The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.

16 February 2021

K3 CAPITAL GROUP PLC

("K3", the "Company" and including its subsidiaries, the "Group")

Interim Results

K3 Capital Group plc, a multi-disciplinary professional services firm providing advisory services to SMEs, today announces its interim results for the six months ended 30 November 2020.

Financial highlights

* Adjusted EBITDA is stated before acquisition related costs and share based payment (as set out in the Financial Statements below)

** Headline EPS calculated at an average of 61.7m shares vs 42.5m shares H1 FY20. Adjusted to exclude exceptional items

*** DPS calculated at 68.5m shares vs 42.5m shares H1 FY20

Operational highlights

Outlook

Commenting on the results, Chief Executive of K3 Capital Group plc, John Rigby, said:

"I am delighted to report that both myself and the Board are extremely satisfied with a strong financial performance during the first half of FY21. As stated at the time of the trading update, trading was ahead of management's expectations which is particularly impressive considering it was achieved against a backdrop of unprecedented challenges presented by the global pandemic, not least the multiple national and regional lockdowns. We also repaid all monies claimed under the Government's Covid-19 Job Retention Scheme in the financial period.

"We made excellent strategic progress in the period, particularly through the acquisitions of randd and Quantuma, with cross referrals of clients across the Group companies already starting to add real value. It is also very pleasing to see that we have not 'sat back' following the two acquisitions and within the period we have added further strength and depth through lateral hires, a joint venture and three bolt-on acquisitions for c£1m of cash and a modest earn out structure. These acquisitions include an Essex-based insolvency practice, an overseas insolvency foothold with an opportunity to win high profile mandates, and today we have completed the acquisition of a specialist tax investigations business.

"With the benefit of our strong financial position and platform, we intend to continue to build a significant group of complementary professional services businesses servicing UK SME's, both organically and through acquisition. We remain confident in our outlook for the current and future years."

-ENDS-

For further information please contact:

About K3 Capital

K3 Capital Group plc is a multi-disciplinary professional services firm providing advisory services to SMEs, with operations throughout the UK and overseas.

Services provided by KBS Corporate, KBS Corporate Finance, Knightsbridge and KBS Capital Markets:

Services provided by RandD UK Limited:

Services provided by Quantuma Advisory Limited:

The Group's medium-term strategy is to build a wider group of growing and complementary professional services businesses to provide SMEs with high quality advice across specialist disciplines.

K3 Capital Group trades on the London Stock Exchange (AIM: K3C.L), having listed on 11 April 2017. Please visit www.k3capitalgroupplc.com for more information.

Interim Results

I am delighted to report that both myself and the Board are extremely satisfied with a strong financial performance during the first half of FY21, achieved against a backdrop of unprecedented challenges presented by the global pandemic, not least the multiple national and regional lockdowns.

We are very pleased to be reporting Group revenues of £17.8m for H1 FY21 (£8.0m H1 FY20), which has delivered £5.6m of EBITDA for the period (£3.5m H1 FY20). Net Cash was £10.1m (£6.8m H1 FY20). Headline EPS for the period was 6.9p having adjusted for costs relating to the acquisitions and fundraise in H1 FY21, with actual EPS 3.4p.

Divisional Breakdown

The Group has successfully completed two transformational and earnings enhancing acquisitions within the period, which has taken K3 from a M&A focussed business to one which now sees diversified revenues through the addition of a high-quality recurring revenue tax business and cyclical balance through its restructuring division. During the period we have successfully incorporated both randd and Quantuma into the Group and integrated the Marketing, Accounting, and HR functions.

I am pleased to report that all Group companies have traded strongly during the period, with the market making a small upgrade to forecasts following the trading update, underpinning confidence in FY21. We have now successfully started the roll-out of our direct marketing strategy for randd, as well as launching K3 Hub, a referral network scheme aimed at UK accountants. I am excited by the launch of these schemes and expect both will accelerate new client acquisitions across the Group as we progress throughout FY21 and beyond.

It is also very pleasing to see that we have not 'sat back' following the two acquisitions and within the period we have added further strength and depth through lateral hires, a joint venture and three bolt-on acquisitions for c£1m of cash and a modest earn out structure. These acquisitions include an Essex-based insolvency practice with c£1m a year of billings; an overseas insolvency foothold with an opportunity to win high profile mandates, and a specialist tax investigations business generating c£1m revenue.

