A slump in orders from retailers and heavy investment in Microsoft's new AX product created a perfect storm for K3 Business Technology (KBT) in the first half. A 57 per cent plunge in adjusted operating profit to just £2.9m sent K3's shares to a three-year low and, while investment should pay off, things could get worse before they get better.
With no major deals signed, revenue at K3's Microsoft UK division fell 30 per cent to £8.5m and last year's £1.5m profit turned into a £1.26m loss. Moreover, austerity cuts in Holland caused a slump in demand from the Dutch fashion market, offsetting rising income from Ikea and driving overseas profit down two-thirds to just £470,000. Chief executive Andy Makeham admits deals will continue to slip, but says K3 is in the running for £10m of work and it's a "cast iron certainty" some will come through in the second half. Commercial launch of AX software in a few months will help and management predicts a return to growth in the next year. Significant growth, however, remains at least two years away. Elsewhere, profits were flat at the enterprise resource planning (ERP) software unit and managed services lost money.
Broker FinnCap expects adjusted pre-tax profit of £7.2m in 2013, giving adjusted EPS of 19.8p (from £10.1m and 30.3p in 2012).
K3 BUSINESS TECHNOLOGY GROUP (KBT) | ||||
|---|---|---|---|---|
| ORD PRICE: | 94p | MARKET VALUE: | £26.8m | |
| TOUCH: | 93-95p | 12-MONTH HIGH: | 208p | Low: 86p |
| DIVIDEND YIELD: | 1.1% | PE RATIO: | 11 | |
| NET ASSET VALUE: | 166p* | NET DEBT: | 26% | |
| Half-year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 33.4 | 3.98 | 12.3 | nil |
| 2012 | 31.5 | 0.19 | 0.80 | nil |
| % change | -6 | -95 | -93 | - |
*Includes intangible assets of £64.7m, or 227p a share | ||||
