K3 Business Technology : Annual Report and Financial Statements for the year ending 30 November 2023 (including Notice of AGM)

K3 Business Technology Group PLC Annual Report and Financial Statements for the year ended

30 November 2023

Registered number: 02641001

Contents

Overview

Highlights	1
K3 at a Glance	3
Fashion Retail Market	5
Case Studies	6

Strategic Report

Executive Chairman's Statement	9
Financial Review	18
ESG Scorecard	22
Risk Management	27
Section 172 Statement	32

Governance

Board of Directors	36
Directors' Report	38
Corporate Governance Statement	41
Remuneration Committee Report	46
Statement of Directors' Responsibilities	50
Audit Committee Report	51

Financial Statements

Independent Auditor's Report
to the Members of	53
K3 Business Technology Group plc
Consolidated Income Statement	65
Consolidated Statement of	66
Comprehensive Income
Consolidated Statement of	67
Financial Position
Consolidated Statement of Cash Flows	68
Consolidated Statement of	69
Changes in Equity
Notes forming part of the	70
Financial Statements
Company Balance Sheet	124
Company Statement of	125
Changes in Equity
Notes forming part of the	126
Company Financial Statements

Other

Notice of Annual General Meeting	133
Information for Shareholders	142
Company Information	143

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K3 Business Technology Group plc

Annual Report and Financial Statements for the year ended 30 November 2023

1

Highlights

Key Points

Revenue from	Recurring		Adjusted operating profit/
continuing operations	revenue1		(loss)
£43.8m	£24.7m	£1.3m
2022*: £47.2m	2022*: £22.4m	2022*: £(0.6)m
							£24.7m	2023
2023	£43.8m	2023		£1.3m
						£22.4m	2022*		£(0.6)m
2022*	£47.2m	2022*
*Restated.
								FY 2023		Restated
									FY 2022
Revenue from continuing operations		£43.8m		£47.2m
Gross profit				£27.1m		£27.9m
	-	gross margin				62%		59%
Adjusted operating profit/(loss)1				£1.3m		£(0.6)m
	Loss before tax from continuing operations		£(1.8)m		£(4.1)m
	Net cash				£8.3m		£7.1m
	Reported loss per share				(5.4)p		(9.5)p
	Adjusted earnings/(loss) per share for		1.0p		(4.6)p
	continuing operations

Financial

• Stronger financial position, with improved cash generation and tighter cost discipline supporting increased net cash at financial year end of £8.3m (30 November 2022: £7.1m).
• Total revenue decreased by 8% to £43.8m (2022: £47.2m) mainly reflecting lower revenue from Global
  Accounts. Approx £0.4m (FY2022: £0.3m) of income was not recognised as a result of the new revenue recognition policy for K3 fashion and apparel products (income from new contracts is now recognised over the term of the contract, instead of upfront).
• Total annual recurring revenue ("ARR") increased to £24.7m (2022: £22.4m), including double-digit ARR growth from K3 fashion and apparel products and from the NexSys business unit.
• Encouraging return to profitability with adjusted operating profit of £1.3m (2022: loss of £0.6m).
• • adjusted operating profit/loss metric has replaced adjusted EBITDA as a key performance indicator, being a better proxy for cash generation.
• Benefits of further cost reduction measures implemented in the second half will be felt in FY 2024 and beyond.