Dividend

As a result of the business performance in H1 FY21 being in line with management expectations, and the Board's continued confidence in the outlook throughout the remainder of FY21, I am pleased to announce that the Board has agreed an interim dividend of 3.0p per share (H1 FY20: 3.7p - based on 42.5m shares in circulation) amounting to 1/3rd of the 9.1p expected total dividend for FY21. The FY21 interim dividend payable equates to £2.1m (FY20 interim: £1.6m).

At the time of the £30.5m fund raise in June 2020, the stated dividend policy was to pay c.75% of Adjusted PAT. Based on current market expectations, this equates to DPS for FY21, FY22, and FY23 of 9.1p, 12.1p, and 15.5p respectively.

Given the continued growth of the Company, and our expectations around future acquisition strategy, the Board has concluded that a revision to its dividend policy is appropriate at this time.

Moving forward, the Board intends to pay fixed dividends at the DPS levels detailed above. Any excess profits generated above these levels will be retained by the Company in order to assist in the funding of its future growth aspirations and the Company will adopt a progressive dividend policy thereafter. However, should the Company make further acquisitions which result in further shares being issued, the Board will use its discretion to determine the appropriate level of dividend payment for any given year which may affect the projected DPS payments referred to above.

The interim dividend will be paid on the 17 March 2021; the record date is 26 February 2021; the ex-dividend date is 25 February 2021.

Current Trading and Outlook

The Board is extremely satisfied with the Group's H1 FY21 financial performance, especially when taking into account the effects of the global pandemic on UK SMEs and multiple national and regional lockdowns, and therefore expects its full year earnings will be comfortably in line with market expectations.

The Board is optimistic about the additive effect of the bolt-ons, joint venture, and lateral hires across the group, together with the increased capacity and growth potential that this brings across all K3 brands. Our ongoing strategy is to build a wider group of growing and complementary professional services businesses to provide UK SMEs with high quality advice across specialist disciplines.

The Board remains confident that the outlook for the remainder of the financial year, and beyond, is positive and is pleased to report a strong start to H2 FY21. We feel confident that the Group of businesses which we have now assembled provides diversified and cyclically balanced revenues, creating a robust model with a greater degree of visibility and predictability.

We continue to evaluate complementary acquisition targets which could be additive to the overall product offering and allow the Group to further diversify its revenue streams. The Board is currently considering a £10m debt facility in order to provide flexibility around the method of funding such acquisitions.

Acquisition of specialist tax investigations firm inTax Ltd (trading as inTAX)

inTAX is a London-based specialist tax firm established in 2013, with a nine strong team that has extensive experience in dealing with various tax issues, including Disclosure Facilities, tax fraud investigations - whether conducted by HMRC or the National Crime Agency - and tax avoidance schemes, such as film schemes, employee benefit trusts (EBTs) and contractor loans. 

The new tax investigations team will add to K3's existing tax advisory services and will work closely with group subsidiary, Quantuma.

As part of the consideration for the acquisition, the Company will issue 75,254 ordinary shares of 1 penny each in the Company ("Ordinary Shares").

Admission and Total Voting Rights

Application will shortly be made for the 75,254 Ordinary Shares to be admitted to trading on AIM ("Admission") and dealings are expected to commence on 22 February 2021.

The Ordinary Shares will rank pari passu with the existing issued Ordinary Shares and will have the right to receive all dividends and other distributions declared, made or paid in respect of the Ordinary Shares following Admission.

The total number of Ordinary Shares in issue following Admission will be 68,624,309. Accordingly, the figure of 68,624,309 may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in the Company under the FCA's Disclosure Guidance and Transparency Rules.

All the activities of the group are from continuing operations.

ASSETS

Non-current assets

Current assets

Current liabilities

Non-current liabilities

EQUITY

Equity attributable to owners of the Company:

Cash flows from operating activities

Investing activities

Financing activities

1.       General Information

          K3 Capital Group PLC is incorporated in England and Wales under the Companies Act (listed on AIM, a market operated by the London Stock Exchange PLC) with the registered number 06102618. The address of the registered office is KBS House, 5 Springfield Court, Summerfield Road, Bolton, BL3 2NT.

