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K3 Business Technology Group

  • BY: Andrew Hore |
  • POSTED: 17/03/2009 |

Enterprise software supplier K3 Business Technology Group benefitted from its strong recurring revenue base.

Recurring revenues accounted for 41% of 2008 turnover of £37.6m, up from £34.2m the previous year. Profit before amortisation and share based charges, improved from £4.72m to £5.92m.

The main profit growth came form the retail software side. This division has already won new contracts this year.

The original legacy manufacturing software business continues to churn out slightly reducing profits. If customers want to update their software they can migrate to other group products so they are not lost. The 2007 acquisition Index has been renamed K3 AX to reflect its focus on Microsoft Dynamics AX.

The debt figure has been hit by the strength of the Euro against the pound. There is €7m of Euro debt. The Euro moved from €1.31/pound to €1.02/pound during the year. Net debt fell from £13.4m to £13m but the figure would have been £1.9m if it had not been for the currency movements. K3 expects to reduce borrowings by around £4m this year. That shows the cash generative nature of the business.

Cost cutting should help to improve profits this year. Management has reduced overheads by £600,000 in the manufacturing software division and £300,000 on the retail side. Daniel Stewart forecasts a £500,000 improvement in 2009 profits to £6.4m.

This indicates that 2009 will be tough but the decline in the K3 share price is surprising. At 60.5p each, the shares are trading on around three times prospective earnings.

K3 would like to make acquisitions. It is difficult to make an earnings enhancing acquisition with the current share price. K3 wants to buy legacy software providers so it can migrate their customers to more up to date software.

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