KBS House
5 Springfield Court
Summerfield Road
Bolton
England
BL3 2NT
PAGE 86
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
18.
Trade and Other Receivables
Year Ended 31 May 2020
Group
Company
Trade receivables
Allowance for doubtful debts
Other receivables
2020
£000
5
-
5
-
5
2019
£000
43
-
43
-
43
2020
£000
2019
£000
-
-
-
18
18
-
-
-
8
8
The carrying amount of trade and other receivables approximates to their fair value.
19.
Other Financial Assets
Year Ended 31 May 2020
Group
Company
Amounts owed by Group undertakings
2020
£000
-
-
2019
£000
-
-
2020
£000
2,833
2,833
2019
£000
-
-
The amounts owed by Group undertakings are stated at the undiscounted amount as the amounts were repayable on demand. They are unse-
cured and no interest is charged on the balances.
There is minimal risk of a default occurring on the balances due from each counterparty included in this financial asset and that the entity’s
credit risk exposure in respect of this financial asset (i.e. the risk inherent in an entity’s financial assets and commitments to extend credit) is
minimal. The risk that each of the Group company borrowers will default on their portion of the demand loan is very low (possibly close to 0%
and the loan is in Stage 1) because the Group companies concerned have sufficient cash to repay the loan immediately. The loss allowance is
determined as the amount equal to 12-month expected credit losses that, in this case, is equal to nil.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 87
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
20.
Other Assets
Year Ended 31 May 2020
Group
Company
Prepayments
21.
Trade and Other Payables
2020
£000
266
2019
£000
380
2020
£000
29
2019
£000
24
Year Ended 31 May 2020
Group
Company
Trade payables
Amounts due to Group undertakings
Accruals
Other taxation and social security
Other payables
2020
£000
191
-
311
556
22
1,080
2019
£000
112
-
293
690
35
1,130
2020
£000
7
575
45
1
2019
£000
3
3,095
53
26
4
628
3,181
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/related parties are stated at the undiscounted amount as they are repayable on demand. No interest
is paid/payable and the loans are not secured.
22.
Current Tax Liabilities
Year Ended 31 May 2020
Group
Company
Corporation tax payable
2020
£000
924
2019
£000
288
2020
£000
-
2019
£000
-
PAGE 88
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
23.
Contract Liabilities
Year Ended 31 May 2020
Group
Company
Arising from client contracts
2020
£000
1,369
2019
£000
1,645
2020
£000
-
2019
£000
-
The contract liabilities arise from the non-contingent contracts provided to certain customers in respect of providing business marketing and
research to these clients. Revenue is recognised and deferred in accordance with services provided within contract terms.
24.
Lease Liabilities
Year Ended 31 May 2020
Group
Company
Analysed as:
Non-current
Current
Year Ended 31 May 2020
Maturity Analysis
Year 1
Year 2
Year 3
Year 4
Year 5
Onwards
2020
£000
671
200
871
2020
£000
-
-
-
Group
Company
2020
£000
200
150
107
104
104
206
871
2020
£000
-
-
-
-
-
-
-
The Group does not face a significant liquidity risk with regard to its lease liabilities. Lease liabilities are monitored within the Group’s treasury
function.
All lease obligations are denominated in Sterling.
Opening lease liability was £1,064k. In the year, £27k of interest was incurred and £220k of payments made, leaving the closing balance of
£871k
FINANCIAL | FINANCIAL STATEMENTS
PAGE 89
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
25.
Deferred Tax Liability
Year Ended 31 May 2020
Group
Company
Liability at 1 June 2018
Charge for the year
Liability at 31 May 2019
Credit for the year
Liability at 31 May 2020
26.
Share Capital
Allotted, called up and fully paid
Year Ended 31 May 2020
Group
Amounts presented in equity:
Ordinary shares
£000
(23)
(12)
(35)
10
(25)
£000
-
-
-
-
-
2020
2019
No.
£000
No.
