REG - Kin and Carta PLC - Half Year Results
15/03/2023 07:00
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RNS Number : 9826S Kin and Carta PLC 15 March 2023
15 March 2023
Kin and Carta plc
("Kin + Carta", the "Group", or the "Company")
Half Year Results
Growth impacted by macro headwinds in H1
Improved performance expected in H2
Strategy focused on long-term profitable growth
Kin + Carta, the international digital transformation ("DX") company, today
announces interim results for the period from 1 August 2022 to 31 January 2023
Financial Highlights (all comments from continuing operations(1))
● Net revenue of £98.7 million, +15% year-on-year ("YoY") and 6%
decline like-for-like(4) due to macroeconomic headwinds
○ Americas net revenue grew 22% YoY to £71.1 million;
like-for-like(4) net revenue declined 1% YoY
○ Europe net revenue grew 2% YoY to £27.6 million; like-for-like(4)
net revenue declined 16% YoY due to a challenging UK economy which is 81% of
the region's net revenue. Recently acquired Melon Group grew net revenue
double digits with integration progressing well
○ Execution of growing nearshore delivery improves client engagement
and delivers higher gross margins but at a lower price point which caused a
reduction in organic growth of c.3% in each region
● Record half year backlog of £124 million (HY FY22: £106 million),
with continuing demand reflected in sales pipeline of £166 million (HY FY22:
£115 million)
● Adjusted operating margin 7.6% (H1 FY22: 8.5%) reflects volatile
trading conditions and planned higher investments in systems and technology
partially offset by margin enhancing nearshore delivery and efficiencies in
operating expenses
● Adjusted profit before tax of £6.5 million (H1 FY22: £6.3
million)
● Statutory net loss before tax of £15.1 million (H1 FY22: loss of
£3.3 million) driven by trading conditions noted above in addition to
adjusting items, as detailed in the Alternative Performance Measures section
● Net debt for bank covenant purposes of £11.8 million (H1 FY22:
net cash £6.2 million); net debt to adjusted EBITDA ratio 0.48 times (H1
FY22: (0.33) times)
Operational Highlights
● Net revenue impacted by macroeconomic headwinds which led to (1)
slowing sales cycles and new business shortfalls (2) Enterprise* spending
caution and (3) client churn from non-Enterprise clients more exposed to the
macroeconomic challenges
● The Company responded by protecting margins
○ £3 million annualised Opex savings
○ The acceleration of margin-enhancing delivery headcount from 9% to
more than 30% year-on-year, bolstered by Melon Group acquisition in Southeast
Europe and organic hiring in Latin America
○ Melon Group executed on strategy of driving higher gross margins by
delivering high quality engineering services to UK clients. The Company also
established cost-effective shared services roles across IT, HR, Finance and
Operations in Melon's Sofia office
○ Continued pricing power with average 5% rate increases negotiated with
50% of the client portfolio, with a rolling process across the remaining 50%
and higher pricing with new clients
● Europe won 20 new clients between the start of August 2022 and
the end of February 2023
○ Record Europe contract- a £14 million, two-year contract in the UK
Public Sector secured during H1 and ramping up in H2. The Company has now
secured seven Public Sector clients with a Public Sector pipeline of over £60
million
○ Signed an extension for a £4 million automotive managed services
contract
○ Growth in financial services, expanding Santander relationship
across multiple projects
● Americas won eight new clients that are expected to commence
in the second half, with growth in demand for high-value data services in
partnership with Google and Microsoft
○ A new $9 million data services contract to be delivered over three
years signed with a large US automotive manufacturer
○ Increased deployment of high-margin nearshore technical resources
in Latin America accelerated delivery for the two-year $90 million financial
services contract secured in the prior year
● The foundations for long-term profitable growth have
strengthened
○ The Company has track record of double-digit organic net revenue
growth since 2017
○ A record £124 million backlog and strong £166 million pipeline
○ 90% of net revenue is derived from Enterprise clients (global
enterprise businesses, typically $1 billion+ revenue, or government backed
public sector); 27 of the 50 have been clients for more than four years and 41
have been clients for two years or more
○ Long-term demand for digital transformation services is set to
remain strong
*Enterprise client profiles are c. $1 billion+ in size and often
multinational businesses. This includes government backed Public Sector
Outlook
Organic growth and profitability are expected to improve in H2. A strong sales
pipeline of £166 million, up 45% year-on-year, a record order backlog of
£124 million and our larger Enterprise clients spending more with us
underpins our confidence. However, we are mindful of the macroeconomic
challenges that continue to evolve.
As highlighted in our trading update in February, we expect FY23 net revenue
growth to be 8-12%, with organic net revenue declining low single digit
percentage from the prior year. We expect adjusted operating margin of 11-12%
for FY23, broadly in line with the prior year and supported by increased
nearshore delivery and an improved cost structure. Adjusted EBITDA margin is
expected to be 12-13%.
We expect a return to more normal growth and profitability in FY24. The
Company's medium term guidance of 15%+ CAGR and adjusted EBITDA margins in the
mid-to-high teens remains unchanged.
Kelly Manthey, CEO, said:
"The first half has been challenging with widespread client spending caution
experienced across our industry. We enter the second half with a record order
backlog and our Enterprise blue chip client base, more than half of which has
been with us longer than 4 years. This is the foundation for our future
growth. I am as committed as ever to scaling Kin and Carta's global platform."
Financial Highlights Table(1)
6 months to 6 months to Like- for-
31 January 2023 31 January 2022 like
decline(4)
(restated)(2)
Net revenue £98.7m £85.6m (6%)
Adjusted operating profit(3) £7.5m £7.3m (41%)
Adjusted operating margin(3) 7.6% 8.5%
Adjusted profit before tax(3) £6.5m £6.3m
Adjusted basic earnings per share(3) 3.06p 3.11p
Net (debt)/cash- bank covenant basis (£11.8m) £6.2m
Statutory operating loss (£14.7m) (£2.6m)
Statutory net loss before tax (£15.1m) (£3.3m)
Statutory basic loss per share (7.19p) (2.04p)
1 All Consolidated Income Statement measures reflect the results from
continuing operations. Discontinued operations in six months to January 2022
include the results of three businesses, Incite, Edit and Relish, which were
divested in the period. Refer to note 4 of the Interim Financial Statements
for details of the discontinued operations.
2 Results for the six months ended 31 January 2022 have been restated to
reflect a change in accounting policy, following adoption of the IFRS IC's
agenda decision on Configuration and Customisation Costs in a Cloud Computing
Arrangement and the reclassification of share-based payments from
non-adjusting items to adjusting items, as detailed in note 1 to the Interim
Financial Statements.
3 Adjusted results exclude adjusting items to reflect how management assesses
and monitors the ongoing financial performance of the Group. Refer to note 5
for details.
4 The impact of retranslating H1 FY22 results at the H1 FY23 average exchange
rates and excluding the impact of prior period acquisitions.
For further information, please contact:
Kin and Carta plc Numis Securities Limited
Nick Westlake / Tejas Padalkar
Kelly Manthey, Chief Executive Officer
+44 (0)207 260 1345
Chris Kutsor, Chief Financial and Chief Operating Officer
+44 (0)20 7928 8844
Powerscourt Peel Hunt LLP
John Welch / Paul Gilliam
Elly Williamson / 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 2,000 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.
Chief Executive's Review
Focused on long-term profitable growth
INTRODUCTION
In 2019 we started our own transformation journey to better serve the growing
DX market, transforming what was a portfolio of market research,
communications, and technology businesses into an integrated global DX
consultancy. We achieved an important milestone in February 2020 when the Kin
+ Carta brand was born and launched globally as a pure-play digitally native
DX consultancy. We divested non-digital businesses, and focused on building a
foundation around the businesses that comprise today's Kin + Carta. Our
platform today mirrors what any global consultancy at scale requires - a focus
on serving Enterprise clients, with the right technical capabilities, from the
right delivery locations, and a market leading approach to attracting and
retaining the best talent. Our B Corp certification achievement signalled that
we and our shareholders believe in our responsibility to use our business as a
force for good.
Since becoming the Global CEO of Kin + Carta seven months ago after serving as
CEO of the Americas for the past five years, my conviction is even stronger
that our ambition to become a leading digital transformation partner, at
scale, for the world's most recognisable brands is the right one. And that
the foundations are in place to deliver this ambition.
My agenda as CEO has three priorities - 1) Optimise our foundation for scale
2) Focusing our growth engine to organise around key industry verticals with
our technology partners. 3) Realign the business around three delivery
engines: Domestic, Nearshore and Offshore with emphasis on growing
margin-efficient nearshore and offshore.
Whilst our first half performance was disappointing, this will not distract us
from pursuing the longer term ambition that we have for the Company.
In Q2 we experienced a change in client behaviour, driven by market-wide macro
headwinds that triggered a more cautious approach to investment by clients. A
challenging UK economy and slowing global economy drove (1) a new-business
shortfall (2) caution in Enterprise client spending (3) increased client
churn, predominantly from non-Enterprise clients which were more adversely
impacted by the conditions.
While client caution drove a slower velocity of both converting pipeline into
backlog and converting backlog into net revenue, I'm pleased to say backlog
remains a durable commitment from our clients and less than 2% of backlog has
been reversed during the period. Backlog combined with pipeline provides
visibility to near term growth and we are focused on winning more deals and
executing on conversions to net revenue in H2.
During the period, spend-levels of our Enterprise Top-20 clients increased as
they continued to place their trust in Kin + Carta. In Europe, the Company won
a record £14 million UK Public Services contract, and a data-led Intelligent
Experiences proposition in partnership with Google drove strong demand in the
retail sector. The Americas' anchor financial services client increased spend
significantly in H1, and a $9 million data services contract was secured in
the automotive sector.
Through the H1 challenging business environment we responded with actions to
mitigate the near term and manage for the long term. Cost structure changes
were accelerated, refocusing key leaders in our business from internally
building Kin + Carta, to serving clients in the market. Opex structure
improvements were executed through executive changes, role consolidation and
the launch of a global shared services centre in Southeast Europe ("SEE") at
Melon, leveraging our recent acquisition and allowing the transition of
business operations roles from the UK market.
