2023 Annual Report and Accounts and Notice of AGM
07/11/2023 13:04
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RNS Number : 5497S Kin and Carta PLC 06 November 2023
7 November 2023
Kin and Carta plc
2023 Annual Report and Accounts and Notice of AGM
Kin and Carta plc (the "Company") confirms that copies of:
a) the Annual Report and Accounts for the year ended 31 July 2023 (the
"2023 Annual Report and Accounts");
b) the Notice of Annual General Meeting of the Company; and
c) the Form of Proxy in relation to the Annual General Meeting,
(together the "Shareholder Documents"),
have today been posted or made available to shareholders, submitted to the
National Storage Mechanism and will shortly be available for inspection
at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
The Shareholder Documents will shortly be available to download from
the Company's investor website at https://investors.kinandcarta.com/
(https://investors.kinandcarta.com/) under Reports and Events.
The Company's Annual General Meeting will be convened at 2.30pm on Thursday, 7
December 2023 at The Spitfire Building, 71 Collier Street, London N1 9BE.
For the purposes of complying with Disclosure Guidance and Transparency Rule
6.3.5R, we set out below in the Appendix the principal risks and uncertainties
facing the Company. The appendix has been extracted from the 2023 Annual
Report and Accounts in unedited full text and the page numbers in the text
refer to the page numbers in that document. This information should be read in
conjunction with the Company's 2023 full year results announcement, released
on 2 November 2023, which contained a condensed set of financial statements
and which can be found at https://investors.kinandcarta.com/
(https://investors.kinandcarta.com/) ("Full Year Results Announcement").
Together, the 2023 Annual Report and Accounts and Full Year Results
Announcement constitute the material required by DTR 6.3.5R to be communicated
to the media in unedited full text through a Regulatory Information Service.
Lucy Maxwell
Company Secretary
7 November 2023
Enquiries:
Lucy Maxwell 020 7928 8844
Appendix: Principal Risks
The table on 114 to 121 details Kin + Carta's principal risks, key mitigating
activities in place to address them and their relevance to the strategic
priorities set by the Board. The changes in risk ratings from the Board's
assessment in the prior year have also been highlighted.
1. Economy and volatility
Description
Challenging economic and political conditions may inhibit growth and create
uncertainty. This could lead to volatility in earnings. It could also impact
the outcome of strategic priorities set by the Board.
Macroeconomic headwinds including Inflationinduced interest rate hikes in the
US and UK markets, enterprise clients remain cautious to commit to large
programmes of work in this environment, which has slowed new business growth.
Mitigating activities
Diversification into sectors that are capable of delivering growth.
Offering a highly relevant suite of digital transformation service lines
across areas of Strategy + Innovation, Cloud + Platforms, Products +
experiences, AI + Data and Managed Services to our clients, collaborating with
strategic partners where appropriate.
Secure more long-term client relationships and contracts with a greater
emphasis on recurring
revenue.
Offering of nearshore capability to limit the impact on Kin + Carta's margin
and an ongoing review of Kin + Carta's cost base.
Increase our global footprint, which will give us the flexibility to take
advantage of favourable local
economic climate.
Trend: Increase
2. Growth
Description
Growth is core to Kin + Carta's long-term strategy. This includes organic
growth driven by strategic
initiatives and inorganic growth driven by acquisitions.
Growth channels may be underinvested or not pursued in the right locations or
sectors with the
right service offering and may therefore fail to deliver growth.
Failure to monitor competition sufficiently to meet competitive threats and
take advantage of
opportunities.
Failure to offer value propositions to our clients in line with the industry
trends. This includes the choice for onshore/nearshore offering.
Mitigating activities
Monitoring three distinct but complementary Growth channels, which focus on:
a. Existing Enterprise Client Base
b. New Business channel
c. Partnerships channel
These channels are underpinned by four growth levers; Services, Partners,
Sectors and Territories (see page 24 for further information on our growth
model).
Investment in our people, bringing new service lines to market and targeting
new locations.
Linking growth targets to incentives for the majority of our people within the
business.
Expanding into new geographic markets through the acquisition of businesses
with similar ethos to Kin + Carta and continuing to integrate the newly
acquired businesses to realise new opportunities and synergies.
Focus on a robust blend of onshore/nearshore offering to provide competitive
offering to our clients.
Trend: Increase
3. Scalability
Description
Achieving scalability is important in order to pursue a high-growth strategy
in a profitable and sustainable way. While included as a risk, achieving
greater scalability is also an opportunity for the business.
Scale requires investment in sales, systems and tools, people and operations.