£000
42,210,526
42,210,526
422
422
42,210,526
42,210,526
422
422
PAGE 90
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
27. Financial Instruments
The Group’s principal financial instruments comprise cash and cash equivalents, trade and other receivables, trade and other payables and
lease liabilities. 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 2020
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
Lease liabilities
Total financial liabilities
Total financial instruments
Year Ended 31 May 2020
Financial assets measured at amortised cost
Trade receivables
Amounts owed from Group undertakings
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
2020
£000
5
8,271
8,276
524
871
1,395
6,881
2020
£000
18
2,834
99
2,951
53
575
628
2,323
Company
2019
£000
43
5,753
5,796
440
-
440
5,356
2019
£000
32
-
126
158
86
3,095
3,181
(3,023)
FINANCIAL | FINANCIAL STATEMENTS
PAGE 91
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
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 expected losses in respect of the trade and other
receivables as appropriate. The allowance comprises a provision against individually significant exposures.
Ageing analysis
The ageing analysis of the Group’s trade receivables is as follows
Year Ended 31 May 2020
Current
Up to 30 days
30 to 60 days
60 days and older
Bad debt provision
Group
2020
£000
5
-
-
-
5
-
5
2019
£000
28
10
1
4
43
-
43
These receivables are not secured by any collateral or credit enhancement. Normal credit terms are 30 days.
PAGE 92
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
The maximum exposure to credit risk at each balance sheet date was:
Year Ended 31 May 2020
Group
Net trade receivables
Cash and cash equivalents
2020
£000
5
8,271
8,276
2019
£000
43
5,753
5,796
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.
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.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 93
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
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.
The following table details the Group’s remaining contractual maturity for its lease liabilities. The table has been drawn up based on the
undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both
interest and principal cash flows.
The contractual maturity is based on the earliest date on which the Group may be required to pay.
Less than 1 month
1 – 3 months
3 months to 1 year
1 – 2 years
2 – 5 years
5+ years
Total
Carrying amount
Weighted average effective interest rate %
Group
2020
£000
19
38
166
171
376
177
947
871
3.00%
PAGE 94
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
28. 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 the 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 ended 31 May
2020, in respect of series 1 and publication of and the earliest expected date for exercise would be after 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 2020 was £43,000
(2019: £43,000).
FINANCIAL | FINANCIAL STATEMENTS
PAGE 95
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
Movements in share options in the year
The following reconciles the share options outstanding at the beginning and end of the year.
2020
Number of options
Weighted average
exercise price
2019
Number of options
Weighted average
exercise price
Balance at beginning of year
Forfeited during the year
1,627,123
(10,000)
1,617,123
£
1.24
1.81
1.23
1,735,633
(108,510)
1,627,123
£
1.22
0.95
1.24
All outstanding options are currently vesting, such that no options were exercisable at 31 May 2020.
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 £1.23 (2019: £1.24) and a weighted average
remaining contractual life of 2,598 days (2019: 2,966)
29.
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 correct 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
2020
£000
146
2019
£000
99
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.
PAGE 96
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
30.
Dividends
Year Ended 31 May 2020
Dividends paid on equity shares
Ordinary shares
Total
Dividend per share (unadjusted)
Ordinary shares
Dividend per share (adjusted)
Ordinary shares
31.
Commitments
2020
£000
3,250
3,250
2020
7.70p
2020
7.70p
2019
£000
5,065
5,065
2019
12.00p
2019
12.00p
The total future minimum lease payments under non-cancellable operating leases are as follows:
Not later than 1 year
Later than 1 year and not later than 5 years
32.
Events after the reporting date
Group
Company
2019
£000
238
284
522
2019
£000
-
-
-
Share issue and placing
On 29 June 2020 the Group announced a fundraise through the issue and placing of new shares with both institutional and retail investors.
In total 21,845,862 new ordinary shares were issued at a price of 150p per share and were admitted to the market in two tranches. The first
admission of shares was for 6,198,521 shares on 1 July and the second admission was for the remaining 15,647,341 on 20 July 2020. The purpose
of the fundraise was to enable the completion of two strategic acquisitions by the Group further details of which are provided below.
FINANCIAL | FINANCIAL STATEMENTS
PAGE 97
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
Acquisition of randd UK Limited
On 29 June 2020, the Group conditionally agreed to acquire randd UK Limited (company number 06648783) (“randd”), a UK based private
company specialising in securing R&D tax credits for clients, for an initial consideration of £9.27 million, in addition to a
maximum earn out of £7.5 million. The completion had an effective date of 1st June 2020.
The initial consideration of £9.27 million plus surplus cash was satisfied by the issue of 6,178,521 new ordinary shares in the Company of which
4,633,891 were sold at 150p per share by way of a vendor placing The Initial Consideration Shares not sold in the Vendor Placing are subject to
a 2 year lock-in, followed by a 12 month orderly market agreement.
