TIDMK3C
RNS Number : 6511Z
K3 Capital Group PLC
22 September 2020
This announcement contains inside information for the purposes
of Article 7 of Regulation 596/2014 ("MAR")
K3 CAPITAL GROUP PLC
("K3", the "Company" and including its subsidiaries, the
"Group")
Final audited results for the year ending 31 May 2020
and Notice of AGM
K3 Capital Group plc, a multi-disciplinary professional services
firm providing advisory services to SMEs, today announces its final
results for the year ended 31 May 2020.
Financial overview
GBPm 2020 2019 % change
------------------------ ---------------- --------- ---------
GBP15
Group revenue .0 m GBP13.6m 10%
Knightsbridge GBP2.4m GBP2.2m 9%
KBS Corporate* GBP9.7m GBP10.6m (8%)
KBS Corporate Finance* GBP2.9m GBP0.8m 263%
GBP6 .8
EBITDA m GBP5.0m 36%
Profit before tax GBP6.4m GBP4.9m 31%
Net cash GBP8.3m GBP5.8m 43%
Earnings per share 12.37p 9.43p 31%
Dividend per share **7.47p **7.60p (1.7%)
* Revenue adjusted to reflect KBS Corporate Sales clients
invoiced through KBS Corporate Finance following an enhanced
service offering, as further detailed in the Annual Report.
** Dividend per share for 2020 comprises the interim dividend
per share of 3.7p (calculated over 42m shares in issue) and the
proposed final dividend per share of 3.8p (calculated over 68.5m
shares in issue).
Operational overview
-- Increase in turnover and profits despite a challenging final quarter
-- Significant increase in transaction fee income due to growing buyer volumes
-- Positive nine months performance with growth across majority of KPIs
-- Number one small cap advisor for UK deal volume - Thomson
Reuters 2017, 2018 & 2019 (Refinitiv)
Post period end
-- Successful fundraise of GBP30.45m - completed to fund the diversification of the Group
-- Two transformational, earnings enhancing acquisitions
completed since the period end, creating a group of complementary
professional services business with a greater degree of
predictability
Current trading and outlook
-- The first quarter of FY21 has resulted in turnover of
GBP5.6m, delivering EBITDA (excluding exceptional transactional
costs) of GBP2.3m. This reflected full financial contribution for
the period from randd and one month from Quantuma
-- We have seen encouraging signs within our M&A businesses,
with significant improvement across all major KPIs by comparison to
Q4 FY20, which was heavily impacted by lockdown
-- The randd team have also started the year positively with
strong performance over the first quarter as part of the wider
Group, supported by a number of cross referrals from the existing
KBS and Quantuma client base
-- Directors and senior management across the Group continue to
work through a 100 day plan to ensure smooth integration of the
acquisitions. We aim to streamline and consolidate certain Group
functions such as finance, human resources and marketing to create
some cost synergies.
-- The Board is considering changing the name of the Group to
reflect the Group's wider service offering following the recent
acquisitions as well as how the Group reports on performance given
the changing nature of the Group's revenue and profits
-- The Company continues to look at potential complementary
bolt-on acquisitions that the Board believe would be additive to
the overall product offering with a view to further diversifying
the Group's revenue streams
All figures relating to 9 months are unaudited
Notice of Annual General Meeting
The annual report (including the notice), will be posted to
shareholders and will be made available on our website today.
The Company's Annual General Meeting (AGM) will be held on
Friday 16 October at 11.00am at the offices of TLT LLP, 3 Hardman
Square, Spinningfields, Manchester, M3 3EB.
Commenting on the results, Non-Executive Chairman of K3 Capital
Group plc, Ian Mattioli said:
"I am pleased to report a satisfactory year of trading at K3
Capital Group plc. The trading period has seen a 10% increase in
revenue and a 36% increase in EBITDA, this has been delivered
despite the economic challenges that the COVID-19 pandemic has
presented to companies and economies across the Globe."
"Post year-end, we were delighted to welcome randd UK and
Quantuma to K3 Capital Group, diversifying our service offering
into R&D tax credits, pension advisory, forensic accounting and
investigations and restructuring and insolvency. These acquisitions
were immediately earnings enhancing for the Group and will provide
significant cross-selling opportunities."
"The Board remains positive for the outlook in FY21 due to
strong first quarter of trading and the encouraging performance of
major KPIs across the Group"
John Rigby, CEO of K3 Capital Group plc said:
"I am delighted to report a positive trading performance for
FY20 and I am proud of how we as a business have initially reacted
and subsequently dealt with the unprecedented circumstances of
Covid-19 and a national lockdown. I am also confident that the
fundraise and subsequent acquisitions which we have concluded post
year end will serve to provide the now enlarged Group with a
stronger foundation and more diversified base from which to expand
and grow in the years ahead."
"I have certainly been very encouraged by the demand for our
services and the first quarter of FY21 has seen significant
increases across all key metrics. We have started the year with a
positive approach to the 'post lockdown era' and a revised forecast
in place which shows significant growth in both revenue and EBITDA
across the wider Group. Early months' trading is very much in line
with market expectations and we are excited by the potential to
deliver our growth strategy across the new Group."-
-S-
For further information please contact:
K3 Capital Group plc
John Rigby, Chief Executive Officer www.k3capitalgroupplc.com
Andrew Melbourne, Chief Financial
Officer
finnCap Ltd (Nominated Adviser Tel: 020 7220 0500
and Broker )
Jonny Franklin-Adams, Emily Watts,
Charlie Beeson
(Corporate Finance)
Tim Redfern, Richard Chambers (Corporate
Broking)
Information on K3 Capital Group plc can be accessed via the
Group's website at www.k3capitalgroupplc.com
K3 Capital Group plc is a multi-disciplinary professional
services firm providing advisory services to SMEs, with operations
throughout the UK and overseas.
Services provided by KBS Corporate, KBS Corporate Finance,
Knightsbridge and KBS Capital Markets:
-- Mergers and Acquisitions (M&A) - Company sales, brokerage
and corporate finance services to SME's looking to achieve full or
partial exit, advising on sales to private, trade, plc, private
equity or overseas acquirors. Strategic advisory and valuations,
financial due diligence and debt advisory.
-- Services provided by RandD UK Limited:
-- Research & Development tax credit advisory: advising
clients on Research and Development Tax Credit (RDTC) claims.
-- Services provided by Quantuma Advisory Limited:
-- Restructuring advisory: formal insolvency appointments,
informal restructuring advisory, personal insolvency and pension
restructuring and insolvency advice.
-- Financial advisory: comprehensive analysis of business
performance through business toolkit, independent reviews,
stakeholder management and turnaround and interim support.
-- Creditor Services: creditor representation and liquidations.
-- Forensic accounting and expert witness: forensic
investigations, intelligence and forensic accounting.
-- Pensions advisory: corporate and trustee advisory, pension
scheme restructuring advisory, covenant advisory and expert
witness.
The Group's medium-term strategy is to build a wider group of
growing and complementary professional services businesses to
provide SME's with high quality advice across specialist
disciplines.
Strategic Report
Chairman's statement
I am pleased to report a highly satisfactory year of trading at
K3 Capital Group plc despite the economic challenges that the
COVID-19 pandemic has presented to companies and economies across
the Globe. FY20 has been a year which has shown promising evidence
of continued growth throughout all brands within the Group,
demonstrated by a 54% increase in the total value of Transaction
Fees compared to FY19.
