K3 Capital : Half-year Report

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.

16 January 2018

K3 CAPITAL GROUP PLC

('K3', the 'Company' and including its subsidiaries, the 'Group')

Interim results for the six months ending 30 November 2017

Continued growth across all Group brands

K3 Capital Group plc, a leading business and company sales specialist in the UK, today announces its interim results for the six months ended 30 November 2017.

Financial highlights

† EBITDA is utilised as a key performance indicator, reflecting profit before interest, tax, depreciation, amortisation and share based payments

† † being cash in bank less bank loans

* H1 2017 EPS/DPS calculations have been normalized using the 42.2m shares in circulation from 11.04.17, the date of the IPO

Operational highlights

· Organic growth across all three business brandsin line with stated Group strategy

· Improving performance against all KPIs across business streams

· Continued investment in our peopleand processes (123 employees as of November 17, an increase of 12% in six months)

· Ongoing delivery of core strategy to increase the volume of larger and more profitable mandates

· Ranked number 1 adviser for UK deal volumein Thomson Reuters FY17 Small-Cap Financial Advisory Review, and number 2 adviser in the Thomson Reuters FY17 Mid-Market Financial Advisory Review

Outlook

· Continued strategy both to target and win higher value, more profitable mandatesthrough targeted marketing campaigns and expanded national sales force

· Completion of the technology and systems development to part automate buyer targeting and sales processes

· Significant deal pipeline across all three trading brands as the Group continues to attract more buyers and sellers to the market

· Ongoing investment in our talent and peoplein line with Group expansion

Commenting on the results, Chief Executive of K3 Capital Group plc, John Rigby, said:

'During the first six months of the 2018 financial year, K3 Capital has demonstrated its ability to grow across all its operating markets, and we continue to strive to win bigger and better mandates across the three business brands.

'The Group had a strong first half of the year and the momentum has continued into the second half, with trading remaining comfortably in line with management's expectations. KPIs across the entire business continue to track positively and a number of significant transactions remain in the pipeline for the full year and beyond. Whilst the completion and timing of the transactions is not guaranteed, a number are expected to fall into this financial year.

'December saw a record ever festive period in non-contingent fee income, coupled with more than 20 deal completions across the Group, this delivered an EBITDA in excess of £1m for the month. Our highly targeted approach to marketing has ensured that we continue to see increased numbers of buyers and sellers, particularly from the private equity industry, overseas investors and UK trade buyers. We have secured a 57% rise in the number of offers for businesses for sale over the past six months, and continue to attract an increasing volume of buyers for our clients' opportunities.

'The positive momentum in the business continues to gain pace and the improved performance across all KPIs, coupled with the robust deal pipelines that exist across all three trading brands, lead us to a confident outlook for both the full year FY2018 and beyond.'

-ENDS-

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About K3 Capital

K3 Capital Group plc is a leading business sales and brokerage firm headquartered in Bolton with operations throughout the UK. It acts for vendors of businesses from c. £50,000 to c. £50 million through its three trading subsidiaries Knightsbridge, KBS Corporate, and KBS Corporate Finance. K3, through its trading subsidiaries, has received a number of adviser awards, most recently retaining its number 1 position in the FY 2017 Thomson Reuters Small-Cap Financial Advisory Review.

K3 Capital operates a disruptive business model with a direct marketing approach to client acquisition, using incentivised and experienced salespeople rather than advisory teams, while its highly visible online presence and proprietary online business valuation portal generates further leads. This innovative model, combined with a continuing strategy towards targeting higher value clients, are key drivers for growth and profitability.

The Group also offers all clients fully contingent and inclusive legal fees through its partner relationship with Gateley plc.

K3 Capital Group trades on the London Stock Exchange (AIM: K3C.L), having listed on 11 April 2017. Please visitwww.k3capitalgroupplc.comfor more information.