The earn out is forecast to be £2.32 million payable over 3 years with mechanisms to increase or decrease subject to certain performance
criteria. The earn out is capped at £7.5 million and is payable in cash and shares as follows:
- FY21: 60% cash, 40% shares
- FY22: 70% cash, 30% shares
- FY23: 80% cash, 20% shares
Earn out shares are subject to a 2 year lock-in for FY21 and a 1 year lock-in for FY22.
As part of the strategic planning around this acquisition, a total of 666,664 Share Options were issued to key management under the existing
LTIP scheme with performance criteria set over the next three financial years
The completion had an effective date of 1st June 2020, with the profits from 1st June 2020 reflected within the Group, following an interest
charge of £0.2m paid to the sellers on completion.
At the date of authorisation of these financial statements a detailed assessment of the fair value of the identifiable net assets and
consideration paid has not been completed. The Group is still assessing the debtor book and is not yet in a position to accurately assess the
final level of uncollectable contractual cash flows, if any.
It is expected that some goodwill will be recognised. This goodwill represents items, such as the assembled workforce, which do not qualify
for recognition as separable assets.
PAGE 98
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
Acquisition of Quantuma Advisory Limited
On 31 July 2020, the Group acquired the entire issued and to be issued share capital of Quantuma Advisory Limited (company number
12743937), a holding company containing the assets of Quantuma LLP (company number OC379411) (“Quantuma”), a UK-focused business
providing advisory services including restructuring and insolvency, corporate finance and forensics, for a cash free, debt free initial
consideration of £26.95 million to be satisfied through a combination of cash and ordinary shares of 1 penny each in the Company (“Ordinary
Shares”), in addition to maximum combined earn outs of £15 million and an additional 645,513 Growth Shares.
The initial consideration of £26.95 million was satisfied through £20.22 million in cash from the Group’s existing cash reserves and the issue of
4,492,667 Ordinary Shares (being £6.74 million at an issue price of £1.50) satisfied through the Company’s existing authorities (“Consideration
Shares”). The Consideration Shares were admitted to trading on AIM on 6 August 2020.
The Consideration Shares are subject to a 2 year lock-in, followed by a 12 month orderly market agreement. The lock-in agreements are each
capable of being modified, waived or cancelled in the event each of the parties to the respective lock-in agreement are in agreement it is in
the best interests of maintaining an orderly market.
The earn out is split into three tranches, with the first tranche forecast to be £6.74 million payable over 3 years with mechanisms to increase or
decrease subject to certain performance criteria. The first tranche is payable as to 60% cash and 40% shares across the next 3 financial years
ending 31 May 2023 (the “First Earn Out”).
The First Earn Out shares are subject to a 2 year lock-in. The lock-in agreements are each capable of being modified, waived or cancelled in
the event each of the parties to the respective lock-in agreement are in agreement it is in the best interests of maintaining an orderly market,
subject to the approval of the Company’s broker at that time and also certain other limited circumstances (including but not limited to a
transfer to executors on death, in acceptance of an offer for the entire issued share capital of the Company, and pursuant to a court order).
The second tranche of the earn-out is payable wholly in cash in each of the next three financial years, subject to certain threshold levels of
normalised EBITDA having been achieved by Quantuma (the “Second Earn Out”).
The date for payment and/or issue of Ordinary Shares, as applicable, in respect of the First Earn Out and Second Earn Out is set at 31 August
in each relevant financial year. The First Earn Out and Second Earn Out are capped at £15 million in aggregate.
The third tranche of the earn out comprises 645,513 shares issued in K3 Capital Holdings Limited, a wholly owned subsidiary of the Company
(the “Third Earn Out”). The Third Earn Out shares have the same terms as those governing the Growth Shares, set out in the section below, but
are separately classified as they are being issued as part of the consideration payable for the Acquisition. The acquisition of the Third Earn Out
shares has been financed by the sellers having reinvested part of their sale proceeds.
At the date of authorisation of these financial statements the completion accounts and a detailed assessment of the fair value of the
identifiable net assets and consideration paid have not been completed. The Group is still assessing the debtor book and is not yet in a
position to accurately assess the final level of uncollectable contractual cash flows, if any.
