3rd Apr 2008 07:01
K3 Business Technology Group PLC03 April 2008 KBT K3 BUSINESS TECHNOLOGY GROUP PLC ("K3" or "the Group") IT solutions supplier to the supply chain industry Announces Preliminary Results for the Year to 31 December 2007 Highlights * Excellent results reflecting strong organic growth and partial benefits of earnings enhancing acquisitions * Revenue increased by 25% to £34.15m (2006: £27.35m) * Adjusted profit before tax*1 rose by 78% to £4.72m (2006: £2.66m) Profit before tax rose by 43% to £3.68m (2006: £2.57m) * Cash generated from operations increased by 182% to £6.23m (2006: £2.21m) * Adjusted earnings per share*2 rose by 60% to 16.8p (2006: 10.5p) Earnings per share rose by 41% to 13.4p (2006: 9.5p) * Dividend of 0.5p proposed (2006: nil) * Recurring revenues from licence and maintenance fees now totals £13.8m on annualised basis * Three highly complementary acquisitions completed: - two manufacturing software businesses (MBL and Index) and a retailer software provider (Landsteinar) - full benefits to be evident in 2008 * Disposal of non-core business, Elucid, in February 2007 * Board views the prospects for 2008 positively - sales pipeline at record levels *1 Calculated before amortisation of acquired intangibles of £0.90m (2006: nil) and share-based payment costs of £0.15m (2006: £0.09m). *2 Calculated before amortisation of acquired intangibles of £0.90m (2006: nil), share-based payment costs and related tax charge of £0.11m (2006: £0.06m) and loss on disposal of operations including the related tax charge of £0.14m (2006: £0.11m). Tom Milne, Chairman, commented, "K3 made excellent progress over the year as results demonstrate. The threeacquisitions we made during the year have added critical mass to the businessand significantly enhanced recurring income streams and operating cash flow. Wehave yet to exploit the full benefits of all our acquisitions and seesignificant potential to come from them in future. We continue to look for complementary acquisition opportunities that willenhance our existing product range and skills or bring additional routes tomarket. Our product range is now also sufficiently broad to consider theacquisition of 'feeder' businesses, with established customer bases in ourchosen sectors. These will provide predictable, recurring income streams butalso deliver opportunities for cross-selling as customers upgrade their existingsoftware solutions with newer Microsoft products. We continue to view the Group's prospects for 2008 positively." Enquiries: K3 Business Technology Andy Makeham, Chief Executive T: 020 7448 1000 (today)Group plc David Bolton, Chief Finance Officer Thereafter: 01282 864111 Biddicks Katie Tzouliadis T: 020 7448 1000 Daniel Stewart (NOMAD) Paul Shackleton T: 020 7776 6550 CHAIRMAN'S STATEMENT Overview K3 made excellent progress over the year as results demonstrate. Revenue for the12 months to 31 December 2007 increased by 25% to £34.15m and adjusted profitbefore tax*1 rose by 78% to £4.72m, with adjusted earnings per share*2increasing by 60% to 16.8p. Profit before tax rose by 43% to £3.68m withearnings per share increasing by 41% to 13.4p. Both legs of the business, the Retail Software Division and the ManufacturingSoftware Division, performed well. In addition, during the year, we acquiredthree complementary businesses, two in manufacturing software and one in retailsoftware. These made partial contributions to this year's results but, moresignificantly, they greatly enhance prospects for the Group for 2008 and beyond. The acquisition of McGuffie Brunton Limited ("MBL") in April 2007 transforms ourManufacturing Software Division. As the only other domestic distributor ofSYSPRO, it makes K3 the sole supplier in the UK for a system which is widelyrecognised as the leading software range in mid-tier manufacturing. The mergerof MBL with our existing SYSPRO business brings substantial benefits which willbe more evident in 2008. One immediate benefit I am pleased to highlight isMBL's large customer base which delivers substantial recurring income fromannual licence and maintenance fee renewals. Just before the end of thefinancial year we acquired Index Computer Systems Limited ("Index"), a leadingreseller of Microsoft Dynamics AX (Axapta) suite of business software and aMicrosoft Gold Partner. Index takes the Manufacturing Software Division into thecomplementary field of 'process' manufacturing and, as one of the fastestgrowing solutions in the market for larger manufacturing companies, Axapta opensup exciting new opportunities for the Division. Prospects for the Retail Software Division have been enhanced with the purchaseof Landsteinar Nederlands BV ("Landsteinar") in August 2007. Based in Holland,Landsteinar distributes the same software as our UK business and so is acomplementary business in an area we understand. Importantly, it also gives us aEuropean footprint. We see our UK business gaining from Landsteinar in terms ofproduct enhancement but, more significantly, we believe we can use our marketingand sales expertise to grow the Landsteinar business. An important developmentin 2007 was our investment to incorporate a multi-channel