K3 Business Technology Group PLC (LON:KBT) As previously flagged, delays in closing contracts in H117 hit profitability. Management launched a reorganisation programme to streamline the business and support cross-selling as well reduce the cost base. Better software sales in H217 combined with the reduction in overheads should result in a recovery in profitability in H217 and FY18. K3 continues to focus on selling own IP-based products and hosting services to new customers as well as its 3,700-strong customer base. We leave our forecasts largely unchanged.
Deal slippage hits H117 profitability
As highlighted by the company in January, deal slippage in both the Retail and Manufacturing & Distribution businesses resulted in lower than expected revenues in H117. The shortfall in high-margin license revenues combined with investment in the partner channel resulted in a drop in adjusted operating profit to £0.45m from £5.11m in H116. Management is confident that deals have been delayed rather than gone away, and the increase in the pipeline (£82m at end H117 vs £76m at the end of FY16) bears this out. Contracts signed post period-end show that the pipeline is starting to convert and support sequential revenue growth in H217.
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