It is expected that some goodwill will be recognised. This goodwill represents items, such as the assembled workforce, which do not qualify
FINANCIAL | FINANCIAL STATEMENTS
PAGE 99
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
for recognition as separable assets.
Group restructure
Immediately following the acquisition of Quantuma the Group was reorganised in a share for share exchange such that the following entities
were simultaneously transferred by K3 Capital Group Plc (“K3C”) to a new wholly and directly owned subsidiary of K3C, K3 Capital Group
Holdings Limited, in consideration for the issuance of new ordinary shares by K3 Capital Group Holdings Limited to K3C:
a)
b)
c)
d)
e)
Knightsbridge Business Sales Limited;
KBS Corporate Sales Limited;
KBS Corporate Finance Limited;
RANDD UK Limited; and
Quantuma Advisory Limited.
This will leave the Group with only two direct subsidiaries, K3 Capital Group Holdings Limited and KBS Capital Markets Limited.
Adoption of New Share Incentive Plan and Grant of Share Incentives
The Company’s Remuneration Committee has, in consultation with external advisers, adopted a new share incentive plan, in the form of a
growth share plan (the “Plan”) designed to incentivise delivery of the Company’s growth objectives over the period to 31 May 2023.
The Remuneration Committee considers that the Plan will comprise an important aspect in aligning key management and employees of the
newly acquired businesses with the Group’s growth strategy and it considers the performance targets to be challenging. The Plan allows
employees to share in the Company’s success when the business strategy is executed successfully. The Company believes that whilst these
awards are one-off in nature, they will give its new employees the opportunity to build up a meaningful shareholding in the Company which
further aligns their interest with shareholders and will help maintain the culture within K3 which encourages strong and sustained corporate
performance that drives absolute returns to shareholders over the longer-term.
Certain senior managers of Quantuma (the “Participants”) have subscribed for in aggregate 2,075,908 growth shares (the “Growth Shares”)
under the Plan at a market value determined by the Company’s independent advisers.
“Growth Share Awards” are awards granted in the form of an immediate beneficial interest to be held by participants in a discrete and bespoke
class of ordinary shares, namely the Growth Shares in K3 Capital Holdings Limited. After a minimum period of three years (being not before
the announcement of the Company’s financial results for the financial year ending 31 May 2023), the Growth Shares may be exchanged for
new Ordinary Shares or cash (at the Company’s discretion), subject to the rules of the plan, continued employment, and meeting certain
share price hurdles, which the Remuneration Committee considers to be challenging. If the share price for the 5 day period following the
announcement of the Company’s financial results for the financial year 2023 is below £3.00, all of the Growth Shares will be bought back by
the Company for nominal value. If the share price following the announcement of the Company’s financial results for the financial year 2023
is above £3.00, the Growth Shares will partially vest with vesting in full at £3.50, when each vested Growth Share may be exchanged for an
ordinary share in the Company.
The Remuneration Committee has the discretion to reduce awards if it considers an individual’s performance does not justify full vesting of the
PAGE 100
K3 CAPITAL GROUP PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MAY 2020 (CONTINUED)
awards.
Long Term Incentive Plan 2017
As stated as an intention at the time of the acquisition of randd, the Company has granted awards comprising a total of 666,664 options over
new Ordinary Shares in the Company to certain senior management at randd under the Group’s existing Long Term Incentive Plan 2017. The
Awards are exercisable at a price of 150 pence per new Ordinary Share.
These options will vest on the third anniversary of the grant date subject to the rules of the plan, continued employment and achievement of
performance conditions:
•
•
50% of any award will vest dependent on the achievement of an adjusted EBITDA target; and
50% will vest dependent on achievement of a total shareholder return target, each subject to a specific target for each reporting year.
Vested options will be exercisable on the third anniversary of the grant date and will lapse on the tenth anniversary of the grant date.
Following the above grant, no further grants will be made under the Long Term Incentive Plan 2017 and the scheme has now been closed.
Audit exemption statement
33.
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 2020 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
Controlling party
34.
There is no one controlling party of the Group, given the shares are traded on the AIM market. Details of significant shareholders are provided,
in accordance with market requirements, on the investor section of the website.
FINANCIAL | NOTICE OF MEETING
PAGE 101
NOTICE OF ANNUAL
GENERAL MEETING
Notice is hereby given that the fourth 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 16 October at 11.00am. Given the
constantly evolving situation relating to the current outbreak of COVID-19 in
the UK, the Company is hopeful that it will be possible for the AGM to be held
as normal in accordance with current Government social distancing guidance.
