11 September 2017

 

K3 CAPITAL GROUP PLC

("K3", the "Company" and including its subsidiaries, the "Group")

 

Final audited results for the year ending 31 May 2017

 

An exciting year of robust growth

 

 

K3 Capital Group plc, a leading business and company sales specialist in the UK, today announces its final results for the year ended 31 May 2017.

 

Financial highlights

£m	2017	2016	% change
Group revenue	£10.8m	£8.6m	26%
Profit before tax	£3.6m	£3.1m	18%
Normalised EBITDA †	£4.7m	£3.8m	25%
Net cash ††	£3.4m	£0.9m	285%
Earnings per share	*6.59p	**6.17p
Dividend per share	***7.19p	**2.08p

 

† Adjusted EBITDA is an adjusted measure that reflects the illustrative historical cost savings of having Triskell LLP and KBS CF LLP personnel as employees of the Group, under the arrangements in force at the date of Admission, compared to the consultancy fees paid to Triskell LLP and KBS CF LLP during each historical period. Also excludes all exceptional costs associated with AIM listing.

†† being cash in bank less bank loans

* 2017 earnings per share & dividend per share are based on 42.2m issued share capital at 31 May 2017

** 2016 earnings per share & dividend per share are based on normalised 40m issued share capital

*** 2017 dividends per share includes proposed final dividend

 

 

Operational highlights

·      New head office allowed for Group expansion

·      Continued investment in our people (110 employees as of May 17)

·      Improved board and management structure following successful IPO in April 17

·      Most active dealmaker in H1 2017 in the Thomson Reuters Small Cap M&A Review

·      Ongoing delivery of core strategy to increase the volume of larger and more profitable mandates

 

Outlook

·      Continued organic growth across all three group companies

·      Ongoing strategy to both target and win higher value, more profitable mandates through targeted marketing campaigns and national sales force

·      Refining technologies and data provisions to further enhance buyer targeting

·      Continued investment in our people and their training and development

Commenting on the results, K3 Capital Group plc, Chairman, Ian Mattioli said:

"It is pleasing to report a year of robust growth at our inaugural set of results as a listed company. It has been a momentous year for the business, with both our office relocation in September, which allowed for significant staff expansion, and the successful listing on AIM in April.

 

"We continue to refine our technologies and data provisions which will help widen our target audience and define more closely our key markets through increased profiling of the data. It is this strategy which I believe will allow us to target and win an increased number of larger mandates.

 

"We will continue to implement our strategy of organic growth across each of our three trading brands, and I am confident that these strategies will allow us to achieve the ambitious growth targets we have set ourselves and I believe the Group is well placed to continue this trend into the 2018 financial year."

 

John Rigby, CEO of K3 Capital Group plc said:

"The small cap M&A market continues to enjoy robust market conditions, with deal volumes above the 10 year average. Despite Brexit and wider economic and political uncertainties, the market has been boosted by a significant upturn in inward investment, as foreign bidders look to take advantage of favourable exchange rates. This coupled with high levels of private equity funding, creating strong activity from both UK and overseas houses are just two factors driving current transaction volumes."

 

"Our growing momentum through FY17 has been complimented by a strong start to the new financial year, with trading comfortably in line with management expectations. We have already completed two significant transactions, which have each generated transaction fees in excess of £1m. This performance, together with the momentum gained throughout H2 FY17, is encouraging for the prospects of the coming financial year and we look forward to delivering sustainable organic growth and increasing profitability across the Group."

 

-ENDS-

 

For further information please contact:

K3 Capital Group plc	Tel: c/o Newgate 020 7680 6550
John Rigby, Chief Executive Officer	www.k3capitalgroupplc.com
Andrew Melbourne, Chief Financial Officer
finnCap Ltd (Nominated Adviser and Broker)	Tel: 020 7220 0500
Jonny Franklin-Adams, Emily Watts, Anthony Adams (Corporate Finance)
Tim Redfern, Richard Chambers (Corporate Broking)
Newgate Communications Ltd (Financial PR)	Tel: 020 7680 6550
Alistair Kellie, Zoë Pocock, James Ash	[email protected]

 

 

Information on K3 Capital Group plc can be accessed via the Group's website at www.k3capitalgroupplc.com

 

 

 

Strategic Report

 

Chairman's Statement

It was a great pleasure to accept the Chairmanship of K3 Capital Group plc (K3C / the Group) at the time of its AIM floatation on 11 April 2017, a significant milestone in the history of K3C. I have seen first-hand the professionalism and dedication of the Board and management and I am delighted to be involved in contributing to the next chapter of the Group's growth as a public company.

K3C has a disruptive business model which sets it apart from other professional services providers in the highly fragmented business and company sales marketplace which has and should enable it to increase market share and achieve sustainable organic growth.

The float represented the culmination of many years of successful year on year growth driven by the refinement of its business model and its people building expertise and knowledge. The skills and diligence of the K3C team and its advisers enabled a most satisfactory IPO process. The business is now at the beginning of a new chapter in its journey and the K3C team not only understand the growth opportunity but also understand the importance of controls, planning and governance which are required as a listed entity which all points towards a very compelling opportunity

It is satisfying to report a year of robust growth that has seen revenues increase by 26% to £10.8m (FY16 £8.6m) and normalised EBITDA (note 3) increase by 25%, to £4.7m (FY16 £3.8m). In addition to this, despite costs relating to the IPO process, the Group are pleased to report a profit after tax of £2.8m, an increase of 13% (FY16 £2.5m).