solution in our Retailsoftware. This is a significant step for us and the customer base, given theincreasing importance of online sales for retailers. The three acquisitions we have made considerably strengthen the Group, addingcritical mass to our existing operations, increasing our presence within ourchosen markets sectors and broadening our market opportunities. The fullbenefits of the acquisitions, and particularly of Landsteinar, will be morefully felt in trading results for 2008. Results will continue to be weightedtowards the second half of the year since the majority of licence fee revenuesin the Manufacturing Software Division occur in October. However the weightingin the financial year to 31 December 2008 will be less marked following theacquisition of Landsteinar. The Board remains optimistic about the Group'sprospects for 2008. Financial Results These full year results are reported under International Financial ReportingStandards as endorsed by the EU ("IFRS") for the first time. Accordingly,comparative results for the prior year, ending 31 December 2006, have beenrestated. The impact on our operating results of adopting IFRS is notsignificant. However, it has resulted in a reduction in the amortisation ofintangible assets arising on acquisitions and a small change in the level ofholiday pay accruals. Group revenue for the year to 31 December 2007 increased by 25% to £34.15m from£27.35m last year. This included a nine month contribution from MBL, a fourmonth contribution from Landsteinar but only a very limited contribution fromIndex, which we acquired in mid December. In total, the acquisitions contributed£7.23m to Group revenue. Adjusted profit from operations*1 for the year rose by 97% to £5.76m (2006:£2.92m). After amortisation of acquired intangible assets of £0.90m (2006: nil)and share-based payment costs of £0.15m (2006: £0.09m), the profit fromoperations was £4.71m (2006: £2.83m), an increase of 66% on last year. Adjusted profit before tax*1 rose by 78% to £4.72m (2006: £2.66m) and adjustedearnings per share*2 increased by 60% to 16.8p (2006: 10.5p). After taking intoaccount amortisation of acquired intangibles of £0.90m (2006: nil), andshare-based payment costs of £0.15m (2006: £0.09m), profit before taxationincreased by 43% to £3.68m (2006: £2.57m) and the earnings per share rose by 41%to 13.4p (2006: 9.5p). At 31 December 2007, the Group's cash balance stood at £3.09m (2006: £2.27m) andthe balance of bank and other loans was £16.48m (2006: £1.57m). The rise inborrowing resulted from loans taken out to finance the cash element of theacquisitions of MBL, Landsteinar and Index. Dividend Reflecting the substantial progress the business has made, the Board isdelighted that the Group is in a position to commence the payment of dividendsand is pleased to propose a net dividend of 0.5p per share (2006: nil). Thiswill be paid on 11 June 2008 to shareholders on the register at the close ofbusiness on 16 May 2008, subject to shareholder approval at the Annual GeneralMeeting, which is to be held at the offices of K3 Supply Chain SolutionsLimited, Baltimore House, 50 Kansas Avenue, Salford Quays, Manchester M50 2GL on4 June 2008 at 10.30 am. Review of Operations Retail Software Division The Retail Software business generated total sales of £20.47m, an increase of25% over last year (2006: £16.44m) and the adjusted profit from operations*3rose by 79% to £2.91m (2006: £1.63m) against the same period last year. Theseresults included only four months contribution from Landsteinar, which wasacquired in August 2007. Landsteinar generated revenues of £1.61m and anadjusted profit from operations*4 of £0.57m. The core UK business performed extremely well, with sales increasing by 15% overthe year to £18.86m (2006: £16.44m) and adjusted profit from operations*5 risingby 44% to £2.34m (2006: £1.63m). These strong results were driven both by anumber of major new customer wins and new orders from existing customers. Thetotal value of the new orders secured during the year was £5.3m. Reflecting boththe growth in the customer base last year and our initiatives to focus oncustomer account management, services and support revenue rose by 41% to £13.72m(2006: £9.75m) while revenue from existing customers increased by 24% to £7.84m(2006: £6.31m). We signed our first large scale multi-channel retail contract in December withThe White Company, the luxury home accessories retailer. This prestigious winprovides us with an excellent reference site and we believe this high growthsector will be an important area for us in 2008. The acquisition of Landsteinar, for an initial £9.75m, in August 2007 was ahighly attractive move for us. The Netherlands-based company is very closelyrelated to our core UK business, both being distributors of the MicrosoftDynamics software suite. Landsteinar has a strong domestic and overseas customerbase and some very close retail relationships, most notably with Inter IKEASystem B.V. ("IKEA"), the global home furnishing business. In recent years, itdeveloped and now retains the worldwide rights to software modules for IKEA.Landsteinar operates a low-cost sales model which means that