Full Year Results
02/11/2023 07:00
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RNS Number : 1332S Kin and Carta PLC 02 November 2023
02 November 2023
Kin and Carta plc
('Kin + Carta', the 'Group', or the 'Company')
Full Year Results
Kin + Carta, the international digital transformation ('DX') company, today
announces its financial results for the year 1 August 2022 to 31 July 2023
Financial Review Table(1)
Year to Year to
31 July 2023 31 July 2022
(restated)(2)
Revenue £195.9m £197.1m
Net revenue £192.0m £190.3m
Adjusted operating profit(3) £18.5m £22.4m
Adjusted operating margin(3) 9.6% 11.8%
Adjusted profit before tax(3) £15.8m £20.6m
Adjusted basic earnings per share(3) 8.7p 10.8p
Net bank debt (£20.0m) (£0.5m)
Statutory operating loss (£19.3m) (£14.1m)
Statutory net loss before tax (£20.7m) (£15.6m)
Statutory basic loss per share (10.8p) (8.0p)
Financial Review (all comments from continuing operations(1))
● Net revenue of £192.0 million from continuing operations up 1%
year-on-year ("YoY") and down 11% like-for-like(4) due to macroeconomic
challenges
○ Americas net revenue grew 2% YoY (-8% like-for-like(4)) to £134.8
million, 70% of group
○ Europe net revenue declined 1% YoY (-16% like-for-like(4)) at £57.2
million, 30% of group
● Sales backlog(5) of £97 million up 1% YoY, sales pipeline of
£110 million (FY22: £174 million) down in total, but up on a like-for-like
basis which excludes the prior year's two unusually large but low probability
opportunities in the UK
● Adjusted operating profit of £18.5 million (FY22: £22.4 million)
reflecting previously announced market volatility and headwinds
● Statutory operating loss of £19.3 million (FY22: loss £14.1
million) driven by non-cash goodwill impairment in the UK and
acquisition-related charges of £34.1 million which are recorded as adjusting
items
● Adjusted EBITDA £22.8 million (FY22: £26.3 million)
● Statutory basic loss per share was 10.8p (FY22: 8.0p loss).
Adjusted basic earnings per share decreased by 20% from prior year to 8.7p
● Adjusted operating cash inflow before working capital, interest
and tax of £23.9 million (FY22: inflow of £26.0 million)
● Statutory operating cash outflow before working capital, interest
and tax of £1.1 million (FY22: inflow of £19.2 million). Reduction driven by
FY23 acquisition-related deemed remuneration payments of £16.2 million (FY22:
nil) and cost associated with FY23 customer litigation of £3.6 million (FY22:
£0.4 million)
● Net debt for bank covenant purposes of £21.0 million (FY22: £0.2
million); net debt to adjusted EBITDA ratio 1.04 times (FY22: 0.01 times)
Operational Review
● Net revenue from key financial services, public sector, and
agriculture industry sectors grew 21% YoY
● The Group's client concentration increased year on year. This
includes the Company's largest client which comprises 25% of total net revenue
compared to 12% in prior year
● The market slowed significantly in Q2, presenting fewer new
business opportunities as companies scrutinised their project spending.
Widespread macroeconomic volatility led to extended sales cycles, cautious
client spending, and intense competition
● New client wins including America's largest automotive
manufacturer, Japanese multinational technology company, S&P 400
automotive group, US National Veterinary Associates and £44.2 million of UK
Public Sector contracts
● Acceleration of margin efficient nearshore delivery in Latin
America and South East Europe to 40% of total delivery headcount
● c.£2 million annualised reduction in selling and admin costs
improves cost structure
● Data & AI proposition scaled as priority launch partner for
Google's generative AI platform, and as one of the first businesses to access
Microsoft's generative AI platform
● Kin + Carta awarded 2023 Google Cloud Industry Solution Services
Partner of the Year Award for Retail Digital Growth, and Sustainability
Changemaker 2023 Microsoft US Partner of the Year Award
● Completion of Forecast Data Services acquisition, deepening data
& AI capabilities
● Successful execution of Double Materiality Assessment and further
ESG improvements
1. All Consolidated Income Statement measures reflect the
results from continuing operations. Discontinued operations in the year to 31
July 2022 include the results of three businesses, Incite, Edit and Relish,
which were divested in the period. Refer to note 4 of the Consolidated
Financial Statements for details of the discontinued operations.
2. The results for the year to 31 July 2022 have been restated
to reflect the reclassification of share-based payments from adjusted results
to adjusting items and the restatement of depreciation on investment property.
The latter arose from an accounting policy change to measure investment
property using a fair value model which has been applied retrospectively.
Refer to note 1 of the Consolidated Financial Statements for further details.
3. Adjusted results exclude adjusting items to reflect how
management assesses and monitors the ongoing financial performance of the
Group. Refer to note 3 of the Consolidated Financial Statements for further
details
4. The impact of retranslating FY23 results at the FY22
average exchange rates and excluding the impact of prior period acquisitions.
5. Backlog is the value of client awards that have a signed
contract, statement of work or an explicit verbal commitment to start work
with no further permissions or conditions required. Pipeline is the unweighted
value of the qualified and targeted sales funnel and excludes £80 million of
large one-off UK opportunities in the prior year with very low probability.
Outlook
New business remains highly competitive in the DX market and sales cycles
remain challenging. Volatility continues in enterprise business with macro,
social and geopolitical disruption.
As we enter FY24, despite the volatile market, our business has stabilised.
Assuming no further material headwinds that would further challenge our
smaller scale and client concentration, we expect modest H1'24 growth over
H2'23. Whilst visibility of H2'24 is limited, we expect continued modest
sequential growth in H2'24. We therefore expect flat to low single digit total
net revenue growth in FY24 compared with FY23, which included a strong Q1 2023
performance prior to the market downturn.
Kelly Manthey, Chief Executive Officer, said:
'Against particularly challenging macroeconomic conditions, we adapted quickly
and decisively to a slowing business environment and client spending caution.
We accelerated the move to lower-cost nearshore delivery and reduced our
overall cost base in the second half, while continuing to invest in Data &
AI capabilities.'
Recommended Cash Offer for Kin and Carta Plc
On 18 October 2023, it was announced that the boards of directors of Kelvin UK
Bidco Limited ('Bidco'), a newly formed company owned indirectly by funds
advised by Apax Partners LLP ('Apax'), and Kin + Carta had reached agreement
on the terms and conditions of a recommended cash offer made by Bidco to
acquire the entire issued share capital of Kin + Carta (the 'Acquisition').
Under the terms of the Acquisition, Kin + Carta shareholders will be entitled
to receive 110 pence in cash for each Kin + Carta share, valuing Kin + Carta
at £203 million on a fully diluted basis. This represents a premium of 41% to
the closing price on 17 October 2023. The Acquisition is conditional inter
alia on approval by the Company's shareholders and certain regulatory
approvals. Completion of the Acquisition is currently expected to take place
in the first quarter of 2024.
Whilst the Board continues to believe Kin + Carta is strategically positioned
to benefit from the DX market opportunity, it also recognises there are
several challenges in achieving its standalone strategy.
Within the context of the DX competitor landscape, Kin + Carta is a relatively
small-scale player. In order to compete successfully in the future, the Board
believes that Kin + Carta will need to expand its capabilities, resources and
access to capital in a way which is challenging to achieve on a standalone
basis. Additionally, as seen over the last 12 months, there continue to be
significant market headwinds across the DX industry driven by hesitance among
enterprise clients to commit to large programmes of work in the current macro
environment, which impacts Kin + Carta's future new business growth. This in
turn has resulted in significant volatility in the Company's financial
performance, share price, and ability to execute on its strategy. Finally,
whilst Kin + Carta has successfully grown its client base in recent years, it
remains relatively concentrated such that any 'churn' within this revenue base
can have a material impact on the profitability of the Kin + Carta Group,
given the size of the business today.
As a result, the Board acknowledges the benefits of Kin + Carta being a
private company supported by Apax and from Apax's significant experience in
supporting and growing global digital consulting businesses.
Results presentation
There will be a presentation for sell-side analysts today, 2 November, at
12:00 GMT. For details, please contact kinandcarta@powerscourt-group.com.
For further information, please contact:
Kin and Carta plc Deutsche Numis
Nick Westlake / Tejas Padalkar
Kelly Manthey, Chief Executive Officer
+44 (0)207 260 1345
Chris Kutsor, Chief Financial Officer and Chief Operating Officer
+44 (0)20 7928 8844
Powerscourt Peel Hunt LLP
Paul Gillam / John Welch
Elly Williamson / Peter Lambie
+44 (0) 20 7418 8900
+44 (0) 7841 658 163
About Kin + Carta
Kin + Carta is a London Stock Exchange listed global digital transformation
consultancy committed to working alongside clients to build a world that works
better for everyone.
Kin + Carta's 1,800 consultants, engineers and data scientists around the
world bring the connective power of technology, data and experience to the
world's most influential companies - helping them to accelerate their digital
roadmap, rapidly innovate, modernise their systems, enable their teams and
optimise for continued growth. Headquartered in London and Chicago with
offices across three continents, the borderless model of service allows for
the best minds to be connected to collaborate on client challenges.
With purpose at its core, Kin + Carta became the first company listed on the
London Stock Exchange to achieve
B Corp certification. It meets high standards of verified social and
environmental performance, public transparency and accountability to balance
the triple bottom line of people, planet and profit.
For more information, please visit https://www.kinandcarta.com
(https://www.kinandcarta.com) .
Chief Executive Officer's Review
FY23 was undoubtedly a challenging year. As the digital transformation market
experienced widespread volatility, Kin + Carta used the disruption to
accelerate operational change.
The market slowed significantly in the first half as clients responded to
fears of a global recession and a prospective banking crisis. Sales-cycles
lengthened, project ramp-up times extended and revenue slowed with the weakest
areas comprising sub-enterprise scale-up clients or those companies more
exposed to a drop in consumer spending. There were substantially fewer new
business opportunities in the market as many companies paused spending. Fewer
opportunities led to more intense price competition as our larger peers
leveraged their scale and offshore operations. The net impact required a
material reduction to our previous growth expectations.
Despite the volatile markets, we began the second half with a stronger order
backlog and an expectation that organic growth and profitability would improve
in H2. Net revenue grew sequentially in Q3 and Q4 in line with reduced
expectations, whilst the bottom-line beat expectations with a combination of
assertive cost controls and a strong focus on clients. Net revenue for the
year came in at £192.0m and although this was only marginally ahead of the
FY22 result, it represents a resilient performance in what was an unexpectedly
challenging marketplace. Statutory revenue for the year was £195.9m.
Focus on enterprise client foundation
Our focus on clients was paramount. The client base strengthened, reflected in
the makeup of all Top 20 clients and 90% of total revenue derived from
enterprise grade businesses (organisations with excess of $1BN net revenue).
In a highly competitive new business environment we took steps to better
reflect our client's ecosystems with a connected go-to-market strategy across
sectors, services, and technology partners. Consistency of high-performance
consulting and delivery was enhanced by the development and application of the
'Kin + Carta Way', a proprietary global delivery methodology built for our
client's success that we will continue to expand in FY24.
Whilst demand from existing enterprise clients was more resilient than the
churn experienced from our smaller clients, winning new business remained
challenged compared to prior years and we experienced continued volatility
within the enterprise client base. Many of our top enterprise clients
maintained or increased investment in their digital transformation roadmaps,
and we saw a 20% increase in net revenue from our Top 20 global clients this
year compared to the Top 20 clients in the prior year. Our largest client grew
from 12% of net revenue last year to 25% of net revenue in FY23 which has been
both a testament to their confidence in us and a risk to manage going forward.
By continuing to focus on delivering for our clients, we also hope to manage
the potential instability caused by executive turnover at some enterprise
clients.
Adding new enterprise client wins
Despite the tougher new business market, significant wins were achieved. These
included America's largest automotive manufacturer, a Japanese multinational
technology company, S&P 400 automotive group, US National Veterinary
Associates in the Americas, and £44.2 million of public sector wins in Europe
including the UK Department for Education, Department for Work and Pensions,
Department for Levelling-Up, Housing and Communities, and the BBC.
Accelerating cost reductions
Reorganisation around key industry sectors with sales, subject matter experts
and delivery closer to clients, and an acceleration and expansion of nearshore
delivery and operations capabilities helped to preserve our margins and
improve our cost base. Latin America headcount scaled by 44% to 390 employees
bolstered by the opening of new offices in Colombia and Buenos Aires. The
integration of the prior year's acquisition of the Melon Group in Bulgaria,
Kosovo and North Macedonia has progressed well, and we've opened a new shared
services centre in Bulgaria to further improve operational costs.
Leading with what's next: Data and AI
Last year I told you that the importance of data transformation services would
continue to rise. In FY23 Data & AI has been our fastest growing service
line and we continue to see increased demand for the transformational data
services that increase revenue, drive efficiencies and enable AI ambitions.
Kin + Carta's data & AI capabilities have deepened with the acquisition of
Forecast Data Services in Europe, bringing high performance data scientists
and engineers, an enterprise client base, specialist nearshore teams in
Poland, and valuable relationships with the universities that fuel supply of
talent.
In spite of the volatile conditions, we continued to innovate. As a priority
launch partner for Google generative AI, and with early access to Microsoft's
generative AI platform, our engineers guided enterprise clients through the
use cases that make generative AI a viable and powerful tool for their
businesses. Our role is to assess, enhance and deploy technologies that drive
value for our clients, and we will continue to be at the forefront of the
generative AI wave by favouring building, experimentation and optimisation
over thought leadership and hype cycle.
AI is not a standalone technology. It is dependent on a complementary data
ecosystem, and this is where generative AI enthusiasm will translate to
material revenue in the short to medium term. Kin + Carta's data & AI
proposition is a direct enabler of generative AI ambitions, starting with core
data foundations and governance, then the application of enterprise analytics
and insights, building custom data products that provide differentiation for
our clients, and the deployment of machine learning and artificial
intelligence to enterprise use cases. It is because of Kin + Carta's
end-to-end capabilities across this domain, developed with the world's leading
technology partners Microsoft and Google, that we are being trusted to lead
the development of generative AI strategy and execution for global enterprise
clients.
