Still showing resilience
Trading so far in the second half of K3’s financial year to 30 November 2020 has continued to be in line with Q2 and management expectations. The majority of K3’s financial Q2 was affected by COVID-19, and today’s comments reflect continuing resilience within key businesses. Particular focus remains on the K3|imagine platform as the Group looks to expand its Own IP sales further. Crucially, annual renewal rates of software licences and maintenance contracts during the critical October period have been at normal high levels. This usual seasonality means that earnings and cash generation are stronger in the second half of K3’s financial year. The Group reports that cash balances have grown strongly since net bank debt peaked at expected levels at the end of September. The recent appointment of a new Chairman and additions to the senior management team should give the business added impetus, in our view. We also note that management is looking at ways to simplify the Group structure – although there is no further detail at this time. Given the uncertain operating environment, we do not reintroduce estimates at present, but await further updates on the Group’s performance and structure.