it has thepotential to achieve high levels of profitability from sales growth. We believethat there are significant synergies between Landsteinar and our UK softwarebusiness in product development and marketing and we are starting to exploitthese as we move into 2008. Manufacturing Software Division The Manufacturing Software businesses generated total sales of £13.5m (2006:£8.85m) and an adjusted profit from operations*6 of £3.42m (2006: £1.64m). Theseare excellent results and include a nine month contribution from MBL, which wasacquired in April, but only a very small contribution from Index, acquired inDecember. The year saw major changes in the Manufacturing Software Division with theacquisition of MBL. The merger of the business with its 'sister' company, IEG,is now completed and we have rebranded the combined entity as K3 Supply ChainSolutions ("SCS"). The logic for acquiring MBL, the only other UK distributor of the SYSPRO range of Enterprise Resource Planning ("ERP") software, was compelling. Bought for a total consideration of £13.80m, MBL's fit with IEG, which comprises our core business within this Division, is highly complementary. Significantly, it also means that K3 is now the sole UK distributor for this market leading ERP software. The combined IEG and MBL customer base now totals approximately 450 companies and the enlarged SYSPRO business, SCS, generated combined sales of £10.4m and adjusted profit from operations*7 of £2.45m in 2007. This was after absorbing the costs of the merger of £0.25m. It is especially encouraging to see that, as expected, the average order value increased steadily during the year. Of the revenues generated from SCS, approximately half is derived from recurring annual licence fees and maintenance income, the majority of which is invoiced in October each year. This has the effect of weighting the performance of this Division heavily towards the second half of the financial year. The acquisition of Index, in December 2007 for £3.01m, has broadened our productbase, adding Microsoft Dynamics AX software, one of the fastest growingenterprise resource planning solutions worldwide. Index also holds theintellectual property rights for complementary modules in the food and processmanufacturing vertical markets. Our Walton-on-Thames business saw revenue reduce, as expected, from £3.50m to£3.05m and profitability rise as a result of structural changes implemented inanticipation of this reduction. The adjusted profit from operations*8 increasedby 36% to £0.97m (2006: £0.71m). The business has now extended its offering toinclude Customer Relationship Management and business support and we expect therevenue level to stabilise in 2008. Disposal In February, we sold our Elucid business to Sanderson Group plc, as it hadbecome a non-core part of the Group. Elucid's multi-channel software solution isfocused on smaller catalogue and mail order companies rather than our targetmarket of larger retailers. The loss in the period was £0.14m and the Groupgenerated £1.08m of cash from its disposal. Outlook The three acquisitions we made during the year have added critical mass to thebusiness and significantly enhanced recurring income streams and operating cashflow. Recurring revenue, which derives from licence fee renewals and associatedsupport, now totals approximately £13.8m on an annualised basis and represents ahighly predictable income stream. We have yet to exploit the full benefits ofall our acquisitions and see significant potential to come from them in future. We continue to look for complementary acquisition opportunities that willenhance our existing product range and skills or bring additional routes tomarket. Our product range is now also sufficiently broad to consider theacquisition of 'feeder' businesses, with established customer bases in ourchosen sectors. These will provide predictable, recurring income streams butalso deliver opportunities for cross-selling as customers upgrade their existingsoftware solutions with newer Microsoft products. Results for the current year will continue to be more significantly weightedtowards the second half but Landsteinar will boost first half performancecompared to 2007. We continue to view the Group's prospects for 2008 positively. Tom MilneChairman *1 Calculated before amortisation of acquired intangibles of £0.9m (2006: nil) and share-based payment costs of £0.15m (2006: £0.09m).*2 Calculated before amortisation of acquired intangibles of £0.9m (2006: nil), share-based payment costs and related tax charge of £0.11m (2006: £0.06m) and loss on disposal of operations including the related tax charge of £0.14m (2006: £0.11m).*3 Calculated before amortisation of acquired intangibles of £0.24m (2006: nil) and share-based payment costs of £0.07m (2006: £0.03m).*4 Calculated before amortisation of acquired intangibles of £0.24m.*5 Calculated before share-based payment costs of £0.07m (2006: £0.03m).*6 Calculated before amortisation of acquired intangibles of £0.66m (2006: nil) and share-based payment costs of £0.08m (2006: £0.04m).*7 Calculated before amortisation of acquired intangibles of £0.65m (2006: nil) and share-based payment costs of £0.05m (2006: £0.02m).