Strengthened technology partner relationships
Big Tech is quickly evolving to put themselves in the strongest position to
capitalise on AI and the strength of Kin + Carta's relationships with
technology partners continues to be a key value driver. This year Kin + Carta
was named Cloud Partner of the Year in Retail by Google, while Microsoft
awarded Kin + Carta Partner of the Year Sustainability Changemaker for the
second consecutive year. Further progress in the MACH partner ecosystem
(micro-services, API-led, cloud native and headless), and data domain
specialists like Databricks ensure that our clients benefit from leadership in
the most progressive platforms.
A winning and responsible culture
Kin + Carta's commitment to B-Corp principles and operating as a higher
standard, more responsible consulting business continues to shape progress.
MSCI and Sustainalytics ESG ratings have improved in FY23, climate disclosure
TCFD (Task force for Climate-related Financial Disclosure) reporting has been
delivered, and the Company has successfully completed its first double
materiality assessment. Kin + Carta's vibrant IDEA (Inclusion Diversity Equity
and Accessibility) programme focused on 'responsibility in the everyday'
driving progress in IDEA engagement, standards and integration across the
business.
The Company's employee experience, founded on a high-performance and
conscientious engineers' culture, was widely recognised across our regions and
offices including:
● Consulting Magazine's 'Best firms to work for'
● Women's Choice Awards 'Best companies to work for'
● Great Places to Work Awards 'Best workplaces for tech, wellbeing
and as a large organisation'
● Top Places to Work, for 'leadership, purpose and values,
professional development, employee wellbeing, compensation and benefits'.
The speed and effectiveness of our response to market disruption is a measure
of the professionalism and agility that our leadership team have embodied this
year. I am deeply proud of their innovation, empathy and resolve during an
extremely complex period.
-
Kelly Manthey
Chief Executive Officer
2 November 2023
Financial Review
This report comments on the key financial aspects of the Group's 2023 results.
The report includes adjusted results which exclude adjusting items to reflect
how management assesses and monitors the ongoing financial performance of the
Group. The definition and reconciliation of adjusted measures is set out in
the adjusted performance measures section.
Group performance
Group net revenue from continuing operations of £192.0 million (2022: £190.3
million), including favourable effects from currency movements and
acquisitions, was broadly in line with the prior period. Statutory revenue
decreased from £197.1 million to £195.9 million. On a like-for-like basis,
net revenue declined by 10.6%. The Americas region makes up 70% of net revenue
and Europe 30%. Net revenue by client sector includes Transportation (10%),
Industrials and Agriculture (14%), Retail & Distribution (22%) and
Financial Services (36%). The Company's largest client makes up 25% of net
revenue, and is part of the Financial Services sector.
Group adjusted operating margin was 9.6% for the period (2022: 11.8%) with
higher gross margins offset by higher selling and IT costs. The Group's
delivery staff in Latin America and Southeast Europe near-shore locations grew
from 9% of delivery staff last period to over 40% this period, and is expected
to continue to grow and improve the Group's profitability profile. Whilst this
nearshore delivery enhances client retention and improves the Company's gross
margins, it is delivered at a lower price point than onshore (domestic)
delivery, and therefore impeded organic growth in each region. The lower
operating margin in the period also includes the impact of unusual client
disputes from two non-enterprise clients with related net revenue at much
lower than average margin.
Adjusting items
The statutory total loss before tax from continuing operations in the period
was £20.7 million (2022: loss of £15.6 million), which is stated after net
adjusting cost items of £36.5 million (2022: net costs of £36.1 million).
Key adjusting items are as follows:
● Amortisation, deemed remuneration and other acquisition-related
charges related to acquisitions: £9.3 million related to the non-cash
amortisation of acquired intangibles, £9.8 million of contingent
consideration required to be treated as remuneration, a credit of £0.3
million in respect of deferred consideration adjustments, and £0.7 million of
acquisition and integration-related costs.
● A non-cash impairment goodwill charge of £14.6 million relating
to the 'UK excluding Kin and Carta Data' cash generating unit.
● A charge, net of associated insurance proceeds, of £3.6 million
related to two client disputes and associated legal costs. This includes the
full and final settlement costs and related external advisor costs associated
with the resolution of two client disputes which were significant in value and
which are expected to be non-recurring in nature. We expect to record a credit
of £3.3m in FY24 in respect of further reimbursement of costs by our insurer.
The net revenue and cost impacts of the client delivery are included in
adjusted results.
● A net credit of £7.8 million relating to the renegotiation of the
Chicago office lease that will result in a smaller, lower cost space in the
same building from January 2024 under a new lease. The prior year charge of
£6.3 million comprised an impairment of the right-of-use asset and a
provision for onerous costs related to a portion of the Chicago lease, both of
which reflected the costs of the portion of the lease which no longer had
economic value.
Further details are provided within note 3 of the Consolidated Financial
Statements.
Regional performance
The Americas segment delivered £19.0 million of adjusted operating profit
(2022: £23.5 million) on net revenue of £134.8 million (2022: £132.2
million). Americas' organic net revenue at constant currency declined by 8.4%,
reflecting macroeconomic weakness that caused client spending caution and
elongated sales cycles noted across the industry. Gross margin percentage was
unchanged year-on-year. Adjusted operating margin declined from 17.8% to 14.1%
due to the effect of investment in selling and marketing functions and in
information technology. Statutory revenue was £158.0 million (2022: £154.0
million).
The Europe segment delivered £3.8 million of adjusted operating profit (2022:
£4.4 million) on net revenue of £57.2 million (2022: £58.1 million).
Like-for-like net revenue declined by 15.8%, primarily as a result of
macroeconomic weakness in the UK, which accounts for 84% of Europe's net
revenue. Public sector net revenue grew 220% to £11.9 million on several
multi-year contract wins. While there was a modest increase in the gross
margin percentage year on year, the operating margin declined from 7.6% to
6.6% due to planned investment in selling staff and information technology.
Statutory revenue was £62.1 million (2022: £61.8 million).
Net finance costs
Adjusted net finance costs, which exclude the Defined Benefit Scheme pension
costs, increased by 43% to £2.6 million (2022: £1.8 million), driven by
increased net debt levels and higher interest rates.
Prior period restatements and reclassifications
During the period there was a change of accounting policy to account for the
investment property, which is now accounted for using the fair value model
instead of the cost model previously used. This change has been applied
retrospectively from 1 August 2021 and resulted in a £0.3 million increase to
adjusted operating profit in FY22.
A credit of £1.3 million has been adjusted in opening retained earnings at 1
August 2021 relating to the restatement of an income tax charge on loan
forgiveness arising in the FY21 year.
The Group's share-based payment charge is excluded from adjusted results in a
similar way to the Company's publicly listed peer group companies in digital
transformation, aiding comparability. The FY22 results have been restated to
reclassify the share-based payment charge to adjusting items in the
Consolidated Income Statement. There is no impact on the statutory loss for
either period.
Further details are set out in note 1 of the Consolidated Financial
Statements.
Acquisitions
On 5 May 2023, the Group acquired 100% of the issued share capital of Kin and
Carta Data Limited (formerly known as Forecast Data Services Limited), a data
and artificial intelligence business based in Edinburgh, Scotland and its
Polish subsidiary based in Wroclaw, Poland. The initial cash consideration,
net of cash acquired, was £2.2 million, with the potential for further
payments of up to £10.1 million over the next two years contingent upon
achieving EBITDA growth targets. Based on current forecasts we estimate
further payments totalling £4.3 million will be made. Further details are set
out in note 7 of the Consolidated Financial Statements.
Balance sheet and cash flow
Net assets of £73.4 million decreased by £53.0 million versus 31 July 2022,
driven by the actuarial loss, net of tax, on the Pension Scheme surplus of
£21.2 million; the net loss after tax of £18.8 million which included a
non-cash impairment of £14.6 million on goodwill; non-income movements in
equity related to net share repurchases and settlements of £8.0 million;
transfers from equity to liabilities in respect of contingent deferred
payments for acquisitions made in prior periods of £10.6 million following
the Company's decision to settle in cash rather than equity; and foreign
exchange losses and other movements of £1.0 million; partially offset by
£6.5 million of credits to equity in respect of share-based payments, net of
tax.
Operating cash outflow before working capital, interest and tax was £1.1
million (2022: inflow of £19.2 million), which includes £16.2 million of
deferred payments related to acquisitions completed in prior periods (2022:
£nil). The related income statement charge is treated as an adjusting item.
The cash outflow also includes other outflows linked to adjusting items before
working capital of £8.7 million (2022: £7.8 million), principally related to
the settlement of customer disputes of £3.6 million, and legacy
pension-related outflows of £2.7 million. The net operating cash inflow
before adjusting items, working capital, tax and interest was £23.9 million
(2022: £26.0 million). After the year end, the Group's insurers confirmed
that a further £3.3 million of costs related to the settlement of the final
client dispute would be reimbursed. This is expected to be received in the
first half of FY24 and the associated credit will be recorded as an adjusting
item in the Consolidated Income Statement.
The working capital inflow of £1.6 million (2022: outflow of £7.1 million)
includes an inflow of £12.2 million from movements in receivables, net of
deferred income, which reflects a strong focus on billing and collection in
the period, offset by an outflow of movement in payables of £10.6 million
linked principally to a reduction in the liability for employee bonuses.
The investing cash outflow of £5.2 million (2022: inflow of £21.0 million)
includes £2.2 million related to the acquisition of Forecast Data Services
Ltd as well as capital expenditure of £2.4 million (2022: £1.3 million), and
deferred consideration payments relating prior period acquisitions of £0.7
million (2022: £nil). FY22 included a cash inflow of £34.3 million of
proceeds from the divestment of subsidiaries.
Financing cash flows included market purchases of the Company's shares by the
Employee Benefit Trust of £8.4 million (2022: £5.6 million) to satisfy
expected future vesting under employee share-based payment schemes. Lease
payments were broadly in line with the prior period at £4.0 million (2022:
£3.8 million). Following the renegotiation of the Chicago lease in the
period, Group lease payments are forecast to reduce to c.£3.3 million in
FY24, excluding further acquisitions.
Credit facility and net debt
The Group ended the period with a net bank debt position of £20.0 million
measured at 31 July 2023 closing currency exchange rates. For bank covenant
purposes, net debt is measured at average currency exchange rates through the
period rather than closing, resulting in an adjusted debt figure of £21.0
million (2022: £0.2 million). Bank leverage remains modest with net debt at
1.04 times adjusted EBITDA for bank covenant purposes at 31 July 2023 (2022:
0.01 times). Interest cover for bank purposes was 10.5 times (2022: 18.5
times) compared to a minimum covenant of 4 times.
Our liquidity position remains solid, with modest claims on future operating
cash flows beyond growth-related investments in working capital, operational
capital expenditures at similar levels to prior years and the schedule of
contingent and deferred consideration payments related to acquisitions in
prior periods. There remains substantial undrawn capacity on the Company's
credit facility of £85.0 million committed until September 2026.
As at 31 July 2023, the Company had loans of £29.8 million drawn on the
facility (2022: £13.1 million). The undrawn portion of this facility at 31
July 2023 was £55.2 million (2022: £71.9 million).
Pension
The IAS 19 pension accounting surplus decreased during the period to £13.0
million from £38.7 million at 31 July 2022.
The lower surplus is due to a decrease in the value of Scheme assets of £82.7
million, driven primarily by the reduction in the value of the gilt portfolio
which comprises a large proportion of Scheme assets, following the large
increase in UK gilt yields in the period. This was partially offset by a
decrease in the Scheme liabilities of £56.9 million, driven by increases in
the AA corporate bond yield which is used to discount the Scheme liabilities.
The Scheme remains fully hedged against interest rate and inflation rate risk
measured on the basis of the technical liability, which has a different
discount rate profile to the accounting liability. At 31 July 2023,
approximately 35% of the Scheme's assets were allocated to growth assets
(reduced from 40% at 31 July 2022), of which less than half were allocated to
equities. The non-growth assets are invested in liability matching and cash
flow matching assets.
Excluding trustee expenses, sponsor cash contributions to the Scheme will
reduce to £0.6 million in FY24 and £0.4 million in FY25. In addition, the
Company is committed to make a contribution of £0.4 million per annum towards
trustee expenses until FY27. The levy payable by the company to the Pension
Protection Fund will reduce significantly from £0.6 million in FY23 to £0.04
million in FY24 as a result of the Scheme's improved funding status.
-
Chris Kutsor
Chief Financial Officer
Chief Operations Officer
Alternative Performance Measures (APMs)
The full year results include both statutory and adjusted results. The
adjusted results reflect how management assesses and monitors the ongoing
financial performance of the Group and allows for a consistent and meaningful
comparison from period-to-period and with our peer group. The APMs are aligned
to our strategy, are used to measure the performance of our business and are
the basis for remuneration.
The adjusted results exclude "adjusting items" to reflect the manner in which
performance is tracked and assessed internally by management.
Adjusting items are presented in the middle column of the Consolidated Income
Statement. In the opinion of the Directors, their separate presentation aids
understanding of the financial performance of the Group. Adjusting items
include acquisition and disposal-related costs, amortisation of acquired
intangibles, impairments, share-based payment charges, administrative expenses
related to St Ives Defined Benefit Pension Scheme, client disputes and
litigation and associated insurance income, and restructuring charges. For
further details, refer to note 3 of the Consolidated Financial Statements.
As adjusted results include the benefits of acquisitions and restructuring
programmes but exclude significant costs (such as significant acquisition
costs, share-based payments, legal and major restructuring items), they should
not be regarded as a complete picture of the Group's financial performance,
which is presented in its statutory results. The exclusion of adjusting items
may result in adjusted earnings being materially higher or lower than
statutory earnings. In particular, when significant impairments and
amortisation charges, share-based payments, restructuring charges and legal
costs are excluded, adjusted earnings will be higher than statutory earnings.
The key APMs frequently used by the Group for continuing operations are:
Net revenue: This measure is defined as revenue less project-related costs as shown on the Consolidated Income Statement. Project-related costs comprise primarily of certain third-party expenses directly attributable to a project.
