TIDMK3C
RNS Number : 8150Q
K3 Capital Group PLC
01 November 2021
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 2021
and Notice of AGM
K3 Capital Group plc, a multi-disciplinary and complementary
professional services group advising UK SMEs , is pleased to
announce its final results for the year ended 31 May 2021.
Financial overview
-- EBITDA closed ahead of previously upgraded market expectations
GBPm 2021 2020 % change
----------------------- ---------------- --------- ---------
Group revenue GBP47.2m GBP15.0m 215%
Adjusted EBITDA* GBP15.7m GBP6.8m 131%
Profit before tax GBP7.6m GBP6.4m 19%
Net cash GBP14.3m GBP8.3m 72%
Adjusted Earnings per
share 18.56p 12.37p 50%
Dividend per share **9.10p 7.47p 22%
* Adjusted for share-based payments and exceptional acquisition
costs
** Dividend per share comprises the interim dividend per share
of 3.0p (calculated over 68.5m shares in issue) and the proposed
final dividend per share of 6.1p.
Operational overview
-- Successful equity fundraise of GBP30.5m to initiate
acquisition strategy of diversifying revenue
-- Five acquisitions completed
-- Two new service lines launched and one joint venture established in the period
-- All group divisions performed ahead of forecast, delivering
multiple upgrades throughout the period
-- Positive trends across key performance indicators throughout all Divisions
-- GBP15m debt facility secured during the period (remains unutilised)
Post period end
-- Successful equity fundraise of GBP10m to fund further acquisitions
-- The acquisitions of Knight Corporate Finance and Knight
R&D represent a complementary extension of the Group's M&A
and Tax offerings
Current trading and outlook
-- The first few months of FY22 have started positively, with
early months' trading in line with market expectations
-- Within the Group's M&A Division, the first quarter of
FY22 has seen record levels of appointments and client mandates
driving non-contingent fees, alongside record levels of buyer
activity which is creating a strong transaction fee pipeline
-- FY22 has seen continued diversification of K3's Tax Division,
which now comprises randd, Knight R&D, InTax, and K3 Tax
Advisory, and the continued roll out of the Group's Direct
Marketing Engine is significantly driving new client
acquisitions
-- The Group's Restructuring Division has built capacity in its
people and fee earners, with the division well placed to capitalise
on the return of normal market conditions in FY22 as Government
support measures begin to wind down
-- All Group divisions have brought forward strong WIP pipelines
and positive momentum into FY22
-- The Board anticipates that growth will continue across all
divisions of the Group, both organic and through acquisitions
-- The outlook for FY22 and beyond remains positive, with
continued increases in major KPIs across the Group
Notice of Annual General Meeting
The annual report will be mailed to shareholders (including the
notice) and will be made available on our website today.
The Company's Annual General Meeting (AGM) will take place on 25
November 2021 at 10:00am at KBS House, 5 Springfield Court,
Summerfield Road, Bolton, BL3 2NT.
Commenting on the results, Non-Executive Chairman of K3 Capital
Group plc, Ian Mattioli said:
"I would firstly like to put on record my sincerest gratitude to
my fellow Board members and all employees at K3 Capital Group for
the utmost professionalism and dedication shown to the Company over
the past 12 months.
"The growth journey that the Company has been on throughout FY21
is nothing short of remarkable and could not have been achieved
without the aligned interests of all stakeholders in taking the
Company into its next phase.
"We are delighted to have welcomed Knight Corporate Finance and
Knight R&D to the Group post year-end, which the Board expects
to be immediately earnings enhancing and represent a complementary
extension to the Group's M&A and Tax Divisions.
"The Board remains positive for the outlook in FY22 and beyond
due to robust pipelines and continued increases in major KPIs
across the Group."
John Rigby, CEO of K3 Capital Group plc said:
"FY21 has been nothing short of a transformational year for K3
Capital Group plc, and I am delighted with both the financial and
operational performance of the business in the face of the
significant challenges and impact of the COVID-19 pandemic.
"We have created what is now a cyclically balanced Group with an
increasingly robust model, which we feel can deliver growth and
success across the entire economic cycle and offers a greater
degree of visibility and predictability in its revenues and
profits.
"We have started FY22 positively, with early months' trading in
line with market expectations as we continue delivering our growth
strategy across the Group.
"I have been encouraged by the positive momentum and strong WIP
pipelines brought forward by each of the Group's divisions -into
FY22, and we are excited by the prospects for the current financial
year and beyond."
-S-
For further information please contact:
K3 Capital Group plc Tel: c/o finnCap 020 7220
0500
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, Charlie Beeson
(Corporate Finance)
Tim Redfern, Richard Chambers (Corporate
Broking)
Canaccord Genuity Limited (Joint Tel: 020 7523 8000
Broker)
Bobby Hilliam (Corporate Broking)
Alex Aylen (Head of Equities)
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 and complementary
professional services group advising UK SMEs, with operations
throughout the UK and overseas.
Services provided by the Group fall into three key operating
divisions:
-- M&A Division:
o Company sales and business brokerage
o Corporate finance services
o Transaction services
o Off-market acquisitions
o Debt advisory
-- Tax Division:
o Research and development tax credit advisory
o Tax investigations
o Tax planning
o Tax advisory
-- Restructuring Division:
o Restructuring advisory
o Financial advisory
o Creditor services
o Forensic accounting and expert witness
o Pensions advisory
o Accelerated M&A
Chairman's statement
I would firstly like to put on record my sincerest gratitude to
my fellow Board members and all employees at K3 Capital Group for
the utmost professionalism and dedication shown to the Company over
the past 12 months. The growth journey that the Company has been on
throughout FY21 is nothing short of remarkable and could not have
been achieved without the aligned interests of all stakeholders in
taking the Company into its next phase. On the back of this, I am
pleased to report a year of strong financial performance,
demonstrating growth in both revenue and profits. FY21 has been a
truly transformational year for the Group, with five earnings
enhancing acquisitions, two new service lines and one joint
venture, which not only contributed to increased financial
performance, but have provided the Group with a now diversified
service offering.
Following several upgrades throughout the year, we are very
pleased to be reporting Group revenues of GBP47.2m for FY21 (FY20:
GBP15.0m), which delivered GBP15.7m of Adjusted EBITDA* for the
period (FY20: GBP6.8m). Net Cash was GBP14.3m (FY20: GBP8.3m).
Adjusted EPS** for the year was up by 7p to 19p having adjusted for
costs relating to the acquisitions and fundraise in H1 FY21, with
actual EPS being 8p for the period (FY20: 12p)
*Adjusted for share-based payments and exceptional acquisition
costs
**Earnings per share adjusted for the impact of acquisitions
A transformational year
A year of significant change delivered equally significant
growth for the Group. randd and Quantuma were acquired in June and
August of 2020 respectively, with both acquisitions contributing
positively to Group turnover and EBITDA during the period. Quantuma
have gone on to make two further bolt-on acquisitions in the
period: Aspect Plus and Alchemy (Cayman), expanding geographical
coverage within our Restructuring Division. Within the period, the
Group has also welcomed InTax, launched two new service lines in K3
Tax Advisory and K3 Debt Advisory, and entered into a joint venture
agreement with Market Mapping.
Post year end, we concluded the acquisitions of Knight R&D
and Knight Corporate Finance, following a successful placing to
raise GBP10 million in July 2021. We are excited by what our latest
acquisitions can bring to K3, and I look forward to providing an
update in the FY22 annual report.
Our diversification strategy provides the Group with
counter-cyclical service lines, and combined with a strong
financial position, leaves the Group well placed to continue our
ambitious growth plans in FY22 and beyond.
COVID-19 mitigation
Our continued response to the COVID-19 pandemic is focussed on
the health and well-being of our staff by following the
Government's advice on office working practices. Key staff were
quickly able to transition to home working following previous
investments in technology and data resources. We continue to invest
in our infrastructure to maintain an efficient and safe environment
for staff and visitors as Government restrictions have begun to
ease. I am also pleased to confirm that the Group has had no
financial benefit from Government support in the period, having
repaid all Coronavirus Job Retention Scheme ("CJRS") receipts
received in FY21.
Growth strategy
It is the Board's strategy, through both acquisition and organic
growth, to continue building a diversified professional services
Group which can deliver success across the economic cycle. Our
strategy is to bring together businesses which can benefit from the
Group's unique distribution platforms, incorporating direct
marketing, cross-selling opportunities and an ever-expanding
professional introducers' network.
Board changes
During FY21, we welcomed Carl Jackson, Chief Executive of
Quantuma, to the K3 Board as Executive Director. The balance of the
Board was considered in conjunction with the appointment of Carl,
and as a result, chartered accountant and corporate finance
professional, Charlotte Stranner was appointed as Non-Executive
Director. In addition to these Board appointments, Martin Robinson
was appointed as Senior Independent Director and Stuart Lees as
Non-Executive Director.
People
The Board considers attracting and retaining talented and
qualified people as a key part of its growth strategy. It is
important to ensure that all staff maintain a common interest in
the future success of the Company, and therefore the Board
introduced a Save-as-you-Earn scheme during the period, allowing
all employees of the Group to buy in to the Company's journey and
enjoy its success through financial incentives.
With the Group's employee catchment area expanding significantly
following the acquisitions made in FY21, the Board and management
at each of the Company's brands is confident in its ability to
continue to attract talented employees, as K3's stature within the
UK professional services marketplace continues to grow.
The health and wellbeing of our employees is also a key priority
for the Board and management, which has taken centre stage in light
of the COVID-19 pandemic. Ensuring that key staff were able to work
remotely where possible has been a success, with employees adapting
admirably to new working conditions throughout multiple lockdowns
and changing Government advice. We are pleased to be able to
gradually welcome back certain staff members to our offices, and
recognise the important role they have played throughout the
pandemic. The period also saw the roll out of K3's group-wide
health scheme to all parts of the Group.
Fundraising
During the period, the Company under took a fundraise of
GBP30.45m under which it issued and allotted a total of 20,301,232
new ordinary shares, of which 4,633,891 were sold through a vendor
placing by the shareholders of randd. The fundraise received strong
support from investors, both existing and new, and we are
particularly pleased by the Board participation in the fundraise
which demonstrated the Directors' belief in the Group's potential
and growth strategy. The majority of the proceeds of the fundraise
were used to fund the cash consideration for the acquisition of
Quantuma with the remainder covering costs relating to both the
acquisition of Quantuma and of randd and providing headroom for
further acquisitions. In addition, the Company issued and allotted
a further 6,037,297 new ordinary shares as consideration for the
acquisitions of Quantuma and randd.
