K3’s FY16 results confirmed that the Retail business continues to make good progress with strong order intake at year-end despite the Brexit vote. Performance in certain parts of the Manufacturing & Distribution business was disappointing; action has been taken to reinvigorate sales in these areas. With a strong pipeline entering FY17, K3 Business Technology Group (LON:KBT) is in a good position to generate growth in revenues, profitability and cash flows.
Retail strength offset by Sage weakness
K3 reported FY16 revenue growth of 6.9%, 1.9% ahead of our forecast helped by strong order intake for the Retail business in H216. While group gross profit and gross margin exceeded our forecasts, the Sage business acted as a drag on profitability and higher than expected operating expenses (in part because one customer went into administration close to year-end) resulted in adjusted operating profit 6.7% below our forecast. Normalised EPS, however, was only 1.1% below our forecast helped by lower interest and tax charges. CEO David Bolton has announced that he is moving to the role of executive chairman and the search for a new CEO is underway.
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