However, should the UK Government change current guidance or implement
further restrictions which impact the holding of the AGM, the Company will
update shareholders accordingly.
You will be asked to consider and vote on the Resolutions below. Resolutions 1
to 10 will be proposed as Ordinary Resolutions and Resolutions 11 and 12 will be
proposed as Special Resolutions.
ORDINARY BUSINESS
Resolution 1 – To receive the Company’s annual accounts for the year ended
31 May 2020 together with the Directors’ report and auditor’s report on those
accounts.
Resolution 2 – To declare a final dividend in the sum of 3.8 pence per Ordinary
Share for the year ended 31 May 2020.
Resolution 3 – To re-elect Charlotte Stranner as a non-executive Director of the
Company.
Resolution 4 – To re-elect Carl Jackson as a Director of the Company.
Resolution 5 – To re-elect Andrew Melbourne as a Director of the Company.
Resolution 6 – To re-elect Anthony Ford as a Director of the Company.
Resolution 7 – To receive the Report on Directors’ Remuneration as set out in
the Company’s annual report and accounts for the year ended 31 May 2020.
Resolution 8 – 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 9 – To authorise the Directors to determine the auditor’s remuneration.
Resolution 10 – That:
10.1. 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) comprising equity securities (as defined in section 560(1) of the Act)
up to an aggregate nominal amount of £456,993.70 (such amount to be
reduced by the aggregate nominal amount of equity securities allotted
pursuant to paragraph 10.1(b) of this resolution) in connection with a rights
issue as follows:
(i) to holders of ordinary shares in the capital of the Company (Ordinary
Shares) in proportion (as nearly as practicable) to the respective numbers
of Ordinary Shares held by them; 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
(b) otherwise than pursuant to paragraph 10.1(a) of this resolution, up to an
aggregate nominal amount of £228,496.85,
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;
10.2. this authority shall expire on the earlier of the date 15 months from the
passing of this Resolution 10 or the conclusion of the next annual general
meeting of the Company after the passing of this Resolution 10 (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
10.3. all previous authorities granted under Section 551 of the Act be revoked.
PAGE 102
K3 CAPITAL GROUP PLC
NOTICE OF ANNUAL
GENERAL MEETING
SPECIAL BUSINESS
Resolution 11
11.1. That subject to the passing of Resolution 10 above and pursuant to section
570 of the Act, the Board be authorised and are generally empowered to allot
equity securities (as defined in section 560(1) of the Act) 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:
(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 10.1(b)(ii), by way of
a rights issue only):
(i) to the holders of ordinary shares in the capital of the Company in
proportion (as nearly as may be practicable) to their respective holdings;
(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
(b) the allotment of equity securities or sale of treasury shares pursuant
to the authority granted by Resolution 10.1(a) (otherwise than pursuant to
Clause 11.1(a) of this Resolution) up to an aggregate nominal amount of
£68,549.06.
The authority granted by this Resolution 11 shall expire on the earlier of the date
15 months from the passing of this Resolution 11 or the conclusion of the next
annual general meeting of the Company after the passing of this Resolution 11
(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.
The authority granted by this Resolution 11 revokes and replaces all unexercised
powers previously granted to the Directors to allot equity securities or sell
treasury shares under section 570 of the Act as if section 561 of the Act 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 12
12.1. That the Company be and is hereby generally and unconditionally authorised
for the purposes of section 701 of the Act to make market purchases (within
the meaning of section 693(4) of the Act) of its ordinary shares of 1 pence each
in the capital of the Company and to cancel or hold in treasury such shares
provided that:
(a) the maximum aggregate number of ordinary shares authorised to be
purchased is 3,427,453 (representing 5 per cent of the Company’s issued
share capital as at the opening of business on 21 September 2020):
(b) the minimum price (exclusive of expenses) which may be paid for an
ordinary share is its nominal value of £0.01 each;
(c) the maximum price which may be paid for an ordinary share is the
higher of:
(i) an amount equal to 105 per cent of the average of the middle market
quotations for the ordinary shares as derived from the AIM Appendix of
the Daily Official List of London Stock Exchange plc for the five business
days immediately preceding the day on which the purchase is made; and
(ii) an amount equal to the higher of the price of the last independent
trade of an ordinary share and the highest current independent bid for
an ordinary share on the trading venue where the purchase is carried
out;
(d) unless otherwise revoked, varied or renewed, the authority hereby
conferred shall apply until the end of next year’s annual general meeting
or, if earlier, until the close of business on the date fifteen months from the
date of the passing of this Resolution;
(e) the Company may enter into a contract or contracts to purchase
ordinary shares under the authority hereby conferred prior to the expiry
of such authority which will or may be executed wholly or partly after the
expiry of such authority and may make a purchase of the ordinary shares
pursuant to any such contract or contracts.