*8 Calculated before share-based payment costs of £0.04m (2006: £0.02m). BUSINESS REVIEW CURRENT YEAR OPERATIONS SUMMARY The Board considers the key performance indicators by which it measures the performance of the Group to be revenue, gross margin and profit from operations, adjusted for amortisation of acquired intangibles and share-based payment costs. The performance indicators used by the Group are summarised as follows: 2007 2006 Revenue (£000) 34,146 27,346Gross margin percentage 67% 61%Adjusted profit from operations (£000) 5,760 2,918Operating cash percentage 108% 76%Adjusted EPS (pence) 16.8p 10.5pPercentage of recurring revenue 36% 30%Staff retention percentage 77% 77% The Group's financial statements have been prepared under International Financial Reporting standards as endorsed by the EU ("IFRS") for the first time. Prior year balances have been restated in accordance with IFRS. 2007 was a year of controlled growth for the business with the focus being onimproving margins within existing businesses whilst targeting growth through anumber of key strategic acquisitions. The business has performed strongly withrevenue up 25% and profit from operations up 66%. Good progress was made in both divisions. Our Retail Software Division continuedits impressive record with a further 25% growth in sales to £20.47m (2006:£16.44m). Following last year's investment in the division, significant progresswas made in the newly targeted markets of Fashion and Home Retail, includingmajor new sales to several high street retailers including Clinton Cards andAgent Provocateur. We also signed our first large scale multi-channel retailcontract with The White Company, which will provide us with an excellentreference site going forward in this high growth sector. The UK retail divisioncontributed revenue of £18.86m (2006: 16.44m) and adjusted profit fromoperations*1 of £2.34m (2006: 1.63m). Whilst multi-channel mid-tier retailsolutions remain important to K3, in February, we sold our Elucid business toSanderson Group plc, as it had increasingly become non-core to our ongoingoperations focusing very much at the lower end of the marketplace. In August 2007, we acquired Landsteinar Nederland B.V. ("Landsteinar"), adistributor of Microsoft Dynamics NAV with a strong domestic and overseascustomer base. It also owns the worldwide rights to software modulesspecifically designed for the franchise operations of Inter IKEA B.V. ("IKEA"),the global home furnishings business. The business contributed revenue of £1.61mand adjusted profit from operations*2 of £0.57m since acquisition. Our SYSPRO based Manufacturing Software Division grew 94%, with adjusted profitfrom operations*3 up 163%, and included a nine month revenue contribution of£5.57m and £1.95m adjusted profit from operations*3 from McGuffie Brunton(acquired in April 2007). Following its acquisition, the business was mergedwith our existing SYSPRO business (Information Engineering Group, "IEG") ontoone site in Manchester during the second half and the merged business rebrandedas K3 Supply Chain Solutions. The benefits of the merger of these businesseswill be seen in 2008. K3 is now the sole distributor in the UK of theMicrosoft-centric SYSPRO brand of manufacturing software. Our Walton business has continued to perform ahead of our expectations withrevenue in the current year of £3.05m (2006: £3.50m) and adjusted profit fromoperations*4 of £0.97m (2006: 0.71m). Revenue dropped as we transferred newbusiness activity to our Manchester offices, however, the unit is alsoincreasingly generating business outside its traditional product areas includingleads for our SYSPRO businesses and opportunities in Customer RelationshipManagement ("CRM"). Late in the year, the acquisition of Index Computer Systems Limited ("Index") inDecember broadened our product range to include Microsoft Dynamics AX software,one of the fastest growing Enterprise Resource Planning solutions worldwide.Index also holds the intellectual property for complementary modules in the foodand process manufacturing markets. Our policy of focusing on Microsoft based business solutions continues to serveus well and as one of the larger Microsoft business partners in the UK, weremain well placed to benefit from Microsoft's ongoing investment in thebusiness solutions sector. K3 is a member of Microsoft's Inner Circle, which isreserved for its top 60 partners worldwide, and we continue to pursue our goalto become the UK's market leading supplier of Microsoft-based supply chainmanagement solutions to small and medium sized companies. In 2008, we expect toexpand our footprint within the Retail and Manufacturing software sectors. Wehave also identified potential acquisition targets in both the manufacturing andretail markets which would complement our existing offerings for these sectors. DIVISIONAL REVIEW Retail Software Division 2007 2006 Revenue (£000) 20,473 16,435Gross margin percentage 57% 51%Adjusted profit from operations*5 (£000) 2,912 1,628Percentage of recurring revenue 22% 18%Staff retention percentage 80% 72% The Division continued to grow strongly during 2007, with