K3C has continued to invest in innovative and high impact marketing throughout the financial year in order to enhance our high volume, direct marketing approach to client acquisition. A strategy that yielded 15% more client mandates in FY17. Non-contingent fee income across the brands has increased by 16% to £5.1m in FY17 (FY16 £4.3m). This marketing investment, combined with our floatation on AIM and continuing industry recognition has raised our profile and brand awareness throughout the UK.

Not only have we enjoyed success with new client wins, our operations department have also had a successful year with revenue from Group transaction fees increasing by 37%. These departments have grown as a direct result of investment into people, management and processes. The Group remains focussed on delivering a 'best in class' service to all clients in order to adhere to our strong client centric culture.

Once again, we find ourselves excelling in national league tables, with Thomson Reuters naming us as the most active dealmaker in the Small Cap Financial Advisory review for the first half of 2017. Such accolades are testament to the dedication of the board and employees in developing a successful service delivery model, that remains scalable for anticipated future growth.

Financials

As reported, revenues for the year stood at £10.8m, an increase of 26% (FY16 £8.6m), and 2.3% above market expectations.

We are also pleased to report a normalised EBITDA† of £4.7m for the financial year, an increase of 25% (FY16 £3.8m) and 4.7% above market expectations with net cash at the year-end standing at £3.4m (+285%) (FY16 £0.9m). The Group has also enjoyed an increase in Operating Profit of 16% to £3.7m (FY16 £3.2m).

† Normalised EBITDA (as defined in Note 3 of the Financial Statements, along with a definition of reported EBITDA) is an adjusted measure that reflects the illustrative historical cost savings of having Triskell LLP and KBS CF LLP personnel as employees of the Group, under the arrangements in force at the date of Admission, compared to the consultancy fees paid to Triskell LLP and KBS CF LLP during each historical period. Also excludes all exceptional costs associated with AIM listing.

Group net assets at FY17 were £5.4m (FY16: £1.7m) with current net assets standing at £1.5m (FY16: -£0.7m).

As a result, the Board is pleased to recommend the payment of a final dividend of 4.4p per share, resulting in total dividends for FY17 of £3.0m (FY16 £0.8m). The Board remains committed to a progressive dividend policy, whilst maintaining an appropriate level of dividend cover. If approved, the final dividend will be paid on 30 October 2017 to shareholders on the register at the close of business on 22 September 2017.

Board and People

Our fantastic results have only been made possible with the commitment and dedication of my colleagues throughout the year. On behalf of the Board, I would like to extend my sincerest thanks for their hard work in growing the company to the position it is in today. A number have been with the Company since the start of our journey and our recent listing is a celebration of their success and determination to succeed.

Since the floatation I can announce that we have strengthened our board with the appointment of Martin Robinson as a Non-Executive Director. Martin brings a wealth of both public and private company director experience with over 25 years in the financial services industry.

Outlook

During FY18 we will continue to implement our strategy of organic growth across each of our three trading brands.

This strategy will be assisted by our ongoing mantra of targeting and winning 'bigger and better', higher value client mandates across the Group.

We are developing our technologies and enhancing our data profiling in order to improve operational efficiencies and both increase the volume of, and more closely define our key market segments through increased profiling of the data.

Most importantly, we will continue to invest in our people and their training and development. We recognise that their experience and dedication is the lifeblood of the business and ensuring that they have all the tools necessary to service our clients will always be a fundamental strategy of the Group.

Myself and the Board are confident that these strategies will assist us in achieving our growth expectations over the coming months and years.

In summary, the Board is pleased with the FY17 performance and is confident that the Group is well placed to continue the trend into FY18.

 

 

 

Ian Mattioli

Chairman

 

8 September 2017

 

Chief Executive Officer's Report

Introduction and Highlights

I am very pleased to report on what has been a very busy and extremely significant year in the development of K3 Capital Group plc.

Whilst the UK and wider economic and political landscapes have not been without some challenges and unexpected happenings during the period, the small cap M&A market has enjoyed a relatively stable and progressive period with deal volumes above the ten-year average. This was boosted by a significant upturn in inward investment as foreign bidders looked to take advantage of favourable exchange rates and high levels of private equity funding, which created strong activity from both UK and overseas houses.

The financial year ending 31 May 2017 has seen the continuing and successful implementation of our strategy to both grow our brands organically and also raise the quality and value of clients across the Group. I am pleased to report that our average transaction fee across the group increased 40% to £44.3k in FY17 (FY16 £31.6k).

During the previous year we identified a new Head Office building of 12,000 sq ft which we could purpose fit to our own requirements. After six months of building and fit out we relocated the businesses on 30 September 2016.

The building provides Grade A office accommodation, on-site parking, high quality client meeting rooms and presentational facilities, the latest technology and telecommunications infrastructure, catering facilities and a staff gymnasium. Our new home gave us the opportunity to relocate our corporate finance team from Manchester bringing all disciplines, management and central functions under one roof.

Relocating the corporate finance team has enabled us to share knowledge throughout the business including research, technical expertise, financial modelling, negotiation skills and all aspects of deal execution which is proving of great benefit across the Group.

The increased capacity created by the Head Office relocation has allowed us to increase staff numbers to 110 in May 17 (from 73 in May 16), attract and retain quality people and allows for additional capacity to future proof the business.

I would like to thank my fellow directors and indeed all the staff across the Group for their hard work and dedication over the last 12 months in achieving double digit growth in both revenue up 26% to £10.8m FY17 (FY16 £8.6m), and normalised EBITDA (note 3 of the Financial Statements) up 25% to £4.7m FY17 (FY16 £3.8m). Despite the costs of AIM floatation, the Group are still pleased to report an increase in Profit Before Tax of 18% to £3.6m (FY16 £3.1m).

