Trading Update

18 June 2019

AIM: KBT

K3 BUSINESS TECHNOLOGY GROUP PLC

("K3" or "the Group" or "the Company")

Trading Update

K3, which provides mission‐critical business software, cloud solutions and managed services, is pleased to provide a trading update for the six months ended 31 May 2019.

The Group continues to progress well, with the benefits of transformation initiatives coming through across all key areas of activity, and the Board believes that K3 remains on track to meet current market expectations for this year although results will be more second-half weighted than usual. Management's focus on cash generation and strong financial management continues, and net debt at 31 May 2019 is 32% lower at £5.8m than a year ago (31 May 2018: £8.5m), with the improving trend expected to continue.

The strong weighting towards the second half of the financial year reflects the high proportion of software licence and maintenance contract renewals that fall in the final quarter, but also Brexit-related disruption. This was felt in prolonged customer decision-making processes, which consequently affected services activity in the period. However towards the end of H1 a number of major deals closed, with the ongoing pipeline looking very healthy.

Three new customers were signed for 'K3 I fashion', including Regatta, the outdoor clothing brand, plus two existing customers significantly ramped-up software licence orders. Significantly, four of the new orders were secured through channel partners. Prospects for 'K3 l fashion' received a further boost by Microsoft's recommendation as its preferred 'add-on' for the fashion industry globally.

In other key areas, sales from Global Accounts and Managed Services, which includes hosting, continued to grow, and 'K3 I Cloud', the Group's Infrastructure as a Service ("IaaS") offering was launched. The period also saw a high-profile implementation of Microsoft Dynamics for Fortnum & Mason 'go live'.

'K3 I Imagine', which is a cornerstone product in K3's transition to an IP-lead organisation, is expected to make a meaningful contribution to the Group's recurring revenue in the current financial year, from a standing start in November 2018. Imagine revenues are now being generated from Software applications ("SaaS") and Platform access ("PaaS") and the product has potential across the whole spectrum of the K3 customer base.

Half year results are expected to be reported on 9 July together with a further update on trading.

This announcement contains inside information for the purposes of Article 7 of Regulation 596/2014.

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