REG - Kin and Carta PLC - Half-year Results
24/03/2022 07:00
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RNS Number : 8363F Kin and Carta PLC 24 March 2022
1 AUGUST 2021 TO 31 JANUARY 2022
24 March 2022
Kin and Carta plc
('Kin + Carta', the 'Group', or the 'Company')
Half Year Results
Strong organic growth continues, up 59% like-for-like
Divestments concluded early in H1, with capital redeployed into recent DX
acquisitions
On track to meet recently raised guidance for the full year
Kin + Carta, the international digital transformation company, today announces
interim results for the period from 1 August 2021 to 31 January 2022
Financial Highlights
● Net revenue of £85.6 million from continuing operations*(,
2), +63% YoY and +59% like-for-like
● Net revenue growth accelerated in H1:
○ Americas net revenue grew 76% YoY to £58.5 million; H1 net revenue
13% higher than H2 FY21
○ Europe net revenue grew 41% YoY to £27.1 million; H1 net revenue
10% higher than H2 FY21
● Record backlog(8) of £106 million, with continuing strong
demand
● Adjusted profit before tax from continuing operations* of
£5.0 million(3) (H1 FY21: £0.6 million)
● Total loss before tax from continuing operations* of £3.1
million (H1 FY21: loss of £8.1 million)
● Adjusted operating cash inflow before working capital from
continuing operations* of £9.1 million (H1 FY21: inflow of £3.0 million)
● Net cash of £5.4 million (31 July 2021: net debt of £19.2
million)
● Legacy pension scheme accounting surplus increased to £25.5
million (H1 FY21: £5.0 million) on strong asset performance and remains fully
hedged against interest and inflation rate risk
Operational Highlights
● Completed divestment of non-core Ventures businesses for net
proceeds of £33 million
● Three DX acquisitions for total estimated consideration of
£20.8 million at completion and a further £9.5 million potential earnouts
over a period of up to three years, expected to result in less than 0.5X
adjusted net debt to EBITDA ratio in H2. These acquisitions will add
annualised net revenue of c. £16 million when completed
● New client wins including Wayfair, Wendy's, Canadian National,
L'Atelier, plus continued growth in the UK public sector
● Higher pricing, adding more junior talent (Kin Accelerator
Programme) and additional margin-efficient nearshore delivery mitigating
market salary inflation and macroeconomic cost pressures
● Employee value proposition reimagined for hybrid working with
an embedded commitment to social responsibility that is resonating in the
talent market and keeping attrition below market rates
● Achieved goal to be the first certified B Corporation on the
London Stock Exchange
Outlook
Trading remains strong with robust demand and a record backlog entering H2.
This underpins our recently raised guidance (10 February 2022) of 35-40%
organic net revenue growth and adjusted operating margin of 10-11% for the
financial year.
Medium term guidance of 15%+ CAGR and incremental operating margin improvement
is unchanged.
J Schwan, CEO, said:
"Momentum is continuing with strong organic revenue growth and a record £106
million backlog of orders, setting us up for an even better second half. The
last of our non-core legacy businesses were successfully divested, and our
acquisition programme has accelerated with three pure-play DX acquisitions
that bring new capabilities and enhance pricing power. We are countering
industry-wide wage inflation through the growth of our own junior talent and
the expansion of nearshore delivery, while retaining staff with an embedded
commitment to social responsibility and the career development of our people.
Continued strong demand and growing spend from our larger clients gives us
confidence in meeting recently raised guidance for the year."
6 months to 6 months to % like- for- like
31 January 2022 31 January 2021 change
growth(1)
((restated)*)
Net revenue (continuing operations*) (2) £85.6m £52.5m 63% 59.3%
Adjusted profit before tax (continuing operations*) (3) £5.0m £0.6m 682%
Adjusted basic earnings per share (continuing operations*) (4) 2.30p 0.25p 821%
Total profit before tax (continuing and discontinued operations*) (5) £23.2m £0.0m
Total basic earnings per share (continuing and discontinued*) (6) 12.50p 0.63p
Interim dividend Nil Nil
Net cash /(debt)(7) £5.4m (£22.6m) - -
* Results for the 6 months ended 31 January 2021 have been restated to
reflect continuing operations only. Continuing operations exclude the
results of the divestments of Incite Marketing Planning Limited, Incite New
York LLC, Edit Agency Limited, Relish Agency Limited, The Health Hive (US)
LLC, The Health Hive Group Limited and subsidiaries, and Pragma Consulting
Limited (note 5).
1 Like-for-like growth in relation to net revenue is defined as the net
revenue from operations at constant currency and excluding acquisitions when
comparing the current period to the prior period.
2 Net revenue is defined as gross revenue excluding all direct costs and
third party expenses passed to clients.
3 This measure is defined as the net profit before tax excluding adjusting
items. Adjusted results exclude adjusting items to enhance understanding of
the ongoing financial performance of the Group. Adjusting items comprise
acquisition costs, amortisation of acquired intangibles, restructuring costs,
gain or loss on disposal of subsidiaries, contingent consideration required to
be treated as remuneration, and interest income and costs related to the
Company's Defined Benefit Pension Scheme (note 6).
4 This measure is defined as basic earnings per share after adjusting items.
Further details are provided within the Alternative Performance Measures
section.
5 This is the Group result before tax (see section "Impact of adjusting
items on Group results" in note 6) prepared in accordance with IAS 34. Also
see further details in the Basis of Preparation (note 1).
6 This is calculated by dividing the total profit for the period
attributable to ordinary equity holders of the parent company by the weighted
average number of shares in issue during the period, excluding shares held as
own shares by the Group.
7 Cash and cash equivalents less bank loans payable and US government
loans payable under the Paycheck Protection Program,
8 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.
For further information, please contact:
Kin and Carta plc Numis Securities Limited
Nick Westlake / Matt Lewis
J Schwan, Chief Executive Officer
+44 (0)207 260 1345
Chris Kutsor, Chief Financial Officer
+44 (0)20 7928 8844
Powerscourt Peel Hunt LLP
Edward Knight / John Welch
Robin O'Kelly / Jane Glover
+44 (0) 20 7418 8900
+44 (0) 7713 246126
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 1,700 strategists, engineers and creatives 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 border-less 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 publicly traded
business on the London Stock Exchange to achieve B Corp certification as a
PLC. It meets the highest 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's Review
Momentum Accelerating
INTRODUCTION
I am pleased to report that Kin + Carta has performed well in our first half
of fiscal 2022 and we look forward to a strong second half. We are carefully
monitoring the implications of the war in Ukraine. We have no clients or
employees in Ukraine, Russia or Belarus, so we see no near term impact.
Nonetheless, we are mindful that the macroeconomic effects are still
unfolding.
Within this period, we grew across all regions, all Service Lines, and in our
larger accounts including Discover Financial Services, Corteva, Tesco and
Santander. In addition, there were exciting new wins in both our Americas and
Europe regions that included Wayfair, Wendy's, Canadian National, L'Atelier,
plus continued growth in the UK public sector. We are achieving higher pricing
while also hiring highly skilled, but more junior talent to help mitigate
macroeconomic inflationary pressure. The acquisition of Melon Group further
strengthens our nearshoring capacity with high calibre, lower cost talent
adding leverage to our margins.
We remain confident in achieving our recently raised full-year guidance,
underpinned by strong demand in both regions driving our largest ever backlog
of committed work valued at £106 million. In line with our strategy, our
revenue footprint in the US continues to increase (now 68% of total),
strengthening our position in the largest digital transformation market in the
world.
Having successfully divested our non-core businesses, we are now operating as
a pure play DX business and executing on both our organic growth ambitions and
our acquisition expansion plans.
OPERATIONAL HIGHLIGHTS
We are seeing increases in demand across the Company in all regions and across
our key service lines of Cloud Modernization, Products and Experiences, and
Data and AI. The effects of the pandemic coupled with more recent
geo-political uncertainty is driving a realisation that sustainable digital
transformation, and the long-term scale and efficiencies that it enables, is a
business necessity.
This increase in demand has led to workforce expansion, with associated
investments in talent hiring and employee experience to attract and retain the
best digital talent in the industry. Our employment initiatives have reduced
our attrition rates below the benchmarks of the markets in which we operate.
