REG - Kin and Carta PLC - Half Year Results
This announcement contains inside information
10 March 2021
Kin and Carta plc
('Kin + Carta', the 'Group', or the 'Company').
Half Year Results
Recovery from pandemic and growing momentum: On track to meet expectations for the year
Kin + Carta, the international digital transformation company, today announces interim results for the period from 1 August 2020 to 31 January 2021
Financial Highlights
● Net revenue of £64.1 million from continuing operations2 in line with our expectations, down 10% year-on-year. Returned to sequential growth in Q1 and Q2 with momentum increasing into H2
● Strong pipeline has converted into record backlog8
● Adjusted profit before tax from continuing operations of £2.9 million3, slightly ahead of our expectations of underlying results. Does not include £3.6 million of US government PPP loan forgiveness now expected in H2. This compares to Adjusted profit before tax from continuing operations of £4.8 million in H1 20, and £5.7 million in H2 20
● Total loss before tax from continuing operations of £6.4 million (2020: loss of £6.5 million)
● Net debt reduced to £22.5 million (31 July 2020: £31.6million); net debt to Adjusted EBITDA ratio of 1.6x
● Divestment of non-core Ventures businesses Hive and Pragma for proceeds of £14m before customary adjustments for cash, debt and working capital
● Acquired Cascade Data Labs, a Portland, Oregon-based data transformation consultancy for an initial consideration of USD $6.9 million (£5.0 million)
Operational Highlights
● Recovery from pandemic showing sustainable momentum; 90-day net revenue backlog is 77% larger than the start of the fiscal year and 27% larger than February 2020, pre-pandemic
● Launched Kin + Carta Data Labs to focus on our clients' data transformation needs; already producing key wins with HP, Adobe, Vizio and the British Heart Foundation
● Partnership channel driving new client growth; £15 million of new wins with Google and Microsoft
● Continued focus on ESG achieved B Corp certification in US with Europe anticipated to follow later in the year
● Growing reputation as a destination for top global talent; over 100 roles filled since November with more to follow in H2, all delivering on record backlog
● Continue to focus on M&A opportunities
6 months to
31 January 2021
6 months to
31 January 2020
(restated)*
%
change
like- for- like
growth1Net revenue (continuing operations) 2
£64.1m
£71.6m
(10%)
(16)%
Adjusted profit before tax (continuing operations) 3
£2.9m
£4.8m
(40)%
Adjusted basic earnings per share (continuing operations) 4
1.39p
2.46p
(43)%
Total profit/ (loss) before tax (continuing and discontinued operations) 5
£0.0m
£(5.9)m
Total basic earnings/ (loss) per share (continuing and discontinued) 6
0.63p
(3.54)p
Interim dividend
Nil
Nil
Net debt7
£22.5m
£39.5m
£(17.0)m
-
* Results for the 6 months ended 31 January 2020 have been restated to reflect continuing operations only. Continuing operations exclude the results of the divestments of The Health Hive (US) LLC, The Health Hive Group Limited and subsidiaries and Pragma Consulting Limited (note 5).
1 Like-for-like growth in relation to net revenue is defined as the net revenue from operations at constant currency and excluding acquisitions when comparing the current period to the prior period.
2 Net revenue is defined as gross revenue excluding all direct costs and third party expenses passed to clients.
3 This measure is defined as the net profit before tax less Adjusting Items. Adjusted results exclude Adjusting Items to enhance understanding of the ongoing financial performance of the Group. Adjusting Items comprise redundancies, restructuring costs; gain or loss on disposal of subsidiaries and properties; impairment or amortisation charges related to tangible assets; contingent consideration required to be treated as remuneration; and costs related to the Company's Defined Benefits Pension Scheme (note 6)
4 This measure is defined as basic earnings per share after Adjusting Items. Further details are provided within the Alternative Performance Measures section.
5 This is the Group result before tax (see section "Impact of Adjusting items on Group results" in note 6) prepared in accordance with IAS 34. Also see further details in the Basis of Preparation (note 1).
6 This is calculated by dividing the total profit for the period attributable to ordinary equity holders of the parent company by the weighted average number of shares in issue during the period, excluding shares held as own shares by the Group.
7 Bank loans payable and US government loans payable under the Paycheck Protection Program, less cash and cash equivalents
8 Backlog is the value of client awards that have a signed contract, statement of work or an explicit verbal commitment to start work with no further permissions or conditions required.
J Schwan, CEO, said:
"Kin + Carta is back in growth mode. Our record backlog of orders is 27% larger than it was pre-pandemic and the appetite for our digital transformation services continues to accelerate in all of our markets. The launch of Kin and Carta Data Labs is already generating new clients and is a differentiating skillset as clients increasingly seek to address their data transformation needs. We have made great strides with our ESG agenda, achieving B-Corp certification in the US and Europe is on track for later this year. Our ESG focus coupled with our application of the world's most exciting emerging technologies is allowing us to attract top digital talent to service the growing demand for our capabilities."