This adds cost and complexity in the near term, which is expected to earn a
payback with growth.
Digital transformation businesses may not have sufficient scale within their
sectors to secure
substantial customer contracts. Without sufficient scale, our businesses may
find it more challenging to secure larger client contracts.
Mitigating activities
Investing in digitising and upgrading our systems and processes under the
Operations Platform to achieve efficiencies and drive best practices and thus
a scalable offering.
Continued investment in our Service and Expansion Platforms, acquisition of
high-growth digital
transformation businesses and greater focus on securing longer-term contracts
and revenue from
partner-aligned managed services.
Trend: Increase
4. Operational resilience
Description
Services may not meet clients expectations with new technological advances or
an unplanned event can impact our ability to deliver services to the client.
Kin + Carta may not be able to stay ahead of the technological advances in its
three core domains:
technology, data and experience.
By providing new innovation solutions to our clients, there is a risk of
failure to deliver and embed new capabilities with the business.
Failure to deliver services securely with evolving technological advances.
Failure to achieve optimum utilisation.
Mitigating activities
Focus on a highly relevant suite of digital transformation service lines to
complement the talent
of our People.
The Chief Strategy Officer, along with leaders of the Services Platform, are
focused on continuous
evolution of our service lines. The Regional Service Line and Practice Leaders
in the Americas and Europe regions are senior experts in their areas and they
continue to enhance Kin + Carta's delivery framework with new tools and
technology.
Acquisitions can complement or expand Kin + Carta's service offerings.
Focus on our three key areas of technology, data and experience. Providing new
innovative solutions in support of our clients' evolving technology needs.
Also we continue to work with clients to understand their future requirements
and viability of the new technology to ensure we are investing in relevant
future capabilities.
Continue to monitor unutilised staff percentage to ensure it is proportional
to revenue pipeline.
Trend: No change
5. Client concentration
Description
Kin + Carta holds relationships with a number of key clients and is a
strategic partner to these clients. Should Kin + Carta lose several of its top
ten clients in a short time period, this could have a significant impact on
its revenue, profits and people.
The top 20 clients represented 73% of Kin + Carta's net revenue.
Mitigating activities
Our largest clients have multiple, bespoke services and solutions being
delivered to different client stakeholders, and usually with different
budgets. We encourage our clients to think strategically about their future
direction and differentiation and how, together, we can make the world work
better for their customers. This approach also distinguishes Kin + Carta's
offering from its competitors.
These services also typically have various statements of work associated with
them with varying lengths of time and completion dates. We strive to achieve
or exceed service level agreements with clients.
There is continuous effort by our leaders in the Growth Platform to diversify
the range of clients across its key operating territories and sectors.
Devising acquisition strategy that targets business with a strong addressable
client base and with cross-selling opportunities.
Continuous monitoring of Client KPIs such as Net Revenue predictability, top
clients' spend and client longevity.
Trend: No change
6. Laws and regulations
Description
Kin + Carta's growth strategy includes geographic expansion of operations in
new territories in Latin America and Europe. As a result, Kin + Carta is
subject to a range of local and international laws and regulations.
Also, introducing new service lines, entering into new sectors as well as
retaining/recertifying B Corp certification requires Kin + Carta to adhere to
additional regulations.
Failure to comply with or promptly respond to the applicable laws and
regulations and contractual
obligations could lead to fines, penalties, restriction in trading activities
and would cause reputational and financial damage to Kin + Carta.
Failure to comply with local labour laws would impact our reputation in the
local labour market.
Mitigating activities
Kin + Carta maintains in-house Data Protection, Finance, Corporate Governance,
Information Security and Legal functions who are subject matter experts and
help define policies and processes in order to maintain governance and
compliance standards across Kin + Carta. External consultants are also used to
advise on local legal and regulatory requirements.
Our global policies, as set out in the responsible business section (see pages
58 to 63), provide
guidance to our People on our "Positive Impact Approach" to behave ethically,
strive to comply with applicable local and international laws and regulations.
We continue to develop frameworks when entering into new sector and services
as well as when moving into a new geographic area working with external
consultants when required.
Trend: No change
7. Our people
Description
Attracting and retaining talent is a key priority for Kin + Carta as it
continues to expand and invest
in new and innovative service lines and fulfil client demand.
Failure to attract and retain people due to the highly competitive environment
for top talent in local markets would impact the ability of the business to
deliver the services sought by our clients and support the growth of the
business.
Mitigating activities
Strong emphasis on culture and responsibility, which is part of our strategic
priorities where initiatives are focused on supporting a diverse, inclusive
and responsible business, with an exceptional employee experience.