There are three notable attraction and retention drivers:
● Social Responsibility: Kin + Carta is the first certified B
Corporation trading on the London Stock Exchange and the only certified
consulting firm in the world. We are a purpose-led business with recognition
at the Diversity in Tech Awards, European Diversity Awards, and Best Place to
Work for LGBTQ Equality during this period.
● Employee Value Proposition (EVP): We have reimagined employee
experience for hybrid working and are achieving Best Place to Work recognition
across our regions and territories.
● Career Progression: We are investors in talent. Our operating
model ensures continuous learning and development for enhanced career paths.
In parallel, tech sector salary inflation has required considerable
mitigation. We have countered these market cost pressures through:
● Pricing: Rate increases averaging more than 5% have been applied
to 75% of our revenue base. New client business rates are well above legacy
rates, in some cases higher by double digits YoY.
● Homegrown Talent: Hiring, training and deploying diverse junior
analysts through several Americas Kin Accelerator Programme (KAP) cohorts
accounting for 5% of the total Americas workforce, and launching KAP in
Europe.
● Nearshore Delivery: Continued investment of margin-efficient
nearshore capabilities to more client projects across South America and
Southern Europe, as shown with the pending Melon Group acquisition.
Execution of our M&A strategy remains a key focus. Investment in the Kin +
Carta Expansion Platform has accelerated progress and further grown the
pipeline of future acquisition opportunities, targeting US reach, global DX
capability expansion, and greater South American nearshore delivery scale. The
agreement to acquire Melon Group and their operations in Bulgaria, North
Macedonia and Kosovo, allows us to combine existing operations in Greece into
a new Southern Europe Territory reporting to European Regional leadership. The
acquisition of Loop further unlocks the fast-growing eCommerce sector, and
responsible artificial intelligence (AI) data platform Octain deepens Kin +
Carta Data Labs' intelligent data and analytics capabilities.
FINANCIAL PERFORMANCE
Group net revenue from continuing operations of £85.6 million was up 63% on
the comparable period driven by continued strong demand in both regions.
Organic net revenue at constant currency rates was up 59%. Net revenue from
continuing operations in H1 grew 12% over H2 FY21 and is expected to
accelerate in the second half of FY22. We recently raised organic net revenue
growth expectations for the year to 35-40% which will be further augmented by
recent acquisitions.
Those acquisitions include Octain, which was completed in December 2021.
Subsequent to the half year period, the acquisition of the remaining 50% of
Loop was completed in February, and we announced the intent to acquire Melon
Group, with completion anticipated in H2, pending regulatory approval. For all
three acquisitions, total consideration is £20.8 million at completion with
the potential for an additional £9.5 million to be paid over the next three
years contingent upon achieving revenue or EBITDA growth targets.
● Through Octain, we have acquired the intellectual property of an
ethical, machine learning data platform that provides custom artificial
intelligence models for our clients.
● Loop is a Chicago-based full-stack eCommerce consultancy that
generated net revenue of US$9.3m and US$1.8m of adjusted operating profit for
the year ended 31 December 2021.
● Melon Group provides margin-efficient nearshore software
engineering in Bulgaria, North Macedonia and Kosovo with c. 300 engineers
which has been growing net revenue at 20%+ in recent years. Melon Group
generated revenues of €9.0m and operating profit of €2.2m for the year
ended 31 December 2021.
The incremental operating profit impact to Kin + Carta of Loop
post-acquisition will be the remaining half of Loop's total results, as we
previously recorded 50% of Loop's profits on a single line under adjusted
other income using the equity accounting method. This meant that none of
Loop's net revenue was previously recorded in the consolidated group revenue
because of the equity accounting treatment. Post-completion, 100% of Loop's
results will be consolidated on a line-by-line basis, but the incremental
impact on earnings and profit will only be 50 per cent of its total profit.
We delivered strong revenue growth across both regions. Americas Region H1 net
revenue grew 76% year on year to £58.5 million, with H1 net revenue 13%
higher than H2 FY21. The Americas Region now accounts for 68% of the total H1
net revenue. Europe's H1 net revenue grew 41% year on year to £27.1 million,
with H1 net revenue 10% higher than H2 FY21. The Europe Region now accounts
for 32% of the total H1 net revenue.
Adjusted operating margin of 7.0% for the period was as expected, and includes
seasonal headwinds of significant holiday months August and December landing
in our first half of our financial year. Adjusted operating profit also
includes £1.7 million of share-based compensation expense compared to £1.0m
million in the prior period. Share-based compensation is higher due to
expansion of the eligible employee pool to align with global technology
benchmarks, and ultimately improve employee attraction and retention. We
expect strong double-digit H2 organic net revenue growth to deliver a full
year adjusted operating margin in line with expectations of 10-11%.
Adjusted profit before tax from continuing operations was £5.0 million (H1
FY21: £0.6 million). Compared to H1 FY21, the higher adjusted profit is
primarily due to increased revenue and associated gross margin as well as the
effects of income and expenses associated with government assistance
programmes and lower interest costs on lower levels of net debt.
Compared to H1 FY21, adjusted profit before tax shows an improvement before
and after removing the effects of income and expenses associated with
government assistance programmes in the prior year period as summarised below.
(£ millions) H1 FY22 H1 FY21
Continuing operations adjusted PBT as reported 5.0 0.6
US PPP forgiveness income - (0.8)
Project costs funded by government assistance program - 3.0
Adjusted PBT excluding items above 5.0 2.8
The total loss before tax from continuing operations in the period was £3.1
million (H1 FY21: loss of £8.1 million), which is stated after net adjusting
cost items of £8.2 million (H1 FY21: £8.8 million). Adjusting items in the
current period include £7.5 million related to acquisitions which is
comprised of: £2.9 million related to the amortisation of acquired
intangibles, £3.9 million of consideration required to be treated as
remuneration for the Cascade Data Labs and Spire acquisitions and £0.7
million of acquisition related costs. Adjusting items also includes £0.9
million relating to the Company's legacy Defined Benefit Pension Scheme.
Further details are provided within note 6 and the Alternative Performance
Measures below.
Our balance sheet has further strengthened, with net assets increasing by
£28.9 million since 31 July 2021. This was due to the net profit of £21.6
million as well as the increase in the legacy pension scheme surplus of £3.5
million, net of tax, and non-income movements in equity related to share-based
transactions of £4.1 million. The cash inflow from operations before working
capital of £7.4 million for H1 FY22 is up 61% on the comparable prior half
year, due to the strong recovery in net revenue and EBITDA generation. The net
working capital outflow of £10.3 million reflects working capital related to
strong revenue growth versus the final quarter of the prior financial year. On
a continuing operations basis, before the cash effect of adjusting items and
working capital movements, we saw an operating cash inflow of £9.1 million
which is an increase of £6.1 million on the comparable prior year period.
Cash flows related to finance charges decreased with the reduction in net
debt, and there was a tax-related net cash inflow in the period due a refund
of £0.8 million UK overpayments in prior periods, offset by payments of £0.7
million in the US.
Investing cash inflow of £31.8 million includes the proceeds from the Incite,
Edit and Relish divestments, net of capital expenditure of £1.2 million, and
acquisition outflows of £0.2 million in the period related to Octain. Lease
payments were in line with the comparable prior year period at £2.0 million.
The resulting free cash inflow was used to pay down bank debt. As a result, we
ended the half year with a net cash position of £5.4 million compared to a
net debt position of £19.2 million at 31 July 2021.
The IAS19 pension accounting surplus increased at the half year to £25.5
million from £19.3 million at 31 July 2021 due to the strength of performance
of scheme assets. 40% of the asset portfolio is currently allocated to growth
assets of which less than half is allocated to equities, and the Scheme
remains fully hedged against interest rate and inflation rate risk. The Scheme
was also in a technical surplus of £3.9 million at 31 December 2021 on a roll
forward basis, which applies the demographic assumptions used in the 2019
technical valuation. The difference between the two measures of the surplus
relates principally to the assumption on improvements in future mortality,
where the technical provisions incorporate an additional level of prudence.
The trustees have commenced work on the 2022 technical valuation, which we
anticipate will show a high level of funding on the statutory measure.