The trading period has seen an increase in both the volume and
value of high value transactions, supported by consistent numbers
of completed deals within the low to mid value range. As expected,
the status of several transactions has not been immune to the
aforementioned economic conditions, and whilst this has had a
direct effect on the number of completed transactions across the
Group, we are hopeful that a number of these transactions will duly
complete as planned within FY21.
I can therefore report revenues of GBP15.0m (FY19: GBP13.6m) and
EBITDA of GBP6.8m (FY19: GBP5.0m). I can also report a profit after
tax of GBP5.2m (FY19: GBP4.0m).
It is also pleasing to report that the amount of interest
received from acquirers has remained resilient throughout the
entire period, demonstrated through a 34% increase in the number of
NDAs signed across the Group, and I remain confident that this will
support future Transaction Fee income as the effects of the
COVID-19 pandemic on the UK M&A market are fully
understood.
K3 continued to both refine its direct marketing approach and
build on capacity within its sales departments throughout FY20. In
the first nine months of the financial year , yielded an increase
in Retainer Fee income to GBP6.0m (Jun - Feb FY19: GBP5.9m). Due to
the national pandemic and lockdown, whilst the majority of
operational employees were able to work from home and continue
delivering a service to willing clients, the final months of the
financial year saw a significant loss of appetite from existing
clients to continue with the delivery of services in the short
term, opting to wait until there was more certainty. As revenue is
recognised in line with the delivery of service, the impact of the
three month national lockdown has led to the deferral of services
and therefore there was effectively a pausing of recognised
Retainer Fee income for the final two months of FY20. We feel that
this suspension was a prudent decision and appropriate under the
circumstances. Since the national lockdown was lifted post year
end, we have resumed services to clients and therefore reinstated
the recognition of Retainer Fee income in line with prior years.
Therefore total Retainer Fee income stood at GBP6.6m (FY19:
GBP8.1m), however, throughout the first nine months of the period,
appointment levels showed a 8% increase and total Retainer Fees
showed a 3% increase compared with the same period in FY19.
Our Group has once again found itself excelling in national
league tables, with Refinitiv naming us as the most active
dealmaker in the Small Cap Financial Advisory review for 2019, and
the EMEA Mid-Market review for the first seven months of 2020. Such
accolades are testament to the dedication of the Board and
employees in having the drive and determination to improve
performance across the Group.
All figures relating to 9 months are unaudited
Financials
As reported, revenues for the year stood at GBP15.0m (FY19:
GBP13.6m), which generated an EBITDA of GBP6.8m (FY19: GBP5.0m) and
an Operating Profit of GBP6.5m (FY19: GBP4.9m).
Net cash at the year end stood at GBP8.3m (FY19: GBP5.8m). It is
pleasing to report that 'free cash' (as detailed in the CFO report)
rose to GBP4.3m (FY19: GBP3.1m).
Group net assets at FY20 were GBP9.2m (FY19: GBP7.2m) with
current net assets standing at GBP5.0m (FY19: GBP3.1m).
As a result, the Board is recommending a final dividend payment
of 3.80p per share. This results in a total dividend of 7.47p
(FY19: 7.60p).
The Board remains committed to the dividend policy as detailed
in the Chief Financial Officer's report, whilst maintaining an
appropriate level of dividend cover. If approved, the final
dividend will be paid on 27 October 2020 to shareholders on the
register at the close of business on 08 October 2020.
Summary
Whilst the UK experiences continuing economic challenges brought
about by the COVID-19 pandemic and ongoing Brexit negotiations the
Board is satisfied and encouraged with the performance of the Group
as a whole, especially throughout the first nine months of the
financial year, which reported increases across the majority of key
metrics before the impacts of COVID-19 took effect.
The Board remains positive for the outlook in FY21 due to a
strong first quarter of trading and the encouraging performance of
major KPIs across the Group, as detailed in the CEO report.
I would like to thank the Directors and senior management team
for their swift, decisive action as events around COVID-19 unfolded
in March, not least in respect of their personal sacrifices in
salary and bonus to protect jobs and support the Group.
Post year-end, we were delighted to welcome randd UK and
Quantuma to K3 Capital Group, diversifying our service offering
into R&D tax credits, pension advisory, forensic accounting and
investigations and restructuring and insolvency. These acquisitions
were immediately earnings enhancing for the Group and will provide
significant cross-selling opportunities.
Following a restructure to our Board, which sees Martin Robinson
move into the role of Senior Independent Director and Stuart Lees
assume the role of Non-Executive Director, I would also like to
take this opportunity to welcome Carl Jackson of Quantuma to the
Board, as well as Charlotte Stranner as Non-Executive Director.
Ian Mattioli MBE
Chairman
21 September 2020
Chief Executive Officer's Report
Introduction and highlights
The financial year ending May 2020 has been, as I am sure it has
been for many, a year which presented many obstacles and
challenges, the likes of which we have never experienced before.
Whilst I feel that much of the impact of the COVID-19 pandemic is
yet to unwind; I am proud of how we as a business have initially
reacted and subsequently dealt with these unprecedented
circumstances. I am also confident that the fundraise and
subsequent acquisitions which we have concluded post year end will
serve to provide the now enlarged Group with a stronger foundation
and more diversified base from which to expand and grow in the
years ahead.
Despite the very difficult final quarter which saw lockdown
imposed across the UK with an obvious impact on trading activity, I
am delighted to report that Group revenues increased by 10% to
GBP15.0m during the financial year ending 31st May 2020 (FY19:
GBP13.6m), with EBITDA increasing by 36% to GBP6.8m (FY19:
GBP5.0m). This was achieved despite the final months of the
reporting period being set against a backdrop of significant
economic uncertainty and unprecedented challenges which have been
brought upon us by the pandemic, with the wider M&A market
witnessing the effects of an economic contraction.
Whilst unwelcome, these challenges have enabled K3 to
demonstrate its resilient and robust business model. As previously
reported, during the lockdown period the Directors were able to
significantly reduce the operating costs of the Group and since the
trading update on the 25 March, the Group has remained EBITDA
positive during a most challenging time. I am also pleased to
report that within the period, the Group has experienced an
increase across several key metrics, resulting in a 56% uplift in
total Transaction Fee income (FY20: GBP8.4m, FY19: GBP5.4m).
As an innovative and disruptive player within the fragmented
business and company sales marketplace, K3 continued to outperform
the general market, completing 22% more deals than any other
advisor (Refinitiv Global Small Cap M&A Review 2019) to
maintain its market leading position as the UK's most active deal
maker. Amid the current economic uncertainty, I am also proud to
announce that we retained this status throughout the first seven
months of 2020 in the Refinitiv EMEA Mid-Market Insight, completing
15% more deals than our next nearest competitor from January to
July 2020.
The introduction of UK-wide 'lockdown' measures in March in
light of the COVID-19 pandemic meant that each department across
all brands within the Group were required to quickly adjust to
remote working, both for the wellbeing and safety of our employees
and to adhere to government guidelines. In the weeks leading up to
'lockdown', each department piloted a work from home initiative in
order to eliminate as many potential operational inefficiencies in
preparation for what we envisioned would be an inevitable scenario.
I am pleased to report that the Board considers this to have been a
resounding success, with our ability to minimise disruption to our
core operations seen as a pillar on which we have built a strong
start to FY21.