Year to Year to
31 July 31 July
2023 2022
£'000 £'000
Revenue 195,870 197,123
Project-related costs (3,858) (6,846)
Net revenue 192,012 190,277
Like-for-like net revenue at constant currency: This measure is defined as the
net revenue from continuing operations when comparing the current period to
the prior period at the constant currency rate of exchange, excluding the
effects of acquisition or disposal.
Year to Impact of ¹ acquisitions Impact of ² exchange movements Like-for-like adjusted net revenue Year to Like-for-like adjusted net revenue decline %
31 July £'000 £'000 £'000 31 July
2023 2022
£'000 £'000
Europe 57,246 (8,182) (157) 48,907 58,050 (15.8%)
Americas 134,766 (3,921) (9,699) 121,146 132,227 (8.4%)
Group 192,012 (12,103) (9,856) 170,053 190,277 (10.6%)
1 Representing (i) for Loop in Americas and Melon Group in Europe, the net
revenue for the period from 1 August 2022 to the one year anniversary of the
date of the respective acquisitions, both of which took place in the prior
year, and (ii) for Kin and Carta Data (completed in 2023) the FY2023
post-acquisition revenue.
2 The impact of retranslating 2023 net revenue at the 2022 average exchange
rates.
Adjusted operating profit: This measure is defined as the statutory operating
profit or loss after adjusting items.
Year to Restated¹
31 July Year to
2023 31 July
£'000 2022
£'000
Statutory operating loss (19,279) (14,086)
Add back total adjusting items 37,735 36,482
Adjusted operating profit 18,456 22,396
1 The results for the year to 31 July 2022 have been restated to reflect the
reclassification of share-based payments from adjusted results to adjusting
items and the restatement of depreciation on investment property. The latter
arose from an accounting policy change to measure investment property using a
fair value model which has been applied retrospectively. Refer to note 1 of
the Consolidated Financial Statements for further details.
Like-for-like adjusted operating profit at constant currency: This measure is
defined as the adjusted organic operating profit from continuing operations
when comparing the current period to the prior period at the constant currency
rate of exchange, excluding the effects of acquisition or disposal.
Year to Impact of ¹ acquisition Impact of ² exchange movements Like-for-like adjusted operating profit Restated³'⁴ Like-for-like adjusted operating profit change %
31 July £'000 £'000 £'000 Year to
2023 31 July
£'000 2022
£'000
Europe 3,751 (2,037) (94) 1,620 4,439 (63.5%)
Americas 19,014 (1,152) (1,329) 16,533 23,508 (29.7%)
Corporate costs (4,309) - - (4,309) (5,551) 22.4%
Group 18,456 (3,189) (1,423) 13,844 22,396 (38.2%)
1 Representing (i) for Loop in Americas and Melon Group in Europe, the results
for the period from 1 August 2022 to the one year anniversary of the date of
the respective acquisitions both of which took place in the prior year, and
(ii) for Kin and Carta Data (completed in 2023) calculated using the FY23
post-acquisition results.
2 The impact of retranslating 2023 operating profit at the 2022 average
exchange rates.
3 The results for the year to 31 July 2022 have been restated to reflect the
reclassification of share-based payments from adjusted results to adjusting
items and the restatement of depreciation on investment property. The latter
arose from an accounting policy change to measure investment property using a
fair value model, which has been applied retrospectively. Refer to note 1 of
the Consolidated Financial Statements for further details.
4 The prior year allocation of corporate costs to the segments have been
updated to reflect a change in allocation basis in the current year.
Adjusted profit before tax: This measure is defined as the Group net profit or
loss before tax from continuing operations excluding adjusting items.
Year to Restated¹
31 July Year to
2023 31 July
£'000 2022
£'000
Statutory loss before tax (20,669) (15,583)
Add back total adjusting items before tax 36,499 36,142
Adjusted profit before tax 15,830 20,559
1 The results for the year to 31 July 2022 have been restated to reflect the
reclassification of share-based payments from adjusted results to adjusting
items and the restatement of depreciation on investment property. The latter
arose from an accounting policy change to measure investment property using a
fair value model, which has been applied retrospectively. Refer to note 1 of
the Consolidated Financial Statements for further details.
Adjusted profit after tax: This measure is defined as the Group profit or loss
after tax from continuing operations, excluding adjusting items:
Year to Restated¹
31 July Year to
2023 31 July
£'000 2022
£'000
Statutory loss after tax (18,765) (13,974)
Add back total adjusting items after tax 33,785 32,731
Adjusted profit after tax 15,020 18,757
1 The results for the year to 31 July 2022 have been restated to reflect the
reclassification of share-based payments from adjusted results to adjusting
items and the restatement of depreciation on investment property. The latter
arose from an accounting policy change to measure investment property using a
fair value model, which has been applied retrospectively. Refer to note 1 of
the Consolidated Financial Statements for further details.
Adjusted basic earnings per share from continuing operations: This measure is
defined as basic earnings per share after adjusting items
Year to Restated¹
31 July Year to
2023 31 July
£'000 2022
£'000
Adjusted profit after tax 15,020 18,757
Weighted average number of shares ('000) 173,189 173,700
Adjusted basic earnings per share (pence) 8.67 10.80
1 The results for the year to 31 July 2022 have been restated to reflect the
reclassification of share-based payments from adjusted results to adjusting
items and the restatement of depreciation on investment property. The latter
arose from an accounting policy change to measure investment property using a
fair value model, which has been applied retrospectively. Refer to note 1 of
the Consolidated Financial Statements for further details.
Adjusted operating margin: This measure is defined as the percentage of
adjusted operating profit over net revenue.
Year to 31 July 2023 Restated¹
£'000 Year to 31 July 2022
£'000
Group Europe Americas Group Europe Americas
Net revenue 192,012 57,246 134,766 190,277 58,050 132,227
Adjusted operating profit 18,456 3,751 19,014 22,396 4,439 23,508
Adjusted operating margin 9.6% 6.6% 14.1% 11.8% 7.6% 17.8%
1 The results for the year to 31 July 2022 have been restated to reflect the
reclassification of share-based payments from adjusted results to adjusting
items and the restatement of depreciation on investment property. The latter
arose from an accounting policy change to measure investment property using a
fair value model,which has been applied retrospectively. Refer to note 1 of
the Consolidated Financial Statements for further details.
Adjusted EBITDA: This measure is calculated using the preceding 12 months'
results and is defined as the adjusted operating profit or loss before
depreciation, amortisation, finance expense and taxation. The covenant
adjustment, as defined in the revolving credit facility agreement, includes an
adjustment to present on a "frozen GAAP" pre-IFRS 16 basis and a pro-forma
adjustment to incorporate the results of acquisitions in the preceding
12-month period that have not already been consolidated in the Group results.
The adjusted EBITDA for 2022 below has been determined on the basis of
continuing and discontinued operations solely for the purpose of calculating
the ratio of bank net debt to EBITDA for bank covenant purposes.
Year to Restated¹
31 July Year to
2023 31 July
£'000 2022
£'000
Adjusted operating profit 18,456 22,396
Add: depreciation and amortisation 13,617 10,278
Less: amortisation of intangibles classified as adjusting items (9,256) (6,390)
Adjusted EBITDA 22,817 26,284
Covenant adjustment (2,614) (1,518)
Adjusted EBITDA for covenant purposes- FY23 presentation basis 20,203 24,766
2022 share-based payments charge presented within adjusted results - (3,234)
Adjusted EBITDA for covenant purposes as reported to the bank 20,203 21,532
1 The results for the year to 31 July 2022 have been restated to reflect the
reclassification of share-based payments from adjusted results to adjusting
items and the restatement of depreciation on investment property. The latter
arose from an accounting policy change to measure investment property using a
fair value model, which has been applied retrospectively. Refer to note 1 of
the Consolidated Financial Statements for further details.
Net debt/(cash): This measure is calculated as the total of loans and other
borrowings excluding leases, less cash and cash equivalents.
For the measurement of the bank covenants, cash, cash equivalents and
borrowings denominated in currencies other than Pounds Sterling, are
translated at an average rate over the preceding 12 months rather than at the
period end spot rate used in the Consolidated Balance Sheet.
Year to Year to
31 July 31 July
2023 2022
£'000 £'000
Cash and cash equivalents 9,847 12,609
Bank loans (29,815) (13,148)
Net debt before covenant adjustments (19,968) (539)
Foreign exchange difference between spot rate and average rate (1,035) 353
Net debt for covenant purposes (21,003) (186)
Net debt/(cash) to adjusted EBITDA for bank covenant purposes: This measure is
calculated by dividing net debt/(cash) for covenant purposes by adjusted
EBITDA for covenant purposes. The adjusted EBITDA is based on the total of
continuing and those discontinued operations that were not divested at the
balance sheet date.
Year to Restated¹
31 July Year to
2023 31 July
£'000 2022
£'000
Adjusted EBITDA for covenant purposes 20,203 21,532
Net debt for covenant purposes (21,003) (186)
Net debt to adjusted EBITDA for covenant purposes 1.04 0.01
1 The results for the year to 31 July 2022 have been restated to reflect the
reclassification of share-based payments from adjusted results to adjusting
items and the restatement of depreciation on investment property. The latter
arose from an accounting policy change to measure investment property using a
fair value model, which has been applied retrospectively. Refer to note 1 of
the Consolidated Financial Statements for further details.
Backlog: The value of client awards that have a signed contract, statement of
work or an explicit verbal commitment to start work with no further
permissions or conditions required less revenue recognised to date.
Adjusted operating cash inflows before movements in working capital: This
measure is calculated by adding back non-cash items included within adjusted
operating profit other than working capital movements.
Year to Restated¹
31 July Year to
2023 31 July
£'000 2022
£'000
Adjusted operating profit 18,456 22,396
Depreciation of property, plant and equipment 4,361 3,886
Increase in provisions related to adjusted results 1,062 32
Share of profit from joint arrangement - (442)
Disbursement from joint arrangement - 147
Adjusted operating cash inflow from before working capital 23,879 26,019
1 The results for the year to 31 July 2022 have been restated to reflect the
reclassification of share-based payments from adjusted results to adjusting
items and the restatement of depreciation on investment property. The latter
arose from an accounting policy change to measure investment property using a
fair value model which has been applied retrospectively. Refer to note 1 of
the Consolidated Financial Statements for further details.
Consolidated Income Statement
Restated¹
Year to 31 July 2023 Year to 31 July 2022
Note Adjusted results Adjusting items Statutory results Adjusted results Adjusting items Statutory results
(note 3) (note 3)
£'000 £'000 £'000 £'000 £'000 £'000
Revenue 2 195,870 - 195,870 197,123 - 197,123
Project-related costs (3,858) - (3,858) (6,846) - (6,846)
Net revenue 192,012 - 192,012 190,277 - 190,277
Cost of service (104,871) (104,871) (105,398) - (105,398)
Gross profit 87,141 - 87,141 84,879 - 84,879
Selling costs (20,382) - (20,382) (16,412) - (16,412)
Administrative expenses (48,303) (4,113) (52,416) (46,513) (7,565) (54,078)
Share of results of joint arrangement - - - 442 - 442
Share-based payment charges - (3,749) (3,749) - (3,234) (3,234)
Customer disputes and litigation - (3,578) (3,578) - - -
Impairment of goodwill - (14,598) (14,598) - - -
Amortisation of acquired intangibles - (9,256) (9,256) - (6,390) (6,390)
Contingent consideration treated as remuneration and adjustments to - (9,588) (9,588) - (13,229) (13,229)
consideration
Acquisition and integration costs - (655) (655) - (1,421) (1,421)
Property impairment and related empty credits/(charges) - 7,802 7,802 - (6,264) (6,264)
Other operating income - - - - 1,621 1,621
Operating profit/(loss) 18,456 (37,735) (19,279) 22,396 (36,482) (14,086)
Net pension finance income - 1,376 1,376 - 340 340
Other finance costs 5 (2,626) (140) (2,766) (1,837) - (1,837)
Profit/(loss) before tax 15,830 (36,499) (20,669) 20,559 (36,142) (15,583)
Income tax (charge)/credit (810) 2,714 1,904 (1,802) 3,411 1,609
Net profit/(loss) from continuing operations 15,020 (33,785) (18,765) 18,757 (32,731) (13,974)
Net profit from discontinued operations 4 - - - 1,406 22,575 23,981
Net profit/(loss) for the period attributable to equity holders of the Parent 15,020 (33,785) (18,765) 20,163 (10,156) 10,007
Company
Basic earnings/(loss) per share (pence)
Continuing operations 8.67 (10.83) 10.80 (8.04)
Discontinued operations - - 0.81 13.80
Continuing and discontinued operations 8 8.67 (10.83) 11.61 5.76
Diluted earnings/(loss) per share (pence)
Continuing operations 8.50 (10.83) 10.46 (7.79)
Discontinued operations - - 0.78 13.37
Continuing and discontinued operations 8 8.50 (10.83) 11.24 5.58
1 The results for the year to 31 July 2022 have been restated to reflect the
reclassification of share-based payments from adjusted results to adjusting
items and the restatement of depreciation on investment property. The latter
arose from an accounting policy change to measure investment property using a
fair value model, which has been applied retrospectively. Refer to note 1 for
further details.