Our liquidity position remains very strong, with only modest claims on our
operating cash flows beyond growth-related working capital investments, and
substantial undrawn capacity on our credit facility of £85 million committed
until November 2025. Taking into account the effect of the acquisitions
completed or signed after the balance sheet date, and notwithstanding further
acquisitions completing prior to 31 July 2022, our pro forma leverage ratio
(net debt to adjusted EBITDA) will be less than 0.5X for the rest of the
current financial year. We continue to have significant debt capacity which
will be used in part to fund further acquisitions.
OUTLOOK
Trading remains strong with robust demand and a record backlog entering H2.
This underpins our recently raised guidance (10th February 2022) of 35-40%
organic net revenue growth and adjusted operating margin of 10-11% for the
financial year.
Medium term guidance of 15%+ CAGR and incremental operating margin improvement
is unchanged.
J Schwan
Chief Executive Officer
24 March 2022
Alternative Performance Measures (APMs)
The half year results include both statutory and adjusted results. In the
management's view, the adjusted results reflect the underlying performance of
the business, how the business is managed on a day-to-day basis and allows for
a consistent and meaningful comparison.
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 the items listed below as their inclusion could
distort the understanding of the performance for the year and the comparison
with prior years.
Key adjustments for adjusted operating profit, profit before tax and EPS
Adjusted operating profit is calculated by adding back costs relating to
acquisition costs, amortisation of acquired intangibles; restructuring costs;
gain or loss on disposal of subsidiaries contingent consideration required to
be treated as remuneration; interest income and costs related to the Company's
Defined Benefit Pension Scheme. The tax effects of these adjustments are
reflected in the adjusted tax charge. The adjustments are detailed below:
1. Amortisation of acquired intangibles and impairments - the
amortisation and impairment of assets acquired through business combinations
are excluded from adjusted results. These costs are acquisition related and
are not part of the underlying trading performance of the business. The
amortisation of computer software is included within the adjusted results as
it is part of trading performance.
2. Acquisition costs consist of contingent consideration required to
be treated as remuneration, and increases in deferred consideration - our
acquisitions, where deferred consideration arises, are structured such that
the consideration is contingent on continued employment within the Group and
the level of financial performance achieved post-completion. Under IFRS3 this
is treated as an expense and, therefore, part of the statutory result. Where
the purchase price has been determined and there is a subsequent increase or
decrease arising from the payment of deferred consideration under IFRS3 this
is required to be expensed. We do not consider either of these items to be
part of the underlying trading performance.
3. Administrative expenses related to St Ives Defined Benefit Pension
Scheme - the Scheme was closed to new members in 2002 and ceased future
accrual in 2008. There are now only two employees who are members of the
Scheme and still employed by the Group. The costs of the Scheme including
administration costs, past service costs related to Guaranteed Minimum Pension
(GMP) and the pension finance income are not considered to be part of the
ongoing performance of the Group and they are excluded from the performance
measures. As such they are treated as adjusting items.
4. Restructuring costs - these items are excluded in order to reflect
the performance of the business in a consistent manner and how the performance
of the business is managed on a day-to-day basis. They are not considered to
be part of the core activities of the business. They have arisen as a result
of initiatives to reduce the cost base and improve the efficiency and
collaboration across the Group. The initiatives reflect a significant change
in the organisational structure of a business area and are assessed on an
individual basis and excluded from the adjusted results.
The analysis of adjusting items from continuing operations is set out below:
6 months to 6 months to Year to
31 January 31 January 31 July
2022 2021 2021
£'000 £'000 £'000
Amortisation of acquired intangibles 2,853 4,353 7,527
Expenses related to restructuring items - 312 181
Contingent consideration required to be treated as remuneration 3,936 1,659 4,956
Acquisition costs 665 248 966
Expense related to St Ives Defined Benefits Pension Scheme 875 2,197 2,542
Total adjusting items added back to the total operating profit 8,329 8,769 16,172
Pension finance credit (166) (8) (21)
Total adjusting items added back to the total profit before tax 8,163 8,761 16,151
Tax related to adjusting Items (821) (1,741) (1,524)
Total adjusting items added back to the total profit after tax 7,342 7,020 14,627
The key APMs frequently used by the Group for continuing operations are:
Net revenue: The measure is defined as revenue less project-related costs as
shown on the consolidated income statement. Project-related costs comprise
primarily of third-party pass-through expenses and direct costs attributable
to a project.
6 months to 6 months to Year to
31 January 31 January 31 July
2022 2021 2021
£'000 £'000 £'000
Revenue (continuing operations) 89,256 55,808 137,321
Project-related costs (3,699) (3,263) (8,402)
Net revenue (continuing operations) 85,557 52,545 128,919
Like-for-like net revenue at constant currency: The measure is defined as the
net revenue from continuing operations when comparing the current period to
the prior period at constant currency rate of exchange excluding the effects
of acquisition or disposal.
6 months to 6 months to Year to
31 January 31 January 31 July
2022 2021 2021
£'000 £'000 £'000
Net revenue 85,557 52,545 128,919
Impact of acquisition in prior period* (2,668) - -
Effect of constant currency** 838 - 1,895
Like-for-like adjusted net revenue 83,727 52,545 130,814
Like-for-like adjusted net revenue increase /(decline) % 59.3%
*In the first five months of the current period, there is no corresponding
comparative of Cascade Data Labs' net revenue in the prior period due to the
timing of the acquisition (completion occurred in late December 2020). This is
therefore deemed an acquisition effect.
**The impact of retranslating H1 FY22 and FY21 net revenue at the H1 FY21
average exchange rate.
Adjusted operating profit: This measure is defined as the operating profit or
loss less adjusting items.
6 months to 6 months to Year to
31 January 31 January 31 July
2022 2021 2021
£'000 £'000 £'000
Total operating loss (2,354) (6,957) (4,007)
Add back total adjusting items excluding pension finance income and tax 8,329 8,769 16,172
Adjusted operating profit 5,975 1,812 12,165
Like-for-like adjusted operating profit at constant currency: The measure is
defined as the adjusted organic operating profit from continuing operations
when comparing the current period to the prior period at constant currency
rate of exchange excluding the effects of acquisition or disposal.
6 months to 6 months to Year to
31 January 31 January 31 July
2022 2021 2021
£'000 £'000 £'000
Adjusted operating profit 5,975 1,812 12,165
Impact of acquisitions in current period* (1,054) - -
Effect of constant currency** 138 - 294
Like-for-like adjusted operating profit 5,059 1,812 12,459
Like-for-like adjusted operating profit increase/ (decline) % 179%
*In the first five months of the current period, there is no corresponding
comparative of Cascade Data Labs' net revenue in the prior year due to the
timing of the acquisition (completion occurred in late December 2020). This is
therefore deemed an acquisition effect.
**The impact of H1 FY22 and FY21 adjusted operating profit retranslated at the
H1 FY21 average exchange rate.
Adjusted profit before tax: This measure is defined as the Group net profit or
loss before tax from continuing operations excluding adjusting items.
6 months to 6 months to Year to
31 January 31 January 31 July
2022 2021 2021
£'000 £'000 £'000
Total loss before tax (3,137) (8,119) (5,939)
Add back total adjusting items before tax 8,163 8,761 16,151
Adjusted profit before tax 5,026 642 10,212
Adjusted profit after tax: This measure is defined as the Group profit or loss
after tax from continuing operations excluding adjusting items:
6 months to 6 months to Year to
31 January 31 January 31 July
2022 2021 2021
£'000 £'000 £'000
Total loss after tax (3,357) (6,492) (6,428)
Add back total adjusting items after tax 7,342 7,020 14,627
Adjusted profit after tax 3,985 528 8,199
Adjusted basic earnings per share from continuing operations: This measure is
defined as basic earnings per share after adjusting items.
6 months to 6 months to Year to
31 January 31 January 31 July
2022 2021 2021
£'000 £'000 £'000
Adjusted profit after tax 3,985 528 8,199
Weighted number of shares ('000) 173,007 168,714 171,273
Adjusted basic earnings per share (pence) 2.30 0.31 4.79
Adjusted operating margin: This measure is defined as the percentage of
adjusted operating profit over net revenue.
6 months to 6 months to Year to
31 January 31 January 31 July
2022 2021 2021
£'000 £'000 £'000
Net revenue 85,557 52,545 128,919
Adjusted operating profit 5,975 1,812 12,165
Adjusted operating margin 7.0% 3.4% 9.4%
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 includes an adjustment to present on a 'frozen GAAP' pre-IFRS 16
basis.