By Order of the Board
AM
ANDREW MELBOURNE FCMA
Company Secretary
21 September 2020
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 103
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 14 October 2020
(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 14 October 2020.
We strongly encourage shareholders to vote by proxy where possible. Should
the UK Government change current guidance and attendance at the Annual
General Meeting be restricted as a result, it is important that shareholders have
the opportunity to see their voting intentions recognised.
4. Documents available for inspection
Copies of service contracts of the Directors of the Company 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 14 October 2020 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 and/or preference 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
PAGE 104
K3 CAPITAL GROUP PLC
NOTICE OF ANNUAL
GENERAL MEETING
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.
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.
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
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.
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/
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.
13. Total voting rights
As at 21 September 2020 (being the last practicable date prior to the printing
of this Notice) the Company’s issued share capital consisted of 68,549,055
ordinary shares, carrying one vote each. No shares were held in treasury by the
Company. Therefore the total voting rights available in the Company as at 21
September 2020 are 68,549,055.
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.
AGM
16
OCTOBER
D I V I D E N D
2 7
O C T O B E R
FINANCIAL | NOTICE OF MEETING
PAGE 105
NOTICE OF ANNUAL
GENERAL MEETING
EXPLANATORY NOTES TO THE NOTICE OF MEETING
Notice of the fourth 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 16 October 2020 at 11.00am is set out at pages 103 to 104. 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 10 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 3.8 pence per share for the
year ended 31 May 2020. Subject to approval being given, the final dividend is
expected to be paid on 27 October 2020 to shareholders on the register at the
close of business on 08 September 2020 (ex div date).
Resolutions 3, 4, 5 and 6 – appointment or reappointment of Directors
Each of Charlotte Stranner and Carl Jackson 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 by virtue of the fact they had both been appointed
as a Director since the last annual general meeting. Both being eligible, they
are seeking re-appointment by the Company’s shareholders.
Each of Andrew Melbourne and Anthony Ford 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 by virtue of the fact neither had been elected or
re-elected at either of the two preceding annual general meetings. Both being
eligible, they are seeking re-appointment by the Company’s shareholders.
Brief biographical details of all individuals who are seeking re-appointment
and their brief biographical details are set out on the Company’s website at
www.k3capitalgroupplc.com/about/board-of-directors and on pages 28 to 29
of the 2020 Annual Report and Accounts.
Resolution 7 – 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 2020. Since Resolution 7 is an advisory
resolution only, it does not affect the remuneration paid to any Director.
Resolution 8 – 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 9 – auditor’s remuneration
In accordance with normal practice, the Directors are asking for your authority
to determine the auditor’s remuneration.
Resolution 10 - renewal of authority to allot shares
This resolution effectively seeks renewal of the Directors’ existing authority to
allot shares and grant rights.
The Directors of a company may only allot shares if they have been authorised
to do so by shareholders in a general meeting. Resolution 10 renews a similar
authority given at last year’s annual general meeting and seeks authorisation
from shareholders to allot shares as follows:
(a) the first part of Resolution 10 authorises the Directors to allot Ordinary
Shares up to an aggregate nominal amount of £ 456,993.70 (representing
two thirds of the issued share capital of the Company as at 21 September
2020, being the latest practicable date prior to publication of this
document) in connection with a rights issue. The amount of this authority
will reduce by the nominal value of the Ordinary Shares allotted pursuant
to the authority granted by the second part of Resolution 10; and
(b) the second part of Resolution 10 authorises the Directors to allot
Ordinary Shares up to an aggregate nominal amount of £228,496.85
(which represents approximately one third of the issued share capital of
the Company as at 21 September 2020, being the latest practicable date
prior to publication of this document). Therefore the maximum nominal
amount of shares and rights that may be allotted or granted under this
resolution is £ 685,490.55.
