Under Pressure: K3 To Put Loss-making UK Microsoft Dynamics Reseller Biz Into Administration

AIM-listed software and managed services outfit K3 is to put its loss-making Microsoft Dynamics reseller division into the hands of administrators amid commercial unpredictability caused by COVID-19.

The news was delivered to investors this morning, along with confirmation that the mid-range ERP house had got a £6m loan from Barclays and two shareholders and a reiteration that it was delaying publishing results for the year to 30 November.

The cash funding is going to be used to "strengthen the group's liquidity position during this period of unprecedented disruption caused by the Coronavirus pandemic," K3 said.

In addition to Barclays, Kestrel Partners LLP and non-exec director and stock owner Johan Claesson also contributed to the funding. Barclays will extend its existing loans facilities by £3m to £13m in total and the two shareholders will provide an unsecured loan of £3m.

These are tough times for businesses, with Britain in lockdown as the government tries to contain the spread of the novel coronavirus. It is against this backdrop that K3 decided that it will be "filing a Notice of Intention for administration" for K3 Business Technologies Ltd.

K3 said the reseller wing, which sells Microsoft ERP and CRM wares, turned over £21m in its fiscal '19, accounts for which have been postponed as mentioned above. In that year it generated an operating loss of £3m.

The parent firm added: "Given the current uncertainties created by the coronavirus crisis, this UK subsidiary is expected to generate further significant negative EBITDA (earning before income tax, depreciation and amortisation) and cash outflows in the year to 30 November”.

This may not be the end for the reseller, with K3 saying it "will seek interest in the sale of the business and/or its assets". The decision to get rid of the UK arm has "no effect" on the group's Microsoft Dynamics biz outside UK, the company added.

James Preece, analyst at Megabuyte, said it was "surprising" to see the Dynamics reseller operation being offloaded by K3 "given the strength in other Microsoft players" in the UK.

"Offloading the cash burning business will allow management to focus on accelerating its transition toward its own IP," he added.

K3 sells DataSwitch, a system integration and data manipulation tool; a cloud-based "out of the box" IT retail system; an HR and payroll system; and data warehouse solutions, in addition to a range of products and services based around Microsoft Dynamics.

Customers are based in construction, retail, supply chain, distribution and manufacturing, with names including Cadburys, Typhoo, Levi's and T Mobile.

Over at TechMarketView, researcher Duncan Aitchison pointed to the warning of lower profits and rising debts emitted by K3 last year, the difficulties many have in providing forecast in the current environment and cited talk of delayed contracts or deferrals as reasons why the business may be finding itself on sticky ground.

"Things are unlikely to get appreciably easier soon," he said. ®

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