These achievements alongside the two very significant milestones of a business relocation and an AIM floatation within the financial year speak volumes for the strength, commitment and professionalism of the entire team.

I am delighted to welcome Ian Mattioli, who joined the Board as Chairman during our successful AIM admission in April and also Martin Robinson who recently joined the Board as a Non-Executive Director. Both Ian and Martin bring significant plc pedigree and we welcome their experience and knowledge to the Board.

After 17 years with the Group, the last ten of which have been spent as Chief Executive Officer, recent events make me exceptionally proud of what we have achieved and our ability to reward several key members who have helped to deliver this growth via our new share option scheme is very pleasing (the performance period for which commenced on 1 June 2017). This scheme will no doubt help us to both retain and attract key talent into the Group as we begin the next chapter of our exciting story.

We are delighted to have retained our high standing within industry league tables having been ranked by Thomson Reuters (small cap M&A review by deal volume) as No 3 Advisor for the calendar year 2016 and No 1 Advisor in the first six months of this calendar year (Jan to June 2017). Such accolades can only assist us as we continue to develop our marketing efforts and raise brand awareness.

 

We remain innovative and forward thinking in our disruptive approach to business and company sales. We are the only advisor in the UK to offer fully contingent legal fees to all clients through our national legal partnerships. We are driving new business generation through innovative use of data, high impact marketing techniques and our creative digital strategy. This is underpinned by our growing dataset of profiled seller targets which increased by 20% in FY17 to over 1.7m, through enhanced data profiling.

Our marketing spend has increased in line with our strategy to target and mandate 'bigger and better', higher value clients. The costs of £0.9m (8.5% of turnover) in FY17 compares with £0.6m (7.5% of turnover) in FY16 and has driven new client wins across all three brands, many of which will convert into transaction fee income as we move into FY18.

 

Knightsbridge Business Sales

Sales

The Knightsbridge brand had traded positively across the year and since our relocation has seen investment into growing our national sales footprint. We have recruited a further two Regional Sales Managers, increasing the team to six, with supporting investment into Head Office sales staff.

This has been complemented by increased investment into direct marketing resulting in growth across all main KPIs (monthly appointments increased to 189 in FY17 (FY16 177); monthly fee quotes increased from to £204k in FY17 (FY16 £180k) and monthly new mandates increased to 57 in FY17 (FY16 51).

This has delivered a 22% increase in non-contingent fee income to £736k in FY17 (FY16 £603k). We strongly believe that this investment in people will underpin the expected growth in the sales efforts of the brand in FY18.

Operations

Within the financial year we created a separate department to manage commercial instructions under a new Knightsbridge Commercial brand. This has improved the customer journey, driven additional completions, which in turn has increased the income from this client base. In addition, we have strengthened the retail delivery team and we are already starting to see the benefit of this investment, delivering increased buyers activity, viewings and offers for our clients' businesses.

The growth across all main KPIs included monthly buyer enquires increased to 2,965 in FY17 (FY16 2,658); monthly buyer meetings increased to 200 in FY17 (FY16 160) and monthly offers increased to 35 in FY17 (FY16 24).

This has delivered a 19% increase in transaction fee income to £532k in FY17 (FY16 £446k) in and we are confident that the investment will deliver further revenue growth in FY18.

 

KBS Corporate

Sales

Since relocation to our new Head Office we have continued to invest in both the national sales force and Head Office sales support functions. We have recruited an additional regional corporate director in the South East, taking the sales team to eight regional directors and recruited additional support staff and management internally to drive further productivity and growth as we move forward into FY18.

This has also been complemented by additional investment into marketing and ongoing refinement of the KBS Globe system resulting in growth across all KPIs. In common with many similar businesses we would typically expect a time lag from any investment and it is pleasing to note that we have seen some immediate returns in the financial period, which gives a positive outlook for the forthcoming financial year.

The investment has resulted in growth across all main KPIs (monthly appointments increased to 239 in FY17 (FY16 238); monthly fee quotes increased to £1.3m FY17 (FY16 £1.2m) and monthly new mandates increased to 52 in FY17 (FY16 43).

As a result non-contingent fee income has increased by 15% to £4.3m in FY17 (FY16 £3.7m).

Operations

As the sales function has delivered quality mandates and improved client numbers we have continued to invest in improving the customer journey. Additions to all the internal teams, that look after our clients' needs, include document writers, researchers and deal executives. This combined investment coupled with a stable market has delivered some pleasing results across all major KPIs. These include, monthly Non Disclosure Agreements (NDAs) received increase to 673 in FY17 (FY16 274); monthly buyer meetings increased to 86 in FY17 (FY16 45) and monthly offers increased to 21 in FY17 (FY16 13).

Transaction Fee income has increased by 56% to £1.5m in FY17 (FY16 £1.0m) and we are confident that the investment will deliver further revenue growth and profitability in FY18 as we continue to deliver our 'bigger and better' strategy.

I am also pleased to report that the final phase of our KBS Globe CRM system is due to be in 'test phase' by Q4 2017 with a view to be operational by Q1 2018. This is an exciting development which we believe will bring operational efficiencies and an improved customer journey.

Further automation of the Buyer Matching Engine (BME) should see a significant increase in the number of NDAs, meetings and offers which we achieve for our client, ultimately resulting in further growth in transaction fee income streams.

 

KBS Corporate Finance

Operations

Our 'execution only' model and corporate finance team have continued to gain traction and deliver pleasing results across the financial year. Key highlights across the brand are:-

·      Established Graduate Academy

·      Acquisition of Triskell LLP trade and assets

·      Increase in mandates over £2m EBITDA

We now have a team of five highly experienced corporate finance directors following pre-float reorganisation and the acquisition of the trade and assets of Triskell LLP. The team have in-depth knowledge across many sectors and over 100 years combined expertise in company sales to PLCs, Private Equity, UK and Overseas buyers with transaction values ranging from £10m - £200m.