For further information, please contact:
Kin and Carta plc
J Schwan, Chief Executive Officer
Chris Kutsor, Chief Financial Officer
+44 (0)20 7928 8844Numis Securities Limited
Nick Westlake / Matt Lewis
+44 (0)207 260 1345
Powerscourt
Elly Williamson / Jessica Hodgson
+44 (0)20 3328 8386
Peel Hunt LLP
Edward Knight/John Welch
+44 (0) 20 7418 8900
About Kin + Carta
Kin + Carta is a responsible and growing global digital technology services company delivering outcome-based transformation across four key elements of the digital transformation value chain; data, technology, experience, and organisational change.
To serve and scale within the rapidly growing digital transformation market, Kin + Carta is structured as a platform-based organisation that enables the borderless connection of three valuable schools of specialist talent:
● Kin + Carta Advise - Digitally native management consultancy. Our sector-focused consultants help the C-Suite better understand the shifts in their market and how their products and services need to evolve.
● Kin + Carta Create - Modern cloud, data and software engineering studio. Our 800+ data scientists, software engineers and designers utilise emerging technologies to create new products and platforms for our CIO clients.
● Kin + Carta Connect - Data-driven marketing technology agency. Our MarTech experts help our CMO clients amplify their digital investments by implementing and optimising modern marketing technology and data platforms.
Headquartered in London and Chicago, Kin + Carta nurtures c1,500 engineers, strategists and designers within a maker-culture that serves the healthcare, financial services, B2B, consumer, agriculture and transportation sectors.
Kin + Carta is on the road to achieving B Corp certification for all its operating subsidiaries, meeting the highest standards of verified social and environmental performance, public transparency, and accountability to balance profit and purpose.
Chief Executive's Review
Momentum Accelerating
INTRODUCTION
I am pleased to report that in such uncertain times, Kin + Carta has performed well in our first half of fiscal 2021. Continued impacts of the pandemic in the first quarter were followed by a solid recovery in growth in the second quarter, with momentum building. We remain optimistic for our full-year performance with growth across Advise, Create and Connect and in our most strategic accounts including Discover Financial Services, Corteva, M&S and Santander as well as multiple new wins in both the US and UK including SecureWorks, Syngenta, Fifth Third Bank, Blue Origin, Citizens Advice Scotland and The Economist. We now have in place the largest backlog ever of committed work.
The faster US recovery, the disposals of non-core Ventures businesses (healthcare communications agency Hive and airport specialty consultancy Pragma), as well as the recent acquisition of Portland-based data science firm Cascade Data Labs ("Cascade") will continue to shift the balance of our revenue footprint further into the US, the largest digital transformation market in the world, and towards our high-value Create pillar. The Cascade acquisition will follow a similar integration plan as our successful Spire Digital (now known as Kin and Carta Denver) integration. Many new data opportunities have already been generated both from our existing clients and via our Connective platform, global partnerships and US sales channels.
FINANCIAL PERFORMANCE
Group net revenue of £64.1 million (including c. £0.4 million from Cascade acquired in December 2020) was down 10% on the comparable period due to the pandemic headwinds. Organic net revenue at constant currency rates was down 16%.
Net revenue bottomed in Q4 of FY20. Since then, quarterly net revenue has grown sequentially, with Q1 of the current fiscal year growing 3% over Q4, and Q2 growing at 15% over Q1 on the back of a resurgent pipeline and new client wins. That growth trend is continuing into the second half.
US-based net revenue increased to 60% of the group in H1 compared to 53% last year. We expect this trend to continue despite the headwinds of recent USD currency depreciation. US net revenue was down 4% including Kin and Carta Denver (formerly Spire Digital) and Cascade compared to the prior half year. Europe net revenue was down 16% compared to the prior half year. Both regions returned to double-digit sequential growth in Q2.
Our core digital transformation business comprising Advise, Create and Connect is now 82% of total net revenue.
● Advise (2% of net revenue) was flat at £1.1 million with more recent wins comprising cross-sold opportunities with Create and Connect.
● Create (63% of net revenue) was down 12% to £40.3 million due to the pandemic headwinds causing some large clients to temporarily pause or slow work. Strong demand returned during the period with double-digit sequential growth in Q2. Momentum is continuing underpinned by a strong pipeline and backlog entering H2.
● Connect (17% of net revenue) grew 2% to £11.1 million, benefitting from the prior year's restructuring and the managed services part of the business holding firm.