The Company enters the second half with strengthened growth foundations:
● Record backlog and strong pipeline continue to be driven by strong
demand for high quality digital transformation services.
● Net revenue from Top-20 Enterprise blue chip client base continues
to increase.
● Pricing power for the most in-demand technology capabilities is
protecting margins.
● Margin-efficient nearshore delivery continues to expand.
● Acquired businesses continue to grow and add value for our
business and for our clients.
● Since 2017, Kin + Carta has delivered double-digit CAGR growth in
organic, constant currency.
Underpinning all of this is an unwavering commitment to strike a balance
between people, profit, and planet and operate as a higher standard, more
responsible digital transformation consultancy and a certified B Corp.
Our second half outlook has taken account of the changed macroeconomic
environment offset by our typically stronger second half performance. It is
worth noting that the Company's H1 includes significant holiday months of
August, November's Thanksgiving holiday in the US, and the December holidays.
We will continue to be responsive, controlling what we can in the short-term,
without sacrificing the key drivers for long-term profitable growth. We remain
alert to the challenges of a continuing volatile economic climate.
Our ambition for Kin + Carta remains unchanged.
OPERATIONAL PERFORMANCE
In H1, macroeconomic headwinds impacted our growth resulting in net revenue
of £98.7 million, +15% year-on-year ("YoY") and 6% decline like-for-like(4).
The market volatility led to changes in client behaviours late in the half
that caused (1) slowing sales cycles and new business shortfalls (2)
Enterprise spending caution and (3) client churn from non-Enterprise clients
more exposed to the macroeconomic challenges.
● Demand remains strong with a record £14 million UK Public Sector
contract, $9 million automotive data services deal, and 20+ new business logos
won in the period, expected to ramp-up in H2.
● Client portfolio continues to strengthen with $1 billion+
Enterprise profiles driving 90% of total net revenue, and 93% of our Top-50
clients net revenue is derived from Enterprise clients; scale-ups with higher
exposure to macro volatility replaced with resilient Enterprise clients, and
continued pricing power.
● Opex restructuring delivering annualised £3 million of savings,
and acceleration of higher-margin nearshore delivery resources from 9% to 34%
year-on-year enhance the foundation for long-term profitable growth.
● Successful integration of our acquisitions has formed the backbone
of high-demand data services (Cascade Data Labs), growth in commerce (Loop),
and double-digit growth from high quality nearshore delivery (Melon Group).
● Purpose-led, high performance culture recognised within the period
by awards for 'Great place to work' in US, UK and Greece, 'Best workplaces for
wellbeing', Built-In 2023 'Best places to work', Chicago Tribune 'Top
workplaces', and B Lab's 'Best for the world in Governance'.
Kelly Manthey
Chief Executive Officer
FINANCIAL PERFORMANCE
Group net revenue from continuing operations of £98.7 million was up 15% on
the comparable period (H1 FY22: £85.6 million), driven by acquisitions and
currency effects. The Americas region grew 22% year-on-year to £71.1 million
while Europe's H1 net revenue grew 2% year-on-year to £27.6 million. The
Americas region accounted for 72% of the total H1 FY23 net revenue.
The Americas segment produced £9.3 million of adjusted operating profit (H1
FY22: £8.5 million) on net revenue of £71.1 million (H1 FY22: £58.5
million). Americas' organic net revenue at constant currency declined by 1%,
reflecting macroeconomic weakness that caused client spending caution and
elongated sales cycles noted across the industry. Adjusted operating margin
declined from 14.5% to 13.0% with a slightly lower gross margin associated
with lower utilisation of delivery staff due to project delays and
non-strategic client attrition. This gross margin headwind was partially
offset by organic growth of high margin nearshore delivery teams in Latin
America. At the adjusted operating margin level, there was also the effect of
higher planned investment into information technology.
The Europe segment produced £0.6 million of adjusted operating profit (H1
FY22: £1.4 million) on net revenue of £27.6 million (H1 FY22: £27.1
million). Like-for-like net revenue declined 16% as a result of macroeconomic
weakness in the UK which accounts for 81% of Europe's net revenue. Gross
margin pressures were largely offset by the significant increase in the
Company's margin enhancing nearshore delivery associated with the recent Melon
Group acquisition in Southeast Europe. At the adjusted operating margin level,
higher planned investment into information technology also impacted Europe.
Group like-for-like net revenue declined by 6% and Group adjusted operating
margin was 7.6% for the period (H1 FY22: 8.5%). The Group's delivery staff in
Latin America and Southeast Europe near-shore locations grew from 9% of
delivery staff last year to over 30% this year, 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 by c. 3% during the period.
The lower operating margin in the period also includes the impact of unusual
client disputes from non-Enterprise clients with related net revenue at much
lower than average margin, resulting in an adverse impact on adjusted
operating profit of c. £2m during the period.
Adjusted finance costs were in line with prior year and adjusted profit before
tax from continuing operations was up 3% at £6.5 million (H1 FY22: £6.3
million).
The total loss before tax from continuing operations in the period was £15.1
million (H1 FY22: loss of £3.3 million), which is stated after net adjusting
cost items of £21.7 million (H1 FY22: net costs of £9.7 million). Adjusting
items in the current period include £12.0 million related to acquisitions
which comprises: £4.7 million related to the amortisation of acquired
intangibles, £7.2 million of consideration required to be treated as
remuneration for acquisitions made in prior periods, and £0.2 million of
acquisition and integration related costs. Adjusting items also include: £2.5
million is respect of share-based payments relating to employee share schemes,
£1.0 million relating to the Company's legacy Defined Benefit Pension Scheme
(the "Scheme"); a charge of £1.8 million for restructuring-related costs; and
a charge of £4.9 million related to client disputes and associated
litigation. There were two client disputes settled during the period, one of
which was a legacy client that came via a prior acquisition. The resolution of
the two disputes resulted in £4.9 million of additional costs which have been
treated as adjusting given the size and nature of the settlement payments and
related legal costs.
A change in leasing arrangements for our Chicago premises was concluded after
the balance sheet date which will result in a substantial reduction in leased
space and associated cash costs. This will result in a credit of £7-8
million to the Income Statement recorded as an adjusting item in H2 FY23.
Further details are provided within note 5 and the Alternative Performance
Measures section below. Absent further acquisitions, deemed remuneration
charges within adjusting items will reduce by more than 60 percent in H2.
Total net adjusting items in H2 FY23 are therefore forecast to be
significantly lower than H1.
Net assets decreased by £40.7 million versus 31 July 2022, driven by the
actuarial loss, net of tax, on the Scheme surplus of £20.0 million, the net
loss after tax of £12.5 million, foreign exchange gains on consolidation of
£0.8 million, non-income movements in equity related to net share repurchases
and settlements of £8.0 million and transfers from equity to liabilities in
respect of contingent deferred payments for acquisitions made in prior periods
of £6.2 million following the Company's decision to settle in cash rather
than equity, partially offset by £5.2 million of credits to equity in respect
of share-based payments.
Operating cash inflow before working capital was £5.4 million (H1 FY22: £7.1
million). The working capital inflow of £1.3 million reflects strong
management of billing and collection in the period. Net cash inflows of £5.4
million before working capital are stated net of outflows of £4.3 million
related to adjusting items. Cash outflows related to finance charges increased
slightly due to the increase in net debt and higher interest rates.
The investing cash outflow of £6.8 million (H1 FY22: inflow of £32.1
million) includes payments of £5.4 million related to the prior Cascade Data
Labs and Melon Group acquisitions, as well as capital expenditure of £1.4
million. H1 FY22 included £33.2 million of proceeds on disposal of
subsidiaries divested in the period. Financing cash flows includes market
purchases of the Company's shares by the Employee Benefit Trust of £8.4
million (H1 FY22: £1.6 million) to satisfy expected future vesting under
share-based payment schemes. Market purchase of shares reduces the dilutive
effect to earnings per share and hedges the market price risk associated with
employee share options. Lease payments were broadly in line with the
comparable prior year period at £1.8 million (H1 FY22: £2.0 million).
As a result, the Company ended the half year with a net debt position for bank
covenant purposes of £11.8 million (£0.2 million at 31 July 2022). Leverage
remains modest with net debt at 0.48 times adjusted EBITDA for bank covenant
purposes at 31 January 2023 (31 July 2022: 0.01 times).
The IAS 19 pension accounting surplus decreased at the half year to £13.9
million from £38.7 million at 31 July 2022 due to 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 the effect of the corresponding increase in corporate bond
yields which are used to discount the accounting liability.
The pension 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. Approximately 32%
of the Scheme's assets are currently allocated to growth assets (reduced from
40% at 31 July 2022), of which less than half are allocated to equities. The
non-growth assets are invested in liability matching and cash flow matching
assets. Excluding trustee expense support, sponsor cash contributions to the
Scheme will reduce to £0.2 million in H2 FY23. The Company is committed to
pay a further £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.
Our liquidity position remains strong, with modest claims on operating cash
flows beyond growth-related working capital investments and, in the near term,
cash payments to settle deferred consideration on prior acquisitions. There
remains substantial undrawn capacity on the Company's credit facility of £85
million committed until September 2026. Notwithstanding any further potential
acquisitions, the pro forma leverage ratio (net debt to pro forma adjusted
EBITDA) is expected to be less than 1 times for the rest of the current
financial year. The Company's balance sheet and financial flexibility remain
strong and provide ample opportunity to invest for growth.
Whilst the first half has been challenging, there are positive trends that
give us confidence in a stronger second half performance. Nonetheless, the
outcome for the year will reflect the adverse effects of the macroeconomic
headwinds we experienced in H1. We expect to return to Kin + Carta's more
normal trajectory of revenue and profitable growth in FY24.
Chris Kutsor
Chief Financial Officer
Chief Operating Officer
Alternative Performance Measures ("APMs")
The half 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.