In May 2021, K3 signed its maiden debt facility as a plc,
securing total available debt facilities of GBP15m. The debt
facilities will be used alongside the Company's existing cash
reserves and ongoing cash generation to support the Company's
growth ambitions going forward and represents an important
milestone in the evolution of the Group's capital structure through
the creation of more flexible funding options.
Group financials
As reported, revenues for the year stood at GBP47.2m (FY20:
GBP15.0m), which generated an Adjusted EBITDA of GBP15.7m (FY20:
GBP6.8m) and an operating profit of GBP7.7m (FY20: GBP6.5m).
Net cash at the year end stood at GBP14.3m (31 May 2020:
GBP8.3m).
Group net assets at 31 May 2021 were GBP49.2m (31 May 2020:
GBP9.2m) with current net assets standing at GBP9.4m (FY20:
GBP5.0m).
As a result, the Board is recommending a final dividend payment
of 6.1p per share. This results in a total dividend for the year of
9.1p (FY20: 7.47p).
The Board remains committed to the dividend policy as detailed
in the Strategic report, whilst maintaining an appropriate level of
dividend cover. If approved, the final dividend will be paid on 30
November 2021 to shareholders on the register at the close of
business on 18 November 2021.
Annual General Meeting
K3 Capital Group's Annual General Meeting will take place on 25
November 2021 at 10:00am at KBS House, 5 Springfield Court,
Summerfield Road, Bolton, BL3 2NT. Notice will be posted on the
Company's website at: www.k3capitalgroupplc.com
Looking ahead
We are confident in the Group's outlook for FY22 and beyond, and
we are delighted with the impact that the new companies and
employees we have welcomed to the Group throughout the past
financial year have had on the growth of K3 Capital Group plc.
Our M&A Division starts FY22 well-positioned to capitalise
on the growth seen in FY21 through the continued development of its
proprietary technologies and SME data and strong transaction fee
pipelines brought forward.
Although some Government support measures are still in effect in
light of the COVID-19 pandemic, and there remains some uncertainty
at present in relation to their timescales, we remain optimistic
that the Group's Restructuring Division can continue on its growth
journey and can build upon the consistent levels of appointments
and increase in market share it has seen despite a contracted
insolvency market.
We are excited about the future growth of our Tax Division, and
we are confident that the integration of K3's marketing model and
data-driven approach will continue to see record levels of new
client wins and claims submitted.
Overall, we anticipate that growth will continue across all
divisions of the Group, both organic and through acquisitions and
we look forward to presenting further updates in due course
surrounding the impact of the recent acquisitions of Knight
Corporate Finance and Knight R&D, which are both expected to be
immediately earnings enhancing.
The Board remains positive for the outlook in FY22 and beyond
due to robust pipelines and continued increases in major KPIs
across the Group, as detailed in the CEO report.
Ian Mattioli MBE
Non-Executive Chairman
29 October 2021
Chief Executive Officer's Report
Creating an increasingly robust and balanced Group
FY21 has been nothing short of a transformational year for K3
Capital Group plc, and I am delighted with both the financial and
operational performance of the business in the face of the
significant challenges and impact of the COVID-19 pandemic.
The Group has diversified beyond its core M&A offering with
the addition and build out of a Tax Division and a Restructuring
Division. This has created what is now a cyclically balanced Group
with an increasingly robust model, which we feel can deliver growth
and success across the entire economic cycle and offers a greater
degree of visibility and predictability in its revenues and
profits. Significant success has been experienced across each of
our newly created divisions as part of the now enlarged and
diversified Group and it is that team effort that has delivered the
exceptionally pleasing results for FY21, and equally provides the
foundation for our future successes in FY22 and beyond.
Acquisition story
It is the Board's objective to continue to build a
multi-disciplinary and complementary professional services group
advising UK SMEs that can withstand and indeed flourish across the
economic cycle and which is robust against external macro-economic
pressures, the likes of which many businesses have experienced in
one way or another over the past 18 months.
In June 2020, the Group completed the acquisition of randd UK
Limited ("randd"), a company specialising in securing research and
development ("R&D") tax credits for clients throughout the UK.
randd is an established and profitable business, with high levels
of recurring revenue and strong client retention. Prior to the
acquisition of randd, we identified the adoption of the existing K3
marketing model and Globe software into randd's current business
model as an area for significant growth potential. I am delighted
to announce that, following a carefully curated integration plan,
we are already seeing positive results and significant increases in
new client wins as we begin to build on the strong foundations put
in place by the randd team throughout their successful trading
history.
Quantuma Advisory Limited ("Quantuma"), a National corporate
recovery business, was acquired by the Group in August 2020 to
create the foundations for K3's Restructuring Division. The
corporate recovery and insolvency market was seen as a highly
desirable market by virtue of its counter-cyclical nature, and the
acquisition of Quantuma has played a significant role in helping us
achieve our strategic aim of building a wider group of growing and
complementary professional services businesses.
Quantuma is in itself a diversified corporate recovery business
which benefits from a forensic division, a corporate finance
division, and an overseas offering alongside its core UK
restructuring and insolvency business. Quantuma has delivered
excellent historic growth, having increased its turnover from
GBP11m to GBP23m over the three years prior to acquisition. This
growth story has continued as part of K3, with Quantuma delivering
a record year of revenue and profits. This has been fuelled by two
further bolt-on acquisitions in Alchemy, a Cayman based
restructuring business, and Aspect Plus, an Essex based insolvency
practice, which have both now been rebranded as Quantuma, together
with a continuation of our strategy to attract quality lateral
hires and fee earners into our Restructuring Division. We believe
that as part of K3 Capital Group plc, Quantuma can continue to
flourish as we leverage the operational capacity built during the
year in anticipation of the reduction and ultimately the withdrawal
of Government support measures on the back of the COVID-19
pandemic.
I am pleased to report that the Group successfully completed the
integrations of randd and Quantuma in November 2020, in line with
the Group's 100-day integration plan. We are grateful for the
support from all of our colleagues in bringing the businesses
together and remain confident in the Group's prospects in FY22 and
beyond.
Specialist tax consultancy boutique, InTax, joined the Group in
February 2021 to strengthen the Tax Division through the addition
of tax investigations and tax enquiries services. The InTax team
has extensive experience in dealing with tax issues that include
tax fraud investigations, tax avoidance schemes investigations and
disclosure facilities. FY21 also saw formation of K3 Tax Advisory,
adding a further range of corporate tax solutions to the division's
growing list of specialisms as we move into FY22.
The period also saw the Group further diversify its core M&A
Division with the addition of a buy-side service and a debt
advisory function. In November 2020, Market Mapping was formed as a
joint venture between K3 and a partner who had worked with the
Group during its initial acquisition phase in the summer of 2020.
So successful was the work in identifying potential prospects
within the niche tax and corporate recovery markets, that we
decided to create Market Mapping to offer this service to private
equity, PLC, and corporate clients.
K3 Debt Advisory was launched during Q4 of FY21 to provide
expertise within the increasingly fragmented and fast changing debt
markets, reinforcing our strategy to build a wider group of growing
and complementary professional services businesses to UK SMEs. We
believe there will be significant opportunities to cross sell these
services into our various business divisions.
Post year end, the Group has continued its journey having
completed the acquisitions of Knight R&D, Knight Corporate
Finance, and Knight Transaction Services following the successful
completion of a fundraise in July 2021. These acquisitions provide
sector specific expertise to our existing Corporate Finance and
R&D Tax offerings, as well as bringing the further addition of
transaction services to the M&A Division. As we grow our
business, sector specialism becomes increasingly important and we
consider the sector knowledge that comes with the acquisitions to
be highly beneficial to our business going forward.
We have now built the foundations of a diversified group of SME
focused professional services businesses, that we believe to be far
more balanced and robust across the economic cycle - and made up of
businesses that have commonality across their SME target audience
and can therefore take advantage of the distribution platforms that
K3 Capital Group has developed. It is our intention to continue to
expand our professional service offering, both within our existing
three divisions and also within other complementary areas, which
may bring further diversification and strategic benefit to the
wider Group.
M&A Division
K3's M&A Division remains at its core, from which the
enlarged Group has been built around, and has performed
exceptionally well in what has been a challenging year in light of
the ongoing COVID-19 pandemic.
The M&A Division has posted record levels of revenue
(GBP16m, FY20: GBP15m) and EBITDA (GBP8.3m, FY20: GBP6.8m), which
have been generated through the continuation of our strategy to
focus and to build upon the volume brands of the business,
Knightsbridge and KBS Corporate. FY21 is the first year the Group
is reporting on a segmental basis and for the period the M&A
Division has delivered GBP8.0m segmental profit before tax as
detailed in note 3. The division's innovative use of big data and
technology has resulted in increasing volumes of sell-side clients,
new buyer registrations and, ultimately, overall transaction
numbers. This has created a business driven by its contingent fee
pipeline, which provides increasing visibility of the division's
future revenues, resulting in a significantly reduced reliance on
the conclusion of the larger sales transacted through KBS Corporate
Finance. The Corporate Finance arena provides an exciting
opportunity to the Group and the bringing together of our Northern
KBS CF team and Southern based Quantuma CF team is certainly
starting to drive value. The success of our volume brands ensures
that these larger corporate finance transactions, from an
investor's perspective, now provide upside opportunity as opposed
to downside risk as the performance of the division is very much
underpinned by the volume brands.
The division's sell-side services have been complemented by the
joint venture agreement with Market Mapping, which continues to
build momentum in the buy-side space of the sector, having already
secured a variety of clients including public and private
enterprises, private equity houses, and family offices who are
looking for assistance in searching for 'off-market'
opportunities.
The team that has been recruited to form the new K3 Debt
Advisory business is already enjoying cross-selling referrals from
our restructuring, corporate finance, and business brokerage brands
as well as the team's referral network creating significant
opportunities for new work. We expect both of these new strands
within the M&A Division to contribute to the Group's overall
profits in FY22.
Restructuring Division
The Group's Restructuring Division has performed exceptionally
well against the significant headwind of a difficult insolvency
market, delivering revenues of GBP25.9m and EBITDA of GBP6.0m in
the 10 months since acquisition. This has also delivered GBP4.9m
segmental profit before tax as detailed in note 3.
Support and stimulus provided by the UK Government, along with
legislative changes on the back of COVID-19's impact on the
economy, whilst only temporary and beginning to wind down, have
reduced the insolvency sector's market size and seen formal
appointments decrease by c.30% throughout the period.
Our Restructuring Division has, however, performed well in terms
of market share against this difficult backdrop, and grown its
market share significantly throughout FY21, resulting in growth
across both revenues and profits, driven by:
-- continued investment in lateral hires;
-- development of the forensic team;
-- continued build out of our overseas teams and locations; and
-- bolt-on acquisitions completed from cash reserves.