sales increasing by25% to £20.47m and adjusted profit from operations*5 rising by 79% to £2.91mover the previous year. These excellent results reflected a strong performanceof our core UK business which generated revenue of £18.86m (2006: £16.44m) andadjusted profit from operations*6 of £2.34m (2006: £1.63m) but also includedfour months of trading from our acquisition, Landsteinar. Landsteinar's revenuecontribution was £1.61m and it delivered adjusted profit from operations*7 of£0.57m. I am pleased to report that this result was in line with ourexpectations at the time of its acquisition. While the acquisition of Landsteinar was a key event in 2007 for the RetailSoftware Division, our focus during much of the year was on consolidating thegrowth the Division had achieved over the previous two years. Two majorinitiatives were on margin enhancement and customer account management. As partof this process, we made some key new appointments, rationalised the cost basein certain areas and invested in staff training. I am pleased to highlight thatmargins improved by 6 percentage points to 57% and that revenue from existingcustomers increased by 24% to £7.84m. We continued to recruit directlychargeable staff to satisfy the demand created by sales and overall, the numberof people employed in our core UK business increased from 134 to 145 during2007. The contract base continues to grow well and the Division secured a number ofhigh profile customer wins, including: Clinton Cards, the specialist retailer ofgreeting cards; BHSF, the insurer and employee benefits provider; Rymans, thestationery chain; and Agent Provocateur, a leading lingerie retailer. At thesame time, we secured major orders from the existing customer base. The combinedvalue of new orders was £5.3m, although the full impact of a number of thesewins will fall into our results for financial year to 31 December 2008. I amalso pleased to report that consultancy revenues increased by 41% to £9.42m from£6.67m. With online sales representing an increasingly significant channel to market forretailers, it is important that our software offering encompasses multi-channelsales. Our product development team completed a new software module to addressthis demand and, in December, we won our first mid-range multi-channel order,from The White Company, the luxury home accessories retailer. As we move into2008, we see further opportunities in this area. The acquisition of Landsteinar in August 2007 is a significant step forward inthe ongoing development of the Retail Software Division. Based in The Hague,Landsteinar was established in 2001 and is a leading distributor of MicrosoftDynamics NAV software. It is, in effect, the sister company of our core UKbusiness, Alpha Landsteinar, which we acquired in 2004. In total, Landsteinarhas some 43 retail customers and supports over 300 stores across 15 countries.In particular, it has a close relationship with IKEA, for which it developed,and now owns, the worldwide rights to specific software modules designed forIKEA's overseas stores, which are franchised operations. The business hashistorically operated a very low cost base, with minimal marketing expenditure.We see considerable potential to grow sales and strong synergies with the UKbusiness on product offering and marketing. As we move into 2008, we believe that there are significant opportunities in themulti-channel, fashion, electronic point of sale ("EPOS") and customerrelationship management ("CRM") sectors. We are looking at strategicpartnerships to extend our product offering further. Disposal In February, we disposed of our Elucid business to Sanderson Group plc. SinceElucid's multi-channel software solution was focused on smaller catalogue andmail order companies rather than the mid-range retail sector, we viewed it asnon-core. The business generated sales of £0.18m (2006: £2.06m) and an operatingloss of £0.08m (2006: adjusted profit from operations*8 of £0.08m). We are nowproviding our mid-tier multi-channel solution as part of our overall MicrosoftDynamics based retail solution. Manufacturing Software Division 2007 2006 Revenue (£000) 13,495 8,849Gross margin percentage 84% 81%Adjusted operating profit*9 (£000) 3,417 1,644Percentage of recurring revenue 58% 51%Staff retention percentage 74% 88% The acquisition of MBL, in April 2007, has transformed the ManufacturingSoftware Division as results demonstrate. Including a nine month contributionfrom MBL, the Division generated sales of £13.5m (2006: £8.85m) and an adjustedprofit from operations*9 of £3.42m (2006: £1.64m). Significantly, recurringrevenues, derived from annual licence fee renewals, rose by 74% to £7.89m (2006:£4.53m). The benefits of the acquisition are both strategic and financial. As the onlyother UK distributor of the SYSPRO range of Microsoft-based enterprise resourceplanning ("ERP") software for manufacturing and distribution companies, thestrategic advantage of combining it with our IEG business was compelling.Additionally, in adding critical mass, our enlarged business is now wellpositioned to bid for larger contracts which MBL and IEG, as smaller,independent companies, would not have