The adjusted EBITDA for 2022 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.
31 January 31 January 31 July
2022 2021 2021
£'000 £'000 £'000
Adjusted operating profit 16,329 11,416 15,028
Add: depreciation and amortisation 10,143 15,436 13,191
Less: amortisation of intangibles classified as adjusting items (6,149) (10,769) (8,651)
Adjusted EBITDA 20,323 16,083 19,568
Covenant adjustment (3,172) (2,118) (1,072)
Adjusted EBITDA for covenant purposes 17,151 13,965 18,496
Net debt: This measure is calculated as the total of loans and other
borrowings excluding finance leases, less cash and cash equivalents.
31 January 31 January 31 July
2022 2021 2021
£'000 £'000 £'000
Loans 2,259 48,482 64,218
Cash and cash equivalents (7,679) (25,930) (44,971)
Net (cash) /debt (5,420) 22,552 19,247
For the measurement of the bank covenants, cash, cash equivalents and
borrowings denominated in currencies other than GBP Sterling are translated at
an average rate over the preceding twelve months rather than at the period end
spot rate used in the Consolidated Balance Sheet. Borrowings drawn under the
US Paycheck Protection Program are excluded from the calculation. The
reconciliation between balance sheet net (cash)/debt and the covenant measure
is as follows:
31 January 31 January 31 July
2022 2021 2021
£'000 £'000 £'000
Net (cash) /debt (5,420) 22,552 19,247
Foreign exchange difference between spot rate and average rate (61) 1,683 848
Deduct Paycheck Protection Program loan (768) (5,611) (1,853)
Net (cash) /debt for leverage covenant purposes (6,249) 18,624 18,242
Net debt to adjusted EBITDA for bank covenant purposes: This measure is
calculated by dividing Net Debt 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.
31 January 31 January 31 July
2022 2021 2021
£'000 £'000 £'000
Adjusted EBITDA for covenant purposes 17,151 13,965 18,496
Net (cash) /debt for covenant purposes (6,249) 18,624 18,242
Net (cash) /debt to adjusted EBITDA for covenant purposes (0.36) 1.3 0.9
Condensed Consolidated Income Statement - unaudited
6 months to Year to 31 July 2021 (Restated)*^
6 months to 31 January 2022 31 January 2021
(Restated)*^
Note Statutory Statutory
Adjusted Adjusting Items Statutory Results Results
Results** £'000 Results
£'000 £'000
£'000 £'000
Revenue 2 89,256 - 89,256 55,808 137,321
Project-related costs (3,699) - (3,699) (3,263) (8,402)
Net revenue 85,557 - 85,557 52,545 128,919
Cost of service (46,833) - (46,833) (28,030) (69,269)
Gross profit 38,724 - 38,724 24,515 59,650
Selling costs (10,060) - (10,060) (5,799) (12,674)
Administrative expenses (23,130) (875) (24,005) (20,484) (42,703)
Other operating income 4 - - - 847 4,469
Share of results of joint arrangements 441 - 441 222 700
Amortisation of acquired intangibles - (2,853) (2,853) (4,351) (7,527)
Contingent consideration treated as remuneration - (3,936) (3,936) (1,659) (4,956)
Acquisition costs - (665) (665) (248) (966)
Operating profit/ (loss) 6a 5,975 (8,329) (2,354) (6,957) (4,007)
Net pension finance income - 166 166 8 21
Other finance expense 7 (949) - (949) (1,170) (1,953)
Profit/ (loss) before tax 6b 5,026 (8,163) (3,137) (8,119) (5,939)
Income tax (charge)/ credit (1,041) 821 (220) 1,627 (489)
Net profit/ (loss) from continuing operations 3,985 (7,342) (3,357) (6,492) (6,428)
Net profit from discontinued operations 5 1,141 23,839 24,980 7,558 9,123
Net profit for the period 5,126 16,497 21,623 1,066 2,695
Basic earnings/ (loss) per share (p)
Continuing operations 2.30 (4.24) (1.94) (3.85) (3.78)
Discontinued operations 0.66 13.78 14.44 4.48 5.37
Continuing and discontinued operations 8 2.96 9.54 12.50 0.63 1.59
Diluted earnings/(loss) per share (p)
Continuing operations 2.20 (4.24) (2.05) (3.85) (3.78)
Discontinued operations 0.63 13.14 13.77 4.41 5.20
Continuing and discontinued operations 8 2.83 9.09 11.92 0.62 1.54
*Results have been restated to show a revised grouping of continuing and
discontinued operations. Further details are in note 5 and 6b.
^The Income Statements for 6 months ended 31 January 2021 and the year ended
31 July 2021 have also been restated to reclassify amounts of £0.7m and £1.4
million respectively, from the 'Cost of service' line to the 'Administrative
expenses' line, relating to the employment costs of certain US non-billable
delivery staff, in order to correct a classification which was not in line
with the accounting policies for the group. This reclassification has no
impact on operating profit for the 6 months ended 31 January 2021 or year
ended 31 July 2021 but has the effect of increasing prior year's gross margin
and administrative expenses by the same amounts.
**Adjusted results exclude adjusting items to enhance understanding of the
ongoing financial performance of the Group. Adjusting items comprise;
redundancies; restructuring costs; contingent consideration required to be
treated as remuneration; and costs related to the Company's Defined Benefit
Pension Scheme. Further details are provided within the Alternative
Performance Measure section above. Notes 1 to 14 form part of these interim
financial statements.
Condensed Consolidated Statement of Comprehensive Income - unaudited
6 months to 31 January 2022 6 months to Year to
£'000 31 January 31 July
2021 2021
£'000 £'000
Profit for the period 21,623 1,066 2,695
Items that will not be reclassified subsequently to profit or loss:
Actuarial gain on St Ives Defined Benefit Pension Scheme 4,354 4,082 17,877
Tax charge on items taken through other comprehensive income (827) (776) (3,401)
Total items that will not be reclassified to profit or loss 3,527 3,306 14,476
Items that may be reclassified subsequently to profit or loss:
Transfers of (gains)/ losses gains on cash flow hedges (9) (21) 52
(Losses) / gains on cash flow hedges (22) 51 (13)
Foreign exchange gains/ (losses) 636 (354) (492)
605 (324) (453)
Other comprehensive income for the period 4,132 2,982 14,023
Total comprehensive income for the period 25,755 4,048 16,718
Notes 1 to 14 form part of these interim financial statements.
Condensed Consolidated Statement of Changes in Equity - unaudited
Share Additional paid-in capital ESOP Treasury shares Share Hedging Other Retained earnings/ (accumulated deficit)
capital £'000 reserve £'000 option and reserves £'000
£'000 £'000 reserve translation £'000
£'000 reserve Total
£'000 £'000
Balance at 1 August 2020 16,876 82,316 (68) (163) 1,797 1,908 85,790 (42,954) 59,712
Profit for the period - - - - - - - 1,067 1,067
Other comprehensive (expense)/income - - - - - (324) (324) 3,306 2,982
Total comprehensive (expense)/income - - - - - (324) (324) 4,373 4,049
Share allocation 18 1 (19) - - - (18) - -
Purchase of shares - - (59) - - - (59) (59)
Recognition of share-based payments - - - - 880 - 880 - 880
Recognition of share-based contingent consideration deemed as remuneration - - - - 876 - 876 - 876
Settlement of share-based payment - - 15 - (110) - (95) 95 -
Balance at 31 January 2021 16,894 82,317 (131) (163) 3,443 1,584 87,050 (38,486) 65,458
Profit for the period - - - - - - - 1,629 1,629
Other comprehensive income - - - - - (130) (130) 11,170 11,040
Total comprehensive income - - - - - (130) (130) 12,799 12,669
Shares issued to settle consideration for acquisitions 361 4,196 - - (2,919) - 1,277 - 1,638
Recognition of share-based contingent consideration deemed as remuneration - - - - 1,005 - 1,005 - 1,005
Hyperinflation revaluation - - - - - 128 128 - 128
Settlement of share-based payment using own shares - - 63 - (57) - 6 (6) -
Recognition of share-based payments - - - - 1,064 - 1,064 - 1,064
Tax on share-based payments - - - - 1,220 1,220 - 1,220
Balance at 31 July 2021 17,255 86,513 (68) (163) 3,756 1,582 91,620 (25,693) 83,182
Profit for the period - - - - - - - 21,623 21,623
Other comprehensive income - - - - - 605 605 3,527 4,132
Total comprehensive income - - - - - 605 605 25,150 25,755
Dividends paid* - - - - - - - (37) (37)
Shares issued to settle 178 215 (25) - (1,154) - (964) 1,032 246
employee share options
Purchase of own shares - - (1,595) - - - (1,595) - (1,595)
Settlement of share-based payment using own shares - - 353 - - - 353 - 353
Recognition of share-based payments - - - - 1,419 - 1,419 - 1,419
Recognition of share-based contingent consideration deemed as remuneration - - - - 2,711 - 2,711 - 2,711
Tax on share-based payments (68) (68) - (68)
Hyperinflation revaluation - - - - - 67 67 - 67
Reclassification to retained earnings** - (5,357) - - - - (5,357) 5,357 -
Balance at 31 January 2022 17,433 81,371 (1,335) (163) 6,664 2,254 88,791 5,809 112,033
Additional paid capital includes share premium, merger reserve and capital
redemption reverse.
