K3 mulls closure of 'underperforming' third-party solutions unit as COVID-19 bites

Microsoft partner delays announcing full-year results and declines forecast for FY20 due to COVID-19

AIM-listed K3 is "actively reviewing" the possibility of shuttering one of its third-party solutions units.

The Microsoft and Sage partner issued the warning as it announced it would be revealing its full-year results for its year ending 30 November 2019 at a later date, following advice from the FCA and AIM.

K3 is also declining to forecast business operations for the current financial year, due to the impact of COVID-19. It intends to provide a further trading update at the close its H1 period ending 31 May.

"Whilst the board was encouraged by the company's trading prospects at the start of the current financial year, the unprecedented events now being experienced due to the coronavirus outbreak, which has resulted in contract delays and deferrals, make it difficult to forecast revenues for the year to 30 November 2020," it stated.

"The coronavirus pandemic and its potential impact on the business is now the board's primary focus. The Company's priority is the welfare of its employees and supporting customers and business partners during this crisis.

"A number of measures are being taken to mitigate its impact, and material steps are being taken to reduce costs. This includes a decision to cancel the dividend in respect of the year ended 30 November 2019.

"Separately, the board is actively reviewing options to wind-down one of the group's underperforming third-party solutions units in the UK. Plans are being assessed and updated as the situation evolves."

K3 - which counts retail and distribution as its key verticals, added that it is in discussions with its two major shareholders to improve its liquidity and intends to make a funding announcement in the next week.

Chief exec Adalsteinn Valdimarsson, stated: "K3 provides mission critical software to a range of sectors worldwide, with an installed base of 3,700 business customers and a significant proportion of revenues that are recurring in nature.

"We believe these attributes together with the pre-emptive action taken by the Board in relation to cost-cutting and securing additional liquidity will help us weather the challenges caused by the coronavirus global pandemic. Looking beyond this crisis, we see good growth opportunities ahead."

Prior to the end of its FY19, the firm sounded caution for its full-year results after large contracts failed to materialise in its H2.