Throughout all the recent challenges we have endeavoured to
continue 'business as usual' with the continuing implementation of
our strategy, predicated on effective use of data and industry
leading marketing strategies supported by our own proprietary
technology and delivered through our team of highly motivated and
incentivised staff. The Group's performance is continually
monitored through key performance indicators, including the volume
and average value of mandates, completed transactions and average
Transaction Fees.
The Group's technological initiatives remain a key part of our
ongoing growth strategy to attract both more sellers and more
buyers to the Group. Our rapid reaction to the changing conditions
saw some adjustments to our teams and a focus on controlling costs
whilst remaining well placed to leverage commercial advantage from
our market leading position.
We remain committed to our ongoing 'bigger and better' strategy,
which has once more delivered an increase of 67% in average
Transaction Fees across the Group.
I would like to once again thank my fellow Directors and all the
staff across the Group for their hard work and dedication over the
last 12 months. In the face of adverse market conditions and
uncertainty in the wider macro-economic environment, to have
achieved growth across several areas of the Group is testimony to
our increasingly robust business model.
Marketing spend for the period saw a decrease of 18% to GBP0.9m
(FY19: GBP1.1m) as a direct result of the COVID-19 pandemic and the
need to pause several key marketing activities during the final
quarter of FY20. Although a reduction on the previous period, I am
pleased to report that marketing spend was in line with budgets
throughout the first nine months of the financial year, and has
driven new client wins across the Group, many of which we hope will
convert into Transaction Fee income as we move into FY21.
Knightsbridge Business Sales
Sales / Retainer Fees
With two brands now fully established within the 'retail' and
'commercial' arenas, the Knightsbridge sales department continued
to deliver growth across all key metrics throughout the first nine
months of FY20, delivering increases across several key performance
indicators before the effects of COVID-19 hit.
A prosperous start to the year resulted in the number of new
client appointments increasing by 10% from June to February
(overall FY decrease of 13%), the value of Retainer Fee quotes
increasing by 9% (overall: -17%), and the number of new client
mandates increasing by 6% (overall: -19%).
All figures relating to 9 months are unaudited
Despite a downturn in overall performance throughout the final
three months of the period, total Retainer Fee income increased by
8% in FY20 compared to FY19.
The outlook for FY21 is cautiously optimistic; many key metrics
are showing significant signs of recovery, with appointment numbers
and instructions increasing by 57% and 53% respectively in Q1 FY21
compared with Q4 FY20.
Operations / Transaction Fees
As expected and outlined in the last annual report, the
Knightsbridge Commercial team has started to see traction in FY20,
recording an 8% increase in total Transaction Fee income compared
with FY19.
Despite the previously outlined downturn in Q4, three out of
four of the main operational KPIs showed increases over the full
financial period, including: monthly non-disclosure agreements
increasing by 78%, monthly buyer meetings increasing by 3%, and
total Transaction Fees increasing by 8%. The average number of
monthly offers received saw a 13% decline over the 12 month period,
however throughout the first nine months , this metric also showed
an increase of 2%.
The Commercial department, which embodies our 'bigger and
better' mantra, as well as the above KPI improvements, has seen an
8% increase in total Transaction Fee income over the entire
reporting period, despite the difficulties of the final
quarter.
KBS Corporate
Sales / Retainer Fees
The continued success of the Knightsbridge Commercial brand in
handling smaller value mandates has allowed the KBS Corporate sales
department to focus on its 'bigger and better' mantra of securing
higher value mandates which have and will continue to fuel the
success of the transactional side of the business.
This has allowed the corporate sales department to spend more
time dealing with larger clients in order to better understand
their objectives and exit strategy. This enables us to further
tailor our service offering to the client's needs, and resulted in
an increase of 6% in the number of monthly appointments throughout
the first nine months of FY20 (overall: -12%).
The requirement to adopt a fully remote strategy for the sales
departments across the Group was perhaps the most crucial and
testing transition posed by the pandemic and subsequent lockdown.
It was imperative that we seamlessly adapted to fulfilling virtual
meetings with potential clients, both to honour the arrangements we
had already made with them to explore a company sale, and to ensure
that the sales department remains operational until which point
physical meetings are safe to attend once more.
I am pleased to report that this has been a resounding success,
with encouraging levels of appointments maintained throughout the
'lockdown', and the first quarter of FY21 seeing notable increases
across all key metrics within the KBS Corporate sales department
when compared to Q4 FY20.
Operations / Transaction Fees
Our continued investment into data, technology and buyer
targeting, has again delivered increases in the volume of
interested parties through the completion of NDAs (up 13% in FY20)
and the number of buyer meetings arranged between KBS Corporate's
clients and potential acquirers (up 4%). The effects of COVID-19
resulted in a slight decline of 4% in the number of offers
submitted per month, however it is worth noting that from Q1 FY20
through to Q3 FY20, the number of offers received showed an 18%
increase on the same period of the prior year, a direct result of
the aforementioned increase in NDAs secured. We hope to be able to
continue to deliver this growth into FY21 and beyond, with early
KPIs supporting a quicker 'return to form' than we predicted.
Despite the challenges faced, Transaction Fee* income increased
by 20% during the period to GBP4.8m in FY20 (FY19: GBP4.0m) which
is a pleasing result given the circumstances. I am pleased that the
growth in KPIs over previous periods has had a positive effect on
Transaction Fee income.
All figures relating to 9 months are unaudited
* Revenue adjusted to reflect KBS Corporate Sales clients
invoiced through KBS Corporate Finance following an enhanced
service offering, as further detailed in the Annual Report.
KBS Corporate Finance
Operations / Transaction Fees
FY20 was a very positive year for KBS Corporate Finance, with a
significant number of transactions closing as expected, a welcome
result following a disappointing FY19.
Total Transaction Fees* increased by significantly from GBP0.8m
in FY19 to a much improved GBP2.9m in FY20, an increase of
263%.
We have carried forward a strong book of clients into FY21 and
whilst the wider M&A market faces some challenges, we continue
to receive strong interest from many UK and overseas investors,
private equity, and trade acquirers, supported by a 13% increase in
monthly NDAs received throughout the entire reporting period.
We continue to receive interest from many UK and overseas
investors, private equity, and trade acquirers, which, when coupled
with our strong WIP (transactions in legal exclusivity), should
underpin our forecasts into FY20 and beyond.
Looking ahead
It is without doubt a challenging time to predict the future
however we have certainly been very encouraged by the demand for
our services and buyer activity in the post lockdown period. The
first quarter of FY21 has seen significant increases across all key
metrics within the volume brands of the Group when compared with
the final three months of FY20.
The strategy of our M&A business for FY21 is in line with
our previously stated strategy of continuing to drive the volume of
transactions across the Knightsbridge and KBS Corporate brands,
combined with the ongoing delivery of our 'bigger and better'
mantra. Whilst the economic challenges which are faced by UK SMEs
and the wider economy present challenges when completing M&A
transactions, the resilient and nimble nature of our business,
together with the strong pipeline of clients brought forward by all
three brands gives us confidence in delivering on our forecasts for
the year ahead. Early performance indicators from Q1 FY21 suggest
all brands are well underway in rebuilding towards the levels of
performance seen throughout the first three quarters of FY20.
Whilst the Corporate Finance brand continues to present an
exciting opportunity to deliver significant transactions and
therefore incremental revenue and profits, as previously stated; it
is the Board's intention to continue the transition towards a model
where the happening of such fees represents upside opportunity
rather than downside risk.
To achieve this, we will continue to leverage our data,
technology and people to find more sellers, more buyers and aim to
complete more transactions than any other UK advisor, with the
intention of maintaining our position as the UK's number one
advisor in the small cap market.