Consolidated Statement of Comprehensive Income
Year to
31 July 2023 Year to
£'000 31 July 2022
£'000
Net (loss)/profit for the period (18,765) 10,007
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of defined benefit scheme surplus (28,295) 20,335
Tax credit/(charge) on items taken through other comprehensive income 7,074 (6,209)
(21,221) 14,126
Items that may be reclassified subsequently to profit or loss:
Transfers of losses on cash flow hedges 54 13
Losses on cash flow hedges (43) (54)
Foreign exchange (losses)/gains (1,477) 4,366
Tax credit/(charge) on items taken through other comprehensive income 129 (1,105)
(1,337) 3,220
Other comprehensive (loss)/income for the period (22,558) 17,346
Total comprehensive (loss)/income for the period attributable to equity (41,323) 27,353
holders of the Parent Company
Consolidated Statement of Changes in Equity
Share capital Additional paid-in capital¹ ESOP reserve Treasury shares Share option reserve Hedging and translation reserve Other reserves Retained earnings/ (accumulated deficit)²
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Total
equity
£'000
Balance at 1 August 2021 (as previously reported) 17,255 86,513 (68) (163) 3,756 1,583 91,621 (26,118) 82,758
Prior year adjustment (note 1) - - - - - - - 2,532 2,532
Balance at 1 August 2021 (restated) 17,255 86,513 (68) (163) 3,756 1,583 91,621 (23,586) 85,290
Profit for the year (restated) - - - - - - - 10,007 10,007
Other comprehensive income - - - - - 3,220 3,220 14,126 17,346
Total comprehensive income - - - - - 3,220 3,220 24,133 27,353
Dividends paid - - - - - - - (38) (38)
Shares issued to settle consideration for acquisitions 352 7,843 - - - - 7,843 - 8,195
Shares issued to settle employee share options 190 303 (17) - (1,242) - (956) 1,098 332
Purchase of own shares by Employee Benefit Trust - - (5,593) - - - (5,593) - (5,593)
Reclassification of share-settled amount from liabilities - - 353 - - - 353 - 353
Recognition of share-based payments - - - - 3,118 - 3,118 - 3,118
Recognition of share-based contingent consideration deemed as remuneration - - - - 7,593 - 7,593 - 7,593
Tax on share-based payments - - - - (318) - (318) - (318)
Hyperinflation revaluation - - - - - 176 176 - 176
Reclassification to retained earnings - (5,357) - - - - (5,357) 5,357 -
Balance at 31 July 2022 (restated) 17,797 89,302 (5,325) (163) 12,907 4,979 101,700 6,964 126,461
Loss for the year - - - - - - - (18,765) (18,765)
Other comprehensive loss - - - - - (1,337) (1,337) (21,221) (22,558)
Total comprehensive loss - - - - - (1,337) (1,337) (39,986) (41,323)
Dividends paid - - - - - - - (3) (3)
Shares issued to settle employee share options 6 45 3,872 - (1,660) - 2,257 (2,211) 52
Purchase of own shares by Employee Benefit Trust - - (8,395) - - - (8,395) - (8,395)
Reclassification of share-settled amount from liabilities - - 362 - - - 362 - 362
Recognition of share-based payments in respect of employee share schemes - - - - 3,128 - 3,128 - 3,128
Recognition of share-based contingent consideration deemed as remuneration - - - - 3,878 - 3,878 - 3,878
Reclassification of contingent consideration deemed as remuneration from - - - - (10,623) - (10,623) - (10,623)
equity to liabilities
Tax on share-based payments - - - - (545) - (545) - (545)
Hyperinflation revaluation - - - - - 424 424 - 424
Reclassification to retained earnings³ - - - - (3,279) - (3,279) 3,279 -
Balance at 31 July 2023 17,803 89,347 (9,486) (163) 3,806 4,066 87,570 (31,957) 73,416
1 Additional paid-in capital includes share premium, merger reserve and
capital redemption reserve as detailed in note 16.
2 The results for the year to 31 July 2022 have been restated to reflect the
correction of the tax treatment of income from US loan forgiveness income in
FY21 and the restatement of depreciation on investment property. The latter
arose from an accounting policy change to measure investment property using a
fair value model, which has been applied retrospectively. Refer to note 1 for
further details.
3 Following the full vesting in the period of shares in respect of deferred
consideration for the Spire acquisition that were allotted in a prior period,
related amounts have been transferred from the share option reserve to
retained earnings.
Consolidated Balance Sheet
Note 31 July Restated¹
2023 31 July
£'000 2022
£'000
Assets
Non-current assets
Property, plant and equipment 13,693 10,559
Investment property 4,790 4,790
Goodwill 61,759 76,935
Other intangible assets 13,244 20,435
Retirement benefit surplus 13 12,964 38,748
Other non-current assets 137 101
Deferred tax assets 4,678 7,625
111,265 159,193
Current assets
Trade and other receivables 14 31,432 45,393
Derivative financial instruments 14 31 2
Current tax assets 2,074 -
Cash and cash equivalents 14 9,847 12,609
43,384 58,004
Total assets 154,649 217,197
Liabilities
Current liabilities
Lease liabilities 14 2,574 2,806
Trade and other payables 14 23,534 32,968
Derivative financial instruments 14 - 454
Current tax liabilities 624 1,867
Deferred income 14 3,479 5,159
Contingent and deferred consideration payable 10 4,955 6,944
Provisions 12 1,984 477
37,150 50,675
Non-current liabilities
Lease liabilities 14 8,193 10,052
Loans and borrowings 11 29,815 13,148
Contingent and deferred consideration payable 10 3,604 2,155
Provisions 12 275 4,206
Deferred tax liabilities 2,196 10,500
44,083 40,061
Total liabilities 81,233 90,736
Net assets 73,416 126,461
Capital and reserves
Share capital 15 17,803 17,797
Other reserves 17 87,570 101,700
(Accumulated deficit)/retained earnings (31,957) 6,964
Total equity 73,416 126,461
1 The Consolidated Balance Sheet at 31 July 2022 has been restated in respect
of the correction of the tax treatment of income from US loan forgiveness
income in FY21 and the restatement of depreciation and associated tax of the
investment property following a change in accounting policy to move from a
cost model to a fair value model, which has been applied retrospectively.
Refer to note 1 for further details.
These Consolidated Financial Statements were approved by the Board of
Directors and authorised for issue on 1 November 2023. They were signed on its
behalf by:
Kelly Manthey
Chris Kutsor
Chief Executive Officer
Chief Financial Officer
Chief Operating
Officer
Consolidated Statement of Cash Flows
Note Year to Restated¹
31 July 2023 Year to
£000 31 July 2022
£000
Statutory loss before tax (20,669) (15,583)
Add back net finance costs 1,390 1,497
Operating loss from continuing operations (19,279) (14,086)
OPerating profit from discontinued operations 4 - 25,684
Statutory operating (loss)/profit (19,279) 11,598
Depreciation of property, plant and equipment 4,361 4,123
Amortisation of intangible assets 3 9,256 6,484
Other items before working capital movements:
Share-based payment charge 3,749 3,118
(Decrease)/increase in retirement benefit obligations (1,135) 1,194
Charge for contingent consideration required to be treated as remuneration 3 9,588 13,228
Contingent consideration paid for acquisitions made in prior periods (14,537) -
Cash outflow from derivatives in respect of contingent consideration paid for (1,651) -
acquisitions made in prior periods
(Decrease)/increase in provisions (2,429) 3,551
Impairment losses on goodwill 3 14,598 -
Non-cash reductions in lease liabilities (5,421) (4,401)
Impairment of right-of-use assets 3 1,847 6,207
Loss on disposal of property, plant and equipment - 72
Share of profit from joint arrangement - (442)
Disbursement from joint arrangement - 147
Gain on disposal of subsidiaries - (24,059)
Fair value gain from deemed sale on step acquisition 3 - (1,621)
Operating cash inflows before movements in working capital (1,053) 19,199
Decrease/(increase) in receivables 13,911 (8,054)
(Decrease)/increase in payables (10,649) 939
(Decrease)/increase in deferred income (1,687) 43
Cash generated from operations 522 12,127
Interest paid (1,660) (1,014)
Income taxes paid (1,462) (1,341)
Net cash flows from operating activities (2,600) 9,772
Investing activities
Purchase of property, plant and equipment (2,374) (1,336)
Acquisition of subsidiaries, net of cash acquired (2,197) (11,932)
Deferred consideration paid for acquisitions made in prior periods (673) -
Proceeds on disposal of subsidiaries - 34,269
Net cash flows from investing activities (5,244) 21,001
Financing activities
Principal element of lease payments (3,344) (3,080)
Interest element of lease payments (636) (732)
Purchase of own shares by the Employee Benefit Trust (8,395) (5,593)
Dividends paid (3) (38)
Proceeds from issue of shares 52 332
Drawdown of borrowings 26,672 23,988
Repayment of borrowings (8,809) (78,178)
Net cash flows from financing activities 5,537 (63,301)
Net decrease in cash and cash equivalents (2,307) (32,528)
Cash and cash equivalents at beginning of the year 12,609 44,971
Effect of currency movements (455) 166
Cash and cash equivalents at end of the year 9,847 12,609
Included in the figures above are the following cash flows from discontinued
operations:
Year to
31 July 2023 Year to
£000 31 July 2022
£000
Net cash flows from investing activities - (1,862)
Net cash used in financing activities - 34,255
Net increase in cash and cash equivalents - (542)
- 31,851
1 The results for the year to 31 July 2022 have been restated to reflect the reclassification of share-based payments from adjusted results to adjusting items and the restatement of depreciation on investment property. The latter arose from an accounting policy change to measure investment property using a fair value model, which has been applied retrospectively. Refer to note 1 for further details.
Notes to the Condensed Consolidated Financial Statements
1. Basis of preparation
Kin and Carta plc (the "Company") is a public company limited by shares
incorporated in the United Kingdom under the Companies Act 2006 and is
registered in England and Wales (Company registration number 1552113) and is
listed on the London Stock Exchange. The address of the registered office is
The Spitfire Building, 71 Collier Street, London N1 9BE. The Group is
principally engaged in the provision of digital transformation consultancy
services.
The Consolidated Financial Statements ("the financial statements") of Kin and
Carta plc and its subsidiaries (collectively, the "Group") The financial
statements are presented in pounds sterling as this is the currency of the
primary economic environment in which the Group operates, generally rounded to
the nearest thousand, except when otherwise indicated.
The financial information set out in this document does not constitute the
statutory accounts of the Group for the years ended 31 July 2023 or 31 July
2022 but is derived from those accounts. Statutory accounts for the year ended
31 July 2022 have been delivered to the registrar of companies, and those for
2023 will be delivered in due course. The auditor has reported on those
accounts; their reports were (i) unqualified, (ii) did not include a reference
to any matters to which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under section
498 (2) or (3) of the Companies Act 2006.
This financial information was authorised for issue by the Directors on 1
November 2023.
The Consolidated Financial Statements have been prepared on a historical cost
basis, except for the following items, which are measured at fair value or
grant date fair value:
● Share-based payment arrangements
● Investment property
● Business combinations
● Derivative financial instruments
● Contingent consideration payable
New accounting standards, amendments to standards, and IFRIC interpretations
which became applicable during the period were either not relevant or had no
impact on the Group's net results or net assets.
Prior year restatements and reclassifications
(1) Correction of the taxation of income from loan forgiveness
In FY21, the forgiveness of £4.5 million of loans received under the Payment
Protection Programme ("PPP") provided by the US Government were recorded in
adjusted other income. This was treated as taxable income in the financial
statements for the year ended 31 July 2021, consistent with general US tax
rules for loan forgiveness, and a current corporate income tax charge of £1.3
million was provided for at 31 July 2021 and 31 July 2022. However, specific
tax legislation for the exclusion of such income was enacted into law within
the FY21 year, which resulted in the tax charge being overstated by £1.3
million in that year. As a result, the retained earnings for the comparative
balance sheet in these financial statements have been restated as detailed in
the tables below.
(2) Change of accounting policy to hold investment property at the fair value
model (previously cost model)
IAS 40 permits investment properties to be held at either the cost or fair
value model. During the year to 31 July 2023, there was a change in accounting
policy to move from a cost model to a fair value model. The change arose
because management judged that the fair value model was more appropriate as it
better reflects the manner of recovery of value of the asset. This change in
accounting policy has been applied retrospectively from 1 August 2021, being
the beginning of the earliest prior period presented, as required by IAS 8.
The previously reported carrying amount at 1 August 2021, under the cost
model, was £4.4 million. The fair value at 31 July 2023, being the market
value as determined by an independent property valuer during July 2023, was
£4.8 million. The fair value thus obtained was also applied as at 1 August
2021 and 31 July 2022 as management's assessment was that the fair value would
have not been materially different to the value at 31 July 2023 at either
earlier date. The difference between the carrying amount as per the cost model
previously adopted and the fair value as at 1 August 2021 is £0.35 million,
which is presented in accumulated retained earnings within equity as an
adjustment to opening equity at 1 August 2021, net of the related deferred tax
adjustment.
At 1 August 2021, there was a deferred tax liability of £0.88 million in
respect of the investment property. Following the change in accounting policy,
the basis for the valuation of deferred tax changed to assume a sale scenario
for determining the tax basis. In line with IAS 12, the revised accounting
policy resulted in a deferred tax asset and a full valuation allowance was
taken against the asset, given the low probability of recovery. The deferred
tax liability at 1 August 2021 was restated to nil through accumulated
retained earnings within equity.
In the prior year to 31 July 2022, £0.27 million depreciation was previously
recorded in respect of the investment property. This has been restated to nil
following the accounting policy change. In addition, there was a tax credit of
£0.05 million recorded in the year in respect of deferred tax, which has been
restated to nil, resulting in a net increase in net profit after tax for the
prior period of £0.22 million.
(3) Reclassification of share-based payments from adjusting results to
adjusting items
Share-based payments are transactions in which the Group issues shares to
certain employees as consideration for services received, accounted for under
IFRS 2 'Share-based Payment'. From FY23, management decided to exclude the
Group's share-based payment charge from the adjusted results. The inclusion of
share-based payments, together with associated employer taxes, where
applicable, as an adjusting item is in line with publicly listed peer group
companies in digital transformation, and with the manner in which financial
analysts tend to assess financial performance of companies in the industry,
therefore aiding the comparability of adjusted results. The FY22 have been
restated to reclassify the share-based payment charge from non-adjusting items
to adjusting items in the Consolidated Income Statement. There is no impact on
statutory profit/(loss) for either period.