Ventures (18% of net revenue) was down 16% to £11.6 million due to the pandemic and from exiting unprofitable business lines as part of the prior year's restructuring. The restructuring and renewed focus has enabled a return to growth and profitability. We expect this improving financial performance to continue. These businesses remain under strategic review.
Adjusted operating margin of 6.5% was as expected but is well below our full-year expectations due to the effects of the pandemic, particularly in Q1. In addition, it was adversely impacted by revenue seasonality and the timing of the majority of income related to the US Government Paycheck Protection Program ("PPP") loan forgiveness moving into H2. We expect strong double-digit H2 net revenue growth and this is expected to deliver full year margin in line with our expectations, underpinned by a strong pipeline and new client wins across the business.
Adjusted profit before tax was £2.9 million (2020: £4.8 million). Compared to H1 20, the lower adjusted profit is primarily due to the reduction in net revenue as a result of the pandemic and one-time costs associated with the PPP in order to retain jobs. This was partially offset by lower interest costs on reduced borrowing.
The Company accessed the PPP last summer to mitigate the impacts of COVID-19 that would otherwise have resulted in significant US employee reductions. During the first half, the Company absorbed employment and project delivery costs that enabled the Company to retain talent within the business and to maintain client goodwill. These costs have an anticipated offsetting credit from PPP loan forgiveness of £4.4 million, of which £0.8 million was received in H1 and the balance anticipated in H2.
Compared to H2 20, adjusted profit before tax improved when removing the effects of income and expenses associated with government assistance programs and related one-time cost savings in both periods as summarised below. We anticipate this improving profitability trend to continue in H2.
(£M's)
H2 FY20
H1 FY21
Adjusted PBT as reported
5.7
2.9
One time cost savings / salary sacrifice
(2.0)
0.0
US PPP Forgiveness Income
0.0
(0.8)
Project costs funded from government assistance programmes
1.0
3.0
Adjusted PBT excluding items above
4.7
5.1
Total loss before tax from continuing operations was £6.4 million (H1 20: loss of £6.5 million), which is stated after net adjusting cost items of £9.3 million (H1 20: £11.3 million). Adjusting items include £4.9 million related to the amortisation of acquired intangibles, £1.7 million of consideration required to be treated as remuneration for the Spire Digital and Cascade acquisitions, £0.2 million of costs related to those acquisitions, and £2.2 million relating to the Company's legacy Defined Benefits Pension Scheme. Further details are provided within note 6 and the Alternative Performance Measures contained in note 14.
Our balance sheet remains strong. The cash inflow from operations before working capital of £4.6 million is lower than the comparable prior year period (£6.0 million) due to the decline in net revenue related to the pandemic. The net working capital outflow of £1.5 million reflects primarily higher accounts receivable balances as a result of revenue growth versus the final quarter of the prior financial year. The divestment proceeds from the Hive sale net of cash outflows for the Cascade acquisition and modest capital expenditure combined to generate investing cash inflows of £7.2 million. We have seen no deterioration in collections from customers or significant bad debts. Our clients continue to be primarily blue-chip multi-billion dollar enterprise customers over a multi-year engagement. Two-thirds of our net revenue comes from clients who we have served for 3 years or more.
Our net debt is £22.5 million at 31 January 2021 compared to £31.6 million at fiscal year-end 31 July 2020 and £39.5 million at H1 20. In addition to cash flow of £6.5 million generated before repayment of bank debt, we experienced currency gains on net debt denominated in US dollars of £1.8 million, and reductions of £0.8 million due to US government PPP loans being forgiven. We expect an additional £3.6 million of PPP loan forgiveness in H2. Debt is drawn in US dollars to hedge our US dollar denominated earnings and hence to mitigate currency impact on our leverage ratio. Our debt headroom remains strong with a facility of £85 million committed until November 2022. Our net debt to EBITDA leverage ratio for bank purposes on a pre-IFRS 16 basis was 1.3X at 31 January 2021, and we expect this ratio to be within the 1.0x- 1.5x range at 31 July 2021. Our banks exclude PPP loans from the debt calculation as they anticipate that it will be forgiven. Including the PPP loans as debt, our net debt to EBITDA ratio is 1.6X.
The pension accounting surplus increased at the half year to £5.0m from £1.1m at 31 July 2020 due to the strength of recovery in growth assets. The Scheme asset hedging strategy largely mitigated against increases in discount rates and inflation rates.
No interim dividend is proposed. The Board will revisit the dividend later in the year as part of its capital allocation strategy.