These limits are in line with the guidelines issued by The Investment Association.
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 and
to satisfy consideration obligations in respect of corporate acquisitions and
other similar commitments. However, it is considered prudent to maintain the
flexibility that this authority provides.
PAGE 106
K3 CAPITAL GROUP PLC
NOTICE OF ANNUAL
GENERAL MEETING
in the Company’s admission document dated 6 April 2017 (the Concert Party).
Currently, the aggregate holdings of the members of the Concert Party sit
below 30% at 27.50% and, if the buy back authority were to be exercised in
full, would proportionately increase only to a possible maximum of 29.00% of
the total voting rights in the Company. Accordingly, as the aggregate holdings
of the Concert Party would not increase to between 30% and 50%, this would
not give rise to an obligation on the Concert Party to make a general offer
to all shareholders under Rule 9 of the Code and, as such, no waiver of that
obligation would be required.
The Directors believe it is in the best interests of the Company to buy ordinary
shares if they become available at an attractive price. The Board will only
exercise such authority if it considers that the effect of such purchase would
be to increase earnings and/or net assets per ordinary share and that such
exercise would be in the best interests of shareholders generally.
Any ordinary shares the Company buys under this authority may either be
cancelled or held in treasury.
ATTENDING THE MEETING, WHAT TO BRING
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.
Please note that subject to any updates from the UK Government in relation to
the rules on social distancing, you will be asked to wear a face covering whilst
attending the meeting (unless an appropriate exemption applies).
ACCESSIBILITY
The office of TLT LLP is easily accessible by wheelchair users and has lift access
inside.
As at the date of the notice, no shares are held by the Company in treasury.
Resolutions 11 and 12 are special resolutions; this means that for each of these
resolutions to be passed, at least three-quarters of the votes cast must be cast
in favour.
Resolution 11 - 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 existing shareholdings. This authority would be limited to allotments
or sales of up to an aggregate nominal amount of £68,549.06, representing
approximately 10% of the Company’s issued share capital as at 21 September
2020. Whilst such authority is in excess of the 5% of existing issued ordinary
share capital which is commonly accepted and recommended for larger listed
companies, it will provide additional flexibility which the Directors believe is in
the best interests of the Company in its present circumstances. A lower amount
would, in the opinion of the Directors, be too restrictive for the Company’s
potential needs and render any such issue of limited value on the grounds
of the relatively small net proceeds realised and the costs associated with it.
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 12 – purchase of own shares
This resolution is to approve the authority of the Company to purchase its
own ordinary shares in the market. The authority limits the number of ordinary
shares that could be purchased to a maximum of 3,427,453 ordinary shares
(equivalent to 5% of the Company’s issued ordinary shares capital as at the
opening of business on 21September 2020; being the last practicable date
prior to the publication of this document) and sets a minimum and maximum
price.
The authority would, unless previously renewed, revoked or varied by
shareholders, remain in force up to the conclusion of next year’s annual general
meeting (or, if earlier, the date 15 months from the passing of the resolution).
The Directors are seeking such authority, as compared to previous years
where no such authority was sought, due to the fact that the Company would
now be able to exercise the proposed authority in full without triggering the
requirement for a waiver of the obligation to make a general offer under Rule 9
of the Code which might arise if the Company purchased its own voting shares
using the share buy back authority granted pursuant to this Resolution 11.
As previously announced, Tony Ford, John Rigby, Andrew Melbourne, Simon
Daniels, Matthew Clancy and Stuart Lees, together with their respective
families and other connected persons are deemed to be acting in concert and
regarded by the Takeover Panel to be members of the concert party detailed
FINANCIAL | NOTICE OF MEETING
PAGE 107
NOTICE OF ANNUAL
GENERAL MEETING
SHAREHOLDER ENQUIRIES
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.
BY TRAIN
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 109
GLOSSARY
OF TERMS
Term
Sales
Appointments
Quotes
Retainer Fee
Client Mandate
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.
The fee paid by the client upon engaging K3 to sell their business.
A new client signing terms and conditions to engage K3 services.
Regional Director
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
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.
WIP / Transactions in Legal Exclusivity
Clients and potential Transaction Fee values attributed to Offers agreed in principal and progressing with lawyers.
Transaction Fee / 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 / 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