During FY17 our strategy of targeting higher value clients has resulted in us winning numerous mandates with profits typically ranging from £2m to £10m, many of which will transact in FY18.

Our Graduate Academy was established during the year. This incubates four undergraduates, during their work experience year, into our corporate finance department. They work and train directly with our senior staff and are involved in all aspects of a corporate finance transaction. This includes research, buyer contact, document writing, client meetings, data rooms and the completion process. At the end of their placement, which is in effect a one-year interview process, we will look to offer at least two of the interns a position with K3C, post degree to train as corporate financiers and qualify as Chartered Accountants.

Our Academy Programme has been enhanced by our new status as an ICAEW Authorised Training Employer and this is also assisting with the recruitment of both part qualified accountants and candidates who wish to take accountancy qualifications whilst training on the job.

The key focus of the business has been to attract and win larger and more profitable mandates. Our ever-improving reputation, successful case studies combined with our sector leading marketing strategy and national sales footprint, has allowed us to significantly increase the quality and fee value of the clients which we have both completed and brought to market in FY17. This has resulted in a 33% increase in fee income to £3.7m in FY17 (£2.8m in FY16).

Several of our key team members have been rewarded with their inclusion in the Share Option scheme and we continue to look for talented corporate finance staff as we build this income stream and drive further value from our client base.

Looking ahead

Since 31 May 2017, we can report a strong start to the new financial year, with trading comfortably in line with management expectations. We have already completed two significant transactions, which have each generated transaction fees in excess of £1m. We expect this performance, together with the momentum gained throughout H2 FY17, to result in sustainable profit growth in FY18.

Our strategy for FY18 continues on a very similar theme, targeting organic growth across all three trading brands, together with our mantra of winning higher quality, 'bigger and better', more profitable mandates.

Our people remain at the core of our business. We continually strive to recruit high quality, experienced sales people and we invest a huge amount of time in training them in our ways and to our own exacting standards. Operationally we continue to focus on the recruitment and training of high quality graduates who complement the senior and experienced executive team.

We expect the KBS Globe business system to drive operational efficiencies from our delivery teams and remain excited by the prospects that this offers the Group. This will be complemented by the further enhancement of our proprietary BME and the part automation of our buyer targeting process.  Both of these technological developments will deliver strategic advantage and add value to both our clients and the Group, as they drive increased buyer interest and help to realise our clients' expectations, ultimately delivering significant transaction fee income to the Group.

 

We have developed a suite of high impact marketing collateral which is proving to be very compelling in attracting entrepreneurial business and company owners to our proposition. We aim to continue to develop new and exciting marketing initiatives throughout FY18 to set K3C apart from others within the professional services market.

 

During FY18 we are planning to refresh our various websites to assist our ability to drive income through our digital platforms and we will continue to improve our valuation portal which is delivering a growing income stream as part of our wider direct marketing 'engine'.

 

We are excited by the prospects of the coming financial year and look forward to delivering sustainable organic growth and increasing profitability across the Group.

 

 

 

 

John Rigby

Chief Executive Officer

 

8 September 2017

 

 

 

 

 

 

Chief Financial Officer's Report

Income Statement

I am pleased to report that Group turnover for FY17 amounted to £10.8m, an increase of £2.2m (26%) compared to the prior year (FY16: £8.6m).

The bulk of turnover growth has come following continued investment in our transactional departments, resulting in ever improving success at completing deals, with transaction fee income derived from completions increasing by 37% to £5.8m in FY17 (FY16 £4.2m).

As a whole, the business significantly benefited from the Head Office relocation in September 16. With floor space being quadrupled, management across the Group undertook a calculated recruitment drive, seeing staff numbers rise to 110 on the payroll in May 17, a 51% increase in the year (May 16 payroll: 73). This resulted in a strong H2 which delivered many encouraging KPI results as discussed throughout this report. 

Non-Contingent Fee Income

Reported Non-Contingent Fee Income grew by 16% to £5.1m, representing a £0.8m increase on the previous year (FY16 £4.3m). These recognised figures take into account the contractual nature of new client mandates, and spread income throughout the life of a contract. It is also worth noting the level of 'banked' Non-Contingent Fees, which equated to £5.3m in FY17, an increase of £0.8m (FY16 £4.5m), demonstrating the underlying performance of the business in terms of successfully generating new mandates.

This increase has predominantly come from the further targeting and winning of 'bigger and better' mandates across the Group. These typically attract a higher level of Non-Contingent Fee due to the nature of the services provided. We have also achieved an increased conversion rate, with 25% of appointments converting to new client mandates in FY17 (FY16 23%).

As part of the investment in staff, the Group have added to the regional sales force in order to increase our national footprint. There are currently 14 regional sales directors (FY16 11), increasing diary capacity by 27%. This increased capacity allows for more client appointments to generate further mandates, increasing the portfolio of clients within operational departments.

Transaction Fee Income

Group Transaction Fee Income increased by 37% in FY17, delivering £5.8m (FY16 £4.2m), continuing the trend of Transaction Fee growth exceeding Non-Contingent fee growth. This demonstrates that the driving factor in our success is derived from our core activity of completing transactions.

In aiming to deliver a 'best in class' service to our clients, we have seen the Group receive numerous industry awards and top league tables for transaction volumes, which in turn gives new clients confidence that K3C are one of the foremost business and company sales specialist in the UK.