Acquisitions of randd and Quantuma
During the period we continued to develop our strategic plan of
diversifying revenue streams by acquiring complementary
professional services businesses. A comprehensive 'market mapping'
exercise was conducted within two target segments, those being
specialist tax reclaim and business restructuring / insolvency.
Following successful identification of two preferred targets, a
thorough due diligence process was conducted over the summer
together with a successful fundraise, whereby GBP30.5 million was
raised by way of the issue of new ordinary shares to support our
strategy.
I am therefore delighted to report that during the first quarter
of FY21, K3 Capital Group plc completed the acquisitions of both
randd UK Limited, a research and development tax reclaim
specialist, and Quantuma Advisory Limited, a business advisory firm
specialising in corporate finance, financial advisory, pension
advisory, forensic accounting and investigations, and restructuring
and insolvency.
Following these acquisitions, K3 Capital Group plc has become a
broader professional services Group which incorporates the UK
market leader in company sales, one of the longest established
R&D tax reclaim businesses in the UK and one of the UK's
fastest growing restructuring, insolvency and advisory firms,
creating a Group with diversified income streams, recurring
revenues, multiple and complementary channels to market and
significant cross selling opportunities.
* Revenue adjusted to reflect KBS Corporate Sales clients
invoiced through KBS Corporate Finance following an enhanced
service offering, as further detailed in the Annual Report.
The acquisitions were immediately earnings enhancing and give
the Group a more diverse revenue and profit profile, bringing
significant growth potential and providing a greater degree of
visibility and predictability in the 'post covid' world.
Directors and senior management across the Group are working
through a 100 day plan to ensure smooth integration of the
acquisitions. In addition, we aim to streamline and consolidate
certain Group functions such as finance, human resources and
marketing to create some cost synergies.
Following the acquisitions, we were pleased to welcome Carl
Jackson, the Chief Executive Officer of Quantuma, to the plc Board
and we also further strengthened and balanced the Non-Executive
function of our Board through the appointment of Charlotte
Stranner, Stuart Lees' change to Non-Executive Director and the
appointment of Martin Robinson as Senior Independent Director. I
believe this provides the Group with a well-balanced Board of four
Executive Directors, and four Non-Executive Directors.
The Board is considering changing the name of the Group to
reflect the Group's wider service offering following the recent
acquisitions and with the changing nature of the Group's revenue
and profits, the Board will also be considering how it reports on
performance and will develop an appropriate suite of KPIs in order
to communicate its future results. Further information regarding a
possible name change and results reporting will be communicated in
due course.
We are working on a number of new initiatives to take advantage
of the complementary nature of all businesses within the Group and
we plan to launch several direct marketing strategies for Quantuma
and randd in FY21, in addition to expanding and leveraging the
Group's existing accountancy and professional services referral
networks. We remain committed to our medium-term strategy to build
a wider group of growing and complementary professional services
businesses to provide SMEs with high quality advice across
specialist disciplines, and continually evaluate organic and
acquisitive opportunities.
A positive start
We have started the year with a positive approach to the 'post
lockdown era' and a revised forecast in place which shows
significant growth in both revenue and EBITDA across the wider
Group. Early months' trading is very much in line with market
expectations and we are excited by the potential to deliver our
growth strategy across the new Group.
The first quarter has already seen encouraging signs within our
M&A businesses, with significant improvement across all major
KPIs in comparison to Q4 FY20, which was heavily impacted by
lockdown. We are encouraged by the demand for our M&A services
from both sellers and buyers, and whilst the full effects of the
pandemic are yet to unfold, we are delighted with the level of new
client wins and completed transactions which gives us confidence in
the year ahead.
The randd team have also started the year positively with strong
performance over the first quarter as part of the wider Group,
supported by a number of cross referrals from the existing KBS and
Quantuma client base.
With the additional contribution of Quantuma trading for the
final month, the first quarter of FY21 has resulted in turnover
(unaudited) of GBP5.6m, delivering EBITDA (excluding exceptional
transactional costs, unaudited) of GBP2.3m. We remain confident in
delivering performance in line with market expectations.
John Rigby
Chief Executive Officer
21 September 2020
*Transaction fee income and Transaction volumes are adjusted to
reflect KBS Corporate Sales clients invoiced through KBS Corporate
Finance following an enhanced service offering, as further detailed
in the CFO report.
Chief Financial Officer's Report
Income Statement
I am delighted to report a welcome 10% increase in Group
turnover for the year with a result of GBP15.0m (FY19: GBP13.6m).
The financial year saw a significant increase in operational
activity and transactional income, largely due to prior year
investments in technology and people, which helped drive
significant growth through the period despite an uncertain final
quarter.
The year saw continued investment into our industry leading
client service levels, and average headcount growing to 166 during
FY20 (FY19: 153), with additional resource being given to all
departments in order to further the high levels of customer service
we expect to deliver to our clients, both new and existing.
There was clear disruption to the end of FY20 due to the effects
of COVID-19 which is detailed in the CEO report. Despite this, when
reviewing the first 9 months of FY20 compared to the same period in
FY19, the Group has seen significant uplift in Key Performance
Indicators, with 8% more client meetings delivering a 3% increase
in Retainer Fee income from the sales function, with a 51% increase
in buyer registrations, leading to a 32% increase in buyer
meetings, delivering a substantial 74% increase in Transaction Fee
income from the operational function.
Due to the COVID-19 pandemic and the Government decision to
impose a national lockdown in March 20, the final quarter of FY20
was an uncertain time for all in the Group. The Board welcomed the
Government's Coronavirus Job Retention Scheme (CJRS) as this
allowed the Board time to better understand the impact of the
pandemic and make informed decisions - which ultimately has led to
minimal staff loss over the period and the retention of a
significant number of jobs as the scheme intended.
The Group achieved EBITDA of GBP6.8m, an uplift of 36% on the
prior year (FY19: GBP5.0m) despite the challenges faced in Q4.
Group Retainer fee Income
Recognised Retainer Fee income (see note 3) for the first 9
months of the financial year showed a 3% increase compared with the
same period of FY19.
However due to lockdown restrictions imposed throughout the
final quarter, recognised Retainer Fee income (see note 5) declined
in the period by 18% to GBP6.6m (FY19: GBP8.1m). In line with
IFRS15 the Retainer Fee income is recognised over a period of time
linked to the delivery of service on client contract. Due to the
national pandemic and lockdown, whilst the majority of operational
employees were able to work from home and continue delivering a
service to willing clients, the final months of the financial year
saw a significant loss of appetite from existing clients to
continue with the delivery of services in the short term, opting to
wait until there was more certainty. As revenue is recognised in
line with the delivery of service, the impact of the three month
national lockdown has led to the deferral of services and therefore
there was effectively a pausing of recognised Retainer Fee income
for the final two months of FY20. We feel that this suspension was
a prudent decision and appropriate under the circumstances. Since
the national lockdown was lifted post year end, we have resumed
services to clients and therefore reinstated the recognition of
Retainer Fee income in line with prior years.
Transaction fee income
The continued growth of the volume brands and improved
performance of the Corporate Finance ("CF") team saw a significant
increase in Group Transaction Fee income (see note 5) for FY20,
delivering GBP8.4m, representing a 56% increase on prior year
(FY19: GBP5.4m). The headline movement has come from the KBS
Corporate Finance department. Following the frustrations of FY19
delivering GBP0.8m* with the slowing of larger transactions, this
year has seen an improvement in the quality of client mandates
leading to a number of transactions completing to deliver GBP2.9m*
of Transaction Fee income in FY20.