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. Adjusting items
include acquisition related costs and amortisation of acquired intangibles,
share-based payments, administrative expenses related to St Ives Defined
Benefit Pension Scheme, client disputes and litigation and restructuring
charges. For further details refer to note 5 of the Interim Financial
Statements.
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.
6 months to 6 months to
31 January 31 January
2023 2022
£'000 £'000
Revenue 100,577 89,256
Project-related costs (1,842) (3,699)
Net revenue 98,735 85,557
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 constant currency rate of exchange and excluding the
effects of acquisition or disposal.
6 months to Impact of ¹ exchange movements Impact of ² acquisition in prior period Like-for-like adjusted net revenue 6 months to Like-for-like adjusted net revenue decline %
31 January £'000 £'000 £'000 31 January
2023 2022
£'000 £'000
Europe 27,614 - (4,841) 22,773 27,061 (15.8%)
Americas 71,121 (9,245) (3,921) 57,955 58,496 (0.9%)
Group 98,735 (9,245) (8,762) 80,728 85,557 (5.6%)
1 The impact of retranslating H1 FY22 net revenue at the H1 FY23 average
exchange rates.
2 Representing the contribution effect of Loop and Melon Group, acquisitions
completed in H2 FY22, calculated using the H1 FY22 pre-acquisition results.
Adjusted operating profit: This measure is defined as the statutory operating
profit or loss after adjusting items.
6 months to Restated¹
31 January 6 months to
2023 31 January
£'000 2022
£'000
Statutory operating loss (14,688) (2,562)
Add back total adjusting items excluding net finance income and tax 22,217 9,837
Adjusted operating profit 7,529 7,275
1 The 31 January 2022 results have been restated to reflect a change in
accounting policy, following adoption of the IFRS IC's agenda decision on
Configuration and Customisation Costs in a Cloud Computing Arrangement and the
reclassification of share-based payments from non-adjusting items to adjusting
items, as detailed in note 1 to the Interim Financial Statements.
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 constant currency
rate of exchange excluding the effects of acquisition or disposal.
6 months to Impact of ¹ exchange movements Impact of ² acquisition in prior period Like-for-like adjusted operating profit Restated ³ Like-for-like adjusted operating profit decline %
31 January £'000 £'000 £'000 6 months to
2023 31 January
£'000 2022
£'000
Europe 636 - (1,299) (663) 1,390 (147.7%)
Americas 9,251 (1,523) (442) 7,286 8,492 (14.2%)
Corporate costs (2,358) - - (2,358) (2,607) (9.6%)
Group 7,529 (1,523) (1,741) 4,265 7,275 (41.4%)
1 The impact of retranslating H1 FY22 net revenue at the H1 FY23 average
exchange rates.
2 Representing the contribution effect of Loop and Melon Group, acquisitions
completed in the H2 FY22, calculated using the H1 FY22 pre-acquisition
results.
3 The 31 January 2022 results have been restated to reflect a change in
accounting policy, following adoption of the IFRS IC's agenda decision on
Configuration and Customisation Costs in a Cloud Computing Arrangement and the
reclassification of share-based payments from non-adjusting items to adjusting
items, as detailed in note 1 to the Interim Financial Statements.
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 Restated¹
31 January 6 months to
2023 31 January
£'000 2022
£'000
Statutory loss before tax (15,126) (3,345)
Add back total adjusting items before tax 21,673 9,671
Adjusted profit before tax 6,547 6,326
1 The 31 January 2022 results have been restated to reflect a change in
accounting policy, following adoption of the IFRS IC's agenda decision on
Configuration and Customisation Costs in a Cloud Computing Arrangement and the
reclassification of share-based payments from non-adjusting items to adjusting
items, as detailed in note 1 to the Interim Financial Statements.
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 Restated¹
31 January 6 months to
2023 31 January
£'000 2022
£'000
Statutory loss after tax (12,455) (3,525)
Add back total adjusting items after tax 17,758 8,909
Adjusted profit after tax 5,303 5,384
1 The 31 January 2022 results have been restated to reflect a change in
accounting policy, following adoption of the IFRS IC's agenda decision on
Configuration and Customisation Costs in a Cloud Computing Arrangement and the
reclassification of share-based payments from non-adjusting items to adjusting
items, as detailed in note 1 to the Interim Financial Statements.
Adjusted basic earnings per share from continuing operations: This measure is
defined as basic earnings per share after adjusting items.
6 months to Restated¹
31 January 6 months to
2023 31 January
£'000 2022
£'000
Adjusted profit after tax 5,303 5,384
Weighted number of shares ('000) 173,189 173,007
Adjusted basic earnings per share (pence) 3.06 3.11
1 The 31 January 2022 results have been restated to reflect a change in
accounting policy, following adoption of the IFRS IC's agenda decision on
Configuration and Customisation Costs in a Cloud Computing Arrangement and the
reclassification of share-based payments from non-adjusting items to adjusting
items, as detailed in note 1 to the Interim Financial Statements.
Adjusted operating margin: This measure is defined as the percentage of
adjusted operating profit over net revenue.
6 months to Restated¹
31 January 6 months to
2023 31 January
£'000 2022
£'000
Net revenue 98,735 85,557
Adjusted operating profit 7,529 7,275
Adjusted operating margin 7.6% 8.5%
1 The 31 January 2022 results have been restated to reflect a change in
accounting policy, following adoption of the IFRS IC's agenda decision on
Configuration and Customisation Costs in a Cloud Computing Arrangement and the
reclassification of share-based payments from non-adjusting items to adjusting
items, as detailed in note 1 to the Interim Financial Statements.
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 facility agreement, 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.
12 months to 12 months to 12 months to
31 January 31 January 31 July
2023 2022 2022
£'000 £'000 £'000
Adjusted operating profit 22,381 17,837 22,127
Add: depreciation and amortisation 12,463 10,351 10,547
Less: amortisation of intangibles classified as adjusting items (8,204) (6,149) (6,390)
Adjusted EBITDA 26,640 22,039 26,284
Covenant adjustment (2,274) (3,172) (1,817)
Adjusted EBITDA for covenant purposes 24,366 18,867 24,467
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 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.
31 January
31 January 2022 31 July
2023 £'000 2022
£'000 £'000
Cash and cash equivalents in the balance sheet (5,355) (7,679) (12,609)
Bank overdrafts 981 - -
Cash and cash equivalents in the cash flow statement (4,374) (7,679) (12,609)
Bank and other loans 16,246 2,259 13,148
Net debt/(cash)- before covenant adjustments 11,872 (5,420) 539
Foreign exchange difference between spot rate and average rate (121) (61) (353)
Deduct Paycheck Protection Program loan - (768) -
Net debt/(cash)- leverage covenant purposes 11,751 (6,249) 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.
Restated¹ Restated¹
31 January 31 January 31 July
2023 2022 2022
£'000 £'000 £'000
Adjusted EBITDA for covenant purposes 24,366 18,867 24,467
Net debt/(cash) for covenant purposes 11,751 (6,249) 186
Net debt/(cash) to adjusted EBITDA for covenant purposes 0.48 (0.33) 0.01
1 Results have been restated to reflect a change in accounting policy,
following adoption of the IFRS IC's agenda decision on Configuration and
Customisation Costs in a Cloud Computing Arrangement and the reclassification
of share-based payments from non-adjusting items to adjusting items, as
detailed in note 1 to the Interim Financial Statements.
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.
Condensed Consolidated Income Statement - unaudited
Restated¹
6 months to 31 January 2023 6 months to 31 January 2022
Note
Adjusted Adjusting items Statutory Adjusted Adjusting items Statutory
results (note 5) results results (note 5) results
£'000 £'000 £'000 £'000 £'000 £'000
Revenue 2 100,577 - 100,577 89,256 - 89,256
Project-related costs (1,842) - (1,842) (3,699) - (3,699)
Net revenue 98,735 - 98,735 85,557 - 85,557
Costs of service (54,860) - (54,860) (46,833) - (46,833)
Gross profit 43,875 - 43,875 38,724 - 38,724
Selling costs (10,323) - (10,323) (10,060) - (10,060)
Administrative expenses (26,023) (2,827) (28,850) (21,830) (875) (22,705)
Share of results of joint arrangements - - - 441 - 441
Share-based payments - (2,461) (2,461) - (1,508) (1,508)
Client disputes and litigation - (4,935) (4,935) - - -
Amortisation of acquired intangibles - (4,667) (4,667) - (2,853) (2,853)
Contingent consideration treated as remuneration - (7,160) (7,160) - (3,936) (3,936)
Acquisition and integration costs - (167) (167) - (665) (665)
Operating profit/(loss) 2 7,529 (22,217) (14,688) 7,275 (9,837) (2,562)
Net pension finance income - 682 682 - 166 166
Other finance costs 6 (982) (138) (1,120) (949) - (949)
Profit/(loss) before tax 6,547 (21,673) (15,126) 6,326 (9,671) (3,345)
Income tax (charge)/credit 8 (1,244) 3,915 2,671 (942) 762 (180)
Net profit/(loss) from continuing operations 5,303 (17,758) (12,455) 5,384 (8,909) (3,525)
Net profit from discontinued operations 4 - - - 1,385 23,595 24,980
Net profit/(loss) for the period 5,303 (17,758) (12,455) 6,769 14,686 21,455
Basic earnings/(loss) per share (pence)
Continuing operations 3.06 (7.19) 3.11 (2.04)
Discontinued operations - - 0.80 14.43
Continuing and discontinued operations 7 3.06 (7.19) 3.91 12.39
Diluted earnings/(loss) per share (pence)
Continuing operations 2.99 (7.19) 2.97 (1.94)
Discontinued operations - - 0.76 13.76
Continuing and discontinued operations 7 2.99 (7.19) 3.73 - 11.82
1 The 31 January 2022 results have been restated to reflect a change in
accounting policy, following adoption of the IFRS IC's agenda decision on
Configuration and Customisation Costs in a Cloud Computing Arrangement and the
reclassification of share-based payments from non-adjusting items to adjusting
items, as detailed in note 1.