Chief Executive's Statement

Trading Update

We are pleased to report that Group revenue grew by 34% to £7.5m in the first six months of FY2018 (H1 2017: £5.6m). As anticipated, this has been driven from revenue increases across all three trading brands, highlighting the strength of each trading division.

We are also delighted to report that Group EBITDA increased by 28% to £3.3m in the first six months of the current financial year (H1 2017: £2.6m). EBITDA is utilised as a key performance indicator, reflecting profit before interest, tax, depreciation, amortisation and share based payments. Similarly, net cash increased by 100% to £5.0m (H1 2017: £2.5m) with a consistently high EBITDA to operating cash conversion of 107% in H1 2018.

The performance for the period under review has been underpinned by a number of factors, which we are confident will continue to drive further improvements moving forward, including:

· improving KPI performance levels across all three business streams within both sales and operational departments;

· the September 2016 Head Office relocation and continued momentum that this has given the Group allowing further growth in staff numbers (110 to 123) and the improved training and development of our employees;

· the quantum and quality of clients that we continue to bring to market (new client wins up 26%) and the number of completed transactions (transaction volumes up 25%);

· ever improving use of data and systems to drive growth in the number of buyers we attract (resulting in 16% more NDAs / buyer enquiries received, arranging 40% more buyer meetings and receiving 69% more offers);

· our plc status and the competitive advantage and credibility that this affords us when promoting our brands to new customers;

· our continued high ranking within industry league tables which both recognises and promotes our growing reputation and success within the sector.

The revenue growth has been achieved across all three trading divisions with Knightsbridge revenue up 49%, KBS Corporate up 44% and KBS Corporate Finance up 19% when compared to the corresponding period last year*.

*All statistics above relate to a comparison of H1 2018 to H1 2017

People

During the first half of the 2018 financial year, the Group continued to increase headcount, with the number of employees standing at 123 at the end of the period (FY 2017: 110). Additional hires in the Corporate Finance team have provided further deal experience and geographical coverage, consolidating our reach throughout the UK. At Head Office we have continued to grow both our sales teams and operational delivery teams in line with the growth across the Group and taken the second intake into our Graduate Academy.

Dividend

As a result of the business performance in the first six months of the 2018 financial year being above management expectations, and the Board's continued confidence in the outlook throughout the remainder of 2018, I am pleased to announce that the Board has agreed an interim dividend of 2.85p per share, which represents an increase of 217% compared to the same period in the prior year (H1 2017, based on Normalised 42m issued Share Capital: 0.90p). The interim dividend will be paid on the 7 February 2018 to shareholders registered on 26 January 2018; the ex-dividend date is 25 January 2018.

Summary and Outlook

In summary, the Board is delighted with the Group's first half performance in the 2018 financial year.

The Group had a strong first half of the year and the momentum has continued into the second half, with trading remaining comfortably in line with management's expectations. KPIs across the entire business continue to track positively and a number of significant transactions remain in the pipeline for the full year and beyond. Whilst the completion and timing of the transactions is not guaranteed, a number are expected to fall into this financial year.

December saw a record ever festive period in non-contingent fee income, coupled with more than 20 deal completions across the Group, this delivered an EBITDA in excess of £1m for the month.

The positive momentum in the business continues to gain pace and the improved performance across all KPIs, coupled with the robust deal pipelines that exist across all three trading brands, lead us to a very positive outlook for both the full year FY2018 and beyond.

We have seen some significant uplifts in the sales and operational KPIs, and we continue to strive to both develop and train our employees and further refine our processes in order to continue these trends.

We are working hard to deliver the technology and systems which will also enhance and partially automate these processes. This will drive further operational efficiencies and we remain excited by the prospects that this offers to the Group.

The Board therefore expects our full year earnings to be comfortably in line with market expectations.

Notes to the Consolidated Financial Statements

For the Six Months Ended 30 November 2017

1.General Information

K3 Capital Group PLC is incorporated in England and Wales under the Companies Act (listed on AIM, a market operated by the London Stock Exchange plc) with the registered number 06102618. The address of the registered office is KBS House, 5 Springfield Court, Summerfield Road, Bolton, BL3 2NT.