previously bid for. We also saw costsaving opportunities with IEG and MBL selling the same software product, in thesame territories, both from head offices in Manchester. One of the keyobjectives during the year was to achieve a merger that would optimise thesynergies and cost benefits. The integration of MBL took place during the second half of the year, with thebenefits achieved offsetting the £0.25m of integration costs. MBL's 11,000 sq fthead office in Salford Quays has now been refurbished and become our northernManufacturing Software Division headquarters. The combined MBL and IEGbusinesses, now rebranded as K3 Supply Chain Solutions ("SCS"), contributedsales of £10.40m (2006: £5.35m) and adjusted profit from operations*10 of £2.45m(2006: £0.93m) to the Division's overall results. The MBL acquisition brought with it a particularly strong telesales andmarketing team with a comprehensive sales prospect database. Lead intake acrossthe Division increased significantly following the acquisition and we secured 19new customers during the year. It was also encouraging to see that the averageorder value of these new wins was higher than last year. Significant new wins included a contract worth £0.65m with a distributioncompany based in Northern Ireland. We secured this win by integrating SYSPROwith MBL's warehouse management system (for which we own the intellectualproperty rights) and an innovative vehicle scheduling and route planningpackage. The project is of particular note as it potentially opens up a newmarketplace to us in the distribution sector. A major customer within IEG hasbeen slower than anticipated in placing additional business during 2007.However, we anticipate significant new orders from this customer in 2008. SCS launched a new network infrastructure service in September, which isgenerating significant levels of interest from the existing customer base, andwe see good opportunities to roll out this service across existing and newcustomers. In January 2007, we restructured our Walton-on-Thames based manufacturingsystems business unit to remove cost and maximise profitability. As part of therestructuring, we transferred new sales activity to our Manchester head office.While this resulted in a 13% decrease in revenues to £3.05m (2006: £3.50m),adjusted profit from operations*11 increased by 36% to £0.97m (2006: £0.71m). In mid December, we completed our second acquisition within the manufacturingsector, buying Microsoft Gold partner, Index. Index further strengthens ourmanufacturing product portfolio. Whilst our existing SYSPRO business is focusedon "discrete" manufacturing, Index's area of specialisation is "process"manufacturing. It therefore broadens our offering, bringing with it distributionrights to Microsoft Dynamics AX and complementary modules which extend theDynamics AX functionality to support food and process manufacturers. On an annualised basis, Index's revenue in 2007 was £2.11m, with customersincluding: British Bakels, the global ingredients manufacturer; MBMG, a leadingUK supplier of fresh produce; Jeyes Group, the international household andhygiene product manufacturer; and Abel and Cole, a leading organic deliverycompany. We see Index as providing us with growth opportunities at the higherend of the mid-tier market and larger manufacturing companies which we canexploit with K3's marketing and sales capabilities. K3 remains the largest supplier of manufacturing solutions to the SME market inthe UK and with our newly invigorated Manufacturing Software Division, marketleading products, substantial customer base and strong pipeline, we believe 2008will deliver another strong performance. Central Division Central costs for the year were £0.49m (2006: £0.43m) reflecting the costs ofstrengthening the central management team and ancillary costs. Andy MakehamChief Executive *1 Calculated before share based payment costs of £0.07m (2006: £0.03m).*2 Calculated before amortisation of acquired intangibles of £0.24m (2006: nil).*3 Calculated before amortisation of acquired intangibles of £0.65m (2006: nil).*4 Calculated before share-based payment costs of £0.04m (2006: £0.02m).*5 Calculated before amortisation of acquired intangibles of £0.24m (2006: nil) and share-based payment costs of £0.07m (2006: £0.03m)*6 Calculated before share-based payment costs of £0.07m (2006: £0.03m).*7 Calculated before amortisation of acquired intangibles of £0.24m (2006: nil)*8 Calculated before share-based payment costs of nil (2006: £0.01m).*9 Calculated before amortisation of acquired intangibles of £0.66m (2006: nil) and share-based payment costs of £0.08m (2006: £0.04m).*10 Calculated before amortisation of acquired intangibles of £0.65m (2006: nil) and share-based payment costs of £0.05m (2006: £0.02m).