OVERVIEW

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

OTHER

1 Refer to note 30 for definitions.

2

K3 Business Technology Group plc

Annual Report and Financial Statements for the year ended 30 November 2023

Operational

• Move to new business unit structure at financial year end establishes a better platform for the Group as the Board focuses on driving cash and value.
• K3 Products division - continued strong sales growth from fashion and apparel offering ("Fashion portfolio").
• • Revenue of £13.1m (2022: £12.6m); gross profit of £10.4m (2022: £9.8m), which is after £0.4m of
    Fashion portfolio revenue not booked (2022: £0.3m), in line with new revenue recognition policy.
  • Gross profit margin of 79% (2022: 78%).
  • Fashion portfolio increased ARR by 28% to £5.8m at period-end, driven by both new customer wins and existing customers expanding their software licences.
  • New dedicated management team at Retail Solutions has delivered benefits.
  • Strategic decision to integrate K3 ViJi capabilities within Fashion portfolio's existing corporate social responsibility functionalities rather than maintain it as stand-alone product.
• Third-partySolutions division - results impacted by downturn in activity at Global Accounts, which offset strong growth in the NexSys business unit.
• • Revenue of £30.7m (2022: £34.7m) and gross profit of £16.7m (2022: £18.1m).
  • Gross profit margin of 55% (2022: 52%) - reflected revenue mix and reduced overheads.
  • NexSys (formerly known as SYSPRO); performed strongly with average deal size increased and a number of large new contracts secured.
  • Global Accounts; significant slowdown in second half; remedial action taken to reduce cost base.

Current Trading and Prospects

• The Board remains focused on the transition to higher quality recurring earnings, as well as cash generation, cost discipline and additional operational simplification, which will help to drive further shareholder value.
• Group trading in the first quarter of the new financial year is in line with budget, and K3 has a stronger balance sheet than in FY22, which should continue to strengthen. While the markets that K3 serves remain challenging, the Board believes that both divisions have good growth opportunities.
• Overall, the Board expects cash generation to continue to improve in FY23 and the Group to deliver a higher adjusted operating profit result.

Tom Crawford,

Executive Chairman of K3 Business Technology Group plc, said:

"We made good progress in a number of important areas and achieved some significant financial and strategic milestones against a challenging trading environment. In particular, the Group's balance sheet has strengthened. Our Fashion portfolio performed well and has attractive growth opportunities. Third-party Solutions contended with a slowdown at Global Accounts, however the NexSys operations grew strongly and continues to generate dependable and significant cash flows from software licence and maintenance and support renewals from its large user base.

"The transition to a unit structure will support our drive to generate value for shareholders and we remain disciplined in our focus on cash generation, costs and the shift to higher quality earnings. As we move through the new financial year, we expect K3 to generate increased cash and deliver a further improvement in adjusted operating profit."

K3 Business Technology Group plc

Annual Report and Financial Statements for the year ended 30 November 2023

3

K3 at a Glance

K3 is a leading provider of business‐critical software solutions focused on fashion and apparel brands and related large retail brands. The Group's solutions comprise a number of applications that it has authored and also third-party products that have been enriched with K3 software.

These solutions provide customers with comprehensive, end-to-end capabilities that enable them to have greater control over their operations and real-time oversight of their businesses. The Group operates through two divisions, K3 Products and Third-party Solutions.

The Group typically has long-standing relationships with its customers, which generate a high level of recurring income. This income arises from annual licenses and renewals of software licenses, maintenance and support contracts.

The Group has approximately 2,400 customer installations across the UK, Europe, the Far East, and USA.

K3 Products

The division provides software products and solutions that are powered by our own IP. They comprise strategic products focused on the fashion and apparel market (the Fashion portfolio), solutions for the visitor attraction market and other stand-alonepoint-of-sale ("POS") solutions and apps, which are mainly legacy products. Products are sold either directly by the K3 sales teams or indirectly via channel partners.

K3 Fashion

K3 Fashion is the Group's 'Concept-to-Consumer' solution, which is built on Microsoft Dynamics 365 for Finance, Supply Chain and Commerce. It is designed to meet the specific needs of fashion and apparel enterprises and has been endorsed globally by Microsoft as its recommended embedded solution for the fashion sector.

K3 Fashion provides enterprises with the ability to gain insight and control over all their processes and inventory. This spans product planning and design, sourcing raw materials, managing suppliers and manufacturers, sales, including all channels-to-market, logistics, ordering and the tracking of financial transactions.

