Profit pain for K3 as 'very weak' markets hit H1 numbers

London-listed software and services player sees bottom line cut in half as large deals fail to materialise

Software and services house K3 saw sales on the slide and profits more than cut in half during its fiscal first half as its results were affected by "very weak retail markets" and hefty investments in new Microsoft technologies.

For the six months to the end of 2012, the London-listed firm saw revenue decline five per cent year on year to £31.55m, while adjusted operating profit stood at £2.94m, down from £6.91m during the corresponding period of the prior year. An investment in Microsoft's AX technology for global retailers – dubbed Project Gemstone – set K3 back £2.15m.

In a release to the markets this morning, the VAR characterised H1 as "an extremely difficult period" and pointed out that "some expected large deals did not close".

The company's Microsoft division fared worst during the period, with turnover down 30 per cent to £8.47m and operating losses of £1.26m, compared to a profit of £1.52m in the prior year. K3's overseas business – centred on operations in Singapore and the Netherlands – posted a mixed bag of numbers in H1, with the top line rising 11.4 per cent year on year to £5.39m but profit shrivelling 66.4 per cent to about £470,000.

K3's Syspro and Sage unit was the sole steady performer during the period, although even this segment suffered a slight margin decline as revenue rose 5.7 per cent to £14.6m and operating income grew one per cent to £4.11m. The company's managed services business unit grew revenue 18.4 per cent to almost £3.1m, but posted a loss of about £160,000.

K3 chairman Tom Milne said: "This has been a difficult period for K3, with delays in closing key deals in our UK retail software business combining with a major investment in AX for retail development and resourcing. Economic difficulties in the UK and European retail markets are leading to deals being deferred.

"Despite this background our other operations have been holding up well, with Syspro performing exceptionally in the first six months. Results were supported by the high levels of recurring income the group enjoys from annual software licence and support renewals across our customer base."