The bolt-on acquisition of insolvency practice, Aspect Plus, is
fully integrated, rebranded, and performing in line with
expectations and adding to group profits. Our international bolt-on
of Cayman Islands-based Alchemy, which has been rebranded as
Quantuma Cayman, is starting to see some exciting and significant
new mandates within the complex international restructuring, asset
recovery, and forensic spaces.
Tax Division
As expected, the Group's Tax Division is performing strongly,
delivering revenues of GBP5.2m and EBITDA of GBP3.1m. The Tax
Division has also delivered GBP2.6m segmental profit before tax as
detailed in note 3. The division benefits from a high degree of
contracted and recurring revenue.
Our K3 distribution platform and the integration of our volume
data and marketing approach into the randd model is beginning to
significantly accelerate new client wins into the R&D business,
and we are excited about the future of this service line and the
potential of the growth ahead.
With the acquisition of our tax investigations business, InTax,
during H2 FY21, and with the formation of K3 Tax Advisory ("K3TA")
- a team recruited from a mid-tier accountancy firm to offer tax
solutions and structuring advice - we have further diversified the
revenue streams within K3's Tax Division and created additional
layers of potential growth.
A year of upgrades
The period has seen the Group significantly outperform its
original market consensus from September 2020, as clarity around
the newly structured and diversified group became more apparent
during H2. The period saw multiple upgrades to both revenue and
profit, culminating in revenues of GBP47.2m (FY20: GBP15.0m) and
adjusted EBITDA of GBP15.7m (FY20: GBP6.8m), 34% and 57% above
initial consensus figures.
The Group's cash balance closed the year on GBP14.3m (FY21:
GBP8.6m), giving the desired headroom after dividends and tax
payments to provide cash funding for smaller bolt-on acquisitions
and allowing us flexibility alongside the Group's new debt facility
(secured in May 2021) when considering larger deals.
The exceptional performance levels experienced throughout FY21
have been achieved on the back of a team effort and excellent
contribution from all three of the Group's divisions:
-- The M&A Division has completed more transactions than ever before;
-- The Restructuring Division has grown market share within its
insolvency business against the backdrop of a subdued insolvency
market; and
-- The Tax Division has submitted more R&D Tax Credits
claims to HMRC than ever before and diversified through InTax and
K3 Tax Advisory
FY21 performance has underlined the importance of the Group's
volume approach driven by process, technology and systems, which
has seen the Group build ever-increasing visibility and robustness
of future revenues through transaction fee pipelines, contracted
clients and recurring revenue, delivering more cyclically balanced
revenue streams across economic cycles.
Ongoing acquisition and growth strategy
The Board's strategy is to continue to deliver growth both
organically and through further selective and accretive
acquisitions. We firmly believe that the Group can continue to
build out its existing three divisions and core service lines
through:
-- organic growth and harnessing the distribution and cross selling opportunities that exist;
-- the addition of lateral hires of quality staff and fee earners;
-- further bolt-on acquisitions of complementary businesses and geographies; and/or
-- the recruiting of complementary teams and service lines
There is an exciting opportunity to create a group of
significant scale within the M&A, Restructuring and Tax arenas
as demand for high quality, independent and conflict free advice
grows amongst the macro- and socio-economic challenges that UK
businesses are facing. K3's ability to promote its brands and
services either directly to SMEs through its sales and marketing
platform, or through the Group's K3 Hub accountancy network, means
the Board sees significant opportunities ahead to continue growing
the existing three divisions.
Another area for consideration and the second layer of our
strategy is to consider acquisitions within other SME-focused
service lines which are complementary to the Group's existing
offerings and could either take advantage of K3's existing
distribution platforms or bring further strategic advantage to the
wider Group.
Throughout the period, the Board have considered a number of
opportunities with strict criteria around the accretive effect, the
strategic fit, the cultural fit, the quality of the people and
management and ultimately the commercial aspects of any
transaction. We firmly believe that our 'blueprint' surrounding how
the Group approaches a transaction, and how any proposed deal is
structured to incentivise the key stakeholders and employees of the
acquired business become part of the Group will be an important
factor in our continued success with this strategy.
Current trading and future outlook
The Board are delighted with the outstanding performance shown
across the Group in FY21. It has been a pivotal year which has seen
K3 Capital Group plc grow from a market-leading M&A specialist
into a leading, multi-disciplinary and complementary professional
services group.
The Board believe that the performance seen throughout FY21
underlines that the direction and strategy which the Board has
implemented can deliver significant value to all stakeholders of
the Group and we are now well positioned to continue that
trajectory and build upon the initial success which has been
achieved.
The Directors believe that the Group is better positioned than
ever before to deliver high quality, independent, specialist advice
to its clients, provide an exciting, varied and thriving place to
work for its employees as well as delivering exciting and long term
value to its investors. The recent acquisitions of Knight Corporate
Finance and Knight R&D are another exciting chapter for the
Group and represent a complementary extension of the Group's
M&A and Tax offerings, in line with our strategy.
We have started FY22 positively, with early months' trading
firmly in line with market expectations as we continue delivering
our growth strategy across the Group.
The first quarter has seen record levels of appointments and
client mandates driving non-contingent fees, alongside record
levels of buyer activity, which is driving a strong transaction fee
pipeline and giving confidence for the remainder of FY22 and
beyond.
FY22 has seen continued diversification of K3's Tax Division,
which now comprises randd, Knight R&D, InTax, and K3 Tax
Advisory, and the continued roll out of the Group's Direct
Marketing Engine is significantly driving new client
acquisitions.
The Group's Restructuring Division has built capacity in its
people and fee earners during a successful FY21. As Government
support measures, including the CJRS and other temporary
legislation changes, begin to wind down, the division is well
placed to capitalise on the return of normal market conditions in
FY22, complemented by continued expansion of the forensics team and
an expanding overseas footprint.
All three divisions have brought forward strong WIP pipelines
and positive momentum into FY22, as such we are excited by the
prospects for the current financial year and beyond.
John Rigby
Chief Executive Officer
29 October 2021
Strategic Report
The Directors present their strategic report for the year ended
31 May 2021 ("FY21").
Principal activities
During the year under review, the principal activities of K3
Capital Group plc (the "Company") together with its wholly owned
and partially owned subsidiaries (the "Group") consisted of the
provision of professional advisory services categorised into three
main service pillars as follows:
K3 M&A Advisory Group ("M&A")
-- Company sales
-- Corporate Finance services
-- Business brokerage services
-- Transaction services
-- Off-market acquisitions
K3 Restructuring Advisory Group ("Restructuring")
-- 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
K3 Tax Advisory Group ("Tax")
-- Research & Development tax credit advisory
-- Tax investigations
-- Tax planning
-- Tax advisory focussed on corporate finance transactions
The Group considers itself to be a multi-disciplinary and
complementary professional services group advising UK SMEs and with
some operations overseas.
Financial Review
Basis of preparation
With regard to the prior year, the principal activities of the
Group were solely M&A related. During the period under review,
a number of synergistic acquisitions were made to expand the
services offered into Tax and Restructuring. As such, reference to
Group turnover and profits is not directly comparable with the
prior year, however segmental splits are provided. Reference to
M&A activity for FY21 is directly comparable with Group
performance in FY20.
Revenue
Group revenue in the period significantly increased from
GBP15.0m to GBP47.2m, a rise of 215%, largely due to acquisitions
as detailed throughout this report.
M&A revenues grew organically from GBP15.0m to GBP16.0m
(7%). Whilst a small amount of this was delivered through
non-contingent fee income (2%), which was directly affected by the
effects of the COVID-19 pandemic on the UK SME economy during the
earlier stages of FY21, most of the growth was driven by a rise in
the volume of transactions completed within the KBS divisions,
seeing transaction fee income rise by 11% with K3 retaining its
position at the top of recognised league tables as the most active
dealmaker in the UK.
The period saw the M&A divisions move predominantly to
remote working throughout various lockdowns in order to deliver a
seamless service to clients which can be further demonstrated by
exceptional increases in non financial M&A KPIs in the period.
The operational side of the M&A division saw an increase of 25%
in the volume of NDA's received in the period, followed by a 15%
increase in arranged buyer meetings, a 22% increase in the number
of offers received for clients, leading to a pleasing 28% increase
in competed transactions.
The sales side of the M&A division saw a number of
challenges during H1, however the efforts of the sales and
marketing team to transition into a new and changing working
landscape resulted in a 12% increase in the new client appointments
sat and a 6% increase in client wins over the comparative
period.
The Group completed its first acquisition in June 2020, to begin
its diversification of revenue streams, bringing in specialist tax
services to the Group. randd was the first addition offering
R&D tax advice to clients, with the belief by the Board that
the business would greatly benefit from the KBS direct marketing
model. Whilst the randd marketing model was only established during
the end of the period under review, when combined with Group wide
cross selling activities, we have seen immediate increases in
non-financial KPIs; randd saw a 50% increase in new client wins
when compared to the prior year, highlighting potential of the
benefits of being within the Group. Whilst there is a time lag from
client wins to fee income, the period under review resulted in
randd submitting 33% more client claims to HMRC than the prior
year, delivering a 17% increase in revenue.
Further to the randd acquisition, the Group also acquired InTax
in Feb 2021, a boutique London based firm offering specialist tax
advice to clients, with clear synergistic benefits by working
closely with a number of the disciplines Quantuma offer including
forensics and insolvency.
When these two acquisitions are combined, the Tax division
delivered GBP5.2m of income in FY21.
The acquisition of Quantuma in August 2020 saw restructuring
services offered by the Group for 10 months of the year, further
bolstered by establishing a Cayman office (December 2020), a small
bolt on acquisition (Aspect Plus, January 2021), and a number of
lateral hires in the period. The Restructuring division delivered
GBP25.9m of income for the 10 months to 31 May 2021. On an annual
basis, turnover was 31% ahead of the prior year under previous
ownership, continuing the trend of the 35% 3 year CAGR presented
during the first fundraise in FY21. The depressed UK insolvency
market has been well documented, however for the same comparative
period, Restructuring maintained the number of formal appointments
in a market with 30% overall decline leading to an increase in
market share from 3.3% to 4.8% over the period, positioning
Quantuma firmly in the top 3 UK practices on volume. The period has
seen a 52% increase in the number of fee earners, maintaining a
high degree of chargeable time whilst also building capacity in
advance of a return to more historic levels of market activity.
During the audit process, the Management team undertook a
comprehensive review of insolvency work in progress. The result of
this has seen an increase in the carrying value of acquired work in
progress and an increase in the closing balance. This has had the
effect of increasing turnover for the period by GBP1.0m of which no
additional costs have been identified.