The product suite is being enhanced with the integration of additional sustainability functionality generated from K3 ViJi solutions. These support traceability, certification and sustainability of the fashion supply chain. The functionality is also being integrated into other K3 solutions.

K3 Pebblestone

K3 Pebblestone is again focused and tailored to the fashion industry and has similar functionalities to K3 Fashion. Built on Microsoft Dynamics Business Central, it is specifically aimed at smaller brands and retailers, and is available in both as an 'on-premises' solution and as a cloud-based SaaS solution.

K3 Retail Solutions

K3 Retail Solutions is a family of products focused on visitor attractions in the UK and integrated mid- market Point-Of-Sale solutions across Northern Europe. The products provide high availability and good value with a path to K3 Imagine as a cloud-native headless retail platform with its Point-Of-Sale application 'head' and omnichannel capability.

OVERVIEW

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

OTHER

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K3 Business Technology Group plc

Annual Report and Financial Statements for the year ended 30 November 2023

Third-party Solutions

The Third-party Solutions division comprises two activities.

NexSys (previously referred to as SYSPRO)

NexSys provides, integrates and supports business software solutions for manufacturers and distributors. It is a SYSPRO elite partner in the UK and has over 40 years' experience of delivering innovative ERP solutions.

NexSys enables its customers to manage and control business-critical information, and take decisions made on accurate and reliable real-time insights. This helps customers to maximise their opportunities by optimising their financial returns, innovating more easily, improving operational efficiencies, and improving their competitive edge.

Global Accounts

Global Accounts includes the Group's relationship with Inter IKEA Systems B.V. (the owner and franchisor of the Inter IKEA concept) and the Inter IKEA concept overseas franchisees. As well as supporting the development of the core IKEA solution for IKEA franchisees, K3 assists IKEA franchisees with their IT infrastructure. This includes help with integrations and system enhancements, which is key to the smooth functioning of franchisees's IKEA stores and back-office solutions.

K3 Business Technology Group plc

Annual Report and Financial Statements for the year ended 30 November 2023

5

Fashion Retail Market

The overall fashion market is dynamic, and as brands need to keep up with market trends, there is strong and growing demand for digital transformation solutions. Companies that operate in this market recognise that their ability to manage their processes more effectively is critical, and solutions that provide an integrated, end-to-end view, of their design to end-customer process, both instore and digitally, bring significant commercial, operational and financial benefits. There is consequently a widespread need to upgrade old legacy ERP systems with more modern, effective and intuitive cloud- based solutions.

Corporate spend on digital transformation in the Group's target market of fashion and apparel is growing and sophisticated digital engagement with customers, manufacturers and suppliers is perceived as a high priority. Statista, which provides market and consumer data, estimates that global spending on digital transformation in 2022 reached 1.6 trillion U.S. dollars, and this is forecast to increase to 3.4 trillion dollars by 2026. Similarly, McKinsey predicts that fashion companies' investment in technology will double by 2030 to between 3-3.5% of total revenues. Against this background, there is clearly a significant market opportunity for K3.

The Group's Microsoft Dynamics-based'Concept-to-Consumer' products provide better management of centralised processes and the ability to replace 'on-premise' legacy systems with cloud-based solutions. Through the adoption of these products, K3 customers are able to be more agile and effective organisations, benefitting from increased business insight and data security and lower maintenance and operational costs, while also providing end-customers with an enhanced shopping experience. Embedded within its Fashion portfolio offering, K3 also has sustainability and traceability functionality for the fashion and apparel industry, which addresses customers' requirements in this area.

K3 Market Position

The Group has a well-established track record in its chosen market segments. It has very strong domain knowledge and a sophisticated understanding of the opportunities and challenges facing fashion and apparel retailers and related large retail brands. As a result, it is well-placed to help retailers adopt unified commerce strategies and to integrate the management and control of all forms of digital sales as well as store sales.

K3's focus is on mid-size enterprise clients, in particular enterprises that wish to adopt the latest cloud- based solutions, without the risks and challenges of replacing their entire application environment or managing the complexity of integrating and maintaining a high number of different applications and technologies.