In FY19 the Group reported the pleasing growth of the 'CF Lite'
team, which, from a standing start delivered GBP2.6m of income in
the period. I am pleased to report that this department continues
to deliver growth with FY20 delivering GBP3.3m of income, a 33%
increase from the prior year, further demonstrating the 'bigger and
better' mantra that has been the Group objective for many
years.
* Revenue adjusted to reflect KBS Corporate Sales clients
invoiced through KBS Corporate Finance following an enhanced
service offering, as further detailed in the Annual Report.
All figures relating to 9 months are unaudited
Whilst COVID-19 has undoubtedly resulted in a slowing of
transactions since March, the Group has continued to complete a
number of transactions pre and post the lockdown period. Since year
end we have seen a significant improvement in buyer activity
displaying encouraging signs for FY21. Although the timing and
certainty of transactions can never be guaranteed, the Directors
are confident the Group is well positioned to utilise its data,
marketing and proactive approach in order to keep ahead of its
peers in attracting buyers for our clients' businesses.
Marketing costs
Group marketing spend has declined by 18% in FY20 to GBP0.9m
(FY19 GBP1.1m). As a direct result of the COVID-19 lockdown, the
Board took the decision to curb all unnecessary expenditure across
the Group in order to protect the business and mitigate potential
redundancies. The final two months of FY20 saw a significant
reduction in the average monthly marketing spend (down 88%),
demonstrating the agile nature of expenditure control.
Overhead costs
Overheads for FY20 reduced slightly to GBP7.3m (FY19: GBP7.5m).
This can be broken down into two separate cost areas - being
payroll costs and general overheads. In March, following the
'grounding' of sales staff in line with lockdown, as with marketing
expenditure all non essential spend was cancelled or postponed. As
such, general overheads were reduced to GBP1.3m (FY19: GBP1.5m) -
with the final two months of FY20 averaging GBP75k down from
GBP113k over the rest of the financial year.
As detailed in Note 3, IFRS16 was implemented in FY20, which
resulted in lease costs falling below the EBITDA line. A full
assessment has been carried out in respect of this and, there has
been no material change to the PBT of the Group.
In respect of Group wages, staff numbers continued to grow
during the period, and the uplift in turnover on prior year also
resulted in an increase in bonus payments to staff. However, in the
final two months of the year a portion of the workforce was placed
on CJRS, in addition to all Directors taking significant pay
reductions to mitigate potential job losses due to COVID-19. These
significant measures taken by the Board resulted in a drop in
average payroll costs from GBP570k a month down to GBP142k a month
for April and May, as a result the FY20 payroll cost equated to
GBP6.0m which was flat on FY19 (GBP6.0m).
EBITDA
It is pleasing to see EBITDA for the period growing to GBP6.8m
(FY19: GBP5.0m), with an improved EBITDA margin of 45% (FY19: 37%).
This movement in EBITDA margin is predominantly caused by the
increase in value of transactions in the period alongside cost
reduction measures taken in the final quarter.
Profit before taxation
The period has seen profit before tax of GBP6.4m delivered
(FY19: GBP4.9m)
Taxation
The effective tax rate is 18.9% which is marginally higher than
the prior year (FY19: 18.5%).
Earnings per share
Based on the closing 42.2m shares in issue, the basic earnings
per share (see note 13) was 12.37p for the year (FY19: 9.43p).
Statement of financial position
Cash
The Group cash balances have significantly improved during the
period due to the uplift in performance in FY20. The year ended
with GBP8.3m of cash (FY19: GBP5.8m).
As always, the Group business model continues to be highly cash
generative with Retainer Fee income typically being paid in advance
of services. Due to the month end processing of wages, and bonus
payments being made after receipt of income, this leaves minimal
requirement for working capital in the business.
There have been no exceptional cash items in the period.
The Directors regularly review Group cash balances to ensure
appropriate application of funds. As noted in previous reports,
whilst a GBP8.3m cash balance appears high for a Group with minimal
working capital requirement, once a provision for corporation tax,
VAT and PAYE (GBP1.4m), and a provision for a final dividend
(GBP2.6m) are taken into account, this leaves a free balance of
GBP4.3m (FY19: GBP3.1m), which, despite increasing uncertainty
across the globe, the Directors feel is sufficient liquidity for
the Group.
By exception, other points of note with regard to the statement
of financial position are:
-- Introduction of Right-of-use assets totalling GBP0.9m
relating to the capitalisation of property and vehicle leases in
accordance with IFRS16. This is balanced with GBP0.9m of Lease
Liabilities in current and non-current liabilities.
-- Trade receivables/payables are subject to the timing of
transactions and recognised income around the reporting date (see
notes 18 & 21)
-- Contract liabilities have declined at year end following the
slowing of Retainer Fees received over the lockdown period, though
remain at significant levels (GBP1.4m) to underpin future turnover
(see note 23)
Covid-19 mitigation measures
As detailed above, the Group took part in the Coronavirus Job
Retention Scheme (CJRS) under which it received GBP344k of
government support. At the same time, management sacrificed salary
and bonus payments amounting to GBP611k, representing 177% of the
funds received through the CJRS. The commitment and understanding
of the management team, complemented by the assistance offered by
the CJRS, drastically mitigated the potential number of
redundancies.
A significant majority (69%) of the CJRS grant was within our
sales and marketing functions; the government lockdown which
commenced in March 2020 meant that no face to face meetings were
possible, and consequently many client appointments were cancelled.
A small number of the team continued working throughout the period,
and introduced new ways of undertaking client appointments remotely
to ensure some continuity of services.
Throughout the lockdown period, other staff within the company
were able to remain active in order to manage relationships with
existing clients. This meant that in the departments where staff
were required, much less government support was needed.
The CJRS, along with the personal sacrifices of both the Board
and senior management (by way of salary sacrifice and bonus
reduction) provided the Board with time to further understand the
impact of Covid upon the business and thereby avoid making hasty
decisions with respect to redundancies.
As a direct result of these combined measures, we have
undoubtedly seen a significant reduction in the potential number of
job losses across the Group. As demand for our services gained
momentum in the first quarter of FY21, staff were brought back to
work into positions retained thanks to the CJRS and the personal
sacrifices made by the Board and senior management. We estimate
that in excess of 80% of potential redundancies have been avoided,
and as at the date of this report, no employees remain on
furlough.
Shareholders' dividend
The Board is recommending a final dividend of 3.80 pence per
ordinary share, based on 68,549,055 shares in circulation at the
date of this report (FY19: 42,210,526) payable to shareholders on
the register on 9 October 2020 (with an associated ex dividend date
of 8 October 2020), subject to shareholder approval at the Group's
Annual General Meeting on Friday 16 October 2020.
The final dividend, together with the January interim dividend
of 3.67p (based on 42,210,526 in circulation at the date of the
dividend), gives an indicative total dividend of 7.47 pence per
share for the year (FY19: 7.60 pence, 42,210,526 shares).
On admission of the Group's ordinary shares to trading on AIM in
April 2017, the Board outlined an intention to pay approximately
80% of the Group's adjusted post tax profits for the year weighted
1/3 on interim results and 2/3 on final results. This final
dividend of cGBP2.6m in addition to the interim dividend of
cGBP1.6m represents approximately 80% of the Group's post tax
profits for the year.