Cost of sales, distribution costs, and administrative costs
Naturally due to the acquisitions made in the period, the
structure of our costs has changed dramatically in the period.
These increased to GBP39.4m in the period (FY20: GBP8.5m). The
major changes were in staff costs in addition to amortisation of
acquisitions and acquisition costs.
Group headcount has increased significantly in the period due
initially to acquisitions, followed by organic growth in all
divisions. The weighted average number of employees across the
Group in FY21 was 372 (FY20: 166). Efforts are being made to create
centralised functions for areas such as finance, HR and IT, without
job losses, by re-deploying staff or moving new recruits into
centralised functions. The Group encourages maximum utilisation of
staff, with a number of client projects being carried out by
employees across the Group, notably in corporate finance where a
national team has been created between KBS, Quantuma and latterly
Knight CF to share information and assist clients with a best in
class service.
Whilst not all property costs are contained within
administrative costs due to the adoption of IFRS16 in FY20, it is
worth noting that in previous years the Group has operated from one
office in Bolton, however following the acquisitions it ended FY21
with 19 offices across the UK in addition to Cyprus and Cayman
Islands. As such, lease liabilities totalled GBP2.2m. The Board are
satisfied that all leases are on appropriate commercial rates and,
following the Covid-19 pandemic, have carried out a full review of
office space to ensure maximum utilisation from existing space
before further expansion. This includes newly formed K3 Tax
Advisory and recently acquired InTax trading from existing Quantuma
office space following the adoption of home working in various
teams.
EBITDA
As a result of both organic growth and acquisitions as noted in
this report, it comes with great pleasure to announce an adjusted
EBITDA of GBP15.7m for FY21, up 131% from prior year (FY20:
GBP6.8m). EBITDA has been adjusted for exceptional items relating
to acquisitions, professional fees relating to establishing a
maiden debt facility, and for charges arising from share based
payments.
Whilst there has been a decline in adjusted EBITDA margin to 33%
(FY20: 45%), the Board are pleased that the newly enlarged Group
represents a more diverse operation with counter cyclical revenue
streams, delivering more certainty on future performance, and a
more robust business model that will be further expanded over
time.
Share Based Payments
The Group has historically sought to reward employees through
equity, in order to align employees with the long term and
sustainable growth plan expected from the Board. In previous
periods, the Group has deployed Long Term Incentive Plan (LTIP)
shares to employees. All LTIP schemes run for 3 financial years and
are linked 50% to Earnings Per Share targets and 50% to Total
Shareholder Return targets. In the period, a further 666,664 LTIP
share options were issued as part of an EMI scheme prior to the
Quantuma acquisition and this scheme is now closed to new
participants.
Following the Quantuma acquisition, the use of Growth Shares was
adopted by the Board as a newly formed incentive scheme. The Growth
Shares are held in a subsidiary company (K3 Advisory Group Limited)
and may be swapped for K3C shares subject to performance criteria,
being a target share price being achieved at a point in time 3-5
years from issue (typically double the share price on issue) and
also subject to annual individual performance targets plus the
requirement to remain employed to the end of the performance
period.
During the year, 3,516,421 Growth Shares were issued to
employees as incentives. A total of 883,560 LTIP and Growth Shares
lapsed in the period due to ceased employment or performance
targets not being achieved. As the original LTIP schemes have now
matured and are able to be exercised, the period also saw 214,000
LTIP shares exercised.
Finally, during the period a Save As You Earn (SAYE) scheme was
established for all employees in the Group. A total of 455,006
shares are in the scheme across 100 employees, which the Directors
believe shows long term commitment from employees in the future of
K3 Capital Group plc. It is the Board's intention to open SAYE
schemes every 12 months in order to allow new entrants to the
scheme to share in the future success of the Group.
As at 31 May 2021, a total of 564,563 incentive shares had
vested and 4,578,091 were still within performance periods.
Acquisitions
During the year, the Group made five acquisitions and entered
into a joint venture agreement:
-- randd on 29th June 2020 for an initial consideration of
GBP9.27m (on a cash free, debt free basis with normal levels of
working capital), and further contingent consideration up to a
maximum of GBP7.5m (payable in a combination of cash and shares)
subject to EBITDA targets over the three financial years to
FY23
-- For the financial year ended 31 July 2019, randd generated
revenue of GBP4.25 million and normalised EBITDA* of GBP2.11
million, representing a c50% normalised EBITDA* margin
-- Quantuma on 3rd August 2020 for an initial consideration of
GBP26.95m (on a cash free debt free basis with normal levels of
working capital), with further contingent consideration up to a
maximum of GBP15m (payable in a combination of cash and shares)
subject to EBITDA targets over the three financial years to
FY23
-- For the financial year ended 31 March 2020, Quantuma LLP
generated revenue of GBP23.19 million (audited), normalised EBITDA*
of GBP4.53 million (unaudited) and profit before tax and members'
remuneration charged as an expense of GBP7.83 million (audited).
Quantuma had net assets of GBP6.39 million as at 31 March 2020, of
which GBP3.69 million was cash (audited)
-- Market Mapping was established on 27th November 2020 as a
joint venture with no initial consideration and the Group owning
40%. The remaining 60% is owned by the JV partner with options for
the Group to acquire all shares in tranches through to FY27 (first
tranche for 40% at the end of FY24, a further 10% at the end of
FY25 and the remaining 10% at the end of FY26). The option payments
are linked to a multiple of profit in the financial year and are
capped at a maximum of GBP10m
-- Alchemy on 31st December 2020 for an initial consideration of
US$200k and a further US$150k contingent upon a turnover target for
FY22. Alchemy was a newly formed company in the Cayman Islands, all
consideration was to reimburse the founders set up costs and as
such the business has no trading history to report
-- Aspect Plus on 27th January 2021 as an asset purchase, for an
initial consideration of GBP0.1m and a further maximum payable of
GBP1.2m subject to successful fee realisations over time
-- For the financial year ended 31 March 2020, Aspect Plus
generated GBP1.3m of fee income and had an average 11 employees
(unaudited).
-- InTax on 15th February 2021 for an initial consideration of
GBP1.3m (on a cash free debt free basis with normal levels of
working capital), with further contingent consideration up to a
maximum of GBP0.5m (payable in a combination of cash and shares)
subject to EBITDA targets over the three annual period to the
interim accounts up to FY24
-- For the financial year ended 31 March 2020, InTax generated
GBP1.2m of fee income and delivered an unadjusted GBP0.3m PBT
(unaudited)
* EBITDA has been adjusted to reflect director and employee
salaries agreed post completion
Exceptional Items
There was a total of GBP5.89m of exceptional costs in FY21. The
majority of these costs were incurred during the acquisitions of
randd and Quantuma, being deemed remuneration, fundraising costs
and legal/professional fees. Other exceptional items in the period
relate to professional fees on aborted transactions, though
contingent fees are sought where possible, and also in respect of
the recently announced HSBC debt facility.
Profit Before Tax
The Group generated an unadjusted Profit Before Tax of GBP7.6m,
a 19% increase on the prior year (FY20: GBP6.4m).
Taxation
The effective tax rate is 32.1% which is higher than the prior
year (FY20: 18.9%) due to disallowable expenses relating to
acquisitions.
Earnings Per Share
Based on the weighted average of 65.2m shares in issue, the
basic earnings per share (see note 6) was 7.41p for the year (FY20:
12.37p based on a weighted average of 42.2m shares in issue).
Liquidity
The Group has been historically highly cash generative and
continues to be in a strong financial position. At the end of the
period under review, the Group had cash reserves of GBP14.3m, a 72%
increase on prior year (GBP8.3m FY20). As all acquisitions to date
have been made with normal levels of working capital, it is
expected the Group will continue to be cash generative at an
operational level, providing sufficient cover for future contingent
payments relating to the acquisitions and also in order to maintain
the Group's stated dividend policy.
At the end of the period under review, the Group entered into a
maiden debt facility of a GBP10m revolving credit facility with a
further GBP5m accordion approved though not committed. This
facility is on a 3 year term with competitive rates following a
tender process. The purpose of the facility is to support the
Group's stated strategy of continuing to grow through acquisitions
of complementary professional services businesses.
Fundraising
In June 2020, the Group completed a fundraising of GBP30.45m
(before expenses) through the issue of 20,301,232 shares at a price
of GBP1.50 per share, which comprised of;
-- GBP6.95m raised by means of vendor placing for the acquisition of randd;
-- GBP23.02 million was raised by means of a placing;
-- GBP0.03 million as raised by means of a subscription for new ordinary shares; and
-- GBP0.45 million pursuant to PrimaryBid offers
Of the above, on 3 August 2020, GBP20.22m of cash raised was
utilised for the acquisition of Quantuma. The balance of funds
raised were used to cover costs relating to both acquisitions and
to provide headroom for further acquisitions.
Cash Flow
The Group increased its cash balances from GBP8.3m at the end of
FY20 to GBP14.3m at the end of FY21, an increase of 72%. The period
has seen significant changes to historic cash flow movements, most
notably the inflow of GBP22.4m from the issue of new shares to fund
acquisitions, which has equally seen GBP24.2m outflow on
acquisitions as detailed in the fundraising section of this
report.
All acquisitions have been made on a cash free debt free basis,
subject to normal levels of working capital. The nature of working
capital as a Group has changed over the period, however the Group
remains highly cash generative on an operational level, underlined
by an adjusted EBITDA to operating cash conversion rate of 111%.
Significant efforts have been made by the restructuring division to
target debt collections in order to minimise working capital
requirements as the division grows, and maintaining cash generation
from operations. The M&A and Tax divisions continue to be
highly cash generative with minimal working capital requirements
even through growth phases.
During FY21, a total of GBP226k in CJRS receipts were claimed
and subsequently repaid, resulting in no benefit from the scheme
during the period. The Group have otherwise not applied for any
Covid-19 support in the period. Any acquisitions made in the period
have repaid all Covid-19 support loans and have not made any
further support claims whilst under K3 ownership.
Net Assets
At 31 May 2021, net assets were GBP49.2m (May 20: GBP9.2m). The
significant increase in net assets is due to retained profits in
the period and shares issued to fund acquisitions made in the
period. The period has also seen significant increases in
intangible assets and contingent consideration relating to
acquisitions, in addition to Right of Use assets and lease
liabilities inherited through acquisitions.
Dividend
During the period under review, the Board revised its intended
dividend policy in light of the strategy of the enlarged Group
following the recent significant acquisitions. It is the Board's
intention to retain an attractive dividend policy in the spirit of
that which was implemented on AIM listing, however the policy has
been modified to allow sufficient cash reserves to build over
future years in order to satisfy contingent payments linked to
acquisitions, whilst also reserving cash to fund potential future
acquisitions.