Knightsbridge Transaction Fee income has seen the most modest growth in the year with £0.5m turnover delivered in FY17, a 19% increase (FY16 £0.4m). Since the Head Office relocation, a new commercial delivery team has been created to deliver a more focussed service into the larger commercial clients. This continues the 'bigger and better' mantra seen throughout the Group, and has delivered a number of completions towards the end of FY17 and would expect to see continuing success of this department throughout FY18.

Transaction Fees in KBS Corporate Finance have increased by 33% to £3.7m in FY17 (FY16 £2.8m). This growth comes as a result of the investments made into the 'bigger and better' mandate strategy, strengthening the deal delivery team and ultimately delivering successful outcomes for our clients.

During FY17, the Group made an acquisition of the trade and assets of Triskell LLP (as disclosed in note 15 of the Financial Statements). This resulted in senior resource being brought into the Group payroll, bringing commission structures in line with the rest of the team at 10% compared to previous rates up to 50%. KBS Corporate Finance ended FY17 with five experienced directors, a head of buyer intelligence, a senior researcher and five support staff, demonstrating the investment in this brand during the year.

The largest percentage increase in Transaction Fee income came from KBS Corporate achieving £1.5m in FY17, an increase of 56% (FY16 £1.0m). This growth has been a direct result of both our 'bigger and better' mantra and the continued investment into service delivery. The Group has invested in the number of deal executives, document writers and researchers within the department. This additional resource has seen the quality of client documentation significantly enhanced, a more focused buyer targeting strategy and improved customer service standards across the brand.

Key Performance Indicators (KPIs)

As reported in more detail within this report, the following KPIs are used by management to monitor the groups income statement. FY17 has seen a 26% increase in revenue compared to FY16, alongside a 39% increase in the reported EBITDA, and 10% growth in the reported EBITDA margin.

In addition to the above, management utilise non-financial KPIs to monitor underlying performance. In the year, the Group has seen increased non-financial KPIs, resulting in 24% more NDAs received, 40% more buyer meetings arranged and 51% more offers received.

Marketing Costs

The Group has continued to deliver high quality and relevant marketing campaigns through innovative and creative channels. The Group classify all marketing costs to include sales and operational marketing spend.

Expanded marketing activities in the year have seen costs growing in proportion to 8.5% of turnover (FY16 7.5%). Total marketing spend rose by 43% in FY17 to £0.9m (FY16 £0.6m), in line with our strategy of targeting 'bigger and better', higher value mandates into K3C. We continue to innovate across all marketing channels in order to drive organic growth across all brands in FY18.

Overhead Costs

Overheads, excluding exceptional costs have increased in FY17 by £0.7m to a total of £5.4m (FY16 £4.7m). The increases have been a direct result of the Head Office move, which has seen a stepped increase in fixed overheads, followed by the recruitment drive and subsequent increased wage bill. Changes to commission structures have mitigated some of this rise, with variable overheads (commission payments) being reduced marginally to £0.9m (FY16 £1.0m), though when compared to sales, the saving is more apparent with variable costs representing 17.6% of turnover (FY16 23.0%).

EBITDA

As a result, reported EBITDA has increased by £1.3m (39%) to £4.5m in FY17 (FY16 £3.2m). This has seen the EBITDA margin also increase to 41% (FY16 38%).

An area reported on during the floatation process was a normalised EBITDA (note 3 to the financial statements), which sought to adjust costs for historic commission payments pre Triskell LLP trade and asset acquisition and reflect what payments would have been made under the new employment terms. This shows that when these non-recurring costs are removed, the Group delivered a Normalised EBITDA of £4.7m in FY17 (FY16 £3.8m).

 

Exceptional Costs

During FY17, the Group incurred significant costs related to the successful AIM float, with a total of £0.8m of costs identified as being directly attributable to the listing. This has seen £0.1m allocated to share premium, with the balance of £0.7m being an exceptional cost for the year.

Taxation

The pre-exceptional effective tax rate is 19.1% which is marginally lower than the prior year (FY16 19.5%) reflecting the reduction in the standard rate of Corporation Tax. The exceptional costs are not subject to tax relief.

Profit Before Tax

Group Profit Before Tax has increased by 18% to £3.6m in FY17 (FY16 £3.1m). This is after exceptional costs of £0.7m bring incurred during FY17 (FY16 £nil).

Earnings Per Share

Based on the closing 42.2m shares in circulation, the basic earnings per share was 6.6p for the year. This represents an increase of 7% on FY16 when using a normalised 40m shares in circulation that delivered a basic earnings per share of 6.2p. The Earnings Per Share based on a weighted average measure is disclosed in note 14 of the financial statements.

Statement of Financial Position

Cash

The Group cash balances closed the year with £3.8m (FY16 £1.5m). The Group is highly cash generative as Non-Contingent Fee income is typically paid in advance of services, although is recognised in the accounts over a period of time. In addition to this, the Group still enjoys high levels of costs related directly to performance with 30.0% of all costs being variable in FY17 (FY16 36.8%). This year has seen exceptional cash movements in the year, notably £2m funds raised from the AIM float, £1.1m paid for the acquisition of the trade and assets of Triskell LLP, £0.2m of exceptional costs associated with AIM float, and £0.8m of capital expenditure related to the Head Office move.

By exception, other points of note with regard to the statement of financial position are:

·      Goodwill increased by £1.1m in respect of the trade and asset acquisition of Triskell LLP

·      Goodwill relating to the 2007 acquisition adjusted to £2.8m under IFRS transition.

·      Increase in office equipment due to relocation, anticipated to be an exceptional spend.

·      Trade receivables/payables are subject to the timing of transactions and recognised income around the reporting date.