          The interim condensed consolidated financial statements comprise the Company and its subsidiaries "the Group". This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

2.       Basis of preparation

          The financial information set out in this Interim Report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 May 2020, prepared under IFRS, have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The interim financial information has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS) and on the same basis and using the same accounting policies as used in the financial statements for the year ended 31 May 2020, subject to the introduction of any new accounting standards applicable in the period.

          The Interim Report has not been audited or reviewed in accordance with the International Standard on Review Engagement 2410 issued by the Auditing Practices Board.

3.   Significant accounting policies

          New standards, amendments to and interpretations to published standards which are now effective

There were no new standards, interpretations or amendments effective for the first time for periods beginning on or after 1 January 2020 that had a significant effect on the Group's financial statements.

4.       Critical Accounting Estimates and Sources of Estimation Uncertainty

          There have been no material revisions to the nature and amount of changes in estimates of amounts reported in the annual financial statements for the year ended 31 May 2020.

          In addition to the accounting policies in place at the year ended 31 May 2020, as a result of subsequent acquisitions there are new accounting estimates and areas of judgement relevant to these financial statements.

          Valuation of acquired intangibles and contingent consideration

          IFRS 3 requires separately identifiable intangible assets to be recognised on acquisitions. The principal estimates used in valuing these intangibles are generally based on the future cash flow forecast to be generated by these assets, and the selection of appropriate discount rates to apply to the cash flows. In addition, the valuation of contingent consideration is based on the fair value of future cashflows with regard to management's best estimate of the likely outcome of performance related criteria.

          Unbilled revenue - insolvency/restructuring

          Time recorded for chargeable professional services work is regularly reviewed to ensure that only what the Directors believe to be recoverable from the client is recognised as unbilled revenue within prepayments and accrued revenue.

          Estimates are made with allocating revenue to the performance obligation and the valuation of contract assets. The Group estimates the contract completion point, costs yet to be incurred and the potential outcome of the contract.

          Significant judgement is involved in estimating the amount of revenue, where variable consideration is involved and which results in the recognition of unbilled revenue.

          Management base their assessments for judgements and estimates on historic experience, market insights and rational estimates of future events. Judgements and estimates are made in each part of the business by engagement teams with experience of the service being delivered and are subject to review and challenge by management.

5.       Earnings per Share

          Basic earnings per share amounts are calculated by dividing the profit for the period attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the period.

          The following reflects the income and share data used in the basic and diluted earnings per share computations:

          The weighted average number of ordinary shares for the purposes of diluted earnings per share reconciles to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows:

          The calculation of basic and diluted headline earnings per share is based on the following data:

6.       Dividends

          Dividends paid on equity shares

7.       Revenue and segment information

     The Group's revenue arises from the provision of services fulfilling the principle activities. An analysis of revenue by subsidiary Company is shown below:

8.       Share-based payments

          Employee share option plan of the Company

          Details of the employee share option plan of the Company

          The Company has a share option scheme for executives and senior employees of the Company and its subsidiaries. In accordance with the terms of the plan executives and senior employees may be granted options to purchase ordinary shares.

          Each employee share option converts into one ordinary share of the Company on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry.

          The number of options granted is calculated in accordance with the performance-based formula approved by the remuneration committee. The formula rewards executives and senior employees to the extent of the Group's and the individual's achievement judged against both qualitative and quantitative criteria from the following financial measures:

          Details of growth share plan of the Company

          "Growth Share Awards" are awards granted in the form of an immediate beneficial interest to be held by participants in a discrete and bespoke class of ordinary shares, namely the Growth Shares in K3 Advisory Group Limited. After a minimum period of three years (being not before the announcement of the Company's financial results for the financial year ending 31 May 2023), the Growth Shares may be exchanged for new Ordinary Shares or cash (at the Company's discretion), subject to the rules of the plan, continued employment, and meeting certain share price hurdles, which the Remuneration Committee considered to be challenging at the time of issue. If the share price for the 5 day period following the announcement of the Company's financial results for the financial year 2023 is below £3.00, all of the Growth Shares will be bought back by the Company for nominal value. If the share price following the announcement of the Company's financial results for the financial year 2023 is above £3.00, the Growth Shares will partially vest with vesting in full at £3.50, when each vested Growth Share may be exchanged for an ordinary share in the Company.