* Dividend equivalents in respect of prior years paid in the period to
employees who exercised their share options during the period.
**£5.4 million of merger reserves relating to divested subsidiaries (refer to
note 5), which are realised profits and have been transferred to retained
earnings.
Notes 1 to 14 form part of these interim financial statements.
Condensed Consolidated Balance Sheet - unaudited
Note 31 January 2022 31 January 2021 31 July 2021
£'000 £'000 £'000
Assets
Non-current assets
Property, plant and equipment 14,488 16,370 14,027
Investment property 4,303 4,572 4,438
Goodwill 63,451 71,608 68,372
Other intangible assets 12,672 16,613 15,072
Investment in joint arrangements 1,402 1,051 1,080
Retirement benefits surplus 9 25,512 4,950 19,267
Other non-current assets - 19 28
Deferred tax assets 3,174 1,652 3,524
125,002 116,835 125,808
Current assets
Trade and other receivables 38,291 33,268 36,862
Derivative financial instruments 22 25 13
Income tax receivable - 523 559
Assets held for sale - - 7,099
Cash and cash equivalents 7,679 25,930 44,971
45,992 59,746 89,504
Total assets 170,994 176,581 215,312
Liabilities
Current liabilities
Lease liabilities 2,835 3,992 2,823
Loans 768 - 1,853
Trade and other payables 26,862 29,085 30,617
Income tax payable 1,794 364 514
Deferred consideration payable 824 3,344 -
Liabilities held for sale - - 7,552
Deferred income 5,523 7,039 6,631
Provisions 313 662 538
38,919 44,486 50,528
Non-current liabilities
Lease liabilities 12,291 14,414 12,490
Loans 1,491 48,482 62,365
Deferred consideration payable 2,398 1,134 1,888
Other non-current liabilities - 101 -
Provisions 191 1,503 829
Deferred tax liabilities 3,671 1,003 4,030
20,042 66,637 81,602
Total liabilities 58,961 111,123 132,130
Net assets 112,033 65,458 83,182
Capital and reserves
Share capital 8 17,433 16,894 17,255
Other reserves 88,791 87,050 91,620
Retained earnings /(accumulated deficit) 5,809 (38,486) (25,693)
Total equity 112,033 65,458 83,182
These interim financial statements were approved by the Board of Directors on
23 March 2022. Notes 1 to 14 form part of these interim financial statements.
Condensed Consolidated Statement of Cash Flows - unaudited
Note 6 months to 6 months to Year to
31 January 31 January 31 July
2022 2021 2021
£'000 £'000 £'000
Operating activities
Cash (used in)/ generated from operations 10 (2,947) 3,030 10,847
Interest paid (366) (882) (1,660)
Income taxes received/(paid) 130 (749) (3,382)
Net cash flows (used in)/ from operating activities (3,183) 1,399 5,805
Investing activities
Purchase of property, plant and equipment (807) (431) (1,332)
Purchase of other intangibles (352) (11) (82)
Proceeds on disposal of subsidiaries 33,161 12,634 12,630
Cost of acquisition in current period 3 (240) (4,970) (4,381)
Deferred consideration paid for acquisitions made in prior periods - - (1,656)
Net cash flows from investing activities 31,762 7,222 5,179
Financing activities
Proceeds from share issuances 246 - -
Purchase of treasury shares (1,595) (59) (59)
Dividends paid (37) - -
Lease payments (2,006) (2,049) (4,214)
(Decrease)/ increase in bank loans 10 (62,965) (4,727) 14,976
Net cash flows from financing activities (66,357) (6,835) 10,703
Net (decrease) / increase in cash and cash equivalents (37,778) 1,786 21,687
Cash and cash equivalents at beginning of the period 44,971 24,408 24,408
Effect of foreign exchange rate changes 486 (264) (1,124)
Cash and cash equivalents at end of the period 7,679 25,930 44,971
Included in the figures above are the following cash flows from discontinued
operations:
6 months to 6 months to Year to
31 January 31 January 31 July
2022 2021 2020
£'000 £'000 £'000
Net cash (used in)/ generated from operating activities (1,656) 3,565 7,788
Net cash flows from investing activities 33,147 12,586 12,548
Net cash used in financing activities (542) (751) (1,504)
Net increase in cash and cash equivalents 30,949 15,400 18,832
Notes 1 to 14 form part of these interim financial statements.
Notes to the Condensed Consolidated Interim Financial Statements
1. Basis of preparation
The Condensed Consolidated Interim Financial Statements for the six months
ended 31 January 2022 have been prepared in accordance with UK-adopted IAS 34
'Interim Financial Reporting' and in accordance with the Disclosure Guidance
and Transparency Rules sourcebook of the UK's Financial Conduct Authority
("FCA").
The accounting policies adopted are consistent with those of the previous
financial year and corresponding interim reporting period, except for the
estimation of income tax. Income tax expense is recognised based on
management's estimate of the weighted average effective annual income tax rate
expected for the full financial year.
The half year statements (also the "Condensed Consolidated Interim Financial
Statements") have not been audited but have been reviewed by the Company's
auditor.
The financial information for the six months ended 31 January 2022 and prior
half year comparatives do not comprise statutory accounts for the purpose of
Section 434(3) of the Companies Act 2006. The abridged information for the
year to 31 July 2021 has been extracted from the Group's Annual Report and
Accounts 2021 which have been filed with the Registrar of Companies. The
Auditors' report on the Group's Annual Report and Accounts for that period was
unqualified, did not draw attention to any matters by way of emphasis and did
not contain a statement under Sections 498(2) or (3) of the Companies Act
2006.
Accounting policies
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.
Going concern
The Directors, having made appropriate enquiries, consider that adequate
resources exist for the Group to continue in operational existence for a
period of at least 12 months from the date of approval of the Condensed
Consolidated Interim Financial Statements. These include the 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 enquiries, the directors
consider it appropriate to continue to adopt the going concern basis in
preparing the Condensed Consolidated Interim Financial Statements for the six
months ended 31 January 2022.
Critical estimates and critical judgements
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results might differ from these estimates.
1. Basis of preparation (continued)
In preparing these condensed interim financial statements, the significant
judgements made by management in applying the Group's accounting policies and
the key sources of estimation uncertainty were the same as those that applied
to the consolidated interim financial statements for the year ended 31 July
2021, with the exception of changes in estimates that are required in
determining the provision for income tax.
2. Segment reporting
The Group reports results through one segment, with corporate costs shown as a
separate segment based on the Group's internal reporting to the Chief
Operating Decision Maker ("CODM"). The CODM has been determined to be the
Chief Executive Officer and Chief Financial Officer who are primarily
responsible for the assessment of the performance of the businesses which
currently operate under The Connective.
The corporate costs are reported separately to the single operating segment as
this presentation better reflects the segment's underlying profitability.