·      Accruals have increased by £0.1m largely relating to a rent accrual due to the rent free period being recognised over the lease, in addition to increased audit fees, post floatation.

·      Other debtors reduced significantly with repayment of Director loans in the year.

·      Other financial liabilities are now nil following settlement of preference shares.

·      Deferred income continues to grow in line with Non-Contingent Fee income to underpin future turnover.

·      Borrowings continue to reduce with two historic term loans, one due to be repaid in April 18, and the remaining due to be repaid by May 19.

 

 

Risks and Uncertainties

Management consider the following issues to be the principal risks potentially affecting the business:

Risk:

Management consider there could be a risk to the Group growth strategy should it fail to retain or attract effective personnel.

Mitigation:

Subsequent to the AIM floatation, key members of staff were granted share options as part of a Share Option Scheme as an incentive to retain talent within the Group. The performance period under this scheme commenced 1 June 2017. In addition, K3 Capital Group pride ourselves on employee wellbeing and, during the course of the year following Head Office relocation, have invested in providing gym facilities, a discounted onsite café and have coordinated a number of staff events to both retain and attract the high-quality employees required.

Risk:

The AIM float process uncovered some weaknesses in contractual terms with clients and suppliers alike.

Mitigation:

Management has worked closely with legal advisors and following listing have introduced revised terms of business to all brands, and are committed to ensuring all terms are refreshed in line with industry/regulatory changes. The Group now also have agreed formal terms with all key suppliers to ensure adequate protection with future trading.

Risk:

K3 Capital Group operates within a partially unregulated market place and relies on a specific exemption from FCA in order to trade without formal regulatory approval.

Mitigation:

Following listing, all new terms of engagement with clients make clear that K3 are not regulated by the FCA and are only able to act on behalf of share sales of 50% or above. Regional sales teams have been trained with the FCA exemption and are aware K3C are not able to act on minority share sales, in addition there are regular team meetings to review offers to ensure that no existing transactions fall foul of the exemption. In addition to this, both the FY17 audit and due diligence process have tested hundreds of transactions and have found no evidence of any transactions historically breaching this exemption.

Risk:

There is a large impending change in May 2018 in respect of data protection. The General Data Protection Regulation (GDPR) (Regulation (EU) 2016/679) is a regulation by which the European Parliament, the Council of the European Union and the European Commission intend to strengthen and unify data protection for all individuals within the European Union and covers all firms that hold client data. These changes may threaten the marketing capabilities of businesses who are not prepared.

Mitigation:

Management has commissioned an independent data protection audit for completion in September 2017 to ensure that the Group is fully prepared for all changes and is equally compliant with current legislation.

 

Shareholders' Dividend

The Board is recommending a final dividend of 4.4 pence per ordinary share payable to shareholders on the register at 22 September 2017. The final dividend, together with the combined pre listing interim dividends based on the 42.2m closing shares of 2.8 pence, gives an indicative total dividend of 7.2 pence per share for the year.

On admission, the Board outlined an intention to pay approximately 80% of the Groups post tax profits for the year weighted 1/3 on interim results and 2/3 on final results. The 4.4p final dividend represents approximately 2/3 of 80% of the Groups post tax profits for the year adjusted for the costs associated with admission to AIM.

Going forward, the Board expects to maintain a consistent dividend policy in line with our intentions outlined on admission to AIM.

Share Price

The K3 Capital Group plc share price closed the financial year at 120.5 pence, an increase of 27% since our successful AIM float on 11 April 2017, at a placing price of 95.0 pence.

Going Concern

After making enquiries, the directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the directors continue to adopt the going concern basis in preparing the financial statements.

 

 

 

Andrew Melbourne

Chief Financial Officer

8 September 2017

 

 

 

Consolidated Statement of Comprehensive Income		Restated for IFRS
	2017	2016
	£000	£000
Revenue	10,816	8,551
Distribution costs	(913)	(645)
Administrative expenses	(6,200)	(4,713)
EBITDA	4,463	3,215
Depreciation of tangible assets	(47)	(9)
Amortisation of intangible assets	(9)	(13)
AIM listing fees	(704)	-
	-------------------------	-----------------------
Operating profit	3,703	3,193
Finance income	2	2
Finance costs	(100)	(127)
	-------------------------	-----------------------
Profit before taxation	3,605	3,068
Taxation	(823)	(599)
	-----------------------	-----------------------
Profit and total comprehensive income for the financial year	2,782	2,469
	================	================
Attributable to the owners of the Company	2,782	2,469
	================	================
Earnings per share:
Basic and diluted EPS - based on the weighted average	£0.27	£1.31

 

All the activities of the group are from continuing operations.

 

 

 

 

 

Consolidated Statement of Financial Position		Restated for IFRS
	2017	2016	As at 1 June 2015
	£000	£000	£000
ASSETS
Non-current assets
Intangible assets	3,978	2,853	2,847
Property, plant and equipment	146	31	13
Deferred tax assets	-	-	120
	-----------------------	----------------------	-----------------------
Total non-current assets	4,124	2,884	2,980
	-----------------------	----------------------	-----------------------
Current assets
Trade and other receivables	105	48	41
Other financial assets	-	1,094	17
Other assets	286	440	99
Cash and cash equivalents	3,801	1,531	971
	-----------------------	-----------------------	-----------------------
Total current assets	4,192	3,113	1,128
	-----------------------	-----------------------	-----------------------
TOTAL ASSETS	8,316	5,997	4,108
	=================	================	================
Current liabilities
Trade and other payables	1,053	785	671
Borrowings	220	224	221
Other financial liabilities	-	1,500	-
Current tax liabilities	313	495	253
Deferred revenue	1,137	825	724
	-----------------------	----------------------	-----------------------
Total current liabilities	2,723	3,829	1,869
	-----------------------	----------------------	-----------------------
Non-current liabilities
Borrowings	211	431	655
Deferred tax liabilities	32	4	-
	-----------------------	---------------------	-----------------------
Total non-current liabilities	243	435	655
	-----------------------	----------------------	-----------------------
TOTAL LIABILITIES	2,966	4,264	2,524
	-----------------------	---------------------	-----------------------
NET ASSETS	5,350	1,732	1,584
	================	==============	================
EQUITY
Equity attributable to owners of the Company:
Issued capital and share premium	2,413	10	1,500
Capital redemption reserve	-	1,500	1,500
Retained earnings	2,937	222	(1,416)
	-----------------------	-----------------------	-----------------------
TOTAL EQUITY	5,350	1,732	1,584
	================	================	================