The Board assessed the payment of a final dividend in context of
having received funds under the Government's CJRS. As noted earlier
in this report, the Board and senior management's personal
contribution with salary and bonus sacrifice was far greater than
the government support received, and the combined measures
mitigated a significant number of job losses, The decision to pay a
final dividend has been taken in the context of the above, together
with the post year end acquisitions of Quantuma and randd UK, which
have significantly enhanced the Group's future prospects due to the
counter cyclical nature of the Quantuma model and the contracted
and recurring nature of the randd revenues.
Change in dividend policy
As discussed with shareholders during the recent fundraise, and
as outlined by the Board in recent announcements following the
acquisitions of randd UK and Quantuma, K3 is committed to
maintaining an attractive dividend policy, now expected to be in
the region of 75% of adjusted post tax profits.
This is to remain broadly consistent with the intentions
established on AIM listing whilst taking into consideration future
commitments linked to earn outs and working capital requirements of
the Group.
Share price
The K3 Capital Group plc share price closed the financial year
at 175.5 pence (31 May 19: 135.5 pence).
Going concern
The Directors confirm they have a reasonable expectation that
the Company has adequate resources to continue in operational
existence for at least 12 months from the date of signing these
financial statements. As at the end of FY20, the K3 balance sheet
contained GBP8.3m of cash reserves and has remained profitable for
the period since. The acquisitions post balance sheet were funded
through shareholder investment with new share issues, to cover both
the purchase prices and all related costs of acquisition to
conserve the cash reserves.
This confirmation is made after having reviewed assumptions
about future trading performance, valuation projections, capital
expenditure, asset sales and debt requirements contained within the
Group's current five-year plan. In addition to this, the Board has
prepared detailed cash flow forecasts for the period to 31 May 2022
for the wider Group. Under these worst case scenarios, the Group is
still expected to remain cash positive at least the next 12 months.
The Directors also considered potential risks and uncertainties in
the business, such as credit, market and liquidity risks, including
the availability of bank facilities. Further stress testing has
been carried out to ensure the Group has sufficient cash resources
to continue in operation for at least the next 12 months following
the short term performance issues relating to COVID-19.
This stress testing included extreme downside scenarios with
materially reduced levels of cash receipts over this period. These
downside scenarios excluded any mitigating actions that the Board
would be able to take to reduce costs - as the Board have
demonstrated in the final months of FY20, the business has a low
fixed cost base with the ability to significantly reduce marketing
spend, general overheads, and even payroll costs with senior
management sacrifice in times of need. Under these scenarios, the
Group would still expect to remain cash positive for at least the
next 12 months from the date of this report. The Directors have not
identified any material uncertainties that may cast significant
doubt about the Group's ability to continue to adopt the going
concern basis of accounting for a period of at least twelve months
from the date when the financial statements are authorised for
issue.
Based on the above, together with available market information
and the Directors' knowledge and experience of the Group's client
portfolio and markets, the Directors continue to adopt the going
concern basis in preparing the accounts for the year ended 31 May
2020.
Andrew Melbourne
Chief Financial Officer
21 September 2020
Consolidated Statement of Comprehensive Income
2020 2019
GBP000 GBP000
Revenue 14,994 13,564
Distribution costs (938) (1,065)
Administrative expenses (7,597) (7,626)
EBITDA (before exceptional costs) 6,790 4,976
Depreciation of tangible assets (277) (87)
Amortisation of intangible assets (54) (16)
------------------------ ------------------------
Operating profit 6,459 4,873
Finance income 7 6
Finance costs (29) -
------------------------ ------------------------
Profit before taxation 6,437 4,879
Taxation (1,215) (901)
------------------------ ------------------------
Profit and total other comprehensive income
for the financial year 5,222 3,978
================ ================
Attributable to the owners of the Company 5,222 3,978
================ ================
Earnings per share:
Basic and diluted EPS GBP0.12 GBP0.09
All the activities of the Group are from continuing
operations.
Consolidated Statement of Financial Position
2020 2019
GBP000 GBP000
ASSETS
Non-current assets
Intangible assets 4,046 4,065
Property, plant and equipment 56 88
Right-of-use assets 871 -
------------------------ ------------------------
Total non-current assets 4,973 4,153
------------------------ ------------------------
Current assets
Trade and other receivables 5 43
Other assets 266 380
Cash and cash equivalents 8,271 5,753
------------------------ ------------------------
Total current assets 8,542 6,176
------------------------ ------------------------
TOTAL ASSETS 13,515 10,329
================ ================
Current liabilities
Trade and other payables 1,080 1,130
Current tax liabilities 924 288
Contract Liabilities 1,369 1,645
Lease liabilities 200 -
------------------------ ------------------------
Total current liabilities 3,573 3,063
------------------------ ------------------------
Non-current liabilities
Lease liabilities 671 -
Deferred tax liabilities 25 35
------------------------ ------------------------
Total non-current liabilities 696 35
------------------------ ------------------------
TOTAL LIABILITIES 4,269 3,098
------------------------ ------------------------
NET ASSETS 9,246 7,231
================ ================
EQUITY
Equity attributable to owners of the Company:
Issued capital and share premium 2,413 2,413
Share option reserve 118 75
Retained earnings 6,715 4,743
------------------------ ------------------------
TOTAL EQUITY 9,246 7,231
================ ================
Consolidated Statement Share Share Share option Retained Total
of Changes in Equity capital premium reserve earnings
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 June 2018 422 1,991 32 5,830 8,275
Profit and total
comprehensive income
for the
year - - - 3,978 3,978
Transactions with
owners:
Share based payments - - 43 - 43
Dividends - - - (5,065) (5,065)
---------------- ---------------- ---------------- ---------------- ----------------
Balance at 31 May 2019 422 1,991 75 4,743 7,231
Profit and total
comprehensive income
for the
year - - - 5,222 5,222
Transactions with
owners:
Share based payments - - 43 - 43
Dividends - - - (3,250) (3,250)
---------------- ---------------- ---------------- ---------------- ----------------
As at 31 May 2020 422 1,991 118 6,715 9,246
========== ========== ========== ========== ==========
Consolidated Statement of Cash Flows
2020 2019
GBP000 GBP000
Cash flows from operating activities
Profit for the financial year 5,222 3,978
Adjustments for:
Depreciation of property, plant and equipment 58 87
Depreciation of right-of-use assets 219 -
Amortisation of intangible assets 54 16
Finance income (7) (6)
Finance Costs 29 -
Income tax expense 1,215 901
Expense recognised in respect of equity-settled
share-based payments 43 43
------------------------ ------------------------
6,833 5,019
Movement in working capital:
Decrease / (Increase) in trade and other receivables 38 155
Decrease / (Increase) in other assets 114 (43)
(Decrease) / Increase in trade and other payables (50) (459)
(Decrease) / Increase in contract liabilities (276) 229
------------------------ ------------------------
Cash generated from operations 6,659 4,901
Finance income received 7 6
Income taxes paid (589) (1,450)
------------------------ ------------------------
Net cash from operating activities 6,077 3,457
================ ================
Investing activities
Purchase of property, plant and equipment (26) (72)
Purchase of intangible assets (35) (89)
------------------------ ------------------------
Net cash used in investing activities (61) (161)
================ ================
Financing activities
Dividends paid to owners of the Company (3,250) (5,065)
Lease liability interest paid (29) -
Repayment of the lease liabilities (219) -
------------------------ ------------------------
Net cash used in financing activities (3,498) (5,065)
================ ================
Net (Decrease) / Increase in cash and cash equivalents 2,518 (1,769)
Cash and cash equivalents at beginning of year 5,753 7,522
------------------------ ------------------------
Cash and equivalents at end of year 8,271 5,753
================ ================
1. Basis of preparation
The preliminary financial information does not constitute
statutory accounts for the financial years ended 31 May 2020 and 31
May 2019, but has been derived from those accounts. The accounting
policies used in preparation of this preliminary announcement are
in line with the 2020 annual report, with the principal accounting
policies disclosed below. Statutory financial statements for the
year ended 31 May 2020 will be delivered to the Registrar of
Companies following the Company's annual general meeting. The
auditors have reported on those accounts and their reports were
unqualified, did not draw attention to any matters by way of
emphasis, and did not contain a statement under 498(2) or 498(3) of
the Companies Act 2006
Basis of Consolidation
The Group financial statements consolidate the results of the
company, K3 Capital Group PLC, and its subsidiaries (together
referred to as the "Group").
