K3 seeks funding as it warns of losses

Sage and Microsoft partner seeking to raise £8.5m through placing and open offer as it warns market to expect full-year losses

AIM-listed ERP software reseller K3 is seeking to raise £8.5m on the stock market to shore up its balance sheet as it conducts a review of its business.

The Microsoft and Sage partner - a specialist in the retail, manufacturing and distribution sectors - also warned it would sink to operating losses of up to £2.4m for its financial year, which ends on 30 June.

In May, K3 kicked off a review of its business designed to refocus its growth strategy around its cash-generating business units, following a poor run of trading.

This morning, it said it is seeking to raise £7.5m through a proposed placing and a further £1m from an open offer in order to bolster its balance sheet as it reviews which parts of its business stay or go. A further £0.7m in cash is being invested in K3 through exercise of warrants by Johan Claesson.

The announcement knocked six per cent off its share price.

"This review process may lead to the board concluding that certain parts of the group are non-core and therefore suitable for exit," K3 said in its background commentary on the fundraising.

"During the course of this process, and given its inherent uncertainty, the board has concluded that raising further working capital and strengthening the group's balance sheet by way of the placing and open offer would help to provide maximum flexibility to the board when making strategic decisions and avoid circumstances in which decisions have to be made in a manner which is not conducive to maximising value for shareholders."

For its current fiscal year, K3 expects its profitable business units to generate an operating profit in the range of £6m to £7m.

However, its loss-making business units are in line to generate operating losses of the same magnitude, it added.

This means operating losses for the year are set to hit between £0.4m and £2.4m, K3 admitted, depending on how it fares in June - a key selling month for the firm.

Following the appointment of new CEO Adalsteinn Valdimarsson in September, K3 is now on the hunt for a new chairman following the retirement of incumbent David Bolton.

Valdimarsson remained upbeat about K3's prospects.

"The group is undergoing transition but we believe the strategic steps we are taking create a solid platform for future growth," he said. "We remain encouraged by the underlying strength and performance of K3's profitable business units which generate significant recurring revenues and cashflows from our large SME customer base. We are also pleased with the pilot project under way for our new cloud-based modular technologies, which we expect to generate opportunities with both new and existing customers."