2 In the 2022 Interim Financial Statements, the Group presented its results
for the year to 31 July 2021 in addition to the six months to 31 January 2021.
As the results for the full year are not required by IAS 34 'Interim Financial
Reporting' the Group has included only the comparative six month period to 31
January 2022 in the 2023 Interim Financial Statements.
Condensed Consolidated Statement of Comprehensive Income - unaudited
6 months to 31 January 2023 Restated¹
£'000 6 months to
31 January
2022
£'000
(Loss)/profit for the period (12,455) 21,455
Items that will not be reclassified subsequently to profit or loss:
Actuarial (loss)/gain on defined benefits pension scheme (26,661) 4,354
Tax credit/(charge) on items taken through other comprehensive income 6,665 (827)
(19,996) 3,527
Items that may be reclassified subsequently to profit or loss:
Transfers of gains/(losses) on cash flow hedges 54 (9)
Losses on cash flow hedges (2) (22)
Foreign exchange gains 761 636
Tax charge on items taken through other comprehensive income (111) -
702 605
Other comprehensive (loss)/income for the period (19,294) 4,132
Total comprehensive (loss)/income for the period (31,749) 25,587
1 The 31 January 2022 results have been restated to reflect a change in
accounting policy, following adoption of the IFRS IC's agenda decision on
Configuration and Customisation Costs in a Cloud Computing Arrangement, as
detailed in note 1.
Condensed Consolidated Statement of Changes in Equity - unaudited
Share Additional paid-in capital¹ ESOP Treasury shares Share Hedging, Other Retained earnings/ (accumulated deficit)²
capital £'000 reserve £'000 option translation and revaluation reserves £'000
£'000 £'000 reserve reserve £'000
£'000 £'000 Total
equity
£'000
Balance at 1 August 2021 (as reported) 17,255 86,513 (68) (163) 3,756 1,583 91,621 (26,118) 82,758
Prior year adjustment (note 1) - - - - - - - 1,301 1,301
Balance at 1 August 2021 (restated) 17,255 86,513 (68) (163) 3,756 1,583 91,621 (24,817) 84,059
Profit for the period (as reported) - - - - - - - 21,623 21,623
Change of accounting policy, net of tax (note 1) - - - - - - - (168) (168)
Other comprehensive income - - - - - 605 605 3,527 4,132
Total comprehensive income - - - - - 605 605 24,982 25,587
Dividends paid - - - - - - - (37) (37)
Shares issued to settle 178 215 (25) - (1,154) - (964) 1,032 246
employee share options
Purchase of own shares by Employee Benefit Trust - - (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 (restated) 17,433 81,371 (1,335) (163) 6,664 2,255 88,792 6,517 112,742
Loss for the period as restated - - - - - - - (11,672) (11,672)
Other comprehensive income - - - - - 2,615 2,615 10,599 13,214
Total comprehensive income/(loss) - - - - - 2,615 2,615 (1,073) 1,542
Dividends paid - - - - - - - (1) (1)
Shares issued to settle consideration for acquisitions 352 7,843 - - - - 7,843 8,195
Shares issued to settle 12 88 8 - (88) - 8 66 86
employee share options
Purchase of own shares by Employee Benefit Trust - - (3,998) - - - (3,998) - (3,998)
Recognition of share-based payments - - - - 1,699 - 1,699 - 1,699
Recognition of share-based contingent consideration deemed as remuneration - - - - 4,882 - 4,882 - 4,882
Tax on share-based payments - - - - (250) - (250) - (250)
Hyperinflation revaluation - - - - - 109 109 - 109
Balance at 31 July 2022 (restated) 17,797 89,302 (5,325) (163) 12,907 4,979 101,700 5,509 125,006
Loss for the period - - - - - - - (12,455) (12,455)
Other comprehensive income/(loss) - - - - - 702 702 (19,996) (19,294)
Total comprehensive income/(loss) - - - - - 702 702 (32,451) (31,749)
Dividends paid - - - - - - - (2) (2)
Shares issued to settle 6 45 3,576 - (1,507) - 2,114 (2,067) 53
employee share options
Purchase of own shares by Employee Benefit Trust - - (8,395) - - - (8,395) - (8,395)
Settlement of share-based payment using own shares - - 362 - - - 362 - 362
Recognition of share-based payments - - - - 2,096 - 2,096 - 2,096
Recognition of share-based contingent consideration deemed as remuneration - - - - 3,071 - 3,071 - 3,071
Reclassification of contingent consideration deemed as remuneration from - - - - (6,248) - (6,248) - (6,248)
equity to liabilities
Tax on share-based payments - - - - 70 - 70 - 70
Balance at 31 January 2023 17,803 89,347 (9,782) (163) 10,389 5,681 95,472 (29,011) 84,264
1 Additional paid-in capital includes share premium, merger reserve and
capital redemption reserve as detailed in note 14.
2 The 31 January 2022 results have been been restated in respect of the
following, as detailed in note 1:
- the correction of the tax treatment of income from US
loan forgiveness income in FY21.
- a change in accounting policy, following adoption of the
IFRS IC's agenda decision on Configuration and Customisation Costs in a Cloud
Computing Arrangement.
The 31 July 2022 results have been restated in respect of the correction of
the tax treatment of income from US loan forgiveness income in FY21.
Condensed Consolidated Balance Sheet
Note 31 January 2023 Restated¹ Restated²
(unaudited) 31 January 2022 31 July 2022
£'000 (unaudited) (audited)
£'000 £'000
Assets
Non-current assets
Property, plant and equipment 10,151 14,537 10,559
Investment property 4,034 4,303 4,169
Goodwill 77,194 63,451 76,935
Other intangible assets 16,165 11,891 20,435
Investment in joint arrangements - 1,402 -
Retirement benefits surplus 9 13,892 25,512 38,748
Other non-current assets 103 - 101
Deferred tax assets 8,743 3,174 7,625
130,282 124,270 158,572
Current assets
Trade and other receivables 11 33,218 38,291 45,393
Derivative financial instruments - 22 2
Current tax assets 1,623 - -
Cash and cash equivalents 11 5,355 7,679 12,609
40,196 45,992 58,004
Total assets 170,478 170,262 216,576
Liabilities
Current liabilities
Lease liabilities 11 3,227 2,835 2,806
Loans and borrowings 981 768 -
Trade and other payables 11 24,463 26,862 32,968
Derivative financial instruments - - 454
Current tax liabilities 2,268 493 1,867
Contingent consideration payable 11 12,000 824 6,944
Deferred income 3,703 5,523 5,159
Provisions 12 5,138 313 477
51,780 37,618 50,675
Non-current liabilities
Lease liabilities 11 8,522 12,291 10,052
Loans and borrowings 11 16,246 1,491 13,148
Contingent consideration payable 11 2,077 2,398 2,155
Provisions 12 4,160 191 4,206
Deferred tax liabilities 3,429 3,532 11,334
34,434 19,903 40,895
Total liabilities 86,214 57,521 91,570
Net assets 84,264 112,741 125,006
Capital and reserves
Share capital 13 17,803 17,433 17,797
Other reserves 15 95,472 88,791 101,700
(Accumulated deficit)/retained earnings (29,011) 6,517 5,509
Total equity 84,264 112,741 125,006
1 The 31 January 2022 balance sheet has been been restated in respect of the
following, as detailed in note 1:
- the effect of the correction of the tax treatment of
income from forgiveness of loans in FY21.
- a change in accounting policy, following adoption of the
IFRS IC's agenda decision on Configuration and Customisation Costs in a Cloud
Computing Arrangement.
2 The 31 July 2022 balance sheet has been restated for the effect of the
correction of the tax treatment of income from US loan forgiveness in FY21
as detailed in note 1.
These Condensed Consolidated Interim Financial Statements were approved by the
Board of Directors on 14 March 2023.
Condensed Consolidated Statement of Cash Flows - unaudited
Note 6 months to Restated¹ Year to
31 January 6 months to 31 July
2023 31 January (audited)
(unaudited) (unaudited) 2022
£'000 2022 £'000
£'000
Statutory operating (loss)/profit 16 (14,688) 23,764 11,329
Depreciation and amortisation 16 6,840 5,070 10,876
Other operating non-cash items before working capital movements 16 13,228 (21,779) (3,006)
Operating cash inflows before working capital movements 16 5,380 7,055 19,199
Decrease/(increase) in working capital 16 1,331 (10,313) (7,072)
Cash generated from/(used in) operations 16 6,711 (3,258) 12,127
Interest paid (794) (366) (1,014)
Income taxes (paid)/received (778) 130 (1,341)
Net cash flows from operating activities 5,139 (3,494) 9,772
Investing activities
Purchase of property, plant and equipment (1,365) (847) (1,336)
Payments relating to acquisitions (5,440) (240) (11,932)
Proceeds on disposal of subsidiaries - 33,161 34,269
Net cash flows from investing activities (6,805) 32,074 21,001
Financing activities
Lease payments (1,788) (2,006) (3,812)
Purchase of own shares by the Employee Benefit Trust (8,395) (1,595) (5,593)
Dividends paid (2) (37) (38)
Proceeds from issue of shares 13 51 246 332
Increase/(decrease) in bank loans 16 3,527 (62,966) (54,190)
Net cash flows from financing activities (6,607) (66,358) (63,301)
Net decrease in cash and cash equivalents (8,273) (37,778) (32,528)
Cash and cash equivalents at beginning of the period 12,609 44,971 44,971
Effect of foreign exchange rate changes 38 486 166
Cash and cash equivalents at end of the period 10 4,374 7,679 12,609
Included in the figures above are the following cash flows from discontinued
operations:
6 months to Restated¹ Year to
31 January 6 months to 31 July
2023 31 January 2022
£'000 2022 £'000
£'000
Net cash generated from operating activities - (1,656) (1,862)
Net cash flows from investing activities - 33,147 34,255
Net cash used in financing activities - (542) (542)
Net increase in cash and cash equivalents - 30,949 31,851
1 The 31 January 2022 Cash Flow Statement has been restated to reflect a
change in accounting policy, following adoption of the IFRS IC's agenda
decision on Configuration and Customisation Costs in a Cloud Computing
Arrangement, as detailed in note 1.