*11 Calculated before share-based payment costs of £0.04m (2006: £0.02m). CONSOLIDATED INCOME STATEMENTFor the year ended 31 December 2007 Notes 2007 2006 £'000 £'000 Revenue 34,146 27,346Cost of sales (11,415) (10,641) ------------------------Gross profit 22,731 16,705 Administrative expenses (18,019) (13,872) ------------------------Profit from operations before amortisation of acquired intangibles and cost of share-basedpayments 5,760 2,918Amortisation of acquired intangibles (896) -Cost of share-based payments (152) (85) ------------------------ Profit from operations 4,712 2,833Finance income 45 21Finance expense (1,081) (283) ------------------------Profit before taxation 3,676 2,571Tax expense (761) (846) ------------------------Profit for the year 2,915 1,725 ======================== All of the profit for the year is attributable to equity shareholders of theparent. Earnings per share Basic 1 13.4p 9.5pDiluted 1 13.1p 9.5p CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFor the year ended 31 December 2007 2007 2006 £'000 £'000Exchange differences on translation of foreign operations 1,082 (15)Exchange difference on hedge of net investment in foreign operations (536) - -----------------------Net profit recognised direct in equity 546 (15)Profit for the year 2,915 1,725 -----------------------Total recognised income and expense for the year 3,461 1,710 ======================= All of the above recognised income and expense is attributable to equity holdersof the parent. CONSOLIDATED BALANCE SHEETAs at 31 December 2007 Notes 2007 2006 £'000 £'000 ASSETS Non-current assetsProperty, plant and equipment 1,305 416Goodwill 31,494 15,684Other intangible assets 12,282 273Deferred tax assets 466 191Available-for-sale investments - 1,398 --------------------------Total non-current assets 45,547 17,962 ==========================Current assetsTrade and other receivables 10,984 8,622Cash and cash equivalents 3,085 2,267 --------------------------Total current assets 14,069 10,889 --------------------------Total assets 59,616 28,851 ========================== LIABILITIESNon-current liabilitiesLong-term borrowings 4 12,437 711Other non-current liabilities 3 564 -Deferred tax liabilities 3,508 - --------------------------Total non-current liabilities 16,509 711 ==========================Current liabilitiesTrade and other payables 2 14,704 11,848Current tax liabilities 639 1,003Short-term borrowings 4 4,043 861 --------------------------Total current liabilities 19,386 13,712 --------------------------Total liabilities 35,895 14,423 ========================== EQUITYShare capital 5,926 4,872Share premium account 5 1,588 1,388Other reserves 5 10,448 6,070Translation reserve 5 531 (15)Retained earnings 5 5,228 2,113 --------------------------Total equity attributable to equity holders of the parent 23,721 14,428 ========================== Total equity and liabilities 59,616 28,851 ========================== CONSOLIDATED CASHFLOW STATEMENTFor the year ended 31 December 2007 2007 2006 £'000 £'000Cash flows from operating activitiesProfit before tax 3,676 2,571Adjustments for:Share-based payments charge 152 85Depreciation of property, plant and equipment 308 329Amortisation of intangible assets and development expenditure 1,078 118Profit on sale of property, plant and equipment (4) (27)Loss on sale of disposal group 121 -Interest received (45) (21)Interest expense 1,081 283Decrease (increase) in trade and other receivables 594 (2,276)(Decrease) increase in trade and other payables (733) 1,146 --------------------------Cash generated from operations 6,228 2,208Interest paid (1,243) (256)Income taxes (paid) received (2,074) 21 --------------------------Net cash generated from operating activities 2,911 1,973 --------------------------Cash flows from investing activitiesAcquisition of subsidiaries, net of cash acquired (18,947) (18)Deferred consideration paid (121) (40)Acquisition of trade investments - (1,398)Development expenditure capitalised (372) (229)Proceeds from sale of trade investments 1,398 -Proceeds from sale of disposal group 1,081 -Purchase of property, plant and equipment (271) (146)Proceeds from sale of property, plant and equipment 51 40Interest received 45 21 -------------------------Net cash absorbed by investing activities (17,136) (1,770) -------------------------Cash flows from financing activitiesProceeds from issue of share capital 263 1,825Proceeds from long-term borrowings 16,586 -Payment of long-term borrowings (1,915) (379)Payment of finance lease liabilities (125) (256) -------------------------Net cash generated from financing activities 14,809 1,190 -------------------------Net change in cash and cash equivalents 584 1,393Cash and cash equivalents at start of year 2,267 874Exchange gains on cash and cash equivalents 234 - -------------------------Cash and cash equivalents at end of year 3,085 2,267 ========================= NOTES 1. Earnings per share The calculations of earnings per share are based on the profit for the year andthe following numbers of shares. 