Eyes on costs a feature of K3 first-half results

K3 has been a business in transition, but the latest half-year interim results indicate there is still some work to do.

The firm shared numbers for the six months ended 31 May, revealing that it had cut its adjusted operating losses from £1.8m to £1.2m, but revenues had decreased from £20.3m to £15.5m and gross profit had decreased from £12.4m to £9.9m.

The changes in revenue had been anticipated and were largely fue to slower levels of activity in the firm’s global accounts. A focus on cost reduction measures and a firm grip on spending are some of the main reasons why the business was able to trim its operating losses.

From a divisional point of view, the firm’s Products operation saw growth from its fashion offering, which offset reductions on the retail solutions side, with revenues holding firm at £6.4m with gross profit improving slightly to £5.1m.

The decrease in global account business was felt acutely in the firm’s Third-party Solutions division, with revenues down to £9.1m from  £13.9m, and gross profit of £4.8m was down on a year earlier performance of £7.4m.

The underlying businesses remained strong with the firm’s NexSys operation, which makes up the large majority of the Third-Party Solution unit’s annual revenues delivering a ‘robust’ performance, according to the results statement.

Eric Dodd, CEO of K3 Business Technology Group, said the numbers told a story the firm was already expecting to read: “Interim results mainly reflect the anticipated reduction in activity at Global Accounts. This has been managed as effectively as possible and, despite the unit’s performance, the Group’s gross profit margin has been improved, cash generation increased, and the overall loss reduced. Net cash at the half-year end remained very healthy.”

Looking ahead, he struck a confident tone, expecting the business to pick up as it moved deeper into a typically busier trading period.

“The second half of the financial year is typically our stronger half, with significant cash inflows from software licence and maintenance and support contract renewals. Our priority is to deliver shareholder value while maintaining strong financial discipline. The Group remains on track to perform in line with our expectations for the current financial year,” he said.

At the same time as releasing the interim numbers, K3 indicated it was appointing Oliver Scott as chairman, with effect from today, with previous executive chairman Tom Crawford remaining as a non-executive director.

Scott joined the board back in February 2020 when he was appointed as a non-executive director and a representative of Kestrel Partners, a major shareholder in the company.

K3 has been a business in transition over the past couple of years. Last summer, it outlined ambitions to target annual growth of 30% in recurring revenue, with its strategic fashion products.

The firm has also been looking where possible to continue simplifying operations, reducing central cost and sticking with the transition to higher margin growth activities.