Notes to the Condensed Consolidated Interim Financial Statements
1. Basis of preparation
Corporate information
Kin and Carta plc (the "Company") is a public limited company 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.
These Condensed Consolidated Financial Statements for the six months ended 31
January 2023 comprise the Company and its subsidiaries (together the "Group").
The nature of the Group's operations and its principal activities are set out
in the Chief Executive's Review.
These statements have not been audited but have been reviewed by the Group's
auditors pursuant to International Standard on Review Engagements (UK) 2410
"Review of Interim Financial Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council.
The Condensed Consolidated Interim Financial Statements were authorised for
issue with a resolution of the Directors on 14 March 2023.
Basis of preparation
The Condensed Consolidated Interim Financial Statements for the six months
ended 31 January 2023 have been prepared in accordance with Disclosure and
Transparency Rules of the Financial Authority and with IAS 34 'Interim
Financial Reporting' under UK-adopted International Accounting Standards. They
should be read in conjunction with the Group's last Annual Consolidated
Financial Statements as at and for the year ended 31 July 2022. They do not
include all of the information required for a complete set of financial
statements prepared in accordance with UK-adopted International Accounting
Standards and in conformity with the requirements of the Companies House 2006.
However, selected explanatory notes are included to explain events and
transactions that are significant to an understanding of the changes in the
Group's financial position and performance since the last annual financial
statements.
These Condensed Consolidated Interim Financial Statements do not constitute
statutory accounts of the Group within the meaning of Section 434 of the
Companies Act 2006. The statutory accounts for the year ended 31 July 2022
have been filed with the registrar of companies and can be found on the
Group's website. The auditor's report on those accounts was unqualified, did
not contain an emphasis of matter paragraph and did not contain any statement
under Section 498(2) or (3) of the Companies Act 2006. The annual statements
of Kin and Carta plc are presented in accordance with UK-adopted International
Accounting Standards.
Accounting policies
The accounting policies adopted in the preparation of the Condensed
Consolidated Interim Financial Statements are consistent with those followed
in the preparation of the Group's Annual Consolidated Financial Statements for
the year ended 31 July 2022, except in respect of the adoption of new
standards effective as of 1 August 2022.
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, except for the IFRIC IC
agenda decision on configuration and customisation costs in a Cloud Computing
Arrangement detailed below. The Group has not early adopted any standard,
interpretation or amendment that has been issued but is not yet effective.
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 sheets (31 January 2022 and 31 July 2022) in these interim statements
have been restated as detailed in the tables below.
(2) Changes in accounting policy for the interim period ended 31 January 2022:
Cloud computing
The Group previously accounted for Configuration and Customisation ("CC")
costs in a cloud computing arrangement as 'intangible assets- computer
software', amortised over a period of two to five years. Following the IFRS
Interpretation Committee agenda decision on configuration and customisation
costs in a Cloud Computing Arrangement in March 2021, the Group reconsidered
its accounting treatment. The Group has adopted the treatment set out in the
IFRS IC agenda decision not to capitalise CC costs but to record them as an
expense in the Consolidated Income Statement on the basis that the Group does
not control the software that was configured and customised. This change in
accounting treatment has been accounted for retrospectively. This change in
accounting policy was reflected in the 2022 Annual Consolidated Group
Financial Statements. For the 2023 Interim Financial Statements, the
comparative interim period has been restated to reflect the change.
(3) Reclassification of share-based payments from non-adjusting to adjusting
items
From FY23, the Group's share-based payment charge is excluded from adjusted
results. 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'. 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, therefore aiding comparability of adjusted results. This is a
reclassification from non-adjusting items to adjusting items in the
Consolidated Income Statement. There is no impact on statutory profit/(loss)
for either period.
These items are reflected in the tables below:
Restatements and reclassifications as at and for the prior ending 31 January
2022
31 January Tax on loan forgiveness Cloud Computing: increase/(decrease) Share-based payments reclassification 31 January
2022 £'000 £'000 £'000 2022
(statutory- (statutory- restated)
as reported) £'000
£'000
Balance Sheet (extract)
Property, plant and equipment 14,488 - 49 - 14,537
Other intangible assets 12,672 - (781) - 11,891
Current tax liabilities (1,794) 1,301 - - (493)
Deferred tax liabilities (3,671) - 139 - (3,532)
Net assets 112,033 1,301 (593) - 112,741
Retained earnings 5,809 1,301 (593) - 6,517
Total equity 112,033 1,301 (593) - 112,741
Income Statement (extract)
Administrative expenses (24,005) - (208) 1,508 (22,705)
Share-based payments - - - (1,508) (1,508)
Loss before tax (3,137) - (208) - (3,345)
Income tax charge (220) - 40 - (180)
Net profit loss from continuing operations (3,357) - (168) - (3,525)
Net profit from discontinued operations 24,980 - - - 24,980
Net profit for the period 21,623 - (168) - 21,455
Statement of Comprehensive Income (extract)
Profit for the period 21,623 - (168) - 21,455
Total comprehensive income for the period 25,755 - (168) - 25,587
Basic and diluted earnings per share for the interim period ending 31 January
2022 have been updated to reflect the adjustments above:
Statutory earnings Adjusted earnings
Continuing and discontinued operations 6 months to 6 months to
31 January 6 months to 31 January 6 months to
2022 31 January 2022 31 January
(as reported) 2022 (as reported) 2022
(restated) (restated)
Earnings (£'000) 21,623 21,455 5,126 6,769
Earnings per share (pence)
Basic earnings per share 12.50 12.39 2.96 3.91
Diluted earnings per share 11.92 11.82 2.83 3.73
Restatement as at and for the prior year ending 31 July 2022
31 July Tax on loan forgiveness 31 July
2022 £'000 2022
(statutory- (statutory- restated)
as reported) £'000
£'000
Balance Sheet (extract)
Current tax liabilities (3,168) 1,301 (1,867)
Net assets 123,705 1,301 125,006
Retained earnings 4,208 1,301 5,509
Total equity 123,705 1,301 125,006
Going concern
As part of the interim going concern review, management ran a series of
downside scenarios on the latest forecast profit and cash flow projections to
assess bank covenant headroom against funding facilities for the period to 31
July 2024, a period of at least 12 months from the date of approval of the
Condensed Consolidated Interim Financial Statements.
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 the first half of FY23, resulting in lower
than forecast revenue growth. Revenue growth is forecast to improve modestly
in H2 FY23 as the impact of new contract wins comes through. Scenarios
modelled included further sales volume reductions and decreases in gross
margin. None of the stress scenarios modelled shows 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 Interim Financial Statements are authorised for issue.
Accordingly, the Consolidated Interim Financial Statements are prepared on a
going concern basis.
On 5 September 2022, the Group agreed the extension of its committed £85
million multicurrency revolving credit facility with four lender banks for a
further year, to 26 September 2026.
At 31 January 2023, the Group had drawn £17.2 million, including £1.0
million drawn as an overdraft facility (31 January 2022: £1.5 million, 31
July 2022: £13.1 million) on its credit facilities, leaving an unutilised
commitment of £67.8 million (31 January 2022: £83.5 million, 31 July 2022:
£71.9 million). At 31 January 2023, the ratio of net debt/(cash) to adjusted
EBITDA for bank covenant purposes was 0.48 times (31 January 2022: (0.33)
times, 31 July 2022: 0.01 times), well within the covenant limit of 2.5 times.
Although the Group is in a net current liability position at 31 January 2023
of £11.6 million (31 January 2022: £8.4 million net current assets, 31 July
2022: £7.3 million net current assets), this is well within the unutilised
credit facility amount of £67.8 million, and thus does not trigger liquidity
concerns. The Group projects that it will continue to operate within lender
covenant limits and has sufficient liquidity in both the base case forecast
and in the severe but plausible downside scenarios.
Exchange rates against sterling
The following key exchange rates were applied in these financial statements:
Half year ended 31 January 2023 Half year ended 31 January 2022 Year ended 31 July 2022
Average rate Period end rate Average rate Period end rate Average rate Year end rate
US Dollar 1.170 1.231 1.351 1.342 1.315 1.216
Euro 1.148 1.134 1.182 1.197 1.181 1.194
Critical estimates and critical judgements
The preparation of Condensed Consolidated 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 expenses. Actual results might differ from these
estimates. In preparing these Interim Financial Statements, the significant
judgements made by management in applying the Group's accounting policies and
the key sources of estimation uncertainty were in line with those that applied
to the Annual Report and Accounts for the year ended 31 July 2022, with the
exception of changes in estimates that are required in determining the
provision for income tax. Where applicable, the Group has taken into
consideration the current macroeconomic environment, including rising interest
rates, when assessing the judgements and estimates for the current half year
period.
2. Segment reporting
Following the change in FY22 to a regionally focused approach to management of
the Group, segment information is presented on a regional basis. Corporate
costs, comprising certain costs which are not allocated to the operating
regions, are disclosed separately. The segmental information for the half year
period to 31 January 2022 has been restated in respect of this change.
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 which 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 ("CODM").
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 segmental balance sheet is not
disclosed as this information is not reported to the CODM.
Results from continuing operations for the current period ended 31 January
2023:
Europe Americas Corporate costs Total
£'000 £'000 £'000 £'000
Revenue 28,984 71,593 - 100,577
Net revenue 27,614 71,121 - 98,735
Statutory operating loss (5,829) (4,728) (4,131) (14,688)
Adjusting items 6,465 13,979 1,773 22,217
Adjusted operating profit/(loss) 636 9,251 (2,358) 7,529
Results from continuing operations for the prior period ended 31 January 2022:
Europe Americas Corporate costs
Restated¹
Total
£'000 £'000 £'000 £'000
Revenue 27,758 61,498 - 89,256
Net revenue 27,061 58,496 - 85,557
Statutory operating (loss)/profit (404) 1,950 (4,108) (2,562)
Adjusting items 1,794 6,542 1,501 9,837
Adjusted operating profit/(loss) 1,390 8,492 (2,607) 7,275
All Group revenue, in the current and prior period, is derived by the
rendering of services, as defined by IFRS 15 'Revenue'.