          The following share-based payment arrangements were in existence during the current period:

          All options vest over a 3 year performance period. The performance period start date for series 1 was 1 June 2017, for series 2 1 December 2017 and for series 3 1 June 2020. The earliest expected date for exercise would be after publication of the Group's annual results for the year ending 31 May 2020, in respect of series 1, publication of the Group's interim results for the period ended 30 November 2020, in respect of series 2 and publication of the Group's annual results for the year ending 31 May 2023, in respect of series 3.

          To 30 November 2020 there have been a total of 5,443,211 qualifying options issued, representing 7.9% of current issued share capital.

          The SAYE scheme options vest on 1 December 2023 and there are no specific performance criteria to achieve.

9.       Business combinations

          RandD UK Limited

          On 31 July 2020, the Group acquired 100% of the share capital of RandD UK Limited (company number 06648783), a UK based private company specialising in securing R&D tax credits for clients. The completion had an effective date of 1 June 2020.

          Details of the purchase consideration, the net assets acquired and goodwill are as follows:

The assets and liabilities recognised as a result of the acquisition are as follows:

          Goodwill of £10,560,000 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 fair value of the acquired customer contracts of £3,020,000 is provisional pending receipt of the final valuations for those assets. Deferred tax of £574,000 has been provided in relation to these fair value adjustments.

          As the acquisition was made in the year, the above amounts are provisional and subject to adjustment.

          Acquisition-related costs

          Acquisition-related costs of £756,000 are included in administrative expenses in profit or loss.

          Contingent consideration

          The contingent consideration arrangement requires the group to pay the former owners of RandD UK Limited 36.7% of EBITDA for three years from 2021 to 2023, up to a maximum undiscounted amount of £7,500,000. There is no minimum amount payable.

          The fair value of the contingent consideration arrangement of £4,166,000 was estimated calculating the present value of the future expected cash flows. The estimates are based on a discount rate of 3% and assumed probability-adjusted EBITDA in RandD UK Limited of £2,500,000 to £5,500,000.

          Revenue and profit contribution

          The acquired business contributed revenues of £2,569,000 and net profit of £965,000 to the group for the period from 1 June 2020 to 30 November 2020.

          Quantuma Advisory

          On 31 July 2020, the Group acquired 100% of the share capital of Quantuma Advisory Limited (company number 12743937), a UK-focused business providing advisory services including restructuring and insolvency, corporate finance and forensics.

          Details of the purchase consideration, the net assets acquired and goodwill are as follows:

          The assets and liabilities recognised as a result of the acquisition are as follows:

          Goodwill of £30,253,000 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 fair value of the acquired brand and customer contracts of £5,466,000 is provisional pending receipt of the final valuations for those assets. Deferred tax of £1,039,000 has been provided in relation to these fair value adjustments.

          As the acquisition was made in the year, the above amounts are provisional and subject to adjustment.

          Acquisition-related costs

          Acquisition-related costs of £833,000 are included in administrative expenses in profit or loss.

          Contingent consideration

          The contingent consideration arrangement requires the group to pay the former owners of Quantuma Advisory Limited 48% of EBITDA for three years from 2021 to 2023, up to a maximum undiscounted amount of £15,000,000. There is no minimum amount payable.

          The fair value of the contingent consideration arrangement of £10,608,000 was estimated calculating the present value of the future expected cash flows. The estimates are based on a discount rate of 3% and assumed probability-adjusted EBITDA in Quantuma Advisory Limited of £6,600,000 to £8,000,000.

          Revenue and profit contribution

          The acquired business contributed revenues of £9,360,000 and net profit of £1,413,000 to the group for the period from 1 August 2020 to 30 November 2020. If the acquisition had occurred on 1 June 2020, consolidated revenue and consolidated profit after tax for the half-year ended 30 November 2020 would have been £14,409,000 and £2,264,000 respectively.

          Cautionary Statement

          This Interim Report has been prepared solely to provide information to shareholders. The Interim Report should not be relied upon by any party or for any other purpose.