Order slippage drives earnings downgrade

K3 had a tough end to H117, with lengthening sales cycles for enterprise customers causing a shortfall in new business. More positively, recent restructuring is starting to drive more cross-divisional sales and is reducing the cost base. We have revised our revenue and EPS forecasts to reflect the slower pace of order wins as well as the restructuring, reducing FY17 EPS by 34% and FY18 by 11%. Evidence of improving order flow, growth in channel sales and growth in recurring revenues will be the triggers for share price recovery, in our view.