3. Acquisitions
There were no acquisitions in the half year period ended 31 January 2023.
Contractual commitments for consideration linked to acquisitions in prior
periods
At 31 January 2023, future contingent deferred payments accounted for in
relation to prior period acquisitions were £20.9 million, of which £14.1
million is accrued as a liability and £6.8 million recorded in equity within
the share option reserve. Further amounts of up to £6.3 million, estimated
at the exchange rates prevailing at 31 January 2023, will accrue up to FY26
in respect of past acquisitions based on time vesting conditions of such
payments.
Estimated maximum future contracted amounts payable for historical
acquisitions, at the exchange rates prevailing at 31 January 2023, are
detailed below:
FY20 FY21 FY22 FY22 FY22
Acquired entity Spire Cascade Data Labs Octain Loop Melon Total
Group
Period of payment/vesting £'000 £'000 £'000 £'000 £'000 £'000
H2 FY23 deferred payments 6,733 5,642 - 1,220 1,559 15,154
FY24 deferred payments - 2,821 - 1,103 2,603 6,527
FY25 deferred payments - 2,821 700 717 1,045 5,283
FY26 deferred payments - - - 200 - 200
Total estimated maximum deferred consideration payable after 31 January 2023 6,733 11,284 700 3,240 5,207 27,164
To be settled in cash 3,501 7,052 - 2,640 3,954 17,147
To be settled in shares 3,232 4,232 700 600 1,253 10,017
Total 6,733 11,284 700 3,240 5,207 27,164
All amounts shown which are to be settled in the future 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 maximum caps set in British pounds. The
level of deferred consideration is now fixed in local currency for Spire and
Cascade Data Labs (but still subject to service conditions for the
recipients), and is contingent upon future performance and service for Octain,
Melon Group and Loop. Therefore actual amounts payable may be less than the
amounts shown, which correspond to the estimated capped maximums at the
exchange rate prevailing at 31 January 2023, if the performance in the earnout
period does not result in the cap being reached.
Amounts paid at completion and deferred amounts which have already been
settled at 31 January 2023 for the acquisitions noted above are not included
in the table above.
In accordance with IFRS 2, amounts related to payments in respect of future
deferred payments have been recorded within current liabilities, non-current
liabilities and equity at the balance sheet date, based on the likely method
of settlement (cash or equity), and the vesting periods associated with the
deferred consideration amounts.
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, where
the earnout is still in its measurement period, that the maximum contracted
consideration amount will be 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 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 were vested in February 2023. No shares
have been allotted yet in respect of the other 'to be settled in shares'
amounts.
The Company's decision to pay in equity or cash is based on considerations of
relative earnings dilution, capital allocation and optimisation of bank
leverage. Taking into account these factors, in the period, a decision was
made to settle all amounts 100% in cash for:
● the first instalment of the second earn out of Cascade Data Labs,
corresponding to 50% of the total earn out which was paid in February 2023
● the first earn out for Melon Group, of which 50% will be settled
prior to 31 July 2023, with the remaining 50% payable in FY24
● the first earn out for Loop, of which 50% will be settled prior to
31 July 2023, with the remaining 50% payable equally in FY24 and FY25.
The value of the above earnouts in the currency of payment (US dollars, euros
and US dollars respectively) have now been determined and payment is only
subject to further service by the individual recipients. It had been
previously assumed at 31 July 2022 that a portion of these amounts, ranging
from 60% to 75%, would be equity-settled. Following the decision in the
current period to settle all of these amounts 100% in cash, amounts of £6.1
million recorded in equity at 31 July 2022 were reclassified from equity to
current and non-current liabilities, and will be settled in cash over the two
years following the balance sheet date.
No 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 and Loop, 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. For the purpose of accounting, it has been
assumed at 31 January 2023 that the maximum portion permissible amounts will
be equity-settled. Should the final decision result alternatively in cash
settlement, further amounts would be reclassified from equity to liabilities.
4. Discontinued operations
There have been no divestments in the current period. Discontinued operations
in the prior period include the results of three businesses, Incite, Edit and
Relish, which were divested in the half year period ended 31 January 2022.
The results of the discontinued operations for the 2022 interim period were as
follows:
Restated¹
6 months to 31 January 2022
Adjusted Adjusting items Statutory
results £'000 results
£'000 £'000
Revenue 10,115 - 10,115
Project-related costs (4,222) - (4,222)
Net revenue 5,893 - 5,893
Costs of service (2,349) - (2,349)
Gross profit 3,544 - 3,544
Selling costs (693) - (693)
Administrative expenses (1,187) - (1,187)
Gain on divestment of discontinued operations - 24,632 24,632
Share-based payments related to employee share schemes - (235) (235)
Release of provision - 265 265
Operating profit 1,664 24,662 26,326
Other finance costs (32) - (32)
Profit before tax 1,632 24,662 26,294
Income tax charge (247) (1,067) (1,314)
Net profit for the period 1,385 23,595 24,980
1 The 31 January 2022 results have been restated to reflect a change in
accounting policy, following adoption of the IFRS IC's agenda decision on
Configuration and Customisation Costs in a Cloud Computing Arrangement and the
reclassification of share-based payments from non-adjusting items to adjusting
items, as detailed in note 1.
5. Adjusting items
Adjusted results exclude adjusting items to reflect how management assesses
and monitors the ongoing financial performance of the Group. Items are
presented as adjusting when, in the opinion of the Directors, their separate
presentation aids understanding of the financial performance of the Group.
Adjusting items from continuing operations disclosed on the face of the
Consolidated Income Statement are as follows:
Expense/(income) 6 months to 31 January 2023 Represented¹
6 months to 31 January 2022
Continuing operations £'000 £'000
Costs related to acquisitions
Amortisation of acquired intangibles 4,667 2,853
Contingent consideration required to be treated as remuneration 7,160 3,936
Acquisition and integration costs 167 665
11,994 7,454
Share-based payments
Share-based payments related to employee share schemes 2,461 1,508
St Ives Defined Benefit Pension Scheme costs
Scheme administrative costs 377 262
Other related costs 643 613
1,020 875
Client disputes and litigation
Client disputes and litigation 4,935 -
Restructuring items
Redundancies and other charges 1,807 -
Adjusting items before interest and tax 22,217 9,837
Net pension finance income in respect of defined benefit pension scheme (682) (166)
Interest charges related to non-pension adjusting items 138 -
Adjusting items before tax 21,673 9,671
Income tax credit (3,915) (762)
Continuing operations adjusting items after tax 17,758 8,909
1 Adjustments to prior periods relate to the reclassification of share-based
payments from non-adjusting items to adjusting items, as detailed in note 1.
Costs related to acquisitions made in prior periods
Charges relating to the amortisation of acquired customer relationships,
proprietary techniques and trademarks amounted to £4.7 million (H1 FY22:
£2.9 million).
During the period, charges relating to contingent consideration required to be
treated as remuneration of £7.2 million (H1 FY22: £3.9 million) were
recorded in the Consolidated Income Statement as adjusting items. The charges
in the period are in respect of the acquisitions of Cascade Data Labs £3.4
million (H1 FY22 £3.0 million), Spire £1.1 million (H1 FY22 £0.9 million),
Melon Group £2.0 million, Loop £0.6 million and Octain £0.1 million, all of
which took place in prior periods.
Acquisition and integration costs of £0.2 million (H1 FY22: £0.7 million)
were incurred during the period relating to advisor costs incurred in respect
of potential acquisition targets and one-off costs associated with the
integration of the Melon Group acquisition onto Kin and Carta operating
platforms. In the prior period, acquisition costs of £0.7 million were
incurred in respect of acquisitions that were completed during FY22, including
Melon Group and the full acquisition of the joint venture, Loop.
Share-based payments related to employee share schemes
Charges of £2.5 million (H1 FY22: £1.5 million) were recorded in the period
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 inclusion of share-based payments as an adjusting
item is in line with publicly listed peer group companies in digital
transformation, therefore aiding comparability of adjusted profitability.
£1.2 million (H1 FY22: £0.8 million) of these costs were recorded within the
Americas segment, £0.5 million (H1 FY22: £0.4 million) within the Europe
segment and £0.8 million (H1 FY22: £0.3 million) within corporate costs.
St Ives Defined Benefit Pension Scheme costs
The Scheme charges include service costs of £0.4 million (H1 FY22: £0.3
million) and costs in relation to running the Scheme of £0.6 million (H1
FY22: £0.6 million). The recurring 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 of £4.9 million (H1 FY22: £nil) includes the
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.
During the period, £0.9 million (H1 FY22: £nil) was incurred for external
legal advisor costs in defending separate legal disputes with two legacy,
non-Enterprise clients, one of which came via prior acquisition. At the
balance sheet date, a provision of £4.0 million has been made in respect of
these disputes. Of this amount, £3.6 million was paid on 3 March 2023 in full
and final settlement of one client dispute. The Group anticipates the other
client dispute will be cash-settled prior to 31 July 2023. An amount of £0.5
million has been provided for at the balance sheet date based on the value of
the judgement awarded by the arbitrator. The Group is investigating the
possibility of partial recovery of the costs noted above under the Group
insurance policies, but no related income has been recorded as at 31 January
2023. Should any such insurance income arise, it will be presented as an
adjusting item. There were no other material client disputes at the reporting
date.
These costs are recorded within the Americas segment. The Group anticipates
that the settlement costs are deductible for corporate income tax.
Restructuring items
During the period, restructuring costs of £1.8 million (H1 FY22: £nil) were
incurred. These relate primarily to the restructuring of the Group, started in
H2 FY22 following the switch to a fully regionally based organisation, and the
costs 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 (£0.7 million), Europe segment
(£0.9 million) and corporate costs (£0.2 million).