 

 

Consolidated Statement of Changes in Equity	Share capital	Share premium	Capital redemption reserve	Retained earnings	Total
	£000	£000	£000	£000	£000
Balance at 1 June 2015 (restated for IFRS)	1,500	-	1,500	(1,416)	1,584
Profit and total comprehensive income for the year	-	-	-	2,469	2,469
Transactions with owners:
Issue of ordinary share capital	-	10	-	-	10
Cancellation of subscribed capital:
-     2,499,750,000 Ordinary A Shares	(250)	-	-	-	(250)
-     2,499,750,000 Ordinary B Shares	(250)	-	-	-	(250)
Reclassification of preference shares from equity to liabilities	(1,000)	-	-	-	(1,000)
Dividends	-	-	-	(831)	(831)
	----------------	---------------	----------------	----------------	----------------
Balance at 31 May 2016 (restated for IFRS)	-	10	1,500	222	1,732
Profit and total comprehensive income for the year	-	-	-	2,782	2,782
Transactions with owners:
Issue of ordinary share capital	22	2,078	-	-	2,100
Bonus issue of ordinary share capital	400	-	-	(400)	-
Redemption of preference shares	-	-	1,500	(1,500)	-
Cancellation of subscribed capital	-	(10)	(3,000)	3,010	-
AIM listing fees	-	(87)	-	-	(87)
Dividends	-	-	-	(1,177)	(1,177)
	----------------	----------------	----------------	----------------	---------------
At 31 May 2017	422	1,991	-	2,937	5,350
	=========	=========	=========	=========	=========

 

 

 

Consolidated Statement of Cash Flows		Restated for IFRS
	2017	2016
	£000	£000
Cash flows from operating activities
Profit for the financial year	2,782	2,469
Adjustments for:
Depreciation and amortisation	56	22
Finance income	(2)	(2)
Finance costs	100	127
Income tax expense	823	599
	-----------------------	-----------------------
	3,759	3,215
Movements in working capital:
(Increase)/decrease in trade and other receivables	(57)	62
Decrease/(increase) in other assets	154	(341)
Increase in trade and other payables	266	46
Increase in deferred revenue	312	101
	-----------------------	-----------------------
Cash generated from operations	4,434	3,083
Finance costs paid	(25)	(27)
Finance income received	2	2
Income taxes paid	(977)	(233)
	-----------------------	-----------------------
Net cash from operating activities	3,434	2,825
	================	================
Investing activities
Purchase of property, plant and equipment	(164)	(27)
Proceeds from sale of property, plant and equipment	3	-
Purchase of intangible assets	(34)	(19)
Purchase of intangible assets arising from business combinations	(1,100)	-
Amounts advanced to related parties	(600)	(1,077)
Settlement of amounts due from related parties	1,694	-
	-----------------------	-----------------------
Net cash used in investing activities	(201)	(1,123)
	================	================
Financing activities
Proceeds from issue of shares	2,100	10
Payments of share issue costs	(87)	-
Redemption of preference shares	(1,500)	-
Repayment of bank borrowings	(224)	(221)
Dividends paid to owners of the Company	(1,177)	(831)
Dividends paid on preference shares classed as liabilities	(75)	(100)
	-----------------	-----------------
Net cash used in financing activities	(963)	(1,142)
	==========	==========
Net increase in cash and cash equivalents	2,270	560
Cash and cash equivalents at beginning of year	1,531	971
	-----------------	-----------------
Cash and cash equivalents at end of year	3,801	1,531
	==========	==========

 

 

 

1. Basis of preparation

 

The preliminary financial information does not constitute statutory accounts for the financial years ended 31 May 2017 and 31 May 2016, but has been derived from those accounts. The accounting policies used in preparation of this preliminary announcement are in line with the 2017 annual report, with the principal accounting policies disclosed below. Statutory financial statements for the year ended 31 May 2017 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 Accounting

 

The financial statements have been prepared on the historical cost basis except as stated. Historical cost is generally based on the fair value of consideration given in exchange for goods and services.

 

Basis of consolidation

 

The group financial statements consolidate, those of the company 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.

 

Transition to adopted IFRSs

 

The Group transitioned from UK GAAP to adopted IFRSs as at 1 June 2015 and consequently has applied IFRS 1, adjusting amounts reported previously in financial statements prepared in accordance with generally accepted accounting practice in the UK (UK GAAP). These financial statements for the year ended 31 May 2017 are the first the Group has prepared in accordance with adopted IFRSs. For first time adoption of International Financial Reporting Standards, an explanation of how the transition to adopted IFRSs has affected the reported financial position, financial performance and cash flows of the group is provided in note 36.           