These three items are reflected in the tables below:
Restatements and reclassifications as at and for the prior year ended 31 July
2022
31 July Tax on loan forgiveness restatement Share-based payments reclassification Investment property accounting policy change 31 July
2022 £'000 £'000 £'000 2022
(statutory- as previously reported) (statutory- restated)
£'000 £'000
Consolidated Balance Sheet (extract)
Investment property 4,169 - - 621 4,790
Current tax liabilities (3,168) 1,301 - - (1,867)
Deferred tax liabilities (11,334) - - 834 (10,500)
Net assets 123,705 1,301 - 1,455 126,461
Retained earnings 4,208 1,301 - 1,455 6,964
Total equity 123,705 1,301 - 1,455 126,461
Consolidated Income Statement (extract)
Administrative expenses (57,581) - 3,234 269 (54,078)
Share-based payments - - (3,234) - (3,234)
Loss before tax from continuing operations (15,852) - - 269 (15,583)
Income tax (charge)/credit 1,654 - - (45) 1,609
Net (loss)/profit from continuing operations (14,198) - - 224 (13,974)
Basic and diluted earnings per share for the year ending 31 July 2022 have
been updated to reflect the share-based payments reclassification and the
restatement of depreciation following the accounting policy change to hold
investment property at the fair value model:
Adjusted earnings Statutory earnings
Continuing and discontinued operations Year to Year to
31 July Year to 31 July Year to
2022 31 July 2022 31 July
(as previously reported) 2022 (as previously reported) 2022
(restated) (restated)
Net profit for the period (£'000) 16,291 20,163 9,783 10,007
Earnings per share (pence)
Basic earnings per share 9.38 11.61 5.63 5.76
Diluted earnings per share 9.08 11.24 5.46 5.58
Restatements as at 1 August 2021
1 August Tax on loan forgiveness restatement Investment property accounting policy change 1 August
2021 £'000 £'000 2021
(statutory- as previously reported) (statutory- restated)
£'000 £'000
Consolidated Balance Sheet (extract)
Investment property 4,438 - 352 4,790
Current tax assets/(liabilities) (514) 1,301 - 787
Deferred tax liabilities (3,930) - 879 (3,051)
Net assets 82,758 1,301 1,231 85,290
Accumulated deficit (26,118) 1,301 1,231 (23,586)
Total equity 82,758 1,301 1,231 85,290
New and amended standards and interpretations
The following amendments became effective for annual accounting periods
beginning on, or after, 1 January 2022, hence are applicable to Kin and Carta
plc for the financial year to 31 July 2023:
● Amendments to IAS 37: Onerous Contracts- Cost of Fulfilling a
Contract
● Amendments to References to the Conceptual Framework in IFRS 3
'Business Combinations'
● Amendments to IAS 16: Property, Plant and Equipment- Proceeds before
Intended Use
● Annual Improvements to IFRS Standards 2018-2020
These amendments have a limited impact on the Consolidated Financial
Statements of the Group.
Standards issued but not yet effective
At the date of the approval of these financial statements, the following
standards, which have not been applied in these financial statements were in
issue, but not yet effective:
● Amended IFRS 17: Insurance contracts
● Amendments to IAS 8: Definition of Accounting Estimates
● Amendments to IAS 1: Disclosure of Accounting Policies,
Classification of Liabilities as Current or Non-current and Non-current
Liabilities with Covenants
● Amendments to IAS 12: Deferred Tax related to Assets and Liabilities
arising from a Single Transaction
● Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture
● Amendment to IFRS 16: Lease Liability in a Sale and Leaseback
These new standards are not expected to have a material impact on the
Consolidated Financial Statements. The Group has not early adopted any
standards, interpretations or amendments that have been issued but are not yet
effective.
Going concern
As at 31 July 2023, the Group had drawn £29.8 million, (31 July 2022: £13.1
million) on its credit facilities, leaving an unutilised amount of £55.2
million (31 July 2022: £71.9 million). At 31 July 2023, the ratio of net
debt/(cash) to adjusted EBITDA for bank covenant purposes was 1.04 times (31
July 2022: 0.01 times), well within the covenant limit of 2.5 times.
The Group has prepared a forecast of financial projections for the three-year
period to 31 July 2026. The forecast underpins the going concern assessment,
which had been made for the period through to 1 November 2024, a period of 12
months from the date of approval of the Consolidated Financial Statements.
The base case reflects the assumptions made by the Group with respect to
organic growth, increased client diversification and operating profit margin
improvement. For the going concern assessment, management ran a series of
downside scenarios on the latest forecast profit and cash flow projections to
assess bank covenant headroom against funding facilities. This process
involved a number of sensitised scenarios to assess the financial impact of
the Group's principal business risks, which align with those disclosed within
this Annual Report and Accounts.
These scenarios and analysis included assumptions around the Group's products
and markets, expenditure commitments, expected cash flows and borrowing
facilities, taking into account reasonable possible changes in trading
performance, and after making appropriate enquiries. In performing this
assessment, consideration was given to the current macroeconomic environment.
The inflationary and rising interest rate environment has seen the Group's
clients spending more cautiously in FY23, resulting in lower than forecast
revenue growth. Revenue growth is forecast to improve modestly in FY24 as the
impact of new contract wins comes through and macroeconomic pressures are
forecast to reduce. Scenarios modelled included sales volume reductions,
decreases in gross margin and significant customer loss. None of the stress
scenarios modelled show a breach of bank covenants in respect of available
funding facilities or any liquidity shortfall.
This process allowed the Board to conclude that the Group will continue to
operate on a going concern basis for a period of at least 12 months from when
the Consolidated Financial Statements are authorised for issue. Accordingly,
the Consolidated Financial Statements are prepared on a going concern basis.
Recommended acquisition of Kin and Carta plc by Apax Partners LLP ("Apax")
On 18 October 2023, the Board of Kin and Carta plc recommended an offer for
the Group to be acquired by Apax. The Board have considered the statements in
Apax's announcement made pursuant to rule 2.7 of the Takeover Code in respect
of the proposed acquisition, and discussions with Apax senior management
regarding Apax's intention to ensure continuity of the Group's existing
business. Although the Group's current bank credit facility includes a
provision which allows the lender banks to withdraw the facility under certain
circumstances after a change of control. The Board believes that Apax would
ensure that appropriate bank facilities would continue to be made available to
the group after completion of the deal. Considering this, the Board has
concluded that the completion of this acquisition would not impact the
appropriateness of the going concern basis of preparation for these
Consolidated Financial Statements.
The financial statements do not include any adjustments which would be
required should it be inappropriate to apply the going concern basis of
accounting.
Climate change
In preparing the Consolidated Financial Statements, management has considered
the impact of climate change. There has been no material impact identified on
the financial reporting judgements and estimates. While there is currently no
medium-term impact expected from climate change, management is aware of the
variable risks arising from climate change and will regularly assess these
risks against judgement and estimates made in preparation of the Group's
financial statements.
2. Segment reporting
During the year, the Group was managed on a regional basis. Corporate costs,
comprising certain costs that are not allocated to the operating regions, are
disclosed separately.
The Group reports its results through the following segments:
● Americas- this segment generates revenue from services offered to
our global clients by our operating businesses, which are located in the
Americas
● Europe- this segment generates revenue from services offered to our
global clients by our operating businesses, which are located in Europe
Corporate costs are those that are not allocated directly to the operating
regions, including the costs of the Board.
The above operating segments are reported in a manner consistent with the
internal reporting provided to the Chief Operating Decision Makers ("CODMs").
The CODM has been determined to be the Chief Executive Officer and the Chief
Financial and Chief Operating Officer, who are primarily responsible for the
assessment of the performance of the Group. The full segmental balance sheet
is not disclosed as this information is not reported to the CODM.
Results from continuing operations for the current year ended 31 July 2023
2023
Europe Americas Corporate costs Total
£'000 £'000 £'000 £'000
Revenue 62,086 157,995 (24,211) 195,870
Net revenue 57,246 134,766 - 192,012
Statutory operating (loss)/profit (22,699) 10,097 (6,677) (19,279)
Adjusting items 26,450 8,918 2,367 37,735
Adjusted operating profit/(loss) 3,751 19,015 (4,310) 18,456
Results from continuing operations for the prior year ended 31 July 2022
2022
Europe Americas Corporate costs Restated¹
total
£'000 £'000 £'000 £'000
Revenue 61,772 154,037 (18,686) 197,123
Net revenue 58,050 132,227 - 190,277
Statutory operating loss/(profit) (1,688) 660 (13,058) (14,086)
Adjusting items 6,127 22,848 7,507 36,482
Adjusted operating profit/(loss) 4,439 23,508 (5,551) 22,396
1 The results for the year to 31 July 2022 have been restated to reflect the
reclassification of share-based payments from adjusted results to adjusting
items and the restatement of depreciation on investment property. The latter
arose from an accounting policy change to measure investment property using a
fair value model, which has been applied retrospectively. Refer to note 1 for
further details.
The Group's non-current assets (excluding deferred tax assets and the
retirement benefit surplus) are located as follows:
2023 2022
£'000 £'000
Europe 49,616 66,684
Americas 39,129 41,235
Corporate costs 4,878 4,901
93,623 112,820
The non-current assets recorded under corporate costs comprise, principally,
the Group's investment property.
Geographical split of revenue from continuing operations
Revenue and net revenue by geographical area is based on the location where
the provision of goods and services has been provided.
2023 2022
£'000 £'000
Continuing operations Revenue Net revenue Revenue Net revenue
United States of America 140,079 139,329 139,556 132,230
United Kingdom 45,676 42,730 52,226 55,607
Rest of the world 10,115 9,953 5,341 2,440
195,870 192,012 197,123 190,277
Significant customer
For the year ended 31 July 2023, one customer, based in the Americas Financial
Services sector, accounted for £48.0 million (2022: £22.2 million) or 24.5%
(2022: 11.3%) of total Group revenue and £47.9 million (2022: £21.9 million)
or 24.9% (2022: 11.5%) of total Group net revenue. No other
single customer contributed more than 10% to Group revenue or net revenue in
the current or prior period.
3. Adjusting items
Adjusted items are presented in the middle column of the Consolidated Income
Statement. In the opinion of the Directors, their separate presentation aids
understanding of the financial performance of the Group. These are detailed
below:
Expense/(income) 2023 Restated¹
2022
Continuing operations £'000 £'000
Costs related to acquisitions
Amortisation of acquired intangibles 9,256 6,390
Contingent consideration required to be treated as remuneration 9,849 13,229
Deferred consideration adjustments (261) -
Acquisition and integration costs 655 1,421
19,499 21,040
Impairment
Impairment of goodwill 14,598 -
Fair value gain from deemed sale on step acquisition
Step up in value on notional disposal - (1,621)
Share-based payments charges
Share-based payments charges related to employee share schemes 3,749 3,234
St Ives Defined Benefit Pension Scheme costs
Scheme administrative costs 715 787
Other related costs 804 821
Past service cost (GMP equalisation uplift) - 3,884
1,519 5,492
Client disputes and litigation
Cost of client disputes and litigation 5,033 380
Related insurance proceeds (1,455) -
3,578 380
Restructuring and other items
Redundancies and other charges 3,806 1,693
Impairment of right-of-use asset 1,847 6,207
(Credit)/charges associated with empty properties (4,228) 4,462
Credit associated with lease modification and early termination (5,421) (4,405)
Other credits (1,212) -
(5,208) 7,957
Adjusting items before interest and tax 37,735 36,482
Net pension finance income in respect of defined benefit pension scheme (1,376) (340)
Interest charges related to non-pension adjusting items 140 -
Adjusting items before tax 36,499 36,142
Income tax credit (2,714) (3,411)
Continuing operations adjusting items after tax 33,785 32,731
1 The results for the year to 31 July 2022 have been restated to reflect the
reclassification of the share-based payments charge from adjusted results to
adjusting items. Refer to note 1 for further details.
As adjusted results include the benefits of acquisitions and restructuring
programmes, but exclude significant costs (such as significant acquisition
costs, legal, and major restructuring items), they should not be regarded as a
complete picture of the Group's financial performance, which is presented in
its statutory results. The exclusion of adjusting items may result in adjusted
earnings being materially higher or lower than statutory earnings. In
particular, when significant impairments, restructuring charges and legal
costs are excluded, adjusted earnings will be higher than statutory earnings.
On the face of the Consolidated Income Statement, administrative expenses
relating to adjusting items comprise the St Ives Defined Benefit Pension
Scheme costs of £1.5 million, redundancies and other charges of £3.8
million, and other credits of £1.2 million. Contingent consideration treated
as remuneration and consideration adjustments comprises contingent
consideration required to be treated as remuneration (£9.8 million), offset
by a credit of £0.3 million in respect of an adjustment to deferred
consideration for a prior period acquisition. All other items in the adjusting
items table above are separately identified on the face of the Consolidated
Income Statement.
Costs related to acquisitions
Charges relating to the amortisation of acquired customer relationships,
proprietary techniques and trademarks amounted to £9.3 million (2022: £6.4
million).
During the year, charges relating to contingent consideration required to be
treated as remuneration of £9.8 million (2022: £13.2 million) were recorded
in the Consolidated Income Statement as adjusting items. These charges arose
in respect of the prior year acquisitions of Cascade Data Labs £4.3 million
(2022: £9.0 million), Spire £1.0 million (2022 £1.9 million), Melon Group
£3.1 million (2022: £0.9 million), Loop £0.6 million (2022: £1.2 million)
and Octain £0.2 million (2022: £0.2 million); and £0.6 million in relation
to the current year acquisition of Forecast Data Services Limited (rebranded
Kin and Carta Data).
During the year, deferred consideration adjustments credits relating to prior
period acquisitions totalled £0.3 million.
Acquisition and integration costs of £0.7 million (2022: £1.4 million) were
incurred during the year. These relate to advisor costs incurred in respect of
acquisitions and potential acquisition targets, and one-off costs associated
with the integration of acquisitions onto Kin and Carta operating platforms.
In the prior year, £1.4 million was incurred in respect of similar
activities.
Impairment of goodwill
During the year, an impairment charge of £14.6 million against the carrying
value of goodwill relating to the "UK excluding Kin and Carta Data" cash
generating unit was recorded. The impairment arose due to a reduction in
actual and projected UK revenue arising from external market factors and
client caution. This, coupled with a higher cost of capital, reduced the
value-in-use of the UK cash generating unit below its carrying value at 31
July 2023. The impairment was recorded in the Consolidated Income Statement as
an adjusting item within the Europe segment. There were no impairment charges
associated with goodwill in the prior year.
Fair value gain from deemed sale on step acquisition
In the prior year, the Group acquired the 50% interest in Loop it did not
previously own. The acquisition was accounted for as a disposal followed by a
full acquisition in line with IFRS 3 'Business Combinations'. The notional
disposal of the existing 50% gave rise to a step up to fair value of the
investment, resulting in a gain of £1.6 million, which was recorded through
the Consolidated Income Statement as an adjusting item within the Americas
segment.