Results from continuing operations for the current period:
The Connective Corporate costs Total
£'000 £'000 £'000
Revenue 89,256 - 89,256
Net revenue 85,557 - 85,557
Operating profit/ (loss) before adjusting items 9,629 (3,654) 5,975
Adjusting items (7,454) (875) (8,329)
Total operating profit/ (loss) 2,175 (4,529) (2,354)
Results from continuing operations for the prior period ended 31 January 2021:
Restated Corporate costs Restated
The Connective Total
£'000 £'000 £'000
Revenue 55,808 - 55,808
Net revenue 52,545 - 52,545
Operating profit/ (loss) before adjusting items 5,310 (3,498) 1,812
Adjusting items (6,572) (2,197) (8,769)
Total operating loss (1,262) (5,695) (6,957)
2. Segment reporting (continued)
Results from continuing operations for the year ended 31 July 2021:
Restated Corporate costs Restated
The Connective Total
£'000 £'000 £'000
Revenue 137,321 - 137,321
Net revenue 128,919 - 128,919
Operating profit/ (loss) before adjusting items 19,273 (7,108) 12,165
Adjusting items (13,449) (2,723) (16,172)
Total operating profit/ (loss) 5,824 (9,831) (4,007)
No disclosure of assets and liabilities as no assets and liabilities are
allocated to Corporate costs.
Geographical segments
Revenue from continuing operations by geographical segment is based on the
location where goods and services have been provided.
Continuing operations 31 January 2022 Restated Restated
£'000 31 January 2021 31 July 2021
£'000 £'000
United States of America 65,741 36,365 96,327
United Kingdom 23,491 18,825 40,029
Rest of the world 24 618 965
Total 89,256 55,808 137,321
Revenue by customer location
The Group derives 70% (6 months ended 31 January 2021: 66%) of its revenue
from customers located in the United States of America, 26% (6 months ended 31
January 2021: 28%) from customers located in the United Kingdom and 4% (6
months ended 31 January 2021: 6%) from customers located in the rest of the
world.
Net revenue by customer location
The Group derives 71% (6 months ended 31 January 2021: 66%) of its net revenue
from customers located in the United States of America, 25% (6 months ended 31
January 2021: 29%) from customers located in the United Kingdom and 4% (6
months ended 31 January 2021: 5%) from customers located in the rest of the
world.
3. Acquisitions
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"). Octain provides clients advanced insight, predictions and
recommendations governed by socially responsible AI principles. The Group paid
£0.2 million of initial consideration in December 2021, in cash, and there is
deferred consideration of up to £0.7 million contingent on additional net
revenue from the platform, up to 100% of which may be settled in Kin and Carta
plc ordinary shares at the Group's discretion. The deferred consideration is
payable after three years. Given the proximity of the acquisition to 31
January 2022, the purchase price allocation has not been completed and the
surplus of consideration over historical net assets of £0.2 million has
provisionally been allocated to goodwill. The provisional accounting purchase
price allocation will be completed by 31 July 2022.
After the balance sheet date, the Group completed the purchase of the
remaining 50% shareholding in the joint venture, Loop and exchanged contracts
to acquire Melon Group, a software development company based in the southern
Balkans. Refer to note 12 for further details.
Contractual commitments for consideration linked to acquisitions:
At the date of this report, the Group had contractual commitments related both
to acquisitions which were completed prior to 31 January 2022 in respect of
deferred consideration, and to acquisitions which were completed or signed
after 31 January 2022 in respect of initial and deferred consideration.
Maximum future contracted amounts payable for historical and committed future
acquisitions are detailed below:
Period of acquisition 12 months ended 31 July 2020 12 months ended 31 July 2021 6 months ended 31 January 2022 6 months ended 31 July 2022 6 months ended 31 July 2022
Acquired entity Spire Cascade Data Labs Octain Loop Melon Group Total
Period of payment/vesting £'m £'m £'m £'m £'m £'m
Total completion amounts paid during the period ended 31 January 2022 - - 0.2 - - 0.2
Total actual/ estimated completion amounts paid/payable after 31 January 2022. - - - 2.9 17.7 20.6
Total amounts paid /payable at completion - - 0.2 2.9 17.7 20.8
FY22 deferred payments - - - 0.5 - 0.5
FY23 deferred payments 6.8 9.2 - 1.5 1.6 19.1
FY24 deferred payments - 3.3 - 1.1 2.8 7.2
FY25 deferred payments - 3.3 0.7 - 1.3 5.3
Total estimated maximum deferred consideration payable after 31 January 2022 6.8 15.8 0.7 3.1 5.7 32.1
Total estimated maximum consideration paid /payable for historical and 6.8 15.8 0.9 6.0 23.4 52.9
committed future acquisitions
Settled or to be settled in cash 3.4 4.0 0.2 3.2 12.9 23.7
To be settled in shares 3.4 11.8 0.7 2.8 10.5 29.2
Total 6.8 15.8 0.9 6.0 23.4 52.9
All amounts shown which are to be settled in the future will be determined
initially in US dollars or Euros and are therefore subject to future currency
fluctuation when measured in British pounds. Total amounts for each
acquisition are subject to maximum caps. The level of deferred consideration
is contingent upon future performance for all acquisitions, so actual amounts
payable may be less than the amounts shown, which correspond to the capped
maximums.
Spire and Cascade Data Labs were acquired in prior periods. Completion amounts
and deferred amounts in respect of those acquisitions which have already been
settled in prior periods are not included in the table. Octain was acquired in
the current period. Loop was acquired on 14 February 2022 and Melon Group was
signed after the balance sheet date, and completion is subject to competition
clearance which is expected in the second half of the current financial year.
The amounts shown for Melon Group exclude customary adjustments for cash, debt
and working capital that may arise on completion.
No assets or liabilities are recorded at the balance sheet date in respect of
the acquisitions of Loop or Melon Group. Amounts related to future payments in
respect of future deferred consideration for Spire, Cascade Data Labs and
Octain have been recorded within current and non-current liabilities and
equity at the balance sheet date, based on the likely method of settlement and
the vesting periods associated with the deferred consideration amounts. In
addition to the amounts shown above , the acquisition of Melon Group will
trigger an option for Melon Group to buy, and for the current minority
owners to sell the 49 percent minority share in Frakton, a subsidiary of the
Melon Group for a fixed price of £0.8m.
The amounts shown as 'to be settled in shares' correspond to the maximum
proportion that may be settled in shares of Kin and Carta plc, assuming the
maximum contracted consideration amount is payable. The Company may
alternatively, at its sole discretion, settle any portion of the 'to be
settled in shares' amounts in cash, other than the amounts related to the
initial consideration for Melon Group and the remaining Spire deferred
consideration, which must be settled in shares. The shares in respect of the
share amount shown for Spire were allotted in February 2021 , but are subject
to a reverse vesting mechanism and will be fully vested in February 2023. No
shares have been allotted in respect of the other 'to be settled in shares'
amounts.
4. Other Income
In May 2020, the Group received £6.7 million in unsecured loans under the
Paycheck Protection Program ("PPP") provided by the US Government, provided as
part of the US CARES Act. £0.8 million of the PPP loan was forgiven by the US
Government in H1 FY21 and £3.7m in H2 FY21. The forgiveness was recorded
within adjusted other income in the prior year in the income statement in
accordance with IAS20 Government Grants. There was no corresponding loan
forgiveness-related income in the 6-month period ended 31 January 2022.
The remaining balance of £0.8 million at 31 January 2022 will be repaid in
full by 31 May 2022.
5. Discontinued Operations
In the current period, discontinued operations comprise the results of three
businesses divested in HI FY22: Incite, Edit and Relish.
In the restated prior periods, discontinued operations comprise the results of
the five businesses divested since 1 August 2020: Pragma, Hive, Incite, Edit
and Relish.
Current Period Divestments
Discontinued operations in the current period include the results of three
businesses which were divested in the period:
Incite - on 28 September 2021, the Group completed the sale of Incite, a
strategic marketing and planning consultancy for a consideration of £15.1
million before adjustments for cash, debt and working capital items. After
adjustments for cash, debt and working capital, and costs, net cash proceeds
arose on the sale of Incite of £14.6 million at completion, with a further
£1.0 million receivable on 31 July 2022, which is not contingent on business
performance. The net gain on divestment of Incite is £15.3 million and this
has been recorded in adjusting items.
Relish - on 4 November 2021, the Group completed the sale of Relish, a product
sampling agency specialising in the beauty and fast-moving consumer goods
sectors, for a consideration of £5.6 million before costs and customary
adjustments for cash, debt and working capital. The net gain recorded in
adjusting items relating to the sale is £3.8 million.