Continued focus on enhancing employee experience in all relevant areas of our
EVP framework (as
detailed on page 64).
Succession planning for senior management.
Launching a new global HRIS (Human Resources Information System) providing us
with a single
system for numerous activities, giving more power to our people and uniting
our processes.
Tracking of eNPS scores and continued efforts on becoming recognised as a
"best place to work".
Launching wellbeing support programs.
Integrating our Kin from newly acquired businesses onto common platforms and
cohort communities to help them feel supported and part of Kin + Carta.
Trend: Decrease
8. Being a responsible business
Description
Risk of misalignment of expectations in respect of our culture, values, our
stakeholders could result in lost business opportunities, adverse effect on
our share price and failure to attract and retain the necessary talent. This
could also compromise the ability to successfully recertify as a B Corp
business.
Mitigating activities
Alignment throughout the business to demonstrate that Kin + Carta's purpose is
to build a world that works better for everyone.
People and Responsibility Platforms that span across Kin + Carta, covering
employee experience,
B Corp and IDEA initiatives, which are embedded into Kin + Carta's culture
through grass roots
participation across the business.
Where possible, we seek to contribute to the client's ESG strategy within the
scope of their project. In such cases we work together with our client to
identify and deliver positive impact projects, which takes into account a
number of environmental, societal and reputational and remit variables.
Monitoring of the Responsible Business KPIs that are set out in the "A
responsible business" section (pages 52 to 55).
Trend: Increase
9. Data protection
Description
Regulatory changes: The continued change in privacy laws across the globe with
standards being uplifted directly through new legislation e.g., Argentina,
Colorado, Delaware etc. or updates to existing legislation e.g. the Data
Protection and Digital Information 2 bill in the UK provide a slow but
constantly moving environment for the business to undertake its activities.
The threat of
non-compliance or breaches are raised as Kin + Carta has long-term engagements
and as its geographical scope widens.
Increasing complex digital business environments: The increasing number of
tools and systems that can provide specific processes during the lifecycle of
data within a digital business environment can present increased challenges to
the research, monitoring and auditing of an increasing number of processors or
service providers.
Emerging technologies: The rapid adoption of Generative AI ("GenAI") has
presented challenges across the market, with its inclusion in many tools and
services along with best practices being built alongside the adoption of and
use of this technology the risk levels of this fast moving and increasing
widely adopted technology presents a risk to many organisations including Kin
+ Carta.
Data: The loss or theft of critical and sensitive data such as personally
identifiable information could have a significant impact from a reputational,
contractual, regulatory and financial standpoint. This combined with the
changing in working practices and behaviour has significantly increased the
risk profile of our business.
Mitigating activities
The Data Protection Officer is responsible for Group-wide compliance with data
protection legislation, and putting in place guidance, training and processes.
Our data protection framework is closely linked to our Connective Digital
Services ("CDS") and Services Platforms with continuous efforts to ensure the
data we process remains secure and confidential. The framework is reviewed on
an on-going basis to ensure Kin + Carta has robust processes to adhere to
local regulations.
Growth of team to ensure more trained individuals are available to review and
protect the business.
Increased legal support both internally and externally to assist with the
assessment of new and changing regulation and activities.
Onboarding training for new hires and employee training reinforces awareness
and proper processes are followed.
Trend: No change
10. Information, cyber security and systems
Description
The inability to identify the diverse asset portfolio utilised by Kin + Carta
and thus contextually control access to critical data and platforms based upon
stakeholder persona and requirements, device ownership and device security
health is the most significant threat to our business.
Failure to adequately secure and control access to third-party devices used by
our Kin as Kin + Carta scales globally could lead to breach of stakeholder
contractual agreements, in violation of data sovereignty, possible theft of
our intellectual property resulting in reputational and financial damage.
Furthermore the limitations of access and device control, especially as a
digital transformation business, increasingly exposes Kin + Carta to the
impact of hacking and ransomware.
Visibility of tracking activities in respect of data handling and system usage
on our, or third-party
platforms, as well as to adequately protect, prevent and respond to a cyber
threat or unauthorised access to our systems and devices is paramount to our
business. Failure to actively manage and respond to these activities in a
timely manner would expose Kin + Carta to non-compliance with the applicable
local data protection laws, reputational damage, fines, compensation or
damages, disruption to the business and/or the loss of information for our
clients and our people.
Kin + Carta relies on multiple third-party platforms to communicate and
deliver the services to our clients. A disruption to the availability of
multiple services at a point in time could have a significant impact on Kin +
Carta's finances and reputation.