Share-based payment charges
Charges of £3.7 million (2022: £3.2 million) were recorded in the year in
respect of actual and potential future settlements to staff under the Group's
share-based employee incentive schemes, including related employer taxes,
where applicable. The classification of share-based payments as an adjusting
item is in line with global, publicly listed peer group companies in digital
transformation, where equity-based remuneration typically represents a
significant portion of remuneration, therefore aiding comparability of
adjusted profitability. Of these costs, £1.8 million (2022: £1.3 million)
were recorded within the Americas segment, £0.7 million (2022: £0.5 million)
within the Europe segment and £1.2 million (2022: £1.4 million) within
corporate costs.
St Ives Defined Benefit Pension Scheme costs
The Scheme charges include service costs of £0.7 million (2022: £0.8
million) and costs in relation to levies payable and other costs of the
sponsor's obligations towards the Scheme of £0.8 million (2022: £0.8
million). In the prior year, £3.9 million of past service costs were incurred
related to Guaranteed Minimum Pension equalisation (refer to note 27 for
further details). The costs of the Scheme are not considered to be part of the
ongoing performance of the Group. As such, they are treated as adjusting
items. The costs are classified in the Consolidated Income Statement as
administrative expenses and are recorded within corporate costs.
Client disputes and litigation
Client disputes and litigation net expense of £3.6 million (2022: £0.4
million) includes the direct costs of settlement and related external advisor
costs associated with the resolution of certain client disputes which were
significant in value and expected to be non-recurring in nature. These related
to legal disputes with two legacy, non-Enterprise clients, one arising during
the year and one in the prior year.
Full and final settlement amounts of £4.0 million were cash-settled in
respect of these disputes in the second half of FY23. During the year, £1.0
million (2022: £0.4 million) was incurred for external legal advisor costs in
defending the separate legal disputes.
Insurance proceeds of £1.5 million, relating to one of the claims, were
received under the Group insurance policies during the year, comprising
partial recovery of the costs incurred. There were no other material client
disputes at the reporting date. The net costs are recorded within the Americas
segment. After the year end, the Group's insurer confirmed that £3.3 million
of further reimbursement will be paid in respect of the second claim. As the
reimbursement was not virtually certain at the balance sheet date no insurance
income in respect of this claim were recorded in FY23. The income will be
recorded as an adjusting item in the Consolidated Income Statement in FY24
within the Americas segment. No further costs or insurance recoveries are
expected in respect of these claims.
Restructuring and other items
During the year, restructuring expenses of £3.8 million (2022: £1.7 million)
were incurred. These relate primarily to the reorganisation of the Group,
which commenced in 2022, following the switch to a fully regionally based
organisation, and the expenses of simplifying the Group's legal structure
leading to the liquidation of a number of legal entities. Charges also include
those linked to the set-up costs and the transition of certain roles to
nearshore centres. These costs are classified in the Consolidated Income
Statement as administrative expenses and are recorded within the Americas
segment (£2.1 million), Europe segment (£1.0 million) and corporate costs
(£0.7 million).
During the prior year, a decision was made to vacate a significant portion of
the Group's leasehold property in Chicago from September 2022 and to exercise
an early break on the whole lease in November 2026. Following this decision, a
net cost of £6.3 million was recorded in adjusting items in the prior year.
The net charge was comprised of an impairment charge of the related
right-of-use asset of £6.2 million; empty property costs of £4.5 million
consisting of the early termination payment and the contractually unavoidable
future expenses relating to the property tax and maintenance charges; and a
credit of £4.4 million in relation to the reduction of the lease liability as
a result of the decision to exercise the early break clause. The items were
recorded as adjusting items within the America segment because of their
material size and non-recurring nature.
During the current year, the Group renegotiated the lease of premises in
Chicago, with the agreement signed in February 2023. This will result in
swapping the current premises for a space of less than half the size in the
same building from January 2024 under a new lease, with the term on the lease
on the smaller premises extending to December 2033. This resulted in a net
credit of £7.8 million recorded during the year, consisting of: a release of
the provision for empty property costs of £4.2 million in respect of the
early termination payment of the previous lease, which was waived and a
portion of the provision for contractually unavoidable future expenses that is
no longer required; a £5.4 million write-down of the lease liability to
reflect the reduction in the lease term and associated payment; and an
impairment to the right-of-use asset of £1.8 million to reflect the reduction
in the useful value of the remaining asset under the old lease to December
2023, after applying the 45% impairment applied in the prior year.
During the year, other credits of £1.2 million were recorded in respect of
accrual releases associated with warranties provided to buyers of businesses
that were disposed of in prior periods. Following the expiration of related
warranty survival periods, the amounts previously provided are no longer
considered necessary.
Finance (income)/expense
Net pension finance income of £1.4 million (2022: £0.3 million) is recorded
in respect of the surplus in the St Ives Defined Benefit Pension Scheme. This
is recorded in corporate costs.
During 2022, a provision for empty property costs was recognised following the
decision to partially vacate the leasehold property in Chicago, USA from
September 2022, and a portion of the lease was identified as onerous in nature
due to under-occupancy. During the current year, notional interest costs of
£0.1 million related to the unwind of the discounting of the onerous cost
provision and the interest charge on the onerous portion of the lease
liability are recorded as adjusting items within the Americas segment.
Taxation on adjusting items
In the current year, the tax credit of £2.7 million (2022: £3.4 million
credit) relates to several of the items noted above. There is no tax charge or
credit associated with other items, most significantly the goodwill impairment
charge in the current year and the portion of the deemed remuneration charge
that relates to UK acquisitions in the current year (£0.6 million). There are
potential deferred tax credits associated with the deemed remuneration charges
for some of the US acquisitions, but the related deferred tax assets are
reduced by valuation allowances where this is judged to be appropriate.
4. Discontinued Operations
There have been no divestments in the current year. Discontinued operations in
the prior year include the results of three businesses, Incite, Edit and
Relish, which were divested in the year ended 31 July 2022.
The results of the discontinued operations for the prior year were as follows:
Restated¹
Year to 31 July 2022
Adjusted Adjusting items Statutory
results £'000 results
£'000 £'000
Revenue 10,116 - 10,116
Project-related costs (4,222) - (4,222)
Net revenue 5,894 - 5,894
Costs of service (2,349) - (2,349)
Gross profit 3,545 - 3,545
Selling costs (693) - (693)
Administrative expenses (1,188) - (1,188)
Gain on divestment of discontinued operations - 24,059 24,059
Amortisation of acquired intangibles - (94) (94)
Share-based payments related to employee share schemes - (210) (210)
Release of provision - 265 265
Operating profit 1,664 24,020 25,684
Other finance costs (32) - (32)
Profit before tax 1,632 24,020 25,652
Income tax charge (226) (1,445) (1,671)
Net profit for the period 1,406 22,575 23,981
1 The results for the year to 31 July 2022 have been restated to reflect the
reclassification of share-based payments from adjusted results to adjusting
items, as detailed in note 1.
5. Other finance costs
2023 2022
£'000 £'000
Interest on bank overdrafts and loans 1,764 415
Amortisation of bank arrangement fee relating to the bank revolving facility 315 690
Interest on lease liabilities 636 732
Notional interest on provisions 51 -
2,766 1,837
Included in finance costs, within interest on lease liabilities and interest
unwind on provisions, are £0.1 million relating to adjusting items. Refer to
note 3 for further details.
6. Income tax credit/(charge)
Income tax on the profit/(loss) as shown in the Consolidated Income Statement
is as follows:
Continuing operations: 2023 Restated¹
£'000 2022
£'000
Total current tax credit/(charge):
Current period credit/(charge) 280 (2,492)
Adjustments in respect of prior periods 1,311 984
Total current tax credit/(charge) 1,591 (1,508)
Deferred tax on origination and reversal of temporary differences:
Current period credit 482 3,123
Adjustments in respect of prior periods (169) (6)
Total deferred tax credit 313 3,117
Total income tax credit 1,904 1,609
1 The 2022 tax credit has been restated in respect of a change in accounting
policy for investment property to move from a cost model to a fair value
model, which has been applied retrospectively. Following the change, the basis
for the valuation of deferred tax changed to assume a sales scenario. Refer to
note 1 for further details.
UK corporation tax has been calculated at 21% (2022: 19%) the blended rate in
the period given the increase in statutory rate to 25%, from 19%, as at 1
April 2023. Deferred tax balances at 31 July 2023 in the UK are valued using a
rate of at 25%, the statutory rate prevailing at the balance sheet date.
Taxation for other jurisdictions is calculated at the rates prevailing in the
respective jurisdictions. For the US subsidiaries, the tax charge has been
calculated using a rate of 28.17% (2022: 28.51%), which includes the federal
rate of 21% and the US state and local level income tax rates, which vary from
0% to 9.5% (2022: 0% to 8%). For Colombia and Argentina the statutory rates of
35% and 25%, respectively have been used. For Bulgaria, North Macedonia and
Kosovo, the statutory rate of 10% has been used.
The tax credit for continuing operations can be reconciled to the loss before
tax shown in the Consolidated Income Statement as follows:
2023 Restated¹
£'000 2022
£'000
Loss before tax from continuing operations (20,669) (15,583)
UK corporation tax calculated at a rate of 21% (2022: 19%) 4,340 2,961
Tax charged at rates other than 21% (2022: 19%) (797) 316
Effect of change in United Kingdom corporate tax rate 877 -
Expenses not deductible for tax purposes (3,910) (3,623)
Effect of tax deductible goodwill 1,141 758
Credit on research and development activities 67 96
Movements on deferred tax asset valuation allowances (840) 320
Adjustments in respect of prior periods 1,026 781
Total income tax credit 1,904 1,609
Effective tax rate 9.2% 10.3%
1 The 2022 tax credit has been restated in respect of a change in accounting
policy for investment property to move from a cost model to a fair value
model, which has been applied retrospectively. Following the change, the basis
for the valuation of deferred tax changed to assume a sales scenario. Refer to
note 1 for further details.
The Group's effective tax rate was 9.2% (2022: 10.3%). This is driven by the
blend of statutory tax rates and taxable profit/losses in the jurisdictions in
which the Group operates, adjusted for the non-taxable nature of some of the
accounting charges, most significantly the impairment of goodwill taken in the
UK, the effect of tax-deductible goodwill in the US, the revaluation of
deferred tax assets in the US based on judgements of recoverability, and in
the UK based on changes in statutory tax rates.
7. Acquisitions
Current year acquisition of Kin and Carta Data Limited (formerly known as
Forecast Data Services Limited)
On 5 May 2023, the Group acquired 100% of the issued share capital of Kin and
Carta Data Limited (formerly known as Forecast Data Services Limited), a data
and artificial intelligence business based in Edinburgh, Scotland and, through
its Polish subsidiary, in Wroclaw, Poland. The initial cash consideration, net
of cash acquired, was £2.2 million.
Further amounts may be payable in respect of the growth in adjusted EBITDA
from the acquisition date to 30 September 2024, subject to service conditions.
Any further amounts payable are based on two measurement periods: the 12
months to 30 September 2023, which will be settled in cash in the event that a
payment is due, and the 12 months to 30 September 2024, up to 75% of which may
be settled in shares of Kin and Carta plc at the Company's discretion, with
the balance settled in cash. The total further consideration payable after 31
July 2023, all of which is accounted for as deemed remuneration because of
employment service conditions, is capped at £10.1 million. The Group
currently estimates that the further consideration payable after the balance
sheet date will amount to £4.3 million.
The fair value of intangible assets acquired represent the fair value of
customer relationships and of a trademark. Goodwill arising on acquisition can
be attributed to the value of future growth from new customers and the
assembled workforce. The goodwill is not expected to be deductible for tax
purposes. Acquisition costs of £0.3 million were expensed to the income
statement in the period as an adjusting item.
In the period to 31 July 2023, the acquisition contributed £1.2 million to
revenue and a loss before tax of £1.0 million. The loss includes charges for
deemed remuneration of £0.6 million, and amortisation of acquired intangibles
of £0.5 million (including amortisation of £0.4 million relating to the
trademark which was fully amortised in the year), which are recorded as
adjusting items in the period. Had the acquisition taken place on 1 August
2022, total Group revenue would have been £198.9 million and statutory loss
before tax for the period would have been £20.0 million.
Purchase price allocation
The amounts recognised for each class of assets and liabilities at the
acquisition date were as follows:
Carrying Fair value adjustments Fair value
amount £'000 £'000
£'000
Assets
Customer relationships - 1,678 1,678
Trademark - 354 354
Property, plant and equipment 212 - 212
Trade and other receivables¹ 1,353 - 1,353
Cash and cash equivalents 107 - 107
1,672 2,032 3,704
Liabilities
Lease liabilities (169) - (169)
Loans and borrowings (414) - (414)
Trade and other payables (899) - (899)
Provisions - (41) (41)
Other liabilities (34) 34 -
Current tax liabilities (3) - (3)
Deferred tax liabilities - (507) (507)
(1,519) (514) (2,033)
Total identifiable net assets 153 1,518 1,671
Goodwill 633
Initial cash consideration 2,304
Satisfied by:
Initial consideration before debt and working capital adjustments 3,000
Less:
Debt and working capital adjustments (696)
Total consideration 2,304
Acquisition of subsidiary, per the Cash Flow Statement:
Initial cash consideration (net of debt and working capital adjustments) 2,304
Less cash acquired (107)
2,197
1. The gross contractual amounts for trade receivables due of £1.4 million is
equal to their fair value.
The fair value of the estimated total amounts paid and payable are as follows:
Non-contingent consideration Charge for estimated deemed remuneration recorded in the current year Estimated charge for deemed remuneration to be recorded in future years Estimated total consideration paid and payable
£'000 £'000 £'000 £'000
Consideration 3,000 600 3,688 7,288
Debt and working capital adjustments (696) - - (696)
Total 2,304 600 3,688 6,592
Acquisitions in the prior year ending 31 July 2022
On 22 December 2021, the Group acquired 100% of the issued membership units of
Datorium, LLC, a Californian company that owns Octain, a responsible AI data
platform ("Octain").
On 14 February 2022, the Group acquired the remaining 50% of the membership
units of Loop Integration LLC ("Loop"), an e-commerce consultancy that it did
not previously own.