As such, the Board is committed to a progressive fixed dividend
policy over three financial years, being a 9.1p dividend per share
("DPS") in FY21, 12.1p DPS in FY22 and 15.5p DPS in FY23. As per
previous years, this will be paid approximately 1/3 on interim
results and the balance on annual results.
In light of the 3.0p DPS paid on interim results, the Board is
recommending a 6.1p final dividend per share (FY20: 3.8p final
DPS). Subject to approval by shareholders, the final dividend will
be paid on 30 November 2021 to shareholders on the Company's
register at close of business on 18 November 2021. If the final
dividend is approved, the total dividends paid by the Company
relating to FY21 will be 9.10p per eligible ordinary share, a 22%
increase on the prior year (2020: 7.47p).
Post Balance Sheet Events
On 7 July 2021, the Group announced the acquisitions of Knight
Corporate Finance Limited, Knight Transaction Services and Knight
R&D Limited following a successful fundraise. A total of
2,941,934 shares were issued at a price of 340p per share to raise
the cash funds for the acquisitions and associated costs, in
addition to a further 921,266 shares issued by way of consideration
subject to 2 year lock in agreements with the sellers.
Knight Corporate Finance is a specialist M&A advisory firm
within the telecoms and tech sector, Knight Transaction Services
was acquired as part of this transaction, and is a business
specialising in bespoke due diligence and related services. Knight
R&D is a specialist research and development tax advisory firm
servicing UK SMEs. These acquisitions are in line with K3's
strategy to acquire complementary and value accretive businesses to
build out its existing SME focussed service lines.
Going Concern
The Group has been profitable and highly cash generative
throughout its trading history. K3 has shown remarkable resilience
and robustness over time, including during the recent global
pandemic and ensuing time of economic uncertainty.
The period ends with GBP14.3m of cash reserves and an undrawn
GBP10m revolving credit facility, with a pledge for a further GBP5m
if required. As the Group remains cash generative, the Directors
believe there are sufficient resources to continue trading in line
with expectations, and maintain reserves in order to satisfy
expected dividend payments, contingent payments linked to
acquisitions, and also still allow the Group to act at pace as new
acquisition targets are identified.
The Covid-19 pandemic was navigated extremely well by the Group,
swiftly transitioning staff to remote working and moving to online
communication channels in order to ensure a seamless journey for
clients and allow the Group to continue trading through periods of
lockdown.
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. Post balance sheet acquisitions 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. Equally the revised dividend policy as
explained in this report is such to ensure sufficient reserves to
meet contingent acquisition payments whilst retaining strong levels
of reserves and working capital.
This confirmation is made after having reviewed assumptions
about future trading performance (including several downside
scenarios), 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 2023 for the
wider Group. Under the worst case scenarios, the Group is still
expected to remain cash positive for 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.
This stress testing included extreme downside scenarios with
materially reduced levels of cash receipts over the 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 previous years. The Group generally has a low fixed
cost base with the ability to significantly reduce marketing spend,
general overheads, and payroll costs. 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. Furthermore 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 12 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
2021.
Share Price
The market price per share of the Company's shares at 31 May
2021 was 373.5p (31 May 2020: 175.5p) and the range of market
prices during the year was between 138.5p and 373.5p.
Strategic Report
This Strategic Report was approved by the Board of Directors on
29 October 2021 and signed on its behalf by:
Andrew Melbourne
Chief Financial Officer
29 October 2021
Consolidated Statement of Comprehensive Income
2021 2020
GBP000 GBP000
Revenue 47,171 14,994
Cost of sales (13,724) -
Gross profit 33,447 14,994
Distribution costs (2,128) (938)
Administrative expenses (23,581) (7,597)
Other income 1 -
Adjusted EBITDA 15,710 6,833
Share-based payments (145) (43)
Depreciation of tangible assets (680) (277)
Amortisation of intangible assets (1,254) (54)
Transaction costs (1,955) -
Deemed remuneration (3,937) -
------------------------- -------------------------
------------------------ ------------------------
Operating profit 7,739 6,459
Share of results of joint ventures 61 -
Finance income 3 7
Finance costs (198) (29)
------------------------ ------------------------
Profit before taxation 7,605 6,437
Taxation (2,439) (1,215)
------------------------ ------------------------
Profit for the financial year 5,166 5,222
================ ================
Other comprehensive income
Items that may be reclassified to profit or
loss
Exchange differences on translation of foreign (40) -
operations
------------------------ ------------------------
Other comprehensive income for the year (40) -
------------------------ ------------------------
Total comprehensive income for the year 5,126 5,222
================ ================
Attributable to:
Owners of the Company 5,132 5,222
Non-controlling interests (6) -
------------------------ ------------------------
5,126 5,222
================ ================
Earnings per share:
Basic GBP0.08 GBP0.12
Diluted GBP0.07 GBP0.12
Adjusted earnings per share:
Basic GBP0.19 GBP0.12
Diluted GBP0.17 GBP0.12
All results are from continuing operations.
Consolidated Statement of Financial Position
2021 2020
GBP000 GBP000
ASSETS
Non-current assets
Intangible assets 41,596 4,046
Property, plant and equipment 628 56
Right-of-use assets 2,448 871
Investments 19 -
------------------------ ------------------------
Total non-current assets 44,691 4,973
------------------------ ------------------------
Current assets
Trade and other receivables 10,916 5
Other assets 881 266
Cash and cash equivalents 14,307 8,271
------------------------ ------------------------
Total current assets 26,104 8,542
------------------------ ------------------------
TOTAL ASSETS 70,795 13,515
================ ================
Current liabilities
Trade and other payables 10,938 1,080
Current tax liabilities 1,640 924
Contract liabilities 1,476 1,369
Lease liabilities 512 200
Contingent consideration 1,683 -
------------------------ ------------------------
Total current liabilities 16,249 3,573
------------------------ ------------------------
Non-current liabilities
Lease liabilities 1,702 671
Deferred tax liabilities 687 25
Provisions 395 -
Contingent consideration 2,518 -
------------------------ ------------------------
Total non-current liabilities 5,302 696
------------------------ ------------------------
TOTAL LIABILITIES 21,551 4,269
------------------------ ------------------------
NET ASSETS 49,244 9,246
================ ================
EQUITY
Equity attributable to owners of the Company:
Issued capital and share premium 24,963 2,413
Merger reserve 16,108 -
Share option reserve 896 118
Foreign exchange reserve (40) -
Retained earnings 7,323 6,715
------------------------ ------------------------
Equity attributable to owners of the company 49,250 9,246
Non-controlling interests (6) -
------------------------ ------------------------
TOTAL EQUITY 49,244 9,246
================ ================
Consolidated Attributable
Statement Share Foreign to owners
of Changes Share Share Merger option exchange Retained of the Non-controlling
in Equity capital premium reserve reserve reserve earnings parent interest Total
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at
1 June 2019 422 1,991 - 75 - 4,743 7,231 - 7,231
Profit and
total
comprehensive
income for
the year - - - - - 5,222 5,222 - 5,222
Transactions
with owners:
Share based
payments - - - 43 - - 43 - 43
Dividends - - - - - (3,250) (3,250) - (3,250)
----------- ----------- ----------- ----------- ----------- ----------- ---------------- ---------------- -----------
Balance at
31 May 2020 422 1,991 - 118 - 6,715 9,246 - 9,246
Profit for
the year - - - - - 5,172 5,172 (6) 5,166
Other
comprehensive
expense - - - - (40) - (40) - (40)
----------- ----------- ----------- ----------- ----------- ----------- ---------------- ---------------- -----------
Total
comprehensive
income for
the year - - - - (40) 5,172 5,132 (6) 5,126
----------- ----------- ----------- ----------- ----------- ----------- ---------------- ---------------- -----------
Transactions
with owners:
Issue of
ordinary
shares, net
of
transaction
costs 158 22,284 - - - - 22,442 - 22,442
Issue of
ordinary
shares as
consideration
for a
business
combination,
net of
transaction
costs 108 - 16,108 - - - 16,216 - 16,216
Share based
payments - - - 778 - 100 878 - 878
Dividends - - - - - (4,664) (4,664) - (4,664)
----------- ----------- ----------- ----------- ----------- ----------- ---------------- ---------------- -----------
As at 31
May 2021 688 24,275 16,108 896 (40) 7,323 49,250 (6) 49,244
====== ====== ====== ====== ====== ====== ========= ========= ======
Consolidated Statement of Cash Flows
2021 2020
GBP000 GBP000
Cash flows from operating activities
Profit for the financial year 5,166 5,222
Adjustments for:
Depreciation of property, plant and equipment 140 58
Depreciation of right-of-use assets 540 219
Amortisation of intangible assets 1,254 54
Share of profit of joint ventures (61) -
Finance income (3) (7)
Interest payable 198 29
Income tax expense 2,439 1,215
Expense recognised in respect of equity-settled
share-based payments 145 43
Increase in deemed remuneration liabilities 3,937 -
------------------------ ------------------------
13,755 6,833
Movement in working capital:
(Increase)/decrease in trade and other receivables (1,266) 38
Decrease in other assets 224 114
Increase/(decrease) in trade and other payables
(excluding deemed remuneration liabilities) 3,070 (50)
Increase/(decrease) in contract liabilities 107 (276)
Increase in provisions 395 -
------------------------ ------------------------
Cash generated from operations 16,285 6,659
Finance income received 3 7
Income taxes paid (2,162) (589)
------------------------ ------------------------
Net cash from operating activities 14,126 6,077
================ ================
Investing activities
Dividends received from joint ventures 40 -
Purchases of property, plant and equipment (579) (26)
Purchases of intangible assets (104) (35)
Acquisition of subsidiary (24,328) -
------------------------ ------------------------
Net cash used in investing activities (24,971) (61)
================ ================
Financing activities
Dividends paid to owners of the Company (4,664) (3,250)
Interest paid (10) -
Lease liability interest paid (89) (29)
Repayment of the lease liabilities (778) (219)
Proceeds on issue of shares 22,443 -
------------------------ ------------------------
Net cash from/(used in) financing activities 16,902 (3,498)
================ ================
Net increase in cash and cash equivalents 6,057 2,518
Cash and cash equivalents at beginning of year 8,271 5,753
Effect of foreign exchange rate changes (21) -
------------------------ ------------------------
Cash and equivalents at end of year 14,307 8,271
================ ================
1. Basis of preparation
The principle accounting policies applied in the preparation of
the financial statements are set out below. These policies have
been consistently applied to all periods presented.
