K3 to wind down its UK Dynamics unit

Solutions provider divests subsidiary company and gains £6m in additional loans to boost cash flow

K3 is shuttering its loss-making UK Microsoft Dynamics subsidiary as part of efforts to boost its liquidity position.

The move will see the AIM-listed company put the Dynamics unit into administration, a week after announcing it was considering offloading one of its "underperforming" businesses.

The Microsoft Dynamics reseller unit generated an operating loss of over £3m on turnover of £21m for the 12 months ending 30 November 2019 and is expected to generate "further significant negative EBITDA" and cash outflows for the year ending 30 November 2020 as a result of the uncertainties caused by the coronavirus, K3 said in an update.

The Dynamics unit, otherwise known as K3 Business Technologies Ltd, had an operating loss of £2.4m on turnover of £15.6m for its year ending 30 November 2018, according to Companies House.

The firm has turned its attention further towards the development of its own intellectual property over recent years.

K3 will seek interest in the sale of the business and its assets as part of the winding down and emphasised that this will not affect the company's Microsoft Dynamics practices outside of the UK.

In other efforts to shore up its liquidity, the solutions provider also secured £6m in additional loans from Barclays bank and its two major shareholders, Kestrel Partners and non-executive director Johan Claesson.

Half of the £6m loan will be provided by Barclays, while the remaining £3m will be split evenly between Kestrel and Claesson.

"The securing of this additional finance from Barclays and our two major shareholders demonstrates their commitment to K3 and belief in our growth strategy and prospects," stated K3 CEO Adalsteinn Valdimarsson.

"The additional liquidity puts us in a much stronger financial position and gives us the headroom to undertake any required restructuring as well as further investment to support our growth strategy."

Last week, K3 revealed that it is delaying the reveal of its full-year results for its fiscal year ending 30 November 2019 and would not be making forecasts for its current year due to the impact of COVID-19.