Subsidiary undertakings acquired are included using the
acquisition method of accounting. Under this method the
consolidated statement of comprehensive income, consolidated
statement of financial position and consolidated statement of cash
flows included the results and cash flows of subsidiaries from the
date of acquisition and to the date of sale outside the Group in
the case of disposals of subsidiaries.
Where the company has control over an investee, it is classified
as a subsidiary. The Company controls an investee if all three of
the following elements are present: power over the investee,
exposure to variable returns from the investee, and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
New standards, amendments to and interpretations to published
standard
Impact of initial application of IFRS 16 Leases
In the current year, the Group has applied IFRS 16 Leases (as
issued by the IASB in January 2016) that is effective for annual
periods that begin on or after 1 January 2019.
IFRS 16 introduces new or amended requirements with respect to
lease accounting. It introduces significant changes to lessee
accounting by removing the distinction between operating and
finance lease and requiring the recognition of a right-of-use asset
and a lease liability at commencement for all leases, except for
short-term leases and leases of low value assets when such
recognition exemptions are adopted. In contrast to lessee
accounting, the requirements for lessor accounting have remained
largely unchanged.
The impact of the adoption of IFRS 16 on the Group's
consolidated financial statements is described below.
The date of initial application of IFRS 16 for the Group is 1
June 2019.
The Group has applied IFRS 16 using the modified retrospective
approach which:
-- Requires the Group to recognise the cumulative effect of
initially applying IFRS 16 as an adjustment to the opening balance
of retained earnings at the date of initial application.
-- Does not permit restatement of comparatives, which continue
to be presented under IAS 17 and IFRIC 4.
The right of use asset is equal to the lease liability, adjusted
for prepaid or accrued lease payments
Impact of the new definition of a lease
The Group has made use of the practical expedient available on
transition to IFRS 16 not to reassess whether a contract is or
contains a lease. Accordingly, the definition of a lease in
accordance with IAS 17 and IFRIC 4 will continue to be applied to
those leases entered or changed before 1 June 2019.
The change in definition of a lease mainly relates to the
concept of control. IFRS 16 determines whether a contract contains
a lease on the basis of whether the customer has the right to
control the use of an identified asset for a period of time in
exchange for consideration. This is in contrast to the focus on
'risks and rewards' in IAS 17 and IFRIC 4.
The Group applies the definition of a lease and related guidance
set out in IFRS 16 to all lease contracts entered into or changed
on or after 1 June 2019. In preparation for the first-time
application of IFRS 16, the Group has carried out an implementation
project. The project has shown that the new definition in IFRS 16
will not significantly change the scope of contracts that meet the
definition of a lease for the Group.
Impact on Lessee Accounting
IFRS 16 changes how the Group accounts for leases previously
classified as operating leases under IAS 17, which were off balance
sheet.
Applying IFRS 16, for all leases, the Group:
a ) Recognises right-of-use assets and lease liabilities in the
consolidated statement of financial position, initially measured at
the present value of the future lease payments;
b) Recognises depreciation of right-of-use assets and interest
on lease liabilities in the consolidated statement of profit or
loss;
c) Separates the total amount of cash paid into a principal
portion (presented within financing activities) and interest
(presented within financing activities) in the consolidated
statement of cash flows.
Lease incentives (e.g. rent free period) are recognised as part
of the measurement of the right-of-use assets and lease liabilities
whereas under IAS 17 they resulted in the recognition of a lease
incentive, amortised as a reduction of rental expenses on a
straight line basis.
Under IFRS 16, right-of-use assets are tested for impairment in
accordance with IAS 36.
The Group has used the following practical expedients when
applying the modified retrospective approach to leases previously
classified as operating leases applying IAS 17.
-- The Group has applied a single discount rate to a portfolio
of leases with reasonably similar characteristics.
Financial impact of initial application of IFRS 16
The weighted average lessee's incremental borrowing rate applied
to lease liabilities recognised in the statement of financial
position on 1 June 2019 is 3%.
The following table shows the operating lease commitments
disclosed applying IAS 17 at 31 May 2019, discounted using the
incremental borrowing rate at the date of initial application and
the lease liabilities recognised in the statement of financial
position at the date of initial application.
GBP'000
Operating lease commitments at 31 May 2019 522
Present value of the lease payments due in periods
covered by extension options that are included
in the lease term and not previously included in
operating lease commitments 646
Effect of discounting the above amounts (104)
Lease liabilities recognised at 1 June 2019 1,064
The Group has recognised GBP1,064,000 of right-of-use assets and
GBP1,064,000 of lease liabilities upon transition to IFRS 16.
IFRIC 23 Uncertainty over Income Tax Treatments
The Group has adopted IFRIC 23 for the first time in the current
year. IFRIC 23 sets out how to determine the accounting tax
position when there is uncertainty over income tax treatments. The
Interpretation requires the Group to:
-- determine whether uncertain tax positions are assessed separately or as a group; and
-- assess whether it is probable that a tax authority will
accept an uncertain tax treatment used, or proposed to be used, by
an entity in its income tax filings:
o If yes, the Group should determine its accounting tax position
consistently with the tax treatment used or planned to be used in
its income tax filings.
o If no, the Group should reflect the effect of uncertainty in
determining its accounting tax position using either the most
likely amount or the expected value method.
In the current year, the Group has applied a number of
amendments to IFRS Standards and Interpretations issued by the IASB
that are effective for an annual period that begins on or after 1
June 2019. Their adoption has not had any material impact on the
disclosures or on the amounts reported in these financial
statements.
New standards, amendments to and interpretations to published
standards not yet effective
There are a number of standards, amendments to standards, and
interpretations which have been issued by the IASB that are
effective in future accounting periods that the Group has decided
not to adopt early.
IFRS 17 - Insurance Contracts
IFRS 10 and IAS 28 (amendments) - Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture
Amendments to IFRS 3 - Definition of a business
Amendments to IAS 1 and IAS 8 - Definition of material
Conceptual Framework - Amendments to References to the
Conceptual Framework in IFRS Standards
The Directors do not expect that the adoption of the Standards
listed above will have a material impact on the financial
statements of the Group in future periods
Going Concern
The financial statements have been prepared on the basis that
the Group will continue as a going concern.
Based on financial performance to date and forecasts along with
significant cash reserves coupled with no debt in the Group, there
is a reasonable expectation that the Group has adequate resources
to continue in operational existence for the foreseeable future.
