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K3 Business Technology Group’s strong financial year was marred by a 10% drop in revenue in its core UK market but elsewhere performance was up, including its managed services division where revenue almost quadrupled, thereby further proving the effectiveness of its business strategy (a solution set built around retail and manufacturing supply chain needs with a hosted or managed services option).
Total revenue jumped 20% to £52.8m of which the UK contributed £19.43m compared the previous 12 months. Nothing specific induced the drop, which was attributed to tough market conditions. Of the roughly £9m additional revenue for the year, £8m came from acquisitions (see the HotViews archive here), which is slightly concerning. We will be speaking to chief executive Andy Makeham later today so hope to have more insight in this area.
Adjusted profit from ops was £9.58m (vs £7.57m) up 28%m, while profit before tax was up 10% to £4.91 (vs £4.46m). Adjusted profit before tax was up 29% to £8.68m.
Performance elsewhere more than made up for the UK decline and underlined the importance of K3’s diversification in terms of product and geographical reach – as well as offering Microsoft-based solutions (revenue of £22.88m), it now also offers a Sage line, and in February 2011 signed an agreement to provide Syspro ERP as a hosted service on a worldwide basis (see K3 takes Syspro global). Sage and SYSPRO generated revenue over the 12 months of £16.17m.
Managed services revenue was nearly 4 times more than it was 12 months ago, aided by the Panacea acquisition (see K3 seeks Panacea for hosting relief) but we also believe there was organic growth as existing customers moved some of their on-premise solutions off-premise. Although still a small part of the business (£4.70m) it is highly strategic, provides much sought after recurring revenue plus the potential for substantial growth, and is one of the high hopes for the company – rightly so in our opinion. (Total recurring revenue from managed services and maintenance fees is now £24.18m, up 39% on the year, and 46% of group revenue.) The addition of the Syspro service is particularly notable because it further establishes K3 as a hub for a selection of manufacturing and retail-related goods and services from several ISV’s.
The combination of Microsoft and Sage plus managed services, means K3 is hitting three volume hotspots and with more acquisitions expected its outlook looks as strong as its latest financial year has been.