 

New standards, amendments to and interpretations to published standards not yet effective

 

There were no new standards, interpretations or amendments effective for the first time for periods beginning on or after 1 January 2016 that had a significant effect on the Group's financial statements.

 

As at 31 May 2017, the following Standards and Interpretations which have not been applied in this financial information were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

IFRS 9, Financial instruments

IFRS 15, Revenue from contracts with customers

IFRS 16, Leases

Disclosure Initiative: Amendments to IAS 7

Clarifications to IFRS 15 revenue from Contracts with Customers

Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2)

Annual Improvements to IFRSs (2014-2016 Cycle)

 

The Directors are currently considering the potential impact of adoption of these standards and interpretations in future periods on the consolidated financial statements of the Group.

 

In respect of the above, the Directors are specifically reviewing the requirements of IFRS 15, which will become effective for the 31 May 2019 year end. In particular an assessment is ongoing around specific elements within the standard's guidance relating to recognition of revenue at a point in time versus over time, client payments received in advance of services being performed, and contingent pricing. Similarly, the Directors are currently reviewing the impact of IFRS 16 and IFRS 9 which will become effective for the 31 May 2020 year end. At this point it is not practicable for the Directors to provide a reasonable estimate of the effect of IFRS 9 as their detailed review of this standard is ongoing. Were IFRS 16 effective for the current year end, a lease asset and liability of £0.5m would be recognised on the balance sheet in respect of operating leases committed to. Annual lease costs would no longer be incurred, replaced by interest costs on the lease liability and depreciation costs on the lease asset.

 

Going Concern

 

The financial statements have been prepared on the basis that the Group will continue as a going concern.

 

After making enquiries, the Directors consider that the Group has adequate resources and committed borrowing facilities to continue in operational existence for the foreseeable future. Consequently, they have adopted the going concern basis in preparing the financial statements.

 

Revenue Recognition

 

Revenue comprises revenue recognised by the Group in respect of services supplied during the year, exclusive of Value Added Tax.

 

Revenue from the rendering of services is measured by reference to the stage of completion of the service transaction at the end of the reporting period provided that the outcome can be reliably estimated. When the outcome cannot be reliably estimated, revenue is recognised only to the extent that expenses recognised are recoverable. Further detail on revenue recognition policies is provided in the critical accounting estimates section in note 4 to the financial statements.

 

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.

 

EBITBA

 

EBITBA is utilised as a key performance indication for the group and is calculated utilising profit before tax, adjusted for finance income and costs, amortisation and depreciation on non-current assets. It is also adjusted for AIM listing fees incurred in the year ended 31 May 2017.

 

Normalised EDITDA reflects the illustrative historical cost savings of having Triskell and KBS CF personnel as employees of the group, under the arrangements in force during the period covered by the financial statements compared by the consultancy fees paid to Triskell and KBS CF during each period.

 

 

	2017	2016
	£000	£000
EBITDA	4,463	3,216
Transaction fees paid to Triskell LLP	416	920
Remuneration due under employment terms	(172)	(383)
	---------------	----------------
Normalised EBITDA	4,707	3,753
	===========	===========

 

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:

	2017	2016
	£000	£000
KBS Corporate Sales Limited	5,816	4,714
KBS Corporate Finance Limited	3,732	2,788
Knightsbridge Business Sales Limited	1,268	1,049
	10,816	8,551
	============	=============

 

A further breakdown of revenue by type is shown below:

	2017	2016
	£000	£000
Non-contingent fees	5,056	4,345
Transaction fees	5,760	4,206
	10,816	8,551
	============	=============

 

3.     Operating Profit

 

Operating profit or loss is stated after charging:

	2017	2016
	£000	£000
Amortisation of intangibles - website costs	9	13
Depreciation of owned assets	47	9
Auditor remuneration	143	14
Impairment loss on trade receivables	-	10
Operating lease charge	124	108
	==============	==============

 

 

 

 

4.      Employee Benefit Expense

 

The average number of persons employed by the group during the year, including the directors, amounted to:

	2017	2016
	No.	No.
Management	8	6
Sales	41	33
Marketing/Administration	46	36
	---------------------	---------------------
	95	75
	==============	==============

 

The aggregate payroll costs incurred during the year by the group, relating to the above, were:

	2017	2016
	£000	£000
Wages and salaries	3,321	2,600
Social security costs	291	256
Other pension costs	14	9
	-----------------------	-----------------------
	3,626	2,865
	================	================

 

5.      Exceptional Items

 

	Group		Company
	2017	2016	2017	2016
	£000	£000	£000	£000
AIM listing fees	704	-	704	-
	==============	==============	==============	==============

 

        Exceptional items incurred in the year are in relation to costs of converting the Company from a Limited Company to a PLC and the subsequent admission of the company to trading on AIM during the year. Total costs incurred were £791,000, with £87,000 charged to share premium as being directly related to newly issued shares listed.

 

6.      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.

 

The following reflects the income and share data used in the basic and diluted earnings per share computations:

 

	2017	2016
	£000	£000
Net profit attributable to equity holders of the Company	2,782	2,469
Initial weighted average of ordinary shares	10,305,651	1,879,978
Basic earnings per share	26.99p	131.33p

 

There are no share options for which performance (or vesting) periods are in effect during the current or prior year. As such there is no dilution of earnings per share.

 

 

7.      Deferred Revenue

 

	Group			Company
	2017	2016	As at 1 June 2015	2017	2016	As at 1 June 2015
	£000	£000	£000	£000	£000	£000
Arising from client contracts	1,137	825	724	-	-	-
	===============	===============	==============	==============	===============	===============

 

The deferred revenue arises 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 22 September 2017. 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 Annual General Meeting will be held at TLT Solicitors 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