The Group therefore continues to adopt the going concern basis of
accounting in preparing the annual financial statements. The Board
has prepared cash flow forecasts for the period to 31 May 2022.
Under this base case scenario, the Group is expected to continue to
have significant headroom relative to the cash reserves available.
The Board has also considered various other severe downside
scenarios, including the possibility of a second lockdown as a
result of a second wave of Covid-19. These downside scenarios
included significant reductions in expected turnover levels in all
trading subsidiaries of the Group, and excluded any mitigating
actions that the Board would be able to take to reduce costs. Under
these scenarios, the Group would still expect to have sufficient
cash reserves to operate. The Group therefore continues to adopt
the going concern basis of accounting in preparing the annual
financial statements
Revenue Recognition
Revenue comprises revenue recognised by the Group in respect of
services supplied during the year, exclusive of Value Added
Tax.
The Group recognises revenue from the following major
sources:
Retainer Fees arising from customers for professional advice
Transaction Fees arising from business sales arranged by the
Group companies
Revenue is measured based on the consideration to which the
Group expects to be entitled in a contract with a customer and
excludes amounts collected on behalf of third parties. The Group
recognises revenue when it transfers control of a product or
service to a customer.
There is one performance obligation associated with Retainer Fee
income. Although there are different services provided, none of
these are individually distinct. These services include the
drafting of an information memorandum, as well as performing
research to obtain a buyer for the client. Revenue is recognised
over time because the work performed does not create an asset of
which has an alternate use, and the K3 Capital Group has an
enforceable right to payment for the work of which has been
performed. There is no variable consideration.
Due to revenue being recognised over time, and agreements
overlapping the period end, contract liabilities are recognised
when invoiced revenue is recognised in advance of delivery of the
remaining service of the retainer. As these contracts are similar
in nature, the review of milestone completion and calculation of
contract liabilities is done on a portfolio basis.
As detailed within the CFO report, due to the impact of lockdown
and the fact that the Company utilised the CJRS, the decision was
taken to review the estimates applied to revenue recognition
following the national lockdown and impact on the delivery of
services, as a result there was a deferral of 2 months retainer fee
income at the end of FY20.
The transaction price is determined at inception of the
contract. The transaction price is allocated to the performance
obligation in line with the stage of completion of the
retainer.
There is one performance obligation within Transaction Fee
income. This obligation is the completion of a Transaction as
defined in K3's terms of business, being the transfer of shares or
assets from a client to a third party, with fees settled from the
sale proceeds. No contract liabilities arise with Transaction Fee
income, and there is no variable consideration. Further detail on
revenue recognition policies is provided in the critical accounting
estimates section in the Annual Report.
Employee benefits
i Short-term benefits
Wages, salaries, paid annual leave and sick leave, bonuses and
non-monetary benefits are accrued in the period in which the
associated services are rendered by employees of the Group.
ii Defined Contribution plans
The Group operates a defined contribution pension scheme for
employees. The assets of the scheme are held separately from those
of the Group. The annual contributions are charged to the Statement
of Comprehensive Income. The Group also contributes to the personal
pension plans of the Directors at the Group's discretion.
Operating Profit
Operating profit is stated after all expenses, including those
considered to be exceptional, but before finance income or
expenses. Distribution costs relate to marketing expenses. All
other operational costs are classified as administrative
expenses.
EBITDA
Operating profit is stated after all expenses, including those
considered to be exceptional, but before finance income or
expenses. Distribution costs relate to marketing expenses. All
other operational costs are classified as administrative
expenses.
2. Revenue
The Group's revenue arises from the provision of services in
fulfilling the principal activities. An analysis of revenue by
subsidiary company is shown below:
2020 2019
GBP000 GBP000
KBS Corporate Sales Limited 7,091 8,673
KBS Corporate Finance Limited 5,473 2,671
KBS Capital Markets Ltd 50 -
Knightsbridge Business Sales
Limited 2,380 2,200
------------------------ ------------------------
14,994 13,564
================ ================
A further breakdown of revenue by type is shown below:
2020 2019
GBP000 GBP000
Retainer Fees 6,643 8,130
------------------------ ------------------------
Transaction fees 8,351 5,434
------------------------ ------------------------
14,994 13,564
================ ================
3. Operating Profit
Operating profit or loss is stated after charging:
2020 2019
GBP000 GBP000
Amortisation of intangibles - website
costs 54 16
Depreciation of property, plant
and equipment 58 86
Depreciation of right-of-use assets 219 -
Government grants in respect of (344) -
CJRS
Auditor remuneration 33 31
Equity - settled share based payments
expenses 43 43
Operating lease charge - 235
================ ================
4. Employee Benefit Expense
The average number of persons employed by the Group during the
year, including the directors, amounted to:
2020 2019
No. No.
Management 11 10
Sales 73 71
Marketing/Administration 82 72
------------------------ ------------------------
166 153
================ ================
The aggregate payroll costs incurred during the year by the
Group, relating to the above, were:
2020 2019
GBP000 GBP000
Wages, salaries, bonuses & benefits
in kind 5,299 5,416
Share-based payments 43 43
Social security costs 565 526
Other pension costs 74 54
------------------------ ------------------------
5,981 6,633
================ ================
5. Earnings per share
Basic earnings per share amounts are calculated by dividing the
profit for the year attributable to equity holders of the Company
by the weighted average number of ordinary shares outstanding
during the period.
Diluted earnings per share are calculated by dividing the profit
attributable to ordinary equity holders of the Company by the
weighted average number of ordinary shares outstanding during the
year plus the weighted average number of ordinary shares that would
have been issued on the conversion of all dilutive potential
ordinary shares into ordinary shares at the start of the year, or,
if later, the date of issue.
The following reflects the income and share data used in the
basic and diluted earnings per share computations:
2020 2019
GBP000 GBP000
Net profit attributable to equity
holders of the Company 5,222 3,978
Initial weighted average of ordinary
shares 42,210,526 42,210,526
Basic earnings per share 12.37p 9.43p
The weighted average number of ordinary shares for the purposes
of diluted earnings per share reconciles to the weighted average
number of shares used in the calculation of basic earnings per
share as follows:-
2020 2019
GBP000 GBP000
Weighted average number of ordinary shares used in the
calculation
of basic earnings per share 42,210,526 42,210,526
Dilutive effects of share options 481,052 142,322
------------------------ ------------------------
Dilutive weighted average number of ordinary shares 42,691,578 42,352,848
================ ================
Diluted earnings per share 12.23p 9.39p
6. Contract liabilities
Group Company
2020 2019 2020 2019
GBP000 GBP000 GBP000 GBP000
Arising from client contracts 1,369 1,645 - -
================ ================ ================ ================
The contract liabilities arise from the non-contingent contracts
provided to certain customers in respect of providing business
marketing and research to these clients. Revenue is recognised and
deferred in accordance with services provided within contract
terms.
Annual Report
The annual report will be mailed to shareholders and made
available on our website on or around 21 September 2020. Copies
will be made available after that date from: The Secretary, KBS
House, 5 Springfield Court, Summerfield Road, Bolton, BL3 2NT.
Annual General Meeting
The Company's Annual General Meeting (AGM) will be held on
Friday 16 October at 11.00am at the offices of TLT LLP, 3 Hardman
Square, Spinningfields, Manchester, M3 3EB.
Copies of the announcement can be found on the Investor
Relations section of the Company's website:
www.k3capitalgroupplc.com
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