Shift of focus good for K3

Retailers, manufacturers and distributors use K3's software to run everything from shop tills and tablets to payroll systems and marketing campaigns. The group is shifting its focus towards proprietary rather than third-party products - sold both directly and via partners - and subscription and hosting services in order to boost profit and improve the predictability of its revenue. Its efforts drove up first-half sales of proprietary products by 5 per cent, widening its gross profit margin by nearly 5 percentage points to 55.6 per cent. Moreover, K3 signed its first major contract for cloud-based subscription software and its improved product range and sales network helped it add 111 customers, up from 81 in the comparative period.

The new plan paid off in both divisions. First-half sales of lucrative intellectual property (IP) leapt a tenth in the retail business, which accounts for over 40 per cent of group sales and profit. Coupled with restructuring, that served to widen the segment's gross margin by 8.4 percentage points to 52 per cent. Sales also rose 2 per cent in the manufacturing and distribution segment, as a 4 per cent rise in recurring sales and higher services turnover offset lower software revenue. Moreover, strong demand for hosting and greater efficiency meant the division's gross margin widened by 1.9 percentage points to 58.8 per cent. K3 also updated key IP products such as Equator Payroll and Orchard Warehouse Management, but development spending and underperforming third-party products weighed on profit.

K3 has made other gains. Microsoft has endorsed it as an elite supplier of enterprise software, and it recently landed big contracts through its partner network with TriStyle and KLiNGEL, two European fashion groups. Moreover, an initial order with a global fashion retailer has the potential to grow significantly. K3 has also made a trio of recent acquisitions: Starcom, bolstering its hosting and managed services offerings; DdD, a Danish software business that sells proprietary, cloud-based products to retailers; and Merac, which provides electronic point-of-sale and management systems - powered by its own IP - to Stonehenge, Alnwick Castle and other leisure customers. And last month K3 said it expected to meet the City's forecasts for the year to the end of June, highlighting strong trading in its core business, as well as further contract wins and renewals.