K2fly Releases Annual Report FY19: Accruing Revenue from Multiple Channels

Technology company, K2fly Limited (ASX: K2F) is a consulting systems integrator catering to solving problems for businesses operating in complex asset intensive industries (Mining, Oil & Gas, Rail, Facilities Management, Water, Electricity, and Gas). The company, with its combination of people, products and strategic alliances (with global tech players like GE(USA), Esri (USA) and SAP (Germany), is driving digital transformation for its clients along with delivering process improvement.

Source: Investor Presentation

Annual Report FY19 – A Brief

On 30 September 2019, K2fly released its Annual Report for the financial year (FY19) ended on 30^th June 2019 which turned out to be quite significant for the company.

During the year, the company’s focus remained on building high margin SaaS revenue and its principal activities included asset management consulting services; software and integration consulting services; and sales of owned and third-party software for the asset management and asset intensive industries.

K2F’s Business Segments -

Thus, K2fly derives revenue from multiple channels including software licencing, consulting, support and configuration. Its two proprietary software solutions are-

• InfoScope, an Enterprise Land Management, Natural Resource Governance and Stakeholder Relations solution for the Energy and Resources market; and
• RCubed, a resource and reserve reporting solution which supports JORC, NI43101 and SAMREC reporting codes across five main stock exchanges in the world –NYSE, LSE, TSX, ASX and JSE.

Meanwhile, the company continues to work with its international partners, including Kony (USA), Pointerra Limited (Australia), ABB (Switzerland), Totalmobile and Capita plc (UK), which provides access to additional systems and software solutions, thus enabling K2fly to become a value-added reseller in Australia.

Key Operational Highlights

The company explained that its revenue continues to expand while the outlook for 2019-2020 also remains positive.

• Total revenue for FY19 posted at $3.79 million, demonstrating a growth of 50% on $2.52 million of revenue recorded in FY18.
• Acquisition of RCubed SaaS business and an immediate software sale to Imerys SA.
• K2fly was engaged on its first overseas’ field working project with the Totalmobile software at EDF Energy’s (Electricité de France) nuclear power fleet.
• New Infoscope clients signed.
• Many other new clients acquired by the company during FY19 including ABB, Stanwell Energy Ltd, New Hope Group and Queensland Urban Utilities.

Acquisition of RCubed SaaS Business

On 31^st May 2019, K2F’s subsidiary, K2fly RCubed Pty Ltd formally closed the highly complementary acquisition of Prodmark Pty Ltd (a South-Africa based company) and all its assets concerning the RCubed Solution.

The journey with RCubed has been quite rewarding for K2fly which has already established an impressive pipeline of new name opportunities for the software solution to go alongside existing RCubed clients including Anglo Gold Ashanti Ltd, Teck Resources Ltd, the more recently acquired Imerys SA, Glencore Canada Corporation and Newcrest Mining Ltd. As of the date of the report, K2fly is engaged in five new name bids to other prospective clients.

More on the RCubed deal can be read here. The deal strengthened K2fly’s owned SaaS solution offering for the Resources sector.

Source: Investor Presentation

Owned Software

In the Annual Report, the company also emphasised that the Infoscope solution continues to attract a great deal of interest primarily from the Resources sector clients. In FY19, two new names were added to the client base; Mineral Resources Ltd and Panoramic Resources Ltd.

In addition, K2fly continues to work with partners and clients across a number of business areas. This includes, The Keeping Place which houses the company’s indigenous heritage repatriation program sponsored by BHP, Rio Tinto and Fortescue Metals Group (ASX:FMG), which experienced some slowdown in 2018 and 2019. Besides, K2fly is also working with both SAP and Esri in a more targeted approach to acquire new accounts in Australia as well as overseas.

Third Party Software

K2fly is making good progress with the Mobile Inspection and Works Management Project within Arc Infrastructure, based upon the Fieldreach solution which the company re-sells on behalf of Capita Plc (UK). Under the project, K2F delivered a solution that went live in 2018, and includes software licensing, software support & maintenance, integration services, consultancy, training and project management. On the back of this success, the company has kicked off a second phase project providing further on-site consultancy which is likely to continue until October 2019.

One of K2F’s key strategic objectives is to be a trusted advisor to Tier 1 clients as this provides beneficial relationships for both parties.

During the year, K2fly implemented a significant software reseller agreement with Totalmobile from the UK with an initial term of 3 years. In the March 2019 quarter, K2F signed its first international assignment for Totalmobile implementation with EDF Energy, it’s also the first in the nuclear industry, for which the initial scoping study, delivered in June 2019, was worth ~$100k to K2fly. The second phase of the implementation is currently being discussed with the client.

In addition, in May 2019, K2fly and Esri Australia entered into a reseller agreement for distribution of the Infoscope Land Management Solution.

Consultancy Services

During FY19, K2fly’s subject matter experts delivered cutting-edge consultancy services to- Western Power, Arc Infrastructure, Public Transport Authority, Westgold Resources, New Hope, Stanwell Energy, Queensland Urban Utilities, Programmed, ABB, Horizon Power, Mineral Resources and FMG.

The company’s consultancy services are generally of low volume (shorter timeframe) and high value rather than long term operational support services.

Financial Snapshot as at 30 June 2019

• Net Loss After Income Tax: $1,938,528 (30 June 2018: $5,410,273).
• Cash Reserves: $1,059,247 (30 June 2018: $ 774,158).
• Total Invoices for FY19: $ 4.14 million, up 61% on $2.57 million in FY18.
• Revenue for FY19: $3.79 million, up 50% on $ 2.52 million in FY18.

Capital Raising Activities

In a Placement on 13 May 2019, the Company raised $800,000 from sophisticated and professional investors via a placement of 8,000,000 fully paid ordinary shares at $0.10 each to fund the RCubed Acquisition.

On 18 September 2019, the Company announced, having received commitments, that it had successfully raised $1M (before costs) in a placement to sophisticated and professional investors. The shares pursuant to this placement were issued on 26 September 2019.

The funds raised from the placement will be channelled towards execution of

• RCubed contracts;
• Expected new contract wins and;
• To deliver further sales growth for the business.

Stock Information

K2fly has a market cap of ~AUD 14.28 million with ~ 81.6 million shares outstanding. On 3 October 2019, the K2F stock was trading at AUD 0.160 (AEST: 2:46 PM). K2F stock has delivered positive returns of 34.62% on YTD basis, 52.17% in the last six months and 2.94% in the last three months.

Exclusive Interview with Brian Miller, CEO

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