Evolving cyber threat landscape continues to generate vulnerability to all
businesses globally with additional threats to regions directly or indirectly
affected by geopolitical events.
Mitigating activities
The CDS team is responsible for actively identifying risks, designing internal
controls and implementing change across all parts of the Company.
CDS has been focused upon maturing policy and people. These controls are
effective for managing
current known risks. For evolving risks and stakeholder requirements Kin +
Carta continue to assess and invest in digital platforms to modernise and
strengthen the IT infrastructure and to generate further return on investment
such as multi-factor authentication and single sign-on solutions.
The evolution of our digital ecosystem incorporates a degree of platform
diversity to provide availability of data and communication tools thereby
reducing reliance and impact from a single vendor or system.
Accompanied with an independent cloud backup for our core platforms, the
additional focus to utilise our client environments reduces impact to project
timelines due to unforeseen outages.
Trend: No change
11. Financing
Description
Kin + Carta's ability to trade may be compromised by a lack of cash funds.
Ability to finance working capital and carry out operations is fundamental to
the business.
Ability to fund the remaining contingent consideration in respect of recent
acquisitions.
Inadequate financing to appropriately fund selective acquisitions or
reinvest in Growth, Services,
Operations, People and Responsibility Platforms.
Mitigating activities
Kin + Carta secured an extension of the Revolving Credit Facility of £85
million until September 2026. As at 31 July 2023 the unused portion of this
facility was £65 million. Should there be strain on Kin + Carta's liquidity,
there are cost management programmes in place to limit the impact.
The leadership team prioritises areas of investment that aligns with our
strategic priorities set by the Board.
The management undertakes the following activities to monitor the liquidity of
the business:
● Reviews to assess the headroom on liquidity and banking
covenants for potential acquisition targets.
● Conduct half-yearly "going concern" reviews and longer-term
viability assessments.
● Ongoing monitoring of Kin + Carta's performance against its
banking covenants with a target of Net Debt/EBITDA ratio below 2.0x.
● Monthly reviews of forecasts, working capital, cash forecasts
and headroom on banking covenants.
● Periodically review Kin + Carta's financial KPIs with its
bankers.
● Conduct half-yearly "going concern" reviews and longer-term
viability assessments.
Trend: No change
12. Legacy Defined Benefit Pension Scheme
Description
The Scheme surplus/deficit is impacted by changes in Scheme asset values, and
by changes in other key financial assumptions most significantly the expected
inflation rate and the discount rate derived from UK Government gilt yields,
as well as changes in demographic assumptions, such as expected mortality,
rates of pension commutation and transfers of members out of the Scheme. The
2022 triennial technical valuation showed a surplus of £5.8 million as at 5
April 2022. A return to a deficit could lead to a resumption of the need for
deficit repair in cash contributions by the Company to the Scheme.
The Scheme deploys a liability driven investment strategy, which includes the
use of derivative
instruments linked to UK interest rates. Continued high volatility in the
market for UK public debt
securities could cause liquidity constraints, as the Scheme meets counterparty
demands for collateral and margin calls on related interest rate derivative
instruments, which could lead to reductions in the levels of hedging
practically achieved.
The strength of the sponsoring employer's covenant in relation to the Scheme
could be adversely impacted by the shortfall of the consolidated net assets of
the Group (£63.7 million excluding the pension accounting surplus at 31 July
2023) versus the Scheme's solvency deficit, a measure of the deficit in an
insolvency scenario (approximately £53 million at 5 October 2023).
Mitigating activities
The Scheme was in a technical surplus at 5 April 2022 and now fully hedged
against interest and inflation risks. Following the move into a technical
surplus, the Company has agreed with the Trustees to increase the proportion
of scheme assets invested in instruments that match the variation in the value
of the Scheme liabilities or which match expected cash flows, from
60% to 70% in order to reduce scheme asset volatility. Although the Scheme was
in surplus as at 5 April 2022, the Company agreed to pay a further £3 million
of voluntary contributions after that date, in order to accelerate the point
at which the Scheme reaches a state of low dependency on the Company.
The solvency deficit has further reduced, standing at approximately £53
million at 5 October 2023 (£117 million at 5 April 2022). This is also an
estimate of the cost of scheme "buy out", a full transfer of the Company's
obligations to an insurer.
The Scheme is fully hedged against interest and inflation risks. Also a
significant proportion of its assets are invested in matching assets in order
to manage investment risk.
Regular engagement with the Trustee Directors in discussions on Kin + Carta's
performance.
Work with an external advisor and follow regulatory compliance.
Trend: No change
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