The interim condensed consolidated financial statements comprise the Company and its subsidiaries 'the Group'. This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

2.Basis of preparation

The financial information set out in this Interim Report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 May 2017, prepared under IFRS, have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The interim financial information has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS) and on the same basis and using the same accounting policies as used in the financial statements for the year ended 31 May 2017.

The Interim Report has not been audited or reviewed in accordance with the International Standard on Review Engagement 2410 issued by the Auditing Practices Board.

3. Significant accounting policies

New standards, amendments to and interpretations to published standards not yet effective

There were no new standards, interpretations or amendments effective for the first time for periods beginning on or after 1 January 2017 that had a significant effect on the Group's financial statements.

As at 30 November 2017, the following Standards and Interpretations, which have not been applied in these financial statements, were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

IFRS 9 Financial Instruments

IFRS 15 Revenue from Contracts with Customers (and the related clarifications)

IFRS 16 Leases

Disclosure Initiative: Amendments to IAS 7

Recognition of Deferred Tax Assets for Unrealised Losses: Amendments to IAS 12

Classification and Measurement of Share-based Payment Transactions: Amendments to IFRS 2

Annual Improvements to IFRSs (2014-2016 Cycle)

In respect of the above, the Directors have undertaken significant analysis on the requirements of IFRS 15, which will become effective for the 31 May 2019 year end. Following detailed assessments, the Directors are of the opinion that there will be no material change to the Group's current revenue recognition policies. Similarly, the Directors are currently reviewing the impact of IFRS 16 and IFRS 9 which will become effective for the 31 May 2020 year end. It is expected that IFRS 9 will have no impact on the Group. In respect of IFRS 16, if it were effective for the current period end, a lease asset and liability of £0.5m would be recognised on the balance sheet in respect of operating leases committed to. Annual lease costs would no longer be incurred, replaced by interest costs on the lease liability and depreciation costs on the lease asset. The Directors have not considered the impact of any other disclosure initiatives or interpretations on the Group financial reporting at this point in time.

4. Revenue and Segment Information

The Group's revenue arises from the provision of services in fulfilling the principal activities. An analysis of revenue by subsidiary company is shown below:

5.Earnings per Share

Basic earnings per share amounts are calculated by dividing the profit for the period attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the period.

The following reflects the income and share data used in the basic and diluted earnings per share computations:

*EPS/DPS calculations have been normalized using the 42.2m shares in circulation from 11.04.17, the date of the IPO

6.Dividends

Dividends paid on equity shares

7.Share-based payments

Employee share option plan of the Company

Details of the employee share option plan of the Company

The Company has a share option scheme for executives and senior employees of the Company and its subsidiaries. In accordance with the terms of the plan executives and senior employees may be granted options to purchase ordinary shares.

Each employee share option converts into one ordinary share of the Company on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry.

The number of options granted is calculated in accordance with the performance-based formula approved by the remuneration committee. The formula rewards executives and senior employees to the extent of the Group's and the individual's achievement judged against both qualitative and quantitative criteria from the following financial measures:

· improvement in adjusted earnings per share

· improvement in return to shareholders

The following share-based payment arrangements were in existence during the current period:

All options vest over the 3 year performance period and the earliest expected date for exercise would be after publication of the Group's annual results for the year ending 31 May 2020.

Fair value of share options granted in the year

The weighted average fair value of the share options granted during the financial period is £13,392. Options were priced using a binomial option pricing model. Where relevant, the expected life used in the model has been adjusted based on management's best estimate for the effect of non-transferability, exercise restrictions (including probability of meeting market conditions attached to the option), and behavioural considerations. Expected volatility is based on the historical share price volatility of companies floated on AIM that are comparable to K3 Capital Group Plc. To allow for the effects of early exercise, it was assumed that executives and senior employees would exercise the options after vesting date when the share price is two times the exercise price.