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 include 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
New Standards adopted from 1 January 2020
IFRS 3 Business Combinations (Definition of Business)
Amendments to IFRS 3 were mandatorily effective for reporting
periods beginning on or after 1 January 2020. The Group has applied
the revised definition of a business for acquisitions occurring on
or after 1 January 2020 in determining whether an acquisition is
accounted for in accordance with IFRS 3 Business Combinations. The
amendments do not permit the Group to reassess whether acquisitions
occurring prior to 1 January 2020 met the revised definition of a
business. See note 8 for disclosures relating to the Group's
business combinations occurring during the year ended 31 May
2021.
IBOR Reform and its Effects on Financial Reporting - Phase 1
The amendments provide relief in applying the requirements of
IFRS 9 to certain hedges, including allowing the Group to assume
that interest rate benchmarks on which hedged cash flows are based
(e.g. LIBOR) will not be altered as a result of interest rate
benchmark reform. Consequently, hedging relationships that may have
otherwise been impacted by interest rate benchmark reform have
remained in place and no additional ineffective portion of the
hedge has been recognised.
COVID-19-Related Rent Concessions - Amendment to IFRS 16
Effective 1 June 2020, IFRS 16 was amended to provide a
practical expedient for lessees accounting for rent concessions
that arise as a direct consequence of the COVID-19 pandemic and
satisfy the following criteria:
a. The change in lease payments results in revised consideration
for the lease that is substantially the same as, or less than, the
consideration for the lease immediately preceding the change;
b. The reduction is lease payments affects only payments
originally due on or before 30 June 2021; and
c. There is no substantive change to other terms and conditions of the lease.
Rent concessions that satisfy these criteria may be accounted
for in accordance with the practical expedient, which means the
lessee does not assess whether the rent concession meets the
definition of a lease modification. Lessees apply other
requirements in IFRS 16 in accounting for the concession.
Other Standards
Other standards that have been adopted in the annual financial
statements for the year ended 31 May 2021, but have not had a
significant effect on the Group are:
-- IAS 1 Presentation of Financial Statements and IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors
(Amendment - Disclosure Initiative - Definition of Material);
and
-- Revisions to the Conceptual Framework for Financial Reporting
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
Amendments to IAS 37 - Onerous Contracts - Cost of Fulfilling a Contract
Amendments to IAS 16 - Property. Plant and Equipment: Proceeds
Before Intended Use
Amendments to IFRS 1, IFRS 9, - Annual Improvements to IFRS Standards 2018-2020
IFRS 16 and IAS 41
Amendments to IFRS 3 - References to the Conceptual Framework
In January 2020, the IASB issued amendments to IAS 1, which
clarified the criteria used to determine whether liabilities are
classified as current or non-current. These amendments clarify that
current or non-current classification is based on whether an entity
has a right at the end of the reporting period to defer settlement
of the liability for at least twelve months after the reporting
period. The amendments also clarify that 'settlement' includes the
transfer of cash, goods, services, or equity instruments unless the
obligation to transfer equity instruments arises from a conversion
feature classified as an equity instrument separately from the
liability component of a compound financial instrument. The
amendments were originally effective for annual reporting periods
beginning on or after 1 January 2022. However, in May 2020, the
effective date was deferred to annual reporting periods beginning
on or after 1 January 2023.
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.
The Group has been profitable and highly cash generative through
out its trading history. K3 has shown remarkable resilience and
robustness over time, including during the recent global pandemic
and ensuing time of economic uncertainty.
The group's business activities, together with factors likely to
affect its future development, performance and position, are set
out in the chairman's statement and strategic report. The financial
position of the group, the principal risks and uncertainties, its
cash flows, liquidity position and borrowing facilities are
described in the strategic report.
Furthermore, notes 30 and 34 to the financial statements include
full details of the group's borrowings, in addition to the group's
objectives and policies for managing its capital, its financial
risk management objectives and its exposures to credit, interest
rate and liquidity risk.
At the year end the group had cash balances of GBP14.3m (FY20:
GBP8.3m) together with undrawn, committed borrowing facilities of
GBP10.0m (FY20: Nil) providing significant liquidity entering the
new financial year.
In carrying out their duties in respect of going concern, the
directors have completed a review of the group's current financial
position and cash flow forecasts for a period of two years from the
year end. This review included sensitivity analysis and stress
tests to determine the potential impact on the group of reasonably
possible downside scenarios. Under all modelled scenarios, the
group's liquid cash reserves were sufficient and the borrowing
facilities did not need to be drawn on.
As such, the directors have a reasonable expectation that the
company and the group have adequate resources to continue in
operational existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing the annual
report and accounts.
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:
-- M&A non-contingent fees arising from customers for professional advice;
-- M&A transaction fees arising from business sales arranged by the group companies;
-- Restructuring and Tax fees arising from customers for professional advice; and
-- R&D Tax fees arising from customers for professional advice
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 M&A
non-contingent 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 which has an alternate use, and the 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 non-contingent fee. As these contracts are
similar in nature, the review of milestone completion and
calculation of contract liabilities is done on a portfolio
basis.
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
non-contingent fee.
Due to the impact of the global pandemic, the decision was taken
to review the estimates applied to revenue recognition following
the national lockdown and impact on delivery of service. As a
result, there was a deferral of 1 month's non-contingent fee income
at the end of FY20, and 1 month's non-contingent fee deferral in
FY21. The transaction price is determined at inception of the
contract.
There is one performance obligation within M&A 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 3rd 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 note 1.
Restructuring and Tax Revenue is recognised on the basis of a
contract being in place with a client, that the control of the
contracted service lies with the client, and in line with
contractual performance obligations at an amount reflecting that
expected for the rendering of the services provided.
For the group's formal insolvency appointments and other
advisory engagements, where remuneration is typically determined
based on hours worked by professional partners and staff, the group
transfers control of its services over time and recognises revenue
over time if the group:
-- provides services for which it has no alternative use or means of deriving value; and
-- has an enforceable right to payment for its performance
completed to date, and for formal insolvency appointments has
approval from creditors to draw fees which will be paid from asset
realisations
On certain contracts the group may not have enforceable rights
to payment at the start of the contract and revenue will not be
recognised until these rights are in place. This may occur on
insolvency appointments where the recovery of assets is subject to
litigation or the realisation of assets is uncertain.
Progress on each assignment is measured using an input method
based on costs incurred to date as a percentage of total
anticipated costs.
In determining the amount of revenue and the related balance
sheet items (such as trade receivables, unbilled income and
deferred income) to recognise in the period, management is required
to form a judgement on each individual contract of the total
expected fees and total anticipated costs. Where appropriate,
further judgement is applied on a portfolio basis to ensure
consistent accounting for smaller cases.
These estimates and judgements may change over time as the
engagement completes and this will be recognised in the
consolidated statement of comprehensive income in the period in
which the revision becomes known. These judgements are formed over
a large portfolio of contracts and are therefore unlikely to be
individually material.
Invoices on formal insolvency appointments are generally raised
having achieved approval from creditors to draw fees. This is
typically settled on a timely basis from case funds. On advisory
engagements, invoices are generally raised in line with contract
terms.
Clients are provided with a Terms of Engagement letter when K3
Capital Group is appointed, which acts as both the appointment date
and the terms of our contract.
The value of a contract is assessed on the basis of time charged
by employees to cases in 6 minute intervals at rates set within our
terms of engagement. Revenue is recognised over time where there is
a right to payment for performance of contracted services completed
to date and, for insolvency appointments, there is approval from
creditors to draw fees.
The provisioning method is used to value Unbilled Revenue where
time has been charged to cases and as yet remains unbilled. This is
based upon the estimated recoverability on a case by case basis by
Directors of the current unbilled value with reference to the
future billing against future costs to complete the service. Where
a fixed fee is agreed the hourly chargeable time value is reviewed
against the final fixed fee.
Where work is contingent or not based on a time-cost, any fees
above any agreed minimum fee are fully provided until all
performance obligations are satisfied. This will include all asset
recovery work where the ability to recover an asset is uncertain or
where the fees are reliant upon litigation.
Services provided to clients which at the balance sheet date
have not been billed are recognised as unbilled revenue within
debtors.
Where amounts are billed in advance of the service being
provided these are included within deferred income within
creditors.
R&D Tax fee income is recognised at the point in which it
can be reliably estimated and our service is deemed to be complete.
Contractual terms dictate a customer will be invoiced on receipt of
a refund from HMRC, however due to the variable length from
submission of claim to client refund, unbilled income is recognised
at the point of claim submission to HMRC. It is deemed at the point
of submission, all service obligations to the client are complete
subject to HMRC enquiry.
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
EBITDA 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.
Adjusted EBITDA
The Group presents adjusted EBITDA as an operating KPI utilised
by management to monitor performance adjusting for share based
payments. As a result of acquisition activity EBITDA is adjusted
for one off exceptional costs connected to these acquisitions as
without doing so EBITDA presented would not be consistent being
subject to fluctuations that do not reflect underlying performance
of the Group.
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:
2021 2020
GBP000 GBP000
KBS Corporate Sales Limited 7,485 7,091
KBS Corporate Finance Limited 6,100 5,473
KBS Capital Markets Limited 35 50
Knightsbridge Business Sales
Limited 2,393 2,380
Quantuma Cyprus Limited 899 -
Quantuma (Cayman) Limited 67 -
Quantuma Advisory Limited 24,900 -
randd UK Limited 4,922 -
InTax Limited 327 -
Capital and Finance Xchange 43 -
Limited
------------------------ ------------------------
47,171 14,994
================ ================
A further breakdown of revenue by service line, type and
geographic location is shown below:
2021 2020
GBP000 GBP000
M&A Advisory 16,013 14,994
Restructuring Advisory 25,909 -
Tax Advisory 5,249 -
Revenue by service line 47,171 14,994
================ ================
Over time 30,727 6,643
At a point in time 16,444 8,351
Revenue by basis of recognition 47,171 14,994
================ ================
United Kingdom 46,205 14,994
Cyprus 899 -
Cayman Islands 67 -
Revenue by geographic location 47,171 14,994
================ ================
The Group's revenue is recognised when performance obligations
are satisfied, further details of which are included in the
accounting policies. As a result, contract liabilities arise when
performance obligations have not been met. The contract liabilities
from 31 May 2020 have been fully recognised in the reported revenue
for year end 31 May 2021.
The contract balances recognised are:
2021 2020
GBP000 GBP000
Contract assets
Trade receivables 5,218 5
Unbilled income 4,824 -
------------------------ ------------------------
10,042 5
================ ================
Contract liabilities
Deferred income 1,476 1,369
================ ================
The movement in contract assets in the year comprises: GBP6.7m
increase from acquisitions in the year and GBP3.3m increase due to
organic growth in the year. The movement in contract liabilities in
the year comprises: GBP0.1m increase arising from new
appointments.
