The risks of large, long-term contracts have been made clear by these half-year results from K3 Business Technology (KBT). As announced in a profit warning in January the software and services group didn't sign as many new contracts during the December trading period as anticipated, meaning adjusted operating profit took a £4.7m nosedive to £0.45m.
But management has tackled the challenge head on, re-aligning the business in an effort to claw back £3m in annualised savings. Even so, this time around a £2.74m non-recurring cost still took pre-tax profit and EPS into negative territory.
It’s not all bad news, though. Recurring revenues rose 7.6 per cent to £21.2m and now make up 49 per cent of total sales. Plus, new deals have been signed, including a £2m contract with the British Heart Foundation. With a pipeline of future orders worth £82m - up 45 per cent on the comparable period - the outlook for the current financial year looks better than these numbers suggest.
For now, ongoing costs associated with the restructuring programme mean broker FinnCap expects a decline in pre-tax profits and EPS to £7.7m and 18.4p respectively (from £8.8m and 22.9p in 2016).
K3 BUSINESS TECHNOLOGY (KBT) | ||||
---|---|---|---|---|
ORD PRICE: | 255p | MARKET VALUE: | £92m | |
TOUCH: | 253-256p | 12-MONTH HIGH: | 362p | LOW: 235p |
DIVIDEND YIELD: | nil | PE RATIO: | na | |
NET ASSET VALUE: | 196p* | NET DEBT: | 18% |
Half-year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
---|---|---|---|---|
2015 | 42.3 | 2.3 | 5.9 | nil |
2016 | 43.0 | -4.2 | -9.6 | nil |
% change | +2 | - | - | - |
Ex-div: na Payment: na *Includes intangible assets of £77m, or 214p a share |