On 9 May 2022, the Group completed the acquisition of Melon AD ("Melon
Group"), a software engineering business.
The total initial consideration paid in the prior year, the fair value of net
assets acquired and goodwill are detailed below:
Total initial consideration Fair value of net assets acquired Goodwill
£'000 £'000 £'000
Octain 200 - 200
Loop 6,868 5,554 1,314
Melon 19,444 9,739 9,705
8. Earnings/(loss) per share
Basic earnings per share is calculated by dividing the profit for the year
attributable to ordinary equity holders of the Parent by the weighted average
number of ordinary shares outstanding during the year.
When the Group makes a profit, diluted earnings per share equals the profit
attributable to equity holders of the Parent adjusted for the dilutive impact
divided by the weighted average diluted number of shares. When the Group makes
a loss, diluted earnings per share equals the loss attributable to the equity
holders of the Parent divided by the weighted basic average number of shares.
This ensures that earnings per share on losses is shown in full and not
diluted by unexercised share awards.
Basic and diluted earnings/(loss) per share are calculated as follows:
Basic Adjusted earnings Statutory (loss)/earnings
Continuing and discontinued operations 2023 Restated¹ 2023 Restated¹
2022 2022
Earnings/(loss) (£'000) 15,020 20,163 (18,765) 10,007
Thousands Thousands Thousands Thousands
Issued ordinary shares at 1 August 177,961 172,546 177,961 172,546
Less shares held in treasury (91) (91) (91) (91)
Less shares held in the Employee Benefit Trust ("EBT") (2,490) (41) (2,490) (41)
Issued shares net of EBT and treasury at 1 August 175,380 172,414 175,380 172,414
Effect of shares purchased by the EBT in the period (3,315) (1,627) (3,315) (1,627)
Effect of share allotted out of the EBT in the period 1,095 887 1,095 887
Effect of shares issued in the period 50 2,026 50 2,026
Weighted average number of ordinary shares² 173,210 173,700 173,210 173,700
Basic earnings/(loss) per share 8.67 11.61 (10.83) 5.76
Diluted Adjusted earnings Statutory (loss)/earnings
Continuing and discontinued operations 2023 Restated¹ 2023 Restated¹
2022 2022
Earnings/(loss) (£'000) 15,020 20,163 (18,765) 10,007
Thousands Thousands Thousands Thousands
Weighted average number of ordinary shares (basic)² 173,210 173,700 173,210 173,700
Dilutive effect of share options outstanding 3,496 5,628 3,496 5,628
Weighted average number of ordinary shares (diluted)² 176,706 179,328 176,706 179,328
Diluted earnings/(loss) per share 8.50 11.24 (10.83) 5.58
1 The results for the year to 31 July 2022 have been restated to reflect the
reclassification of share-based payments from adjusted results to adjusting
items and the restatement of depreciation on investment property. The latter
arose from an accounting policy change to measure investment property using a
fair value model, which has been applied retrospectively. Refer to note 1 for
further details.
2 The weighted average number of shares is stated net of those shares held in
the Employee Benefit Trust and those held in Treasury.
Adjusted earnings are calculated by adding back adjusting items (note 3), as
adjusted for tax, to the profit or loss for the year.
9. Goodwill and other intangible assets
£'000
Cost and carrying amount of goodwill
At 1 August 2021 68,372
Acquisition of businesses 11,244
Disposals (5,990)
Currency movements 3,309
At 31 July 2022 76,935
Acquisition of businesses 633
Adjustment to goodwill in respect of acquisitions made in the prior year 66
Impairment charge (14,598)
Currency movements (1,277)
At 31 July 2023 61,759
Impairment testing of goodwill
For the purpose of impairment testing, the goodwill has been allocated to four
different cash-generating units ("CGUs"). The carrying amount of the goodwill
allocated to each CGU are set out below, together with the pre-tax discount
rate.
2023
2022
CGU Carrying value Pre-tax discount rate Carrying value Pre-tax discount rate
£'000 % £'000 %
Americas 26,093 17.4 27,588 15.2
UK excluding Kin and Carta Data 25,074 16.1 39,672 13.5
Melon 9,959 16.0 9,675 13.2
Kin and Carta Data 633 16.1 - -
61,759 76,935
The Group tests goodwill annually for impairment or more frequently if there
are indicators that goodwill might be impaired. For the purpose of impairment
testing, goodwill is allocated to the CGU, which represents the lowest level
within the Group at which goodwill is monitored.
The recoverable amount of the CGUs is determined using value-in-use
calculations. These use the cash flows derived from the Group's budget for
FY24 and long range plan for FY25 to FY27 as the basis for input into the
value-in-use calculation, with cash flows thereafter calculated using a
terminal value methodology. The budget and long range plan were approved by
the Board in October 2023. A margin for historical forecasting error has also
been factored into the value-in-use model for the explicit forecast period
where relevant. For all CGUs, cash flows beyond FY28 have been extrapolated
using a forecast growth rate of 2%. The discount rates used in the
value-in-use calculation are based on the pre-tax weighted average cost of
capital and reflect current market assessments of the time value of money and
the risks specific to the CGUs.
Key assumptions in the value-in-use calculations are those regarding cash flow
forecasts in the medium term, terminal growth rates and discount rates.
Management considers all the forecast revenues, margins and profits to be
reasonably achievable given recent performance and the historic trading
results of the relevant CGUs. Forecasts consider macro economic factors and
forecast growth in the digital transformation sector.
Summary of results
The impairment tests identified a shortfall of the value-in-use compared to
the carrying value for the UK excluding Kin and Carta Data CGU of £14.6
million, driven by a reduction in projected UK-sourced cash flows associated
principally with an acceleration of the shift for European clients from
onshore to nearshore delivery from our operations in South East Europe
("SEE"). The cash flows associated with delivery activities from SEE are
measured under the Melon CGU. The reduction in projected UK-sourced cash flows
was exacerbated by a higher cost of capital arising from significantly higher
UK bank interest rates, resulting in a higher discount rate being used to
determine the present value of the cash flows in the value-in-use calculation.
The value-in-use calculations for the other CGUs did not identify any
impairments, with a substantial excess of the value-in-use over the carrying
value for the other three CGUs as set out in the table below.
There were no goodwill or acquired intangible impairments in the prior year.
Sensitivity analysis
The Group conducted an analysis of the sensitivity of the impairment test to
changes in the key assumptions. These sensitivities do not include the UK
excluding Kin and Carta Data CGU, as the base case testing resulted in an
impairment as detailed above.
The results of the sensitivity tests are detailed below:
Value-in-use assumptions: Sensitivity of value-in-use to changes in key assumptions:
Revised excess of value-in-use over carrying value arising from:
Pre-tax discount rate Excess of value-in-use over carrying value A reduction of the growth in revenue of 10% An increase in pre-tax discount rate by 2%
(%) (£'000) (£'000) (£'000)
Americas 17.4 181,602 140,721 154,912
Melon 16.0 27,635 24,207 21,957
Kin and Carta Data 16.1 12,129 11,776 10,229
Management concluded that no reasonably possible change in any of the key
assumptions for these CGUs would reduce the recoverable amount below its
carrying value at the balance sheet date.
10. Contingent and deferred consideration payable
The fair value of contingent and deferred consideration is calculated based on
the amounts expected to be paid, determined by reference to forecasts of
future performance of the acquired businesses and the probability of
contingent events, including employment service conditions for the recipients.
The valuation methods of the Group's contingent consideration carried at fair
value are categorised as Level 3. Level 3 financial assets and liabilities are
considered to be the most illiquid. Their values have been estimated using
available management information, including subjective assumptions. There are
no individually significant unobservable inputs used in the fair value
measurement of the Group's contingent consideration as at 31 July 2023.
The table below reconciles the movements in the portion of consideration
payable recorded under liabilities.
2023 2022
£'000 £'000
Contingent Deferred Total Contingent Deferred Total
Balance at 1 August 8,250 849 9,099 1,888 - 1,888
Charges for contingent consideration required to be treated as remuneration¹ 4,320 - 4,320 6,005 - 6,005
Reclassification of contingent consideration deemed as remuneration from 10,623 - 10,623 - - -
equity to liabilities
Credits for consideration related to acquisitions² - (40) (40) - 849 849
Payments³ (14,537) (673) (15,210) - - -
Currency movements (229) (4) (233) 357 - 357
Balance at 31 July 8,427 132 8,559 8,250 849 9,099
Current 4,849 106 4,955 6,346 598 6,944
Non-current 3,578 26 3,604 1,904 251 2,155
Total 8,427 132 8,559 8,250 849 9,099
1 The total charge for the period, recorded as an adjusting item in the
Consolidated Income Statement, is £9.9 million. Of this, £4.3 million is
recorded as a liability and £3.9 million recorded within equity. The
remaining £1.7 million relates to the derivative, which economically hedged
the currency exposure on deferred payments for the Cascade Data Labs
acquisition.
2 Relates to £0.1 million in respect of additional cash consideration in the
year for the Melon acquisition in May 2022, netted against deferred
consideration adjustments credits relating to prior period acquisitions.
3 In addition to the £15.2 million noted above, £1.7 million was paid in
respect of a derivative, which economically hedged the currency exposure on
deferred payments for the Cascade Data Labs acquisition.
Contractual commitments for consideration linked to acquisitions
At 31 July 2023, expected future payments accounted for, in relation to prior
and current period acquisitions, were £8.6 million, of which the entire
balance was accrued as a financial liability. This followed a reclassification
to financial liabilities in the current year from the share option reserve
within equity, as management now expects that all future payments in respect
of amounts outstanding on past acquisitions will be settled in cash. Further
amounts of £6.6 million, estimated at the exchange rates prevailing at 31
July 2023, are expected to accrue up to FY26 in respect of past acquisitions,
based on assumptions for time and performance vesting conditions.
Accrued charges at 31 July 2023 and estimated future charges to the
Consolidated Income Statement in respect of deemed remuneration for prior
acquisitions, valued at the exchange rates prevailing at 31 July 2023, are
detailed below:
Cascade Octain Loop Melon Group Kin and Carta Data Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 July 2023 4,395 379 716 2,469 600 8,559
Expected charges to the Consolidated Income Statement:
FY24 883 233 240 1,073 2,401 4,830
FY25 120 88 55 180 1,140 1,583
FY26 - - - - 147 147
Total 5,398 700 1,011 3,722 4,288 15,119
Estimated future amounts payable for acquisitions, at the exchange rates
prevailing at 31 July 2023, are detailed below:
Period of acquisition FY21 FY22 FY22 FY22 FY23
Acquired entity Cascade Octain Loop Melon Group Kin and Carta Data Total
Expected acquisition payments £'000 £'000 £'000 £'000 £'000 £'000
FY24 2,699 - 594 2,573 - 5,866
FY25 2,699 700 417 1,149 2,144 7,109
FY26 - - - - 2,144 2,144
Total estimated payments payable after 31 July 2023 5,398 700 1,011 3,722 4,288 15,119
End of final measurement period Dec 2022 Dec 2024 Dec 2023 Dec 2023 Sep 2024
With the exception of Kin and Carta Data, which is determined in British
Pounds, all other payments shown have been, or will be, determined initially
in US Dollars or Euros and are, therefore, subject to future currency
fluctuations when measured in British Pounds. Total amounts for each
acquisition are subject to contractual maximum caps set in British Pounds.
Where amounts payable are dependent on future performance, the figures are
based on best estimates of such performance. Amounts eventually payable may be
higher or lower. The estimated maximum amount payable (based on exchange rates
at 31 July 2023) if all businesses were to perform to a level corresponding to
their respective contractual caps, is GBP 22.5 million. The earnout
measurement periods, corresponding to the period of determination of amounts
payable based on business performance metrics, and excluding employment
service conditions on seller recipients, are still running for all
acquisitions other than Cascade, and will come to an end on the dates shown
above. Extended employment service conditions means that vesting extends
beyond those dates for a portion of the amounts shown. Amounts already paid at
completion and contingent amounts, which have already been settled at 31 July
2023 for the acquisitions noted above, are not included in the table.
In accordance with IFRS 2, amounts related to payments in respect of future
contingent payments are recorded within current liabilities and non-current
liabilities at the balance sheet date, based on the current likelihood that
all amounts will be settled in cash, and the vesting periods associated with
the contingent consideration amounts.
The Company's decision to pay in equity or cash is based on considerations of
relative earnings dilution, capital allocation and optimisation of the Group's
bank leverage. Taking into account these factors, in H1 FY23, a decision was
made to settle all amounts 100% in cash for:
● the first instalment of the year two earn out of Cascade Data Labs,
corresponding to 50% of the total year two earn out, which was paid in
February 2023
● the first earn out for Loop, of which 50% was paid in May 2023, with
the remaining 50% payable equally in FY24 and FY25.
● the first earn out for Melon Group, of which 50% was paid in July
2023, with the remaining 50% payable in FY24
It had been previously assumed at 31 July 2022 that a portion of these
amounts, ranging from 60% to 75% depending on the acquisition, would be
equity-settled. Following the decision in H1 FY23 to settle all of the amounts
above 100% in cash, amounts of £6.2 million recorded in equity at 31 July
2022 were reclassified from equity to current and non-current liabilities at
31 January 2023. In H2 FY23, it was determined that the most likely method of
settlement for future earn outs on the acquisitions shown would be cash, thus
in H2 FY23, an additional £4.4 million, which was recorded in equity at 31
July 2022, was reclassified to current and non-current liabilities, resulting
in a total reclassification for the year of £10.6 million. At 31 July 2023,
there are no amounts recorded in equity in respect of future payments for past
acquisitions.
Subsequent to the year end, an amount in respect of the second instalment of
the year two earnout for Cascade Data Labs of GBP 2.7 million was settled in
cash.
Although the balance sheet classification at 31 July 2023 reflects what is
currently assessed to be the most likely form of settlement, with the
exception of the Cascade Data Labs payment made in September 2023, no final
decision has been made as to the split between equity and cash for settlement
of the further remaining earn out amounts payable for Cascade Data Labs, Melon
Group, Loop and Kin and Carta Data, and the Company retains the option to
settle between 60% and 75% of such further amounts payable in shares of Kin
and Carta plc, at its sole discretion. Should the final decision result
alternatively in equity settlement, there would be a reclassification from
liabilities to equity.
