K3 issues profit warning on back of weak retail sector

Despite a bulging Microsoft orderbook worth up to £10m, firm is hit by dreaded deferred-order scenario

ERP and managed services supplier K3 Business Technology Group has warned that its FY 2013 will not hit previous expectations due to a sluggish order pipeline and the continuing weak retail sector.

The firm released a profit warning to the London Stock Exchange, which revealed that despite an uptick in its Microsoft UK business since January and an order book in this space worth a potential £10m, the firm’s profits are being hampered by "continued order deferrals" combined with the "phasing of the software element of these new wins".

Outside this division, the firm said its Syspro and Sage division is putting in an encouraging performance and its international division is seeing an improvement. It also revealed its managed services division continues to offer good growth potential.

Its statement said the Group continues to deliver high levels of recurring income and good cashflows.

K3’s statement revealed its new global retail and wholesale offering, project Gemstone, is progressing well and investment in its development will continue into the next financial year.

Andy Makeham, chief executive of K3, said in a statement: “While clearly disappointed by the order slippage, we are nevertheless pleased in the step change in order wins for both our AX and NAV solutions in what remains a difficult market.

“It is also very encouraging that some major retail names are selecting our new Gemstone solution. K3 delivers good levels of profits, and the underlying cash generation and strong levels of recurring revenue help to underpin the business."

Angela Eager, research director at analyst firm TechMarketView said the year had been a tough one for the retail specialist.

“The current year has been difficult as the retail environment has deteriorated while K3 has been investing heavily in its new solution. The early signs are that Gemstone is attracting customers, the fear is that no matter how good the solution, if the target market is flailing, then sales potential is lessened,” she said.