REG - Kin and Carta PLC - Trading Update

Kin and CartaAnnouncement

24/02/2023 07:00

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RNS Number : 9702Q  Kin and Carta PLC  24 February 2023

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

For immediate release

24 February 2023

Kin and Carta plc

Trading Update

Kin and Carta plc ("Kin + Carta" or the "Company"), the global digital
transformation ("DX") consultancy, provides a trading update covering the
six-month period ended 31 January 2023 ("H1"), ahead of the announcement of
its half year financial results expected 15 March 2023.

Current trading

Following the impact of macro headwinds in late H1, the Company is reducing
expectations for the year to reflect more cautionary client spending and
elongated sales cycles seen across the industry.

Trading in H1 generated net revenue growth of 15% to £99 million with similar
adjusted operating margins to the comparable period in the previous year.
Like-for-like (organic, constant currency) net revenue was down 6% in total
with a 1% decline in Americas and a 16% decline in Europe, driven by
particularly difficult trading conditions in the UK. Adjusted operating margin
in H1 is in line with the prior period at c. 8% with H2 expected to be
stronger.

                                 H1 FY21  H1 FY22  H1 FY23
 Net Revenue                     £52.5m   £85.6m   £98.8m
 Adjusted Operating Margin %(1)  c. 3%    c. 9%    c. 8%

 

H2 FY23 net revenue is expected to grow 8-12% over H1 FY23, with higher
operating margin vs. H1 as revenue from new contract wins ramps up. These
include:

●    The largest contract to date in Europe - a £14 million, two-year
contract in the UK Public Sector secured during H1 which ramps up in H2.

●    Data services contract for up to $9 million over three years with a
large US automotive manufacturer

These new large, strategic wins, combined with more than 20 additional new
client wins, a record backlog and a strong pipeline gives us confidence that
the long-term needs of the Company's clients remain unchanged: technology
investment is core to client strategies. Despite the temporary macroeconomic
headwinds, the Company's track record of double digit organic, constant
currency net revenue growth since 2017 provides us with confidence for
continued long term growth.

The quality of the Company's client base strengthened during the period, with
revenue from enterprise clients increasing 81% YoY within the top 20 clients,
replacing non-enterprise clients and scale-ups more exposed to macro
volatility.

The Company continues to execute on its strategy to grow its higher margin
nearshore delivery capabilities, up from 9% of delivery headcount last year to
more than 30% expected this year, bolstered by the recent Melon acquisition in
South East Europe which is growing net revenue by double digits. This increase
in nearshore delivery together with continued pricing power with clients will
bolster gross margins. A reduction in operating costs of £3 million per annum
during the period provides an improved cost structure heading into H2 and
contributes to confidence in profitable FY24 growth.

The balance sheet remains strong with net debt at the half-year of £11.9
million, less than 0.5X adjusted EBITDA, which reflects £8.4 million for
share purchases by the Employee Benefit Trust and c. £5.5 million of deferred
cash payments in the period related to share scheme awards and prior year
acquisitions, respectively. The Company continues to pursue accretive
acquisitions whilst maintaining investment levels in the business.

Outlook

For the current financial year ending 31 July 2023, the Company now expects
net revenue growth of 8-12%, with organic net revenue at constant currency
showing a low single digit percentage decline from the prior year. Demand
remains strong heading into H2, with a strong sales pipeline of £166 million,
up 45% year-on-year and record order backlog of £124 million, up 17% on prior
year.

As in prior years, the second half is expected to show a stronger performance
with sequential net revenue growth c. 8%-12% over H1 driven by organic growth,
along with improved operating margins. FY23 adjusted operating margin is
expected to be in line with prior years(1) at 11%-12%. As a consequence we
expect adjusted operating profit for FY23 to be below market expectations. We
expect a return to a more normal level of growth with improved profitability
in FY24 supported by the current levels of demand, increased nearshore
delivery and improved cost structure.

The Company's medium term guidance of 15%+ net revenue growth and adjusted
EBITDA margins in the mid-to-high teens remains unchanged.

Kin + Carta's Chief Executive Officer Kelly Manthey commented:

"Despite macro headwinds tempering short-term growth across the industry, we
remain focused on our long-term strategy that prioritises enterprise clients
with high quality, resilient revenue, delivered with higher margin nearshore
delivery. Our record backlog demonstrates the ongoing demand for our services.
The measures that we are currently implementing in the business give me
confidence that we are continuing to build a firm platform for future growth.
Our ambition for Kin + Carta has not changed."

 

1 prior periods restated to present share-based payment charges as Adjusting
items

 

 

 

 

- Ends -

 

Enquiries:

 Kin + Carta                      +44 (0) 207 928 8844

 Kelly Manthey CEO

 Chris Kutsor CFO & COO
 Powerscourt                      +44 (0)771 324 6126

 Elly Williamson / Jane Glover
 Numis Securities Limited         +44 (0)07 260 1345

 Nick Westlake / Tejas Padalkar

 Peel Hunt LLP                         +44 (0) 20 7418 8900

 John Welch / Paul Gilliam

 

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.

 

Important notices

This announcement contains inside information and is issued on behalf of the
Company by Daniel Fattal, Company Secretary.

Cautionary statement regarding forward-looking statements

This Announcement may contain "forward-looking statements" with respect to
certain of the Company's plans and its current goals and expectations relating
to its future financial condition, performance, strategic initiatives,
objectives and results. Forward-looking statements sometimes use words such as
"aim", "anticipate", "target", "expect", "estimate", "intend", "plan", "goal",
"believe", "seek", "may", "could", "outlook" or other words of similar
meaning. By their nature, all forward-looking statements involve risk and
uncertainty because they are based on numerous assumptions regarding the
Company's present and future business strategies, relate to future events and
depend on circumstances which are or may be beyond the control of the Company
which could cause actual results or trends to differ materially from those
made in or suggested by the forward-looking statements in this Announcement,
including, but not limited to, domestic and global economic business
conditions; market-related risks such as fluctuations in interest rates; the
policies and actions of governmental and regulatory authorities; the effect of
competition, inflation and deflation; the effect of legislative, fiscal, tax
and regulatory developments in the jurisdictions in which the Company and its
respective affiliates operate; the effect of volatility in the equity, capital
and credit markets on profitability and ability to access capital and credit;
a decline in credit ratings of the Company; the effect of operational and
integration risks; an unexpected decline in sales for the Company; inability
to realise anticipated synergies; any limitations of internal financial
reporting controls; and the loss of key personnel. Any forward-looking
statements made in this Announcement by or on behalf of the Company speak only
as of the date they are made. Save as required by the Market Abuse Regulation,
the Disclosure Guidance and Transparency Rules, the Listing Rules or by law,
the Company undertakes no obligation to update these forward-looking
statements and will not publicly release any revisions it may make to these
forward-looking statements that may occur due to any change in its
expectations or to reflect events or circumstances after the date of this
Announcement.

 

 

 

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