K3's portfolio of solutions, backed by a strong understanding of market trends and customers' evolving needs, is designed to capitalise on the growth opportunities available.

OVERVIEW

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

OTHER

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K3 Business Technology Group plc

Annual Report and Financial Statements for the year ended 30 November 2023

Case Studies

NexSys - WHS Plastics

Founded in 1933 and operating in a highly competitive global marketplace, WHS Plastics has established itself as a leader at the cutting edge of injection moulding processes. The Group, which is family- owned, is a tier-one supplier to many major motor manufacturers, and supports international companies in a variety of other industries, including electronics, industrial and hygiene products. Following the acquisition of Xandor Plastics in May 2023, WHS Plastics now employs over 1,750 staff.

The Group used Sage 1000 as its ERP solution and, in 2023, made the decision to look for a new system in order to support its continuing growth and development.

It chose the latest SYSPRO system, in tandem with a CAD integration facilitated by NexSys Dataswitch.

The new SYSPRO solution from NexSys will be implemented across the Group's nine operating companies and will provide mission-critical support for ongoing growth, innovation and operational and financial efficiency.

"NexSys are assisting WHS Group to implement a solution that will improve our efficiency, reduce costs, enhance product quality and streamline our operations from planning to production and distribution," said Saima Javid of WHS Plastics.

K3 Business Technology Group plc

Annual Report and Financial Statements for the year ended 30 November 2023

7

K3 Fashion - Création Gross

Création Gross is a family-owned company that was established in 1925. It operates two pioneering global brands in the menswear vertical.

The Company previously relied on multiple Dynamics 2012 R3 software systems in conjunction with legacy fashion-specific solutions. Its management took the decision to upgrade the Company's systems and to future-proof the organisation. At the heart of its digital transformation journey is the upgrade to D365 F&O and the adoption of a new fashion solution.

Création Gross's decision to choose K3 Fashion was influenced by K3's reputation as a top Microsoft GISV (global independent software vendor), with a deep expertise in the fashion industry and collaboration. Since adopting K3 Fashion, Création Gross has benefited from comprehensive seasonality functionality, as well as the ability to handle efficiently item variants. K3 Fashion has provided the base for Création Gross

to extend the solution and dramatically modernise its wholesale channel offering.

"My advice to other fashion companies considering K3? It's a smart move. You're not just buying a solution - you're joining a collective that's shaping the future of fashion technology. Together, we are stronger and with K3, we can push the boundaries of what's possible in our industry," said Tobias Schuhmacher, Head of IT and Organisation at Création Gross.

OVERVIEW

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

OTHER

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K3 Business Technology Group plc

Annual Report and Financial Statements for the year ended 30 November 2023

Global Accounts - Ikano Retail

/ Falabella

Falabella is a leading South American retailer, with over 565 department stores, supermarkets, regional shopping centres, and home improvement outlets across Latin America. It is also an overseas franchisee of the Inter IKEA Concept.

The relationship between K3 and Falabella is long-standing, with K3 having supported the launch of multiple IKEA stores in Latin American markets.

In 2023, Falabella acquired the IKEA franchise for Colombia and, collaborating with K3, achieved a seamless integration of the global franchise template with its own local preferences. The result was a highly successful launch of the new IKEA store in Bogotá, with approximately 9,000 visitors and 1,920 online orders on the first day of trading day.

Speaking on the launch, Camila Prado Guzman, said: "Thanks to the K3 experts' team and their valuable contribution, we were able to work as one team and accomplish a new Colombia opening with great success!"

Another long-standing K3 relationship is with Ikano Retail, an overseas IKEA franchisee, which manages IKEA stores and shopping centres in Malaysia, Singapore, Thailand, Philippines and Mexico. In 2023, K3 supported the launch of a new store in Bangkok for the retailer, marking another milestone. The new store attracted 20,000 customers on its opening day.