Milton Park-based software company posts positive results for the first half of 2023
K3 Business Technology Group, a provider of business-critical software solutions, has announced its interim financial results for the six months ended 31 May 2023. The company reported an increase in revenue and profit, as well as a healthy balance sheet and cash flow.
The company posted revenues of £20.3 million, an increase of around 4 per cent on the £19.9 million posted in the same period last year. Gross profit was £12.4 million this year, which is an increase on the £11.9 million posted last year and also means that gross margin was up a single per cent this year, going from 60 per cent in 2022 to 61 per cent.
The company also reported a higher level of recurring income, which accounted for 66.7 per cent of total revenue, compared to 60.1 per cent last year. This includes annual contracted revenues, which represented 69.5 per cent of total revenue, up from 63.5 per cent last year.
The company’s own IP product sales, which are focused on the fashion and apparel market, generated 26.6 per cent of total revenue, down from 28.7 per cent last year. However, the margin from own IP product sales was 74.2 per cent, much higher than the 42.1 per cent margin from third party product sales.
Adjusted EBITDA and profit from operations show improvement
The company’s adjusted EBITDA, which excludes exceptional items, amortisation of acquired intangibles and share-based payments, was £7.2 million, slightly lower than the £8.1 million reported last year. However, the company’s adjusted profit from operations, which also excludes impairment charges, was £1.8 million, significantly lower than the £4.6 million reported last year.
The company’s reported loss from operations was £13.7 million, compared to a profit of £0.7 million last year. This was mainly due to an impairment charge of £12.2 million relating to the UK Dynamics practice, which was placed into administration in June 2023 after experiencing weak trading conditions and delayed licence orders.
The company’s adjusted profit before tax, which excludes exceptional items, amortisation of acquired intangibles, share-based payments and impairment charges, was £0.9 million, down from £4.0 million last year. The company’s reported loss before tax was £14.5 million, compared to a break-even result last year.
The company’s adjusted loss per share, which excludes exceptional items, amortisation of acquired intangibles, share-based payments and impairment charges after tax, was 6.6 pence, compared to an earnings per share of 6.8 pence last year. The company’s reported loss per share was 36.1 pence, compared to a loss per share of 1.1 pence last year.
Net cash generated from operating activities and net debt remain positive
The company’s net cash generated from operating activities was £5.5 million, lower than the £7.8 million generated last year. However, the company’s net debt, which is defined as cash and cash equivalents less bank overdrafts and loans, was £2.4 million negative, meaning that the company had more cash than debt at the end of the period.
The company also raised additional funds of £6.0 million in June 2023 through a placing and open offer of new ordinary shares at 25 pence each. The proceeds were used to repay existing debt facilities and provide working capital for the business.
The company’s cash balances (net of overdraft) at 30 June 2023 were £8.9 million, and the company expects to have strong cash inflows in the second half of the year from licence fee and maintenance contract renewals.
Outlook for the second half of 2023 and beyond is optimistic
The company’s CEO Marco Vergani said that the company made encouraging progress in key strategic areas of the business in the first half of 2023, especially with its own IP products for the fashion and apparel market.
He also said that the company’s balance sheet and cash flow support the improvements that the company is making to its business model and operations.
He added that the company remains focused on its high-margin growth opportunities, cost discipline and adjusted net cash as it continues to move to higher quality earnings.
He also said that the company believes that it has the operations and financial capacity to weather the coronavirus crisis and view prospects positively beyond the current period of uncertainty.