Revenue recognised in the year that was included in deferred
income at the beginning of the year was GBP2.4m (2020:
GBP1.3m).
3. Segment Information
Following acquisitions made in the year, and subsequent group
restructure, the Group has 3 main reporting lines:
a. M&A Advisory - this division constitutes the original
Group companies and is involved in providing corporate finance
services to customers
b. Restructuring Advisory - this division is involved in
providing funding and corporate recovery services to customers
c. Tax Advisory - this division is involved in providing
technical taxation advice, including R&D tax claims and support
with HMRC investigations, to customers
Internal management reports are reviewed by the directors on a
monthly basis, including revenue information by subsidiary. Such
revenue information alone does not constitute sufficient
information upon which to base resource allocation decisions.
Performance of the segment is assessed based on a number of
financial and non-financial KPI's as well as on EBITDA which inform
management decisions.
The Group is not reliant on a major customer or group of
customers. All revenue is generated in the UK, except that
generated by the Group's overseas subsidiaries.
Year ended 31 May 2021 Restructuring
M&A Advisory Advisory Tax Advisory Total
GBP000 GBP000 GBP000 GBP000
Group's revenue per consolidated
statement of comprehensive income 16,013 25,909 5,249 47,171
Depreciation (240) (440) (5) (685)
Amortisation (70) (709) (474) (1,253)
Segment profit 8,032 4,866 2,612 15,510
Share-based payments (145)
Share of post-tax profits of equity
accounted joint ventures 61
Finance expense (198)
Finance income 3
Acquisition costs (5,892)
Other unallocated central costs (1,734)
Group profit before tax 7,605
Year ended 31 May 2020 Restructuring
M&A Advisory Advisory Tax Advisory Total
GBP000 GBP000 GBP000 GBP000
Group's revenue per consolidated
statement of comprehensive income 14,994 - - 14,994
Depreciation (277) - - (277)
Amortisation (54) - - (54)
Segment profit 6,502 - - 6,502
Share-based payments (43)
Finance expense (29)
Finance income 7
Group profit before tax 6,437
Year ended 31 May 2021 Restructuring Unallocated
M&A Advisory Advisory Tax Advisory central costs Total
GBP000 GBP000 GBP000 GBP000 GBP000
Assets 12,293 40,185 16,231 2,086 70,795
Liabilities (4,055) (12,545) (5,177) 226 (21,551)
Net assets 8,238 27,640 11,054 2,312 49,244
Year ended 31 May 2020 Restructuring Unallocated
M&A Advisory Advisory Tax Advisory central costs Total
GBP000 GBP000 GBP000 GBP000 GBP000
Assets 13,515 - - - 13,515
Liabilities (4,269) - - - (4,269)
Net assets 9,246 - - - 9,246
4. Operating Profit
Operating profit or loss is stated after
charging/(crediting):
2021 2020
GBP000 GBP000
Amortisation of intangibles 1,254 54
Depreciation of property, plant
and equipment 140 58
Depreciation of right-of-use assets 540 219
Government grants in respect of
CJRS - (344)
Auditor remuneration 90 33
Equity - settled share based payments
expense 145 43
Foreign exchange gains (2) -
================ ================
5. Employee Benefit Expense
The average number of persons employed by the Group during the
year, including the directors, amounted to:
2021 2020
No. No.
Management 23 11
Sales 76 73
Marketing/Administration 311 82
------------------------ ------------------------
410 166
================ ================
The aggregate payroll costs incurred during the year by the
Group, relating to the above, were:
2021 2020
GBP000 GBP000
Wages, salaries and performance
related pay 20,915 5,299
Deemed remuneration 3,937 -
Share-based payments 145 43
Social security costs 2,247 565
Other pension costs 398 74
----------------------- -----------------------
27,642 5,981
================ ================
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.
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:
2021 2020
GBP000 GBP000
Net profit attributable to equity
holders of the Company 5,166 5,222
Initial weighted average of ordinary
shares 65,176,657 42,210,526
Basic earnings per share 7.93p 12.37p
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:
2021 2020
Weighted average number of ordinary shares used in the calculation
of basic earnings per share 65,176,657 42,210,526
Dilutive effect of share options 4,507,959 481,052
Dilutive weighted average number of ordinary shares 69,684,616 42,691,578
Diluted earnings per share 7.41p 12.23p
2021 2020
Basic adjusted earnings per share 18.56p 12.37p
Diluted adjusted earnings per share 17.36p 12.23p
2021 2020
GBP000 GBP000
Net profit attributable to equity
holders of the Company 5,166 5,222
Add back/(deduct):
Acquisition costs 5,892 -
Unwinding of discount on contingent 99 -
consideration
Amortisation of acquired intangibles 1,183 -
Tax effect of the above (243) -
------------------------ ------------------------
Adjusted earnings 12,097 5,222
7. Contract liabilities
Group Company
2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000
Arising from client contracts 1,476 1,369 - -
================ ================ ================ ================
The contract liabilities 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.
8. Business combinations
randd UK Limited
On 29 June 2020 the Group acquired 100% of the issued share
capital of randd UK Limited (company number 06648783) at which
point control passed to the Group. randd UK Limited specialises in
securing R&D tax credits for clients and qualifies as a
business as defined in IFRS 3. The principal reason for this
acquisition was that randd UK Limited adds a highly complementary
capability set to the Group which allows the Group to diversify
into a synergistic market whilst providing both companies with
cross selling opportunities.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are as set out in the table
below.
Fair Value
GBP000
Cash and cash equivalents 856
Property, plant and equipment 7
Customer contracts 3,072
Investments 6
Receivables 3,021
Payables (587)
Deferred tax liabilities (584)
------------------------
Total identifiable assets acquired
and liabilities assumed 5,791
------------------------
Goodwill 9,349
------------------------
Total consideration 15,140
------------------------
GBP000
Satisfied by:
Cash 2,875
Equity instruments (6,178,521 ordinary
shares of the Company) 9,268
Contingent consideration arrangement 2,997
------------------------
Total consideration transferred 15,140
------------------------
GBP000
Net cash outflow arising on acquisition:
Cash consideration 2,875
Less: cash and cash equivalent balances
acquired (856)
------------------------
2,019
------------------------
Goodwill of GBP9,349,000 arises from the acquisition and is
attributable to the acquired business and the expected economies of
scale from combining the operations of the Group and the
acquisition. None of the goodwill is expected to be deductible for
income tax purposes.
The main factors leading to the recognition of goodwill are:
-- Customer contracts and relationships valuation captures
existing live projects but excludes potential future contracts and
relationships. The expectation of new contracts and relationships
is included in goodwill;
-- Identified intangible assets have limited useful lives, any
going concern value towards perpetuity is attributable to
goodwill;
-- The assembled workforce cannot be separately recognised from goodwill
The fair value of the 6,178,521 ordinary shares issued as part
of the consideration paid for RandD UK Limited (GBP9,268,000) was
determined by reference to the market price of the shares on the
AIM market at GBP1.50.
The consideration shares not sold in the vendor placing which
took place simultaneously with the acquisition, are subject to a 2
year lock-in, followed by a 12 month orderly market agreement.
The contingent consideration arrangement requires management to
achieve EBITDA earnings targets over 3 years post acquisition. The
base earn-out payments will be sealed by the relevant EBITDA in any
of the earn-out years divided by the base EBITDA. The potential
undiscounted amount of all future payments that K3 Capital Group
Plc could be required to make under the contingent consideration
arrangement is limited to GBP7,500,000.
The fair value of the contingent consideration arrangement of
GBP2,997,000 was estimated by applying a scenario analysis to
estimate the likelihood of achieving 5 different scenarios for each
of the 3 earn-out periods. A discount rate of 3% was used to
calculate the present value of the probability adjusted earn-out
payments. The earn out is payable in cash and shares as
follows:
-- FY21: 60% cash, 40% shares
-- FY22: 70% cash, 30% shares
-- FY23: 80% cash, 20% shares
Earn out shares are subject to a 2 year lock-in for FY21 and a 1
year lock-in for FY22.
Acquisition-related costs (included in administrative expenses)
amount to GBP815,000.
RandD UK Limited contributed GBP4,922,000 revenue and
GBP2,112,000 to the Group's profit for the period between the date
of acquisition and the reporting date. If the acquisition of RandD
UK Limited had been completed on the first day of the financial
year, RandD UK Limited would have contributed revenues of
GBP5,173,000 and profit of GBP2,111,000.
Quantuma Advisory Limited
On 31 July 2020 the Group acquired 100% of the issued share
capital of Quantuma Advisory Limited (company number 12743937)
obtaining control of Quantuma Advisory Limited. Quantuma Advisory
Limited is a firm specialising in providing insolvency and business
restructuring services and qualifies as a business as defined in
IFRS 3. The principal reason for this acquisition was that Quantuma
Advisory Limited has complementary capabilities that are expected
to further diversify the Group's product offering. The acquisition
will also provide certain cross-selling opportunities for both
businesses.
Fair Value
GBP000
Cash and cash equivalents 255
Property, plant and equipment including
RoU assets 1,834
Intangible assets 205
Brand 3,439
Customer contracts 2,027
Receivables 6,355
Payables (3,261)
Provisions (391)
Deferred tax liabilities (1,039)
------------------------
Total identifiable assets acquired
and liabilities assumed 9,424
------------------------
Goodwill 18,550
------------------------
Total consideration 27,974
------------------------
GBP000
Satisfied by:
Cash 21,235
Equity instruments (4,492,667 ordinary
shares of the Company) 6,739
------------------------
Total consideration transferred 27,974
------------------------
Consideration accounted for as deemed
remuneration
GBP000
Contingent consideration arrangement 10,608
------------------------
GBP000
Net cash outflow arising on acquisition:
Cash consideration 21,235
Less: cash and cash equivalent balances
acquired (255)
------------------------
20,980
------------------------
Goodwill of GBP18,550,000 arises from the acquisition and is
attributable to the acquired business and the expected economies of
scale from combining the operations of the Group and the
acquisition. None of the goodwill is expected to be deductible for
income tax purposes.
The main factors leading to the recognition of goodwill are:
-- Customer contracts and relationships valuation captures
existing live projects but excludes potential future contracts and
relationships. The expectation of new contracts and relationships
is included in goodwill;
-- Identified intangible assets have limited useful lives, any
going concern value towards perpetuity is attributable to
goodwill;
-- The assembled workforce cannot be separately recognised from goodwill
The fair value of the 4,492,667 ordinary shares issued as part
of the consideration paid for Quantuma Advisory Limited
(GBP6,739,000) was determined by reference to the market price of
the shares on the AIM market at GBP1.50.