Finance (income)/expense
Net pension finance income of £0.7 million (H1 FY22: £0.2 million) is in
respect of the surplus in the St Ives Defined Benefit Pension Scheme. This is
not allocated to either regional segment.
During FY22, 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. In H1 FY23, finance costs 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
In the current period, a tax credit of £3.9 million (H1 FY22: £0.8 million
credit) relates to the items noted above.
Post-balance sheet
After the balance sheet date, the Group agreed a renegotiation on a lease
interest in premises in Chicago, USA resulting in a substantial reduction in
the space occupied. This will give rise to a significant one-off credit to the
Income Statement. This will be classified as an adjusting item within
administrative expenses in the second half of the current year. Refer to note
18 for further details.
6. Other finance costs
6 months to 6 months to
31 January 31 January
2023 2022
£'000 £'000
Interest and bank arrangement fees on bank overdrafts and loans 757 582
Interest on lease liabilities 314 367
Interest unwind on provisions 49 -
Total 1,120 949
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 5 for further details.
7. Basic and diluted earnings/(loss) per share
The calculation of the basic and diluted earnings/(loss) per share are based
on the following:
Adjusted earnings Statutory (loss)/earnings
Continuing and discontinued operations 6 months to Restated¹ 6 months to Restated¹
31 January 6 months to 31 January 6 months to
2023 31 January 2023 31 January
2022 2022
Earnings/(loss) (£'000) 5,303 6,769 (12,455) 21,455
Weighted average number of ordinary shares ('000)² 173,189 173,007 173,189 173,007
Effect of dilutive potential ordinary shares:
Share options 4,318 8,425 4,318 8,425
Diluted number of ordinary shares 177,507 181,432 177,507 181,432
Earnings/(loss) per share (pence)
Basic earnings/(loss) per share 3.06 3.91 (7.19) 12.39
Diluted earnings/(loss) per share 2.99 3.73 (7.19) 11.82
1 The 31 January 2022 results have been restated to reflect a change in
accounting policy, following adoption of the IFRS IC's agenda decision on
Configuration and Customisation Costs in a Cloud Computing Arrangement and the
reclassification of share-based payments from non-adjusting items to adjusting
items, as detailed in note 1.
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 5), as
adjusted for tax, to the profit or loss for the period.
8. Taxation
The adjusted tax charge for the period to 31 January 2023 is £1.2 million (H1
FY22: £0.9 million). The charge equates to an effective tax rate on adjusted
profit of 19.0% (H1 FY22: 14.9%). The adjusted effective tax rate is
calculated using management's best estimate of the average annual effective
income tax rate expected for the full year, applied to adjusted profit before
tax for the half year. As such, the adjusted effective tax rate in the Interim
Financial Statements may differ from management's estimate of the adjusted
effective tax rate determined for the FY23 Annual Financial Statements. The
average is calculated using the weighted average profit at jurisdictional
rates, adjusted for significant permanent differences between accounting and
tax. Non-UK jurisdictional rates differ from the UK statutory corporate income
tax rate.
For adjusting items, the income statement tax effect is considered on an
item-by-item basis. The tax credit for the period relating to adjusting items
is £3.9 million (H1 FY22: £0.8 million credit). The resulting statutory tax
credit for the period is £2.7 million (H1 FY22: £0.2 million charge),
equating to a statutory effective corporate income tax rate of (17.7%) (H1
FY22: 5.4%).
The reduction in deferred tax liabilities is driven primarily by the liability
associated with the retirement benefit surplus which has reduced significantly
from 31 July 2022.
During the period, an error was identified relating to the taxation of income
from loan forgiveness in FY21. As a result, the retained earnings for the
comparative balance sheets (31 January 2022 and 31 July 2022) in these Interim
Financial Statements have been restated. Further details are provided within
note 1.
9. Retirement benefits
As at 31 January 2023, the Group reported a net IAS 19 accounting surplus in
respect of the Defined Benefit Pension Scheme (the 'Scheme') of £13.9 million
(31 January 2022: £25.5 million surplus, 31 July 2022: £38.7 million
surplus). The deferred tax liability recorded in respect of the Scheme surplus
is £3.4 million (31 January 2022: £4.9 million, 31 July 2022: £9.7
million).
The lower surplus is due to a decrease in the value of Scheme assets of £60.6
million, driven primarily by the increase in gilt yields which reduced the
value of the gilt assets in the Scheme portfolio. This was partially offset by
a decrease in the Scheme liabilities of £35.8 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 inflation rate risk. The technical liability
is discounted using gilt yields rather than AA corporate bond yields.
10. Analysis of closing net debt including lease liabilities
31 January
31 January 2022 31 July
2023 £'000 2022
£'000 £'000
Cash and cash equivalents in the balance sheet (5,355) (7,679) (12,609)
Bank overdrafts 981 - -
Cash and cash equivalents in the cash flow statement (4,374) (7,679) (12,609)
Bank and other loans 16,246 2,259 13,148
Lease liabilities 11,749 15,126 12,858
Closing net debt- statutory 23,621 9,706 13,397
11. Financial instruments
The financial instruments by category are as follows:
31 January 31 January 31 July
2023 2022 2022
£'000 £'000 £'000
Financial assets measured at fair value through profit or loss
Derivative financial instruments - 22 2
Financial assets measured at amortised cost
Trade and other receivables 33,218 38,291 45,393
Cash and cash equivalents 5,355 7,679 12,609
Financial liabilities at fair value through profit or loss
Derivative financial instruments - - (454)
Contingent consideration payable (14,077) (3,222) (9,099)
Financial liabilities measured at amortised cost
Trade and other payables (24,463) (26,862) (32,968)
Loans and borrowings (17,227) (2,259) (13,148)
Lease liabilities (11,749) (15,126) (12,858)
Fair values
The carrying value of the Group's financial assets and liabilities measured at
amortised cost is approximately equal to their fair value, except for
investment properties, which are recorded at amortised cost. The following
summarises the major methods and assumptions used in estimating the fair
values of financial instruments.
Derivative financial instruments
The Group enters into forward foreign exchange contracts to cover specific
foreign currency payments and receipts and to manage the risk associated with
anticipated sale and purchase transactions. Forward foreign exchange contracts
have are used to hedge the exchange rate risk arising from these
commitments, which are designated as cash flow hedges. The Group also hedges,
in certain circumstances, amounts payable to the former shareholders of
companies it has acquired in respect of contingent consideration payable,
where the value of such consideration is calculated based on a currency other
than the functional currency of the acquiring entity.
The valuation methods of all the Group's derivative financial instruments
carried at fair value are categorised as Level 2 as defined by the fair value
hierarchy of IFRS 13 'Fair Value Measurement'. Level 2 financial assets and
liabilities do not have regular market pricing, but their fair value can be
determined based on other data values or market prices.
Contingent consideration payable
Fair value 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 service conditions for the
recipients and financial targets being achieved.
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 January 2023.
The table below reconciles the movements in the portion of consideration
payable recorded under liabilities. The other portion of consideration payable
is recorded within equity.
31 January 31 January 31 July
2023 2022 2022
£'000 £'000 £'000
Opening balance at 1 August 9,099 1,888 1,888
Charges for contingent consideration required to be treated as remuneration 2,438 1,255 6,005
Reclassification of contingent consideration deemed as remuneration from 6,248 - -
equity to liabilities
Charges for consideration related to acquisitions 66 - 849
Cash-settled payments¹ (3,789) - -
Currency movements 15 79 357
Closing balance 14,077 3,222 9,099
1 In addition to the £3.8 million noted shown above, £1.6 million was paid
in respect of a derivative which hedged the currency exposure on deferred
payments for the Cascade Data Labs acquisition.
As detailed in note 3, the level of consideration is now fixed in local
currency for the Spire and Cascade Data Labs acquisitions, but remains subject
to service conditions for the recipients. For Melon Group, Octain and Loop,
consideration is dependent upon future performance and service conditions,
thus the fair value could be affected if the forecast financial performance is
different to that estimated, however this variance is not expected to be
material.
12. Provisions
Provision for reorganisation Provision for client disputes and litigation Provision for repairs Total
£'000 £'000 £'000 £'000
Balance at 1 August 2022 4,458 - 225 4,683
Charged to the Consolidated Income Statement 694 4,029 - 4,723
Utilised during the period (55) - - (55)
Notional interest charge on provisions 49 - - 49
Currency movements (56) (46) - (102)
Balance at 31 January 2023 5,090 3,983 225 9,298
Current 1,155 3,983 - 5,138
Non-current 3,935 - 225 4,160
Total 5,090 3,983 225 9,298
Provision for reorganisation
The provision for reorganisation comprises onerous property and redundancy
costs. The provision will be utilised when the obligations associated with
onerous properties are fully discharged or when the restructuring completes.
Provision for client disputes and litigation
The provision for client disputes and litigation relates to settlements
payable to two clients. Of this amount, £3.6 million was paid on 3 March 2023
in full and final settlement of one client dispute. The Group anticipates the
other client dispute will be cash-settled prior to 31 July 2023. An amount of
£0.5 million has been provided for at the balance sheet date based on the
value of the judgement awarded by the arbitrator.
The charges in respect of these disputes are recorded as an adjusting item
within administrative expenses during the period.
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 lease period. It is anticipated that these liabilities will
crystallise between FY23 and FY26.
13. Share capital
Number of shares Ordinary shares of 10p each
£'000
Issued and fully paid:
At 1 August 2022 177,960,679 17,797
Issued during the period 61,318 6
At 31 January 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.
14. Additional paid-in capital
Share Merger Capital Total
premium reserve redemption £'000
£'000 £'000 reserve
£'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 January 2023 76,433 11,676 1,238 89,347
The additional paid-in capital includes share premium, the merger reserve and
the capital redemption reserve.
The merger reserve is derived from acquisitions made in prior periods as well
as reflecting the premium on shares issued for consideration on acquisitions
during the period. During the prior period, 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 acquisition 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 in
note 13.