Edit - on 12 November 2021, the Group completed the sale of Edit, a marketing
services company, for a consideration of £12.5 million before costs and
customary adjustments for cash, debt and working capital. The net gain
recorded in adjusting items relating to the sale is £5.5 million.
Prior Period Divestments
In addition to the results of the three businesses noted above which were
divested in the current period, prior period discontinued operations include
the results of Pragma, a commercial retail space consulting business and Hive,
a healthcare communications consultancy, both of which were divested in the
prior period.
Pragma - on 31 August 2020, Pragma was divested for a consideration of £0.25
million, before adjustments for cash, debt and working capital items, received
in cash at completion. The loss on disposal of Pragma of £0.2 million is
recorded within adjusting items.
Hive - on 16 December 2020, Hive was divested for a consideration of £13.8
million before adjustments for cash, debt and working capital items received
in cash at completion. After adjustments for cash, debt and working capital,
net proceeds from Hive of £12.35 million were received in the prior year. The
gain on disposal of Hive of £5.4 million is recorded within adjusting items.
The results of the discontinued operations were as follows:
6 months ended 31 January 2022 Restated Restated
6 months ended 31 January 2021 Year ended 31 July 2021
Profit from discontinued operations before adjusting items:
Revenue 10,115 24,981 43,038
Operating costs (8,686) (21,368) (36,743)
Operating profit before adjusting items 1,429 3,613 6,295
Interest charges (32) (91) (210)
Profit before tax before adjusting items 1,397 3,522 6,085
Income tax charge (256) (683) (1,223)
Profit after tax before adjusting items 1,141 2,839 4,862
Adjusting Items from discontinued operations
Gain on divestment of discontinued operations 24,632 4,612 4,047
Release of provision 265 - -
Adjusting items before tax 24,897 4,612 4,047
Tax (charge)/ credit on adjusting items (1,058) 107 214
Adjusting items after tax 23,839 4,719 4,261
Profit/ (loss) from discontinued operations
Profit after tax before adjusting items 1,141 2,839 4,862
Adjusting Items 23,839 4,719 4,261
Total profit after tax 24,980 7,558 9,123
6a. Adjusting items
Adjusting items from continuing operations disclosed on the face of the
Consolidated Income Statement are as follows:
Continuing Operations 6 months to 31 January 2022 6 months to 31 January 2021 Year to 31 July 2021
Expense/ (income) £'000 £'000 £'000
Costs related to acquisitions
Acquisition costs 665 248 966
Amortisation of acquired intangibles 2,853 4,353 7,527
Contingent consideration required to be treated as remuneration 3,936 1,659 4,956
7,454 6,260 13,449
Defined Benefit Pension Scheme costs
Scheme administration costs 262 537 773
Past service cost (GMP equalisation uplift) - 604 604
Other related costs 613 1,056 1,165
875 2,197 2,542
Restructuring items and other charges - 312 181
Adjusting items before interest and tax 8,329 8,769 16,172
Net pension finance income in respect of defined benefit pension scheme (166) (8) (21)
Adjusting items before tax 8,163 8,761 16,151
Income tax credit (821) (1,741) (1,524)
Continuing operations adjusting items after tax 7,342 7,020 14,627
Discontinued operations adjusting items net profit after tax (23,839) (4,719) (4,261)
Continuing and discontinued adjusting items after tax (16,497) 2,301 10,366
Costs related to acquisitions made in the current and prior periods
Acquisition costs of £0.7 million were incurred as part of acquisitions that
were agreed and/or completed after the end of the current period including
Melon Group and the full acquisition of the joint venture, Loop (note 12).
Charges relating to the amortisation of acquired customer relationships and
proprietary techniques amounted to £2.9 million (H1 FY21: 4.4 million).
During the period, charges relating to contingent consideration deemed as
remuneration of £3.9 million (H1 FY21: £1.7 million) were recorded in the
Consolidated Income Statement as adjusting items. The charges in the period
are in respect of the acquisition of Kin and Carta Denver (SpireMedia, Inc
"Spire") (£0.9 million) and Cascade Data Labs (£3.0 million), which took
place in prior periods.
Defined Benefit Pension Scheme costs
The Scheme charges include service costs of £0.3 million (H1 FY21: £0.5
million) and costs in relation to running the scheme of £0.6 million (H1
FY21: £1.1 million). These items are recorded in corporate costs.
Restructuring items and other charges
Restructuring and other charges incurred in prior periods relate to site
closure and empty property costs.
Tax
In the current period, the tax credit of £0.8 million (HY FY21: £1.8
million) relates to the items noted above.
6b. Impact of adjusting items on Group results
The table below shows an analysis and impact of adjusting items on continuing
and discontinued operations on certain of the Group's headline results:
6 months to 31 January 2022 6 months to 31 January 2021 12 months to 31 July 2021
Restated Restated
Adjusted Adjusting Items Adjusted Adjusting Items Restated Adjusted Adjusting Items Restated
Results £'000 Results Results £'000 Results Results £'000 Results
£'000 £'000 £'000 £'000 £'000 £'000
Net Revenue 85,557 - 85,557 52,545 - 52,545 128,919 - 128,919
Operating profit/ (loss) 5,975 (8,329) (2,354) 1,812 (8,769) (6,957) 12,165 (16,172) (4,007)
Net pension finance income - 166 166 - 8 8 - 21 21
Other finance expense (949) - (949) (1,170) - (1,170) (1,953) - (1,953)
Profit/ (loss) before tax from continuing operations 5,026 (8,163) (3,137) 642 (8,761) (8,119) 10,212 (16,151) (5,939)
Profit before tax from discontinued operations 1,397 24,897 26,294 3,522 4,612 8,134 6,085 4,047 10,132
Profit before tax 6,423 16,734 23,157 4,164 (4,149) 15 16,297 (12,104) 4,193
Income tax (charge)/ credit from continuing operations (1,041) 821 (220) (114) 1,741 1,627 (2,013) 1,524 (489)
Income tax (charge)/ credit from discontinued operations (256) (1,058) (1,314) (683) 107 (576) (1,223) 214 (1,009)
Net profit/ (loss) for the period 5,126 16,497 21,623 3,367 (2,301) 1,066 13,061 (10,366) 2,695
Net profit/ (loss) from continuing operations 3,985 (7,342) (3,357) 528 (7,020) (6,492) 8,199 (14,627) (6,428)
Net profit from discontinued operations 1,141 23,839 24,980 2,839 4,719 7,558 4,862 4,261 9,123
Net profit/ (loss) for the period 5,126 16,497 21,623 3,367 (2,301) 1,066 13,061 (10,366) 2,695
7. Other finance costs
6 months to Restated Restated
31 January 2022 6 months to Year to
£'000 31 January 2021 31 July 2021
£'000 £'000
Interest and bank arrangement fees on bank overdrafts and loans 582 819 1,260
Interest on lease liabilities 367 351 693
949 1,170 1,953
8. Earnings per share
The calculation of the basic and diluted earnings per share are based on the
following:
6 months to Year to
6 months to 31 January 2022 31 January 31 July
'000 2021 2021
'000 '000
Weighted average number of ordinary shares for the purposes of basic 173,007 168,714 169,985
earnings/(loss) per share
Effect of dilutive potential ordinary shares:
Share options 8,425 2,609 5,419
Weighted average number of ordinary shares for the purposes of diluted 181,432 171,323 175,404
earnings/(loss) per share
8. Earnings per share (continued)
Basic and diluted earnings per share
6 months to Restated Restated
31 January 6 months to Year to
2022 31 January 31 July
£'000 2021* 2021*
£'000 £'000
Continuing and discontinued operations Earnings Earnings Earnings Earnings Earnings Earnings
£'000 per share £'000 per share £'000 per share
pence pence pence
Earnings/ (loss) and basic earnings/ (loss) per share
Adjusted earnings and adjusted basic earnings per share 5,126 2.96 3,367 2.00 13,061 7.68
Adjusting items 16,497 9.54 (2,301) (1.36) (10,366) (6.10)
Earnings/ (loss) and basic earnings/ (loss) per share 21,623 12.50 1,066 0.63 2,695 1.59
Earnings/ (loss) and diluted earnings/ (loss) per share
Adjusted earnings and adjusted diluted earnings per share 5,126 2.83 3,367 1.97 13,061 7.45
Adjusting items 16,497 9.09 (2,301) (1.36) (10,366) (6.10)
Earnings/ (loss) and diluted earnings/ (loss) per share 21,623 11.92 1,066 0.62 2,695 1.54
Adjusted earnings is calculated by adding back adjusting items (note 6), as
adjusted for tax, to the profit or loss for the period.