11. Loans and borrowings
2023 2022
£'000 £'000
Non-current liabilities
Bank loans- revolving credit facility 29,815 13,148
29,815 13,148
Bank loans - revolving credit facility
The Group's revolving multi-currency credit facility of £85.0 million is
committed to 26 September 2026. Up to £10.5 million can be drawn as an
overdraft facility. As at 31 July 2023, interest on loan drawdowns is charged
at a currency-specific interbank reference rate (SOFR/SONIA) plus a margin,
which is linked to the leverage ratio of the Group, calculated on the Group's
net debt adjusted EBITDA on a pre-IFRS 16 basis, including the pro-forma
effect of acquisitions and disposals. Interest on overdraft drawdowns are
charged at an average rate of 2.00% (2022: 2.00%) over the UK base rate.
At 31 July 2023, the Group's outstanding loans within this facility were
£29.8 million (2022: £13.1 million), leaving an unutilised commitment of
£55.2 million (31 July 2022: £71.9 million).
The Directors consider that the carrying amount of the loans approximates to
their fair value.
Changes in loans and borrowings in the year were as follows:
2022 Drawdown Acquisition Repayment Foreign exchange gains 2023
£'000 £'000 £'000 £'000 £'000 £'000
Bank loans - revolving credit facility 13,148 26,672 421 (8,809) (1,617) 29,815
12. Provisions
Provision for repairs Provision for reorganisation Provision for client disputes and litigation Total
£'000 £'000 £'000 £'000
Balance at 1 August 2022 225 4,458 - 4,683
Charged to the Consolidated Income Statement 1,021 6,037 4,903 11,961
Acquisition of businesses 41 - - 41
Utilised during the year - (5,188) (4,903) (10,091)
Unused amounts reversed - (4,228) - (4,228)
Notional interest charge on provisions - 51 - 51
Currency movements - (158) - (158)
Balance at 31 July 2023 1,287 972 - 2,259
Current 1,012 972 - 1,984
Non-current 275 - - 275
Total 1,287 972 - 2,259
Provision for repairs
Where the Group is committed under the terms of a lease to make repairs to
leasehold premises, a provision for repairs is made for these estimated costs
over the period of the lease. It is anticipated that these liabilities will
crystallise between FY24 and FY26. Also included are provisions for Kin and
Carta's obligations as a lessor to reimburse certain tenant maintenance costs
under the lease in respect of the investment property, which are classified as
current.
Provision for reorganisation
The provision for reorganisation comprises staff redundancy, onerous property
and other costs. The provision will be utilised when the restructuring
completes or where the obligations associated with onerous properties are
fully discharged.
Provision for client disputes and litigation
The provision for client disputes and litigation during the year related to
settlements payable to two clients, as detailed in note 3. These were provided
for at H1 FY23 and paid during H2 FY23.
13. Retirement benefits
As at 31 July 2023, the Group reported a net IAS 19 accounting surplus in
respect of the Defined Benefit Pension Scheme (the 'Scheme') of £13.0 million
(31 July 2022: £38.7 million surplus). The deferred tax liability recorded in
respect of the Scheme surplus is £3.2 million (31 July 2022: £9.7 million).
The Company expects to recover this asset through a reduction in future cash
contributions payable to the Scheme, reducing the UK corporation tax
deductions associated with such contributions. Accordingly, the deferred tax
liability has been valued at the UK statutory corporation tax rate of 25%.
The lower surplus is due to a decrease in the value of Scheme assets of £82.7
million, driven primarily by the reduction in the value of the gilt portfolio,
which comprises a large proportion of Scheme assets, following the large
increase in UK gilt yields in the period. This was partially offset by a
decrease in the Scheme liabilities of £56.9 million, driven by increases in
the AA corporate bond yield, which is used to discount the Scheme liabilities.
On the basis of the assumptions used in the measurement of the technical
liability used to determine statutory funding levels, the Scheme remains fully
hedged against interest rate and long-term inflation rate risk. The technical
liability is discounted using gilt yields rather than AA corporate bond
yields.
14. Financial instruments
The financial instruments by category and maturity profile are as follows:
Maturity profile
2023 2022
£'000 £'000
Financial assets measured at fair value through profit or loss
Derivative financial instruments 31 2 Less than 12 months
Financial assets measured at amortised cost
Trade and other receivables 31,432 45,393 Less than 12 months
Cash and cash equivalents 9,847 12,609 Less than 12 months
Financial liabilities at fair value through profit or loss
Derivative financial instruments - (454) Less than 12 months
Contingent consideration payable- current (4,849) (6,346) Less than 12 months
Contingent consideration payable- non-current (3,578) (1,904) More than 12 months
Financial liabilities measured at amortised cost
Trade and other payables (23,534) (32,968) Less than 12 months
Deferred income (contract liabilities) (3,479) (5,159) Less than 12 months
Loans and borrowings (29,815) (13,148) More than 12 months
Lease liabilities- current (2,574) (2,806) Less than 12 months
Lease liabilities- non-current (8,193) (10,052) More than 12 months
Deferred consideration payable- current (106) (598) Less than 12 months
Deferred consideration payable- non- current (26) (251) More than 12 months
The maturity profile is based on the remaining period between the balance
sheet date and the contractual maturity date of the Group's financial assets
and liabilities at 31 July 2023, based on contractual undiscounted receipts
and payments.
15. Share capital
Number of shares Ordinary shares
of 10p each
£'000
Issued and fully paid:
Balance at 1 August 2021 172,545,721 17,255
Issued during the period 5,414,958 542
Balance at 31 July 2022 177,960,679 17,797
Issued during the period 61,318 6
Balance at 31 July 2023 178,021,997 17,803
All authorised and issued share capital is represented by equity
shareholdings. During the period, 61,318 shares were issued to satisfy share
options exercised under the SAYE scheme. These shares were issued at a premium
of £44,983.
16. Additional paid-in capital
Share premium Merger reserve Capital redemption reserve Total
£'000 £'000 £'000 £'000
Balance at 1 August 2021 76,085 9,190 1,238 86,513
Reclassification to retained earnings - (5,357) - (5,357)
Shares issued during the period 303 7,843 - 8,146
Balance at 31 July 2022 76,388 11,676 1,238 89,302
Shares issued during the period 45 - - 45
Balance at 31 July 2023 76,433 11,676 1,238 89,347
The additional paid-in capital includes share premium, merger reserve and
capital redemption reserve.
The merger reserve arises from acquisitions made in prior periods. During the
prior year, there was a reclassification from the merger reserve to retained
earnings following the divestments of entities, which accounted for a portion
of the merger reserve in prior periods. The addition to the merger reserve in
the prior period related to the share premium on share issues for
consideration as part of the acquisitions of Loop and Melon Group of £0.6
million and £7.2 million, respectively.
The capital redemption reserve represents the purchase by the Company of Kin
and Carta plc ordinary shares in prior periods.
Additional details of the shares issued in respect of the SAYE scheme are
detailed in note 15.
17. Other reserves
Other reserves in the Consolidated Statement of Changes in Equity is made up
of additional paid-in capital as detailed in note 16 above along with the
following:
- The ESOP reserve, representing Kin and Carta plc ordinary shares
held in the Company's Treasury and the Company's Employee Benefit Trust
("EBT"). Treasury shares consisting of 90,637 Kin and Carta plc ordinary
shares were held as at 31 July 2023 (31 July 2022: 90,637 shares). In
addition, 4,660,263 Kin and Carta plc ordinary shares (31 July 2022: 2,489,665
shares) were held by the EBT as at 31 July 2023. All shares held in the EBT
are expected to be used to settle awards vesting in the 24 months following
the balance sheet date
- The share option reserve, which includes the cumulative charge
related to the unvested options granted to Group's employees of Kin and Carta
plc ordinary shares
- The hedging and translation reserve, which includes amounts
relating to foreign translation differences arising on the retranslation of
reserves due to the Group's presentation in Sterling, and the mark-to-market
of hedging instruments designated as cash flow hedges
Share-settled bonus payments
A limited number of US staff received a portion of their bonus linked to
substantial outperformance for the FY23 year in the form of fully vested
shares in Kin and Carta plc. The number of shares used to settle was
calculated based on the average price of £0.86. The related charge included
within trade and other payables at 31 July 2023 is £0.3 million.
Share-based contingent consideration required to be treated as remuneration
The Group recognised a charge for share-based payment of £3.9 million (2022:
£7.7 million) relating to contingent consideration for acquisitions, which is
recorded as part of deemed remuneration within adjusting items (note 3) under
the Americas, Europe and Melon reporting segments.
Share-based payment expense
The Group recognised a total expense in the profit and loss of £3.7 million
in the current year (2022: charge of £3.4 million) relating to equity-settled
share-based payments other than in the context of acquisitions. Of this
amount, £3.1 million (2022: £3.1 million) has been recognised as an expense
in the share-based payment reserve, the remaining expense relates to employer
tax national insurance and social security contributions associated with
share-based payments and amounts in respect of the share-settled bonus
payments. The exercise price of options outstanding at 31 July 2023 ranges
between £nil and £2.45.
18. Related party transactions
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note. No material related party transactions have been entered into during the
year, which might reasonably affect the decisions made by the users of these
financial statements.
No executive officers of the Company or their associates had transactions with
the Group during the year.
Remuneration of key management personnel
The remuneration of the Executive and Non-Executive Directors, who are the key
management personnel of the Group, is set out below in aggregate for each of
the categories specified in IAS 24 Related Party Disclosures.
2023 2022
£000 £000
Short-term employee benefits (emoluments) 1,115 1,640
Post-employment benefits (pension contributions) 38 73
Gains on exercise of share awards 1,264 940
Share-based payment charge 547 623
2,964 3,276
Highest paid director
Remuneration of the highest paid Director was £0.5 million (2022: £1.6
million), including pension contributions of £0.02 million (2022: £0.06
million). The highest paid Director exercised 125,000 share options in the
year (2022: 287,061).
Aggregate Executive Directors' remuneration
2023 2022
£000 £000
Short-term employee benefits (emoluments) 806 1,360
Post-employment benefits (pension contributions) 38 73
Gains on exercise of share awards 1,264 940
Share-based payment charge 547 623
2,655 2,996
Two Directors received part payment into a Group Personal Pension Plan and
part payment as cash in lieu of pension (2022: two). Two Directors exercised
share options during the year (2022: two).
At 31 July 2023, 60,700 ordinary shares of Kin and Carta plc were held by
close family members of Chris Kutsor, one of the Executive Directors (2022:
nil).
19. Post-balance sheet events
After the year end, the Group's insurers agreed to reimburse in full the
settlement costs paid in H2 FY23 in respect of a client dispute arising in the
year, as detailed further in note 3. The insurance proceeds of £3.3 million
are expected to be received before the end of the half year FY24 and will be
recorded as an adjusting item in the Consolidated Income Statement in FY24
within the Americas segment.
On 18 October 2023, it was announced that the boards of directors of Kelvin UK
Bidco Limited ('Bidco'), a newly formed company owned indirectly by funds
advised by Apax Partners LLP ('Apax'), and Kin + Carta had reached agreement
on the terms and conditions of a recommended cash offer made by Bidco to
acquire the entire issued share capital of Kin + Carta (the 'Acquisition').
The Acquisition is conditional inter alia on approval by the Company's
shareholders and certain regulatory approvals. Completion of the Acquisition
is currently expected to take place in the first quarter of 2024.
Statement of Directors' Responsibilities
The 2023 Annual Report and Accounts, which will be issued in November 2023,
contains a responsibility statement in compliance with DTR 4.1.12 of the FCA's
Disclosure Guidance and Transparency Rules. The responsibility statement sets
out that, as at the date of approval of the Annual Report and Accounts on 1
November 2023, the Directors confirm to the best of their knowledge:
● the Group and Company financial statements, prepared in accordance
with the applicable set of accounting standards, give a true and fair view of
the assets, liabilities, financial position and profit or loss of the Group
and Company, taken as a whole; and
● the performance review contained in the Annual Report and Accounts
includes a fair review of the development and performance of the business and
the position of the Group, taken as a whole, together with a description of
the principal risks and uncertainties that they face. At the date of this
statement, the Directors are those listed in the Group's 2023 Annual Report
and Accounts.
The foregoing contains forward looking statements made by the Directors in
good faith based on information available to them up to 1 November 2023. Such
statements need to be read with caution due to inherent uncertainties,
including economic and business risk factors underlying such statements.
Cautionary statement regarding forward-looking statements
This Announcement may contain "forward-looking statements" with respect to
certain of the Company's plans and its current goals and expectations relating
to its future financial condition, performance, strategic initiatives,
objectives and results. Forward-looking statements sometimes use words such as
"aim", "anticipate", "target", "expect", "estimate", "intend", "plan", "goal",
"believe", "seek", "may", "could", "outlook" or other words of similar
meaning. By their nature, all forward-looking statements involve risk and
uncertainty because they are based on numerous assumptions regarding the
Company's present and future business strategies, relate to future events and
depend on circumstances which are or may be beyond the control of the Company
which could cause actual results or trends to differ materially from those
made in or suggested by the forward-looking statements in this Announcement,
including, but not limited to, domestic and global economic business
conditions; market-related risks such as fluctuations in interest rates; the
policies and actions of governmental and regulatory authorities; the effect of
competition, inflation and deflation; the effect of legislative, fiscal, tax
and regulatory developments in the jurisdictions in which the Company and its
respective affiliates operate; the effect of volatility in the equity, capital
and credit markets on profitability and ability to access capital and credit;
a decline in credit ratings of the Company; the effect of operational and
integration risks; an unexpected decline in sales for the Company; inability
to realise anticipated synergies; any limitations of internal financial
reporting controls; and the loss of key personnel. Any forward-looking
statements made in this Announcement by or on behalf of the Company speak only
as of the date they are made. Save as required by the Market Abuse Regulation,
the Disclosure Guidance and Transparency Rules, the Listing Rules or by law,
the Company undertakes no obligation to update these forward-looking
statements and will not publicly release any revisions it may make to these
forward-looking statements that may occur due to any change in its
expectations or to reflect events or circumstances after the date of this
Announcement.
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