K3 Business Technology pleased with first-half performance

Fashion and apparel-focussed business software specialist K3 Business Technology reported an overall first-half performance that exceeded management expectations on Wednesday.

The AIM-traded company reported revenues of £20.3m from continuing operations, marking a slight increase from the £19.9m generated during the same period last year.

Gross profit rose to £12.4m for the six months ended 31 May, compared to £11.9m in the first half of 2022.

The gross margin now stood at 61%, up from 60% last year.

K3 recorded an adjusted operating loss of £0.8m, improving from the £1m loss experienced in the same period last year.

The loss before tax widened slightly from £2.8m to £2.9m, while adjusted net cash more than doubled from £1.4m to £2.9m.

K3 emphasised that earnings and net cash generation would be heavily weighted towards the second half of the financial year, reflecting the significant second-half weighting of annual software licence and maintenance support contract renewals.

Looking ahead, the company said it was aiming to achieve 30% year-on-year growth in recurring revenue for its strategic fashion products in 2023 and beyond.

The board said it was also focussed on simplifying operations, reducing central costs, and continuing the transition to higher-margin growth activities.

K3 indicated a promising second-half, with a healthy backlog in the third-party solutions division, specifically from its NexSys - formerly Syspro - segment.

Renewals for that segment were expected to be strong, with a historical average of about 98%.

“We made encouraging progress in key strategic areas of the business in the first half,” said chief executive officer Marco Vergani.

“We are especially pleased with the performance of our strategic products for the fashion and apparel market in the K3 Products division.

“Our flagship K3 Fashion product has the potential to maintain its high growth trajectory and has strong endorsement from Microsoft.”

Vergani added that third-party solutions remained a cash engine for the group, with the division set to generate high cash inflows in the second half of the financial year as software licence and maintenance and support renewals came through.

“Our healthy balance sheet underpins the improvements that we are making to the business.

“We remain focused on our high-margin growth opportunities, cost discipline and adjusted net cash as we continue to move to higher quality earnings.”

Reporting by Josh White for Sharecast.com.