2007 2006 Number of Number of shares sharesDenominator Weighted average number of shares used in basic EPS 21,695,518 18,075,153 Effects of:Employee share options and warrants 641,022 87,053 --------------------------- Weighted average number of shares used in diluted EPS 22,336,540 18,162,206 =========================== Certain employee options and warrants have not been included in the calculationof diluted EPS because their exercise is contingent on the satisfaction ofcertain criteria that had not been met at the end of the year. In addition,certain employee options have also been excluded from the calculation of dilutedEPS as their exercise price is greater than the weighted average share priceduring the year (i.e. they are out-of-the-money) and therefore would not beadvantageous for the holders to exercise those options. The alternative earnings per share calculations have been computed because thedirectors consider that they are useful to shareholders and investors. These arebased on the following profits (losses) and the above number of shares. 2007 2006 Earnings Per share Per share Earnings Per share Per share amount amount amount amount Basic Diluted Basic Diluted £000 p p £000 p pNumeratorProfit for the year (for both basic and diluted EPS) 2,915 13.4 13.1 1,725 9.5 9.5Amortisation of acquired intangibles (net of tax) 492 2.3 2.2 - - -Share-based payments (net of tax) 106 0.5 0.4 59 0.4 0.3Loss on sale of disposal group (net of tax) 137 0.6 0.6 106 0.6 0.6 -----------------------------------------------------------Adjusted EPS 3,650 16.8 16.3 1,890 10.5 10.4 =========================================================== The loss on sale of a disposal group (net of tax) in 2007 relates to Elucid onwhich the pre-tax loss was £0.12m and the tax charge was £0.02m, and that in2006 relates to the income tax expense arising from the profit on the saleduring 2004 of the operations based at Crewe. 2. Trade and other payables - current 2007 2006 £'000 £'000Trade payables 2,733 1,676Other tax and social security taxes 2,694 1,626Other payables 623 80Deferred consideration 320 960Accruals 3,458 2,965 ---------------------------Total financial liabilities, excluding loan and borrowings, classified as financial liabilitiesmeasured at amortised cost 9,828 7,307Deferred income 4,876 4,541 --------------------------- 14,704 11,848 =========================== 3. Other non-current liabilities 2007 2006 £'000 £'000Deferred consideration 474 -Other payables 90 - -------------------------- 564 - ========================== 4. Loans and borrowings 2007 2006 £'000 £'000Non-currentBank loans (secured) 12,378 356Finance lease creditors 59 98Loans from related parties - 257 --------------------------- 12,437 711 --------------------------CurrentBank loans (secured) 3,346 335Finance lease creditors 43 129Loans from related parties 654 397 --------------------------- 4,043 861 ---------------------------Total borrowings 16,480 1,572 =========================== 5. Reserves Share Other Translation Retained premium reserve reserve earnings £'000 £'000 £'000 £'000At 1 January 2007 1,388 6,070 (15) 2,113Proceeds on share issue 73 4,378 - -Share-based payment credit - - - 221Options exercised 127 - - -Own shares acquired - - - (21)Translation differences on overseas operations - - 546 -Profit for the year - - - 2,915 -------------------------------------------- At 31 December 2007 1,588 10,448 531 5,228 ============================================ 6. The recommend the payment of a dividend of 0.5p per share (2006: nil) to bepayable to shareholders on the register on 16 May 2008. 7. These financial statements have been prepared in accordance withInternational Financial Reporting Standards (IFRSs and IFRIC interpretations) asendorsed by the European Union ("endorsed IFRS") and with those parts of theCompanies Act 1985 applicable to companies preparing their accounts underendorsed IFRS. This is the first time the company has prepared its financialstatements in accordance with endorsed IFRSs, having previously prepared itsfinancial statements in accordance with UK accounting standards. Details of how the transition from UK accounting standards to endorsed IFRSs hasaffected the group's reported financial position, was included in the Groupannouncement dated 6 September 2007. 8. The financial information set out above does not comprise the Company'sstatutory accounts. Statutory accounts for the previous financial year ended 31December 2006 prepared under UK GAAP have been delivered to the Registrar ofCompanies. The auditors have reported on those accounts; their report wasunqualified and did not include references to any matters to which the auditorsdrew attention by way of emphasis of matter without qualifying their opinion anddid not contain any statement under section 237(2) or (3) of the Companies Act1985. The auditors have given an unqualified opinion on the accounts for theyear ended 31 December 2007; their report did not include references to anymatters to which the auditors drew attention by way of emphasis of matterwithout qualifying their opinion and it did not contain any statement undersection 237(2) or (3) of the Companies Act 1985. These will be delivered to theRegistrar of Companies following the annual general meeting. 9. This preliminary announcement was approved by the Board of directors on 3April 2008. 10. The full financial statements will be posted to shareholders on or around 7May 2008. Further copies will also be available from the Company's registeredoffice at Linden Business Centre, Linden Road, Colne, Lancashire, BB8 9BA fromthat date. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
K3 Business Technology Group