Portfolio Updates

Imagining the future


Further to last year’s appointments of Tom Crawford as chairman and Oliver Scott as NED, K3, which provides mission‐critical business software and cloud solutions, has announced that Marco Vergani has joined as CEO from 30 March 2021 to drive the next stage of its growth. Marco has extensive experience in K3’s target markets, with previous leadership roles at Qubit, Digital River and IBM, primarily in commercial sales covering retail and direct-to-consumer sectors across the UK, Europe, US and Asia.

Resilient performance and a strengthened balance sheet

In March 2021, K3 announced results for the year ending 30 November 2020, demonstrating a pleasingly resilient performance, notwithstanding CV-19 disruption in K3’s target markets.  Continuing revenues were broadly in line with the prior year and, despite profits nearly halving, cashflow performance has improved. Much of this resilient performance is from increasing revenue visibility (76% recurring and predictable), alongside careful cost and cash management.

Importantly, K3 also announced the post year-end disposal of its Starcom hosting business for £14.7m cash and, separately, the conversion of £3m of shareholder loans into equity. This follows the 2020 closure of loss-making UK Dynamics, which allowed K3 to strengthen its balance sheet significantly; net cash at 28 February 2021 was £5.8m (against net debt of £1.9m at 30 November 2021), underpinned by a 12-month extension of its facility with Barclays Bank for £3.5m.

Since year end, K3 has reported that trading in the new financial year (ending 30 November 2021) is in line with last year.

Strategy and focus

Following the disposal of Starcom and closure of Dynamics UK, K3 now has a more focussed business which should make it easier to concentrate clearly on growing its own IP sales (software owned by K3) and on developing commercial opportunities from the K3|imagine platform and applications. This strategy has the scope to generate high-quality SaaS revenue and increase group margins.

The strengthened balance sheet gives K3 the capacity to make appropriate investments to implement its strategy and the new Chief Executive is re-evaluating the Company’s target markets to ensure it is investing in segments with attractive, long-term growth opportunities.

Kestrel insight

K3’s achievement in delivering resilient results for the year ending 30 November 2020 – in light of the CV-19 pandemic and given its direct association with global retail markets – was no mean feat. It underlines the importance of Kestrel’s portfolio companies deploying recurring revenue models, alongside appropriate cost and cash control.

There is work for the new K3 leadership team to do in rounding out the strategy and delivering growth, assisted by tailwinds from a return to more normal trading conditions as lockdown restrictions are eased. We believe that recent leadership changes, alongside a strengthened balance sheet and a more focussed business, should pave the way for an exciting and re-invigorated growth story; built on the core business lines of its own IP (led by its Imagine platform and fashion offerings) and Global Accounts (the global IKEA relationship).

We look forward to further announcements evidencing the impact of the new leadership team in delivering on K3’s potential.

 

Kestrel’s Portfolio Updates should neither be construed as investment research, nor the provision of investment advice, nor a recommendation. This article should be viewed as short term commentary only based on the latest economic statistics, company results or information on upcoming releases or events. It is only a brief unsubstantiated summary of Kestrel’s opinion on such information as at the date of publication and no reliance may be placed upon any contents of this article by the recipient.


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