The consideration shares are subject to a 2 year lock-in,
followed by a 12 month orderly market agreement. The lock-in
agreements are each capable of being modified, waived, or cancelled
in the event each of the parties to the respective lock-in
agreement are in agreement it is in the best interests of
maintaining an orderly market.
The contingent consideration arrangement requires management to
achieve EBITDA earnings targets over 3 years post acquisition. The
base earn-out payments will be sealed by the relevant EBITDA in any
of the earn-out years divided by the base EBITDA. The potential
undiscounted amount of all future payments that K3 Capital Group
Plc could be required to make under the contingent consideration
arrangement is limited to GBP15,000,000.
The earn out is split into three tranches, with the first
tranche forecast to be GBP9.4 million payable over 3 years with
mechanisms to increase or decrease subject to certain performance
criteria. The first tranche is payable as to 60% cash and 40%
shares across the 3 financial years ending 31 May 2023 (the "First
Earn Out").
The fair value of the contingent consideration arrangement of
GBP10,608,000 was estimated by applying a scenario analysis to
estimate the likelihood of achieving 5 different scenarios for each
of the 3 earn-out periods. A discount rate of 3% was used to
calculate the present value of the probability adjusted earn-out
payments.
The First Earn Out shares are subject to a 2 year lock-in for
those shares issued in relation to FY21 and a 1 year lock-in for
those shares issued in relation to FY22. The lock-in agreements are
each capable of being modified, waived or cancelled in the event
each of the parties to the respective lock-in agreement are in
agreement it is in the best interests of maintaining an orderly
market, subject to the approval of the Company's broker at that
time and also certain other limited circumstances (including but
not limited to a transfer to executors on death, in acceptance of
an offer for the entire issued share capital of the Company, and
pursuant to a court order).
The second tranche of the earn-out is payable wholly in cash in
each of the next three financial years, subject to certain
threshold levels of normalised EBITDA having been achieved by
Quantuma (the "Second Earn Out").
The date for payment and/or issue of Ordinary Shares, as
applicable, in respect of the First Earn Out and Second Earn Out is
set at 31 August in each relevant financial year.
The third tranche of the earn out comprises 645,513 shares
issued in K3 Advisory Group Limited, a subsidiary of the Company
(the "Third Earn Out"). The Third Earn Out shares have the same
terms as those governing the Growth Shares but are separately
classified as they are being issued as part of the consideration
payable for the Acquisition. The acquisition of the Third Earn Out
shares has been financed by the sellers having reinvested part of
their sale proceeds.
Acquisition-related costs (included in administrative expenses)
amount to GBP833,000.
Quantuma Advisory Limited contributed GBP25,842,000 revenue and
GBP4,473,000 to the Group's profit for the period between the date
of acquisition and the reporting date. If the acquisition of
Quantuma Advisory Limited had been completed on the first day of
the financial year, Quantuma Advisory Limited would have
contributed revenues of GBP30,748,000 and profit of
GBP4,910,000.
InTax Limited
On 15 February 2021 the Group acquired 100% of the issued share
capital of InTax Limited (company number 11271031) at which point
control passed to the Group. InTax Limited is a practice whose
principal activity is specialist tax investigations and enquiries.
InTax assist individuals and companies dealing with HMRC
investigations and qualified as a business as defined in IFRS 3.
The principal reason for this acquisition was that InTax has
complementary capabilities with the forensic accounting division in
Quantuma Advisory Limited. The acquisition will also provide
certain cross-selling opportunities for both businesses.
Fair Value
GBP000
Cash and cash equivalents 127
Property, plant and equipment including
RoU assets 2
Customer contracts 211
Receivables 731
Payables (410)
Deferred tax liabilities (40)
------------------------
Total identifiable assets acquired
and liabilities assumed 621
------------------------
Goodwill 1,159
------------------------
Total consideration 1,780
------------------------
GBP000
Satisfied by:
Cash 1,154
Equity instruments (72,254 ordinary
shares of the Company) 209
Contingent consideration arrangement 417
------------------------
Total consideration transferred 1,780
------------------------
GBP000
Net cash outflow arising on acquisition:
Cash consideration 1,154
Less: cash and cash equivalent balances
acquired (127)
------------------------
1,027
------------------------
Goodwill of GBP1,159,000 arises from the acquisition and is
attributable to the acquired business and the expected economies of
scale from combining the operations of the Group and the
acquisition. None of the goodwill is expected to be deductible for
income tax purposes.
The main factors leading to the recognition of goodwill are:
-- Customer contracts and relationships valuation captures
existing live projects but excludes potential future contracts and
relationships. The expectation of new contracts and relationships
is included in goodwill;
-- Identified intangible assets have limited useful lives, any
going concern value towards perpetuity is attributable to
goodwill;
-- The assembled workforce cannot be separately recognised from goodwill
The fair value of the 72,254 ordinary shares issued as part of
the consideration paid for Intax Limited (GBP209,000) was
determined by reference to the market price of the shares on the
AIM market at GBP2.78.
The consideration shares are subject to a 2 year lock-in,
followed by a 12 month orderly market agreement.
The contingent consideration arrangement requires management to
achieve EBITDA earnings targets over 3 years post acquisition. The
base earn-out payments will be sealed by the relevant EBITDA in any
of the earn-out years divided by the base EBITDA. The potential
undiscounted amount of all future payments that K3 Capital Group
Plc could be required to make under the contingent consideration
arrangement is limited to GBP500,000.
The fair value of the contingent consideration arrangement of
GBP417,000 was estimated by applying a scenario analysis to
estimate the likelihood of achieving 5 different scenarios for each
of the 3 earn-out periods. A discount rate of 3.9% has been used to
calculate the present value of the probability adjusted earn-out
payments. The earn out is payable in cash and shares to paid 60% in
cash and 40% in shares.
Earn out shares are subject to a 2 year lock-in for FY22 and a 1
year lock-in for FY23.
Acquisition-related costs (included in administrative expenses)
amount to GBP33,000.
Intax Limited contributed GBP439,000 revenue and GBP355,000 to
the Group's profit for the period between the date of acquisition
and the reporting date. If the acquisition of Intax Limited had
been completed on the first day of the financial year, Intax
Limited would have contributed revenues of GBP1,180,000 and profit
of GBP248,000.
Quantuma (Cayman) Limited (formerly Alchemy (Cayman)
Limited)
On 24 December 2020 the Group acquired 100% of the issued share
capital of Quantuma (Cayman) Limited, a company registered in the
Cayman Islands, obtaining control of Quantuma (Cayman) Limited.
Quantuma (Cayman) Limited is a firm specialising in providing
insolvency and business restructuring services and qualifies as a
business as defined in IFRS 3. The principal reason for this
acquisition was to broaden the overseas presence of the Group with
a view to winning higher profile and higher value restructuring
mandates. The acquisition will also provide certain cross-selling
opportunities for both businesses.
Fair Value
GBP000
Receivables -
Payables (2)
------------------------
Total identifiable assets acquired
and liabilities assumed (2)
------------------------
Goodwill 250
------------------------
Total consideration 248
------------------------
GBP000
Satisfied by:
Cash 145
Contingent consideration arrangement 103
------------------------
Total consideration transferred 248
------------------------
GBP000
Net cash outflow arising on acquisition:
Cash consideration 145
Less: cash and cash equivalent balances -
acquired
------------------------
145
------------------------
Goodwill of GBP250,000 arises from the acquisition and is
attributable to the acquired business and the expected economies of
scale from combining the operations of the Group and the
acquisition. None of the goodwill is expected to be deductible for
income tax purposes.
The main factors leading to the recognition of goodwill are:
-- Customer contracts and relationships valuation captures
existing live projects but excludes potential future contracts and
relationships. The expectation of new contracts and relationships
is included in goodwill;
-- Identified intangible assets have limited useful lives, any
going concern value towards perpetuity is attributable to
goodwill;
-- The assembled workforce cannot be separately recognised from goodwill
The contingent consideration arrangement is linked to both the
full completion of 100% share acquisition (subject to local
authority approval expected in December 2021) in addition to the
entity achieving a minimum of $800k turnover in FY22. The potential
undiscounted amount of all future payments that K3 Capital Group
Plc could be required to make under the contingent consideration
arrangement is limited to US $150,000.
Quantuma (Cayman) Limited contributed GBP67,000 revenue and
GBP124,000 loss to the Group's profit for the period between the
date of acquisition and the reporting date. If the acquisition of
Quantuma (Cayman) Limited had been completed on the first day of
the financial year, the business would have contributed revenue of
GBP67,000 and a loss of GBP125,000.
Aspect Plus
On 27 January 2021 the Group acquired the trade and assets of
Aspect Plus Limited, a company registered in the United Kingdom,
obtaining control the trade of Aspect Plus Limited qualifies as a
business as defined in IFRS 3. The principal reason for this
acquisition was to broaden the UK restructuring presence of the
Group. The acquisition will also provide certain cross-selling
opportunities for both businesses.
Fair Value
GBP000
PPE 12
Unbilled income 377
------------------------
Total identifiable assets acquired
and liabilities assumed 389
------------------------
Goodwill 457
------------------------
Total consideration 846
------------------------
GBP000
Satisfied by:
Cash 157
Contingent consideration arrangement 689
------------------------
Total consideration transferred 846
------------------------
GBP000
Net cash outflow arising on acquisition:
Cash consideration 157
Less: cash and cash equivalent balances -
acquired
------------------------
157
------------------------
Goodwill of GBP457,000 arises from the acquisition and is
attributable to the acquired business and the expected economies of
scale from combining the operations of the Group and the
acquisition. None of the goodwill is expected to be deductible for
income tax purposes.
The main factors leading to the recognition of goodwill are:
-- Customer contracts and relationships valuation captures
existing live projects but excludes potential future contracts and
relationships. The expectation of new contracts and relationships
is included in goodwill;
-- Identified intangible assets have limited useful lives, any
going concern value towards perpetuity is attributable to
goodwill;
-- The assembled workforce cannot be separately recognised from goodwill
The contingent consideration arrangement is payable on a 50:50
split between the Group and the vendors on successful billing of
unbilled revenue on existing clients at the acquisition date. The
potential undiscounted amount of all future payments that K3
Capital Group Plc could be required to make under the contingent
consideration arrangement is limited to GBP1,150,000.
Annual Report
The annual report will be mailed to shareholders and made
available on our website on or around 1 November. 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 25
November 2021 at 10:00am at KBS House, 5 Springfield Court,
Summerfield Road, Bolton, BL3 2NT.
Copies of the announcement can be found on the Investor
Relations section of the Company's website:
www.k3capitalgroupplc.com
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END
FR UAUBRASUROAA
(END) Dow Jones Newswires
November 01, 2021 03:00 ET (07:00 GMT)
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