15. Other reserves
Other reserves in the Consolidated Statement of Changes in Equity is made up
of additional paid-in capital as detailed in note 14 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 on 31
January 2023 (31 July 2022: 90,637 shares). In addition, 4,799,305 Kin and
Carta plc ordinary shares (31 July 2022: 2,489,665 shares) were held by the
EBT as at 31 January 2023. After 1 August 2022, 3,994,602 Kin and Carta plc
ordinary shares were purchased by the EBT to
satisfy future vesting of employee awards. In the period, 1,684,962 shares
were allotted from the EBT to satisfy the exercise of certain vested employee
awards. All shares held in the EBT at 31 January 2023 are expected to be used
to settle awards vesting in the 24 months following the balance sheet date.
The share option reserve represents 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.
16. Notes to the Consolidated Cash Flow Statement
Reconciliation of cash generated from operations
6 months to Restated¹ Year to
31 January 6 months to 31 July
2023 31 January 2022
£'000 2022 £'000
£'000
Loss from continuing operations (14,688) (2,562) (14,355)
Profit from discontinued operations - 26,326 25,684
Statutory operating (loss)/profit (14,688) 23,764 11,329
Adjustments for:
Depreciation of property, plant and equipment 2,173 2,101 4,392
Amortisation of intangible assets 4,667 2,969 6,484
Depreciation and amortisation 6,840 5,070 10,876
Share-based payment charge 2,461 1,419 3,118
(Decrease)/increase in retirement benefit obligations (1,123) (1,927) 1,194
Increase in contingent consideration required to be treated as remuneration 7,160 3,936 13,228
Increase/(decrease) in provisions 4,730 (281) 3,551
Impairment loss - - 6,207
Loss on disposal of property, plant and equipment - - 72
Share of profit from joint arrangement - (441) (442)
Disbursement from joint arrangement - 147 147
Gain on disposal of subsidiaries - (24,632) (24,059)
Non-cash reductions in lease liabilities - - (4,401)
Fair value gain from deemed sale on step acquisition - - (1,621)
Other operating non-cash items before working capital movements 13,228 (21,779) (3,006)
Operating cash inflows before movements in working capital 5,380 7,055 19,199
Decrease/(increase) in receivables 12,006 (7,576) (8,054)
(Decrease)/increase in payables (9,231) (2,700) 939
(Decrease)/increase in deferred income (1,444) (37) 43
Decrease/(increase) in working capital 1,331 (10,313) (7,072)
Cash generated from/(used in) operations 6,711 (3,258) 12,127
1 The 31 January 2022 Cash Flow Statement has been restated to reflect a
change in accounting policy, following adoption of the IFRS IC's agenda
decision on Configuration and Customisation Costs in a Cloud Computing
Arrangement, as detailed in note 1.
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. Cash and cash equivalents per the Cash Flow Statement also
include £1.0 million of overdrafts (H1 FY22 and FY22: £nil). Refer to note
10 for the reconciliation of statutory net debt.
Analysis of loan financing liabilities
31 July Drawdown Repayment Foreign exchange gains 31 January
2022 £'000 £'000 £'000 2023
£'000 £'000
Non-current liabilities
Bank loans - revolving credit facility 13,148 10,350 (6,823) (429) 16,246
17. 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.
18. Post-balance sheet events
Client disputes and litigation
After the balance sheet date, a provision of £4.0 million was made in respect
of two client disputes. These costs were recorded within admin expenses as
adjusting items in the Consolidated Income Statement. An amount of £3.6
million was paid on 3 March 2023 in final settlement of one of the disputes,
and the Group anticipates that a further cash payment in relation to the full
settlement of the other dispute will be made by 31 July 2023. No further
material client disputes are outstanding at the date of this report. It is
anticipated a portion of the costs may be recoverable under professional
indemnity insurance policies held by the Group. No insurance income has been
received or accrued as receivable at the balance sheet date.
Adjustments arising from a lease renegotiation
After the balance sheet date, the Group agreed a renegotiation on a lease
interest in premises in the USA. This will result in swapping the current
premises, occupying 58,282 sq feet in a building in North Canal St, Chicago,
USA for a space of less than half the size in the same building from 1 January
2024, with term on the lease on the smaller premises to 31 December 2033. As
part of the agreement, the penalty for the early termination of the previous
lease, which had been provided for at 31 July 2022 as it was assumed to be
payable on termination, has been waived by the landlord and the annual cash
rent payable will reduce by over 60% compared to the pre-existing lease. This
will result in savings on cash rent, property tax, maintenance and
associated property cost of approximately £1.5 million per annum from 1
January 2024, when compared to the previous lease.
At 31 July 2022, provisions had been recorded of £2.5 million for the penalty
expected to be payable on early termination of the lease and £2.0 million for
onerous property-related costs, and the related right-of-use asset had been
impaired by £2.6 million due to the underutilisation of the space previously
occupied. As a result of the new contract renegotiation, the provision
associated with the lease penalty and a significant portion of provision
associated with onerous property-related costs will be released. In addition,
the values of leases and associated right-of-use assets will be recalculated
to reflect the terms of the renegotiation, resulting in a partial reversal of
the impairment of the right-of-use asset booked in the prior year.
These adjustments will be accounted for after 31 January 2023, and the net
result will be a significant credit to Consolidated Income Statement which
will be recorded within administrative expenses as an adjusting item in the
second half of the current year. This credit will be recorded within the
Americas segment.
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 in line with those stated on pages 102
to 110 of the 2022 Annual Report and Accounts, which is available on our
website https://investors.kinandcarta.com (https://investors.kinandcarta.com)
.
Statement of Directors' Responsibilities
For the half year ended 31 January 2023
The Directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules ("the DTR")
of the UK's Financial Conduct Authority ("the UK FCA").
In preparing the Condensed Consolidated Interim Financial Statements included
within the half-yearly financial report, the Directors are required to:
- prepare and present the Condensed Consolidated Interim Financial
Statements in accordance with IAS 34 'Interim Financial Reporting' as adopted
for use in the UK, and the DTR of the UK FCA;
- ensure the Condensed Consolidated Interim Financial Statements have
adequate disclosures;
- select and apply appropriate accounting policies;
- make accounting estimates that are reasonable in the circumstances; and
- assess the Group's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the Group or to
cease operations, or have no realistic alternative but to do so.
The Directors are responsible for designing, implementing and maintaining such
internal controls as they determine is necessary to enable the preparation of
the Condensed Consolidated Interim Financial Statements that are free from
material misstatement whether due to fraud or error.
The Directors confirm that to the best of our knowledge:
(1) the Condensed Consolidated Interim Financial Statements included
within the half-yearly financial report of Kin and Carta plc for the six
months ended 31 January 2023 ("the interim financial information") which
comprises Condensed Consolidated Income Statement, the Consolidated Statement
of Comprehensive Income, the Condensed Consolidated Statement of Changes in
Equity, the Condensed Consolidated Statement of Financial Position, the
Consolidated Statement of Cash Flows and the related explanatory notes, have
been presented and prepared in accordance with IAS 34 'Interim Financial
Reporting', as adopted for use in the UK, and the DTR of the UK FCA.
(2) The interim financial information presented, as required by the DTR of
the UK FCA, includes:
a. an indication of important events that have occurred during the first
six months of the financial year, and their impact on Condensed Consolidated
Interim Financial Statements;
b. a description of the principal risks and uncertainties for the
remaining six months of the financial year;
c. related parties' transactions that have taken place in the first six
months of the current financial year and that have materially affected the
financial position or the performance of the enterprise during that period;
and
d. any changes in the related parties' transactions described in the last
annual report that could have a material effect on the financial position or
performance of the enterprise in the first six months of the current financial
year.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Group's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
On behalf of the Board
Kelly Manthey
Chief Executive Officer
14 March 2023
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 ("the Entity")
Conclusion
We have been engaged by the Entity to review the Entity's Condensed
Consolidated Interim Financial Statements in the half-yearly financial report
for the six months ended 31 January 2023 which comprises the Condensed
Consolidated Income Statement, Condensed Consolidated Statement of
Comprehensive Income, Condensed Consolidated Statement of Changes in Equity,
Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of Cash
Flows, a summary of significant accounting policies and other explanatory
notes.
Based on our review, nothing has come to our attention that causes us to
believe that the Condensed Consolidated Interim Financial Statements in the
half-yearly financial report for the six months ended 31 January 2023 is not
prepared, in all material respects in accordance with International Accounting
Standard 34 Interim Financial Reporting ("IAS 34") as contained in the UK
adopted International Accounting Standards and the Disclosure Guidance and
Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the
UK FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued for use in the
UK. 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 read the other information contained in the half-yearly financial report to
identify material inconsistencies with the information in the Condensed
Consolidated Interim Financial Statements and to identify any information that
is apparently materially incorrect based on, or materially inconsistent with,
the knowledge acquired by us in the course of performing the review. If we
become aware of any apparent material misstatements or inconsistencies we
consider the implications for our report.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the Entity to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Entity will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
The directors are responsible for preparing the Condensed Consolidated Interim
Financial Statements included in the half-yearly financial report in
accordance with IAS 34 as adopted for use in the UK.
As disclosed in note 1, the annual financial statements of the Entity for the
period ended 31 July 2022 are prepared in accordance with UK-adopted
international accounting standards.
In preparing the Condensed Consolidated Interim Financial Statements, the
Directors are responsible for assessing the Entity's ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors either intend
to liquidate the Entity or to cease operations, or have no realistic
alternative but to do so.
Our responsibility
Our responsibility is to express to the Entity a conclusion on the Condensed
Consolidated Interim Financial Statements in the half-yearly financial report
based on our review.
Our conclusion, including our conclusions relating to going concern, are based
on procedures that are less extensive than audit procedures, as described in
the Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Entity in accordance with the terms of our
engagement to assist the Entity in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the Entity
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Entity for our review work, for this
report, or for the conclusions we have reached.
KPMG
14
March 2023
Chartered Accountants
The Soloist Building
1 Lanyon Place
Belfast
BT1 3LP
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