Reseller has 'hard calls' to make after profits plunge

'Classic case of a buy-and-build VAR approaching triple-digit revenues and then stalling,' says analyst

K3 Business Technology Group has some tough decisions to make after posting a sizable pre-tax loss, according to one analyst.

The AIM-listed firm said today that it made a pre-tax loss of £9.7m in the year ended 30 June, having made a pre-tax profit of £5.2m the year before.

"Exceptional reorganisation costs" increased to £5.4m from £1.0m and revenue fell to £84.6m from £89.2m.

Anthony Miller, co-founder of analyst TechMarketView, said: "It is the classic case of a buy-and-build value-added reseller approaching triple-digit revenues and then stalling. Few get past that point without major trauma.

"After its most recent profit warning, K3 made a dash for cash and saw its chairman leave the building. Meanwhile, the new top team - now almost a year in place - tries to make sense of K3's many moving parts."

Miller said "more than tinkering at the edges" is needed while restructuring is under way.

"Management needs to make the hard calls as to where to place its bets and take the remaining stakes off the table," he said.

"The best bet probably lies in K3's IP-enhanced Microsoft AX products, which at least allows for some level of differentiation. Management also alludes to useful cash flow from its legacy Syspro resale activities, which could help maintain life support for the business during surgery."

Stuart Darling, K3's chairman, said: "As we look forwards, we are encouraged by the substantial work completed to position the group for a return to profitability and growth. Net debt has been significantly reduced and we expect underlying cash generation to benefit from our ongoing initiatives.

"The group's new business pipeline is healthy and, while our review of K3's resources is still ongoing, we believe that the group is now in better shape for recovery and remain confident of K3's prospects."