9. Retirement benefits
As at 31 January 2022 the Group reported a net IAS19 surplus in respect of the
Defined Benefit Pension Scheme (the 'Scheme') of £25.5 million compared to a
surplus of £19.3 million reported as at 31 July 2021. The increase in the
surplus is due to the strong performance of growth assets.
10. Notes to the consolidated cash flow statement
Reconciliation of cash generated from operations
6 months to 6 months to Year to
31 January 31 January 31 July
2022 2021 2021
£'000 £'000 £'000
Loss from continuing operations (2,354) (5,191) (2,268)
Profit from discontinued operations 26,325 6,460 8,604
Operating profit 23,971 1,269 6,336
Adjustments for:
Depreciation of property, plant and equipment 2,205 1,961 4,322
Amortisation of intangible assets 2,969 5,033 8,869
Share-based payment charge 1,419 880 1,944
Increase in contingent consideration required to be treated as remuneration 3,936 1,659 3,342
Share of results of joint arrangement (441) (222) (700)
Disbursements from joint arrangement 147 - 440
Impairment losses - 151 456
Gain on disposals of subsidiaries (24,632) (5,176) (5,171)
(Decrease)/ increase in retirement benefit obligations (1,927) 214 (286)
Forgiveness of US government loans (note 4) - (849) (4,541)
Non-cash reductions in lease liabilities - - (306)
Decrease in provisions (281) (345) (877)
Operating cash inflows before movements in working capital 7,366 4,575 13,828
(Increase)/ decrease in receivables (7,576) (6,249) (13,736)
(Decrease)/increase in payables (2,700) 4,963 10,377
(Decrease)/ increase in deferred income (37) (259) 378
Cash (used in) generated from operations (2,947) 3,030 10,847
10. Notes to the consolidated cash flow statement (continued)
Cash and cash equivalents (which are presented as a single class of assets on
the face of the consolidated balance sheet) comprise cash at bank and other
short-term highly liquid investments with a maturity of three months or less.
The effective interest rates on cash and cash equivalents are based on current
market rates.
Analysis of loan financing liabilities
31 July Draw down Repayment Foreign exchange gains 31 January
2021 £'000 £'000 £'000 2022
£'000 £'000
Current liabilities
US Government Loans 1,853 - (1,152) 67 768
Non-current liabilities
Bank loans - Revolving credit facility 62,365 5,270 (67,083) 938 1,491
Total financing liabilities 64,218 5,270 (68,235) 1,005 2,259
11. Related parties
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
period, which might reasonably affect the decisions made by the users of these
interim financial statements.
No executive officers of the Company or their associates had material
transactions with the Group during the period.
The Group held a 50% interest in Loop Integration LLC ("Loop"), incorporated
in Delaware, USA. On 14 February 2022 the Group purchased the remaining 50%
interest, details are provided in note 12 below.
Loop is an e-commerce consultancy specialising in Hybris software integration.
Loop earned revenue of £2.1 million (HY FY21: £1.7 million) from the Group.
The Group provided services to Loop for £142,000 in the period (HY FY21:
£100,900). On 31 January 2022 the following balances were outstanding for
services rendered between Loop and the Group. The Group owed Loop £1.4
million at the period end (HY FY21: payable to Loop of £0.9 million). In the
current period the Group received a distribution from Loop of £147,000.
12. Post-balance sheet events
After the balance sheet date, the Group completed the purchase of the
remaining 50% shareholding in the joint venture, Loop and exchanged
contracts to acquire 100% of Melon Group, a software development company based
in the southern Balkans.
Loop
On 14 February 2022, the Group acquired the remaining 50% interest, which it
did not already own, in the Chicago-based e-commerce consultancy Loop. The
initial consideration comprised £2.2 million in cash at completion before
customary adjustments for cash, debt and working capital, with deferred
consideration contingent upon service and revenue growth for the two years
ended 31 December 2023, capped at £3.8 million for a total cap of £6 million
before customary adjustments for cash, debt and working capital. Up to 75% of
the deferred contingent consideration amounts may be settled in ordinary
shares of Kin and Carta plc at the Group's discretion.
The provisional accounting purchase price allocation will be completed by 31
July 2022.
Melon Group
On 21 February 2022, the Group signed an agreement to acquire the software
development company Melon Group, which is headquartered in Sofia, Bulgaria
with offices in Skopje, North Macedonia and Pristina, Kosovo. The acquisition
is conditional on the Group receiving clearances from the North Macedonian and
Kosovan competition authorities and will complete following the receipt of
these clearances, which are expected to be in the second calendar quarter of
2022 ("Completion").
The consideration payable comprises an estimated initial amount of £17.7
million plus customary adjustments for cash, debt and working capital, of
which 40 percent is payable in Kin and Carta plc ordinary shares, and the
balance payable in cash, with both amounts to be settled at Completion. In
addition, an earnout is potentially payable over three years, linked to growth
in adjusted EBITDA from 1 January 2022 to 31 December 2023. Up to 60 percent
of the earn out may be payable in Kin and Carta plc ordinary shares at the
Company's discretion. Following the Completion of the acquisition, the Company
will have an option to purchase and the minority owners will have an option to
sell the 49 percent minority stake in Melon's Kosovo subsidiary, Frakton
SH.P.K, for £0.8 million within a 3 month period (the "Frakton option"). The
total consideration for Melon including potential earnout amounts is capped at
£23.5 million, with a further £0.8 million payable in cash if the Frakton
option is exercised by either party.
13. Principal risks and uncertainties
The Board considers that the categories of principal risks and uncertainties
which could have a material impact on the Group's performance in the remaining
six months of the financial year remain the same as those stated on pages 102
to 110 of the 2021 Annual Report and Accounts, which is available on our
website https://investors.kinandcarta.com (https://investors.kinandcarta.com)
.
14. Statement of Directors' Responsibility
The Directors' confirm that these Condensed Consolidated Interim Financial
Statements have been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority, namely:
● an indication of important events that have occurred during the
first six months and their impact on the Condensed Consolidated Interim
Financial Statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial period; and
● material related-party transactions in the first six months and
any material changes in the related-party transactions described in the Kin
and Carta plc 2021 Annual Report and Accounts.
Neither the Company nor Directors accept any liability to any person in
relation to the half year financial report except to the extent that such
liability could arise under English law. Accordingly, any liability to a
person who has demonstrated reliance on any untrue or misleading statement or
omission shall be determined in accordance with section 90A and schedule 10A
of the Financial Services and Markets Act 2000.
At the date of this statement, the Directors are those listed in the Kin and
Carta plc 2021 Annual Report and Accounts with the exception of:
● Maria Gordian who was appointed Non-Executive Director on 1
November 2021, and
● Helen Stevenson who resigned as Non-Executive Director on 14
December 2021.
J Schwan
Chief Executive Officer
24 March 2022
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.
Independent review report to Kin and Carta plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Kin and Carta plc's condensed consolidated interim financial
statements (the "interim financial statements") in the Half Year Results of
Kin and Carta plc for the 6-month period ended 31 January 2022 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
What we have reviewed
The interim financial statements comprise:
● the Condensed Consolidated Balance Sheet as at 31 January 2022;
● the Condensed Consolidated Income Statement and Condensed
Statement of Comprehensive Income for the period then ended;
● the Condensed Consolidated Statement of Cash Flows for the period
then ended;
● the Condensed Consolidated Statement of Changes in Equity for the
period then ended; and
● the explanatory notes to the interim financial statements.
The interim financial statements included in the Half Year Results of Kin and
Carta plc have been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Half Year Results, including the interim financial statements, is the
responsibility of, and has been approved by the directors. The directors are
responsible for preparing the Half Year Results in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial
statements in the Half Year Results based on our review. This report,
including the conclusion, has been prepared for and only for the company for
the purpose of complying with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority and for no
other purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom this
report is shown or into whose hands it may come save where expressly agreed by
our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the Half Year Results and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
24 March 2022
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