OPERATIONAL HIGHLIGHTS
The Company's performance at the beginning of the first half was subject to many clients freezing budgets for the short-term in the late spring/early summer of 2020, the peak months of the pandemic. However, a growing realisation that sustainable digital transformation is a business necessity - accelerated by the pressure of the pandemic - subsequently led to strong demand as the period progressed. The Company won several project extensions with existing customers as well as several strategic remits with new customers. While Europe was a bit slower to bounce back than the US, we are now seeing a significant increase in demand on both sides of the Atlantic. As of the end of February, our 90-day net revenue backlog is 77% larger than at the start of our fiscal year (1 August 2020) and 27% larger than February 2020 (before the start of the pandemic).
We are seeing increases in demand for our services across the board. Additionally, our new Data Transformation offering within the Create pillar has been accelerating rapidly, as evidenced by our Pepsi win at the beginning of the fiscal year, which is now contracted with an 8-figure annual spend. To more specifically address this growing area of data within the digital transformation market, we recently combined Kin + Carta Create's Artificial Intelligence capabilities with Cascade's Data Science capabilities to launch Kin + Carta Data Labs (www.kinandcartadatalabs.com) to the market. Kin + Carta Data Labs will specifically focus on the Chief Data Officer's transformation agenda. This data-focused offering has led to additional strategic wins with HP, Adobe, Vizio and the British Heart Foundation. We look forward to sharing more about Kin + Carta Data Labs in the months ahead.
This increase in demand has led to a significant workforce expansion. Since November we have hired over 100 employees across our three continents with significantly more open roles to fill globally in order to meet existing client demand. With our focus on social responsibility, inclusion, diversity and the application of the world's most exciting emerging technologies, Kin + Carta has become a clear destination for some of the world's top digital talent enabling us to continue scaling our next-generation workforce across North America, South America and Europe.
STRATEGIC PRIORITIES
We have made significant progress on our strategic priorities in our first half:
● Digital transformation Focus/Platform Enhancement
Continued rationalization of our portfolio, alongside the launch of Kin + Carta Data Labs. Ventures of Edit and Incite both profitable and growing, remaining under strategic review.
● Partnership Growth
Signed over £15 million in new partner channel business in H1 (vs. £7.1 million in new business signed in all of FY20) driven by expanding relationships with Microsoft and Google.
● Geographic Expansion
Cascade acquisition facilitated expansion into the Pacific Northwest of the US with new clients Vizio, HP, Adobe and Starbucks. Continuing to court additional M&A prospects with new acquisitions being targeted in strategic geographic areas.
● Global Delivery Model
An increase in our Buenos Aires headcount by over 50% with further expansion in nearshore locations by the end of this fiscal year.
● Social Responsibility
Americas achieved B-Corp certification with Europe on track for H2. The launch of our IDEA (Inclusion, Diversity, Equity and Awareness) strategic plan alongside an achievement of 98% pay equity across gender and racial dimensions, with a plan to reach 100% pay equity by the end of this fiscal year.
OUTLOOK
Strong demand for our services in the digital transformation sector combined with our successful focus on being a destination for top digital talent gives the Board confidence of achieving significant growth in the second half and meeting expectations for the full year. Trading at the start of the second half underpins these expectations as market demand for our services continues to increase in all of our regions, as evidenced by our growing pipeline and record backlog.
J Schwan
Chief Executive Officer9 March 2021
Condensed Consolidated Income Statement - unaudited
6 months to 31 January 2021
6 months to
31 January
2020
(Restated)*
Year to
31 July
2020
Note
Adjusted
Results**
£'000
Adjusting Items
£'000
Total
Results
£'000
Total
Results
£'000
Statutory
Results
£'000
Revenue
2
77,130
-
77,130
84,079
158,369
Project-related costs
(13,008)
-
(13,008)
(12,504)
(20,678)
Net revenue
64,122
-
64,122
71,575
137,691
Cost of service
(33,561)
-
(33,561)
(36,820)
(70,432)
Gross profit
30,561
-
30,561
34,755
67,259
Selling costs
(9,007)
-
(9,007)
(8,964)
(15,528)
Administrative expenses
(18,481)
(2,511)
(20,992)
(21,961)
(46,883)
Other operating income
4
847
-
847
-
(17)
Share of results of joint arrangements
222
-
222
427
721
Amortisation of acquired intangibles
-
(4,915)
(4,915)
(4,709)
(10,563)
Impairment of goodwill and acquired intangibles
-
-
-
-
(18,850)
Contingent consideration treated as remuneration
-
(1,659)
(1,659)
(3,813)
(6,186)
Acquisition costs
-
(248)
(248)
(533)
(669)
Operating profit/ (loss)
6a
4,142
(9,333)
(5,191)
(4,798)
(30,716)
Net pension finance income
-
8
8
78
161
Other finance expense
7
(1,248)
-
(1,248)
(1,731)
(3,293)
Profit/ (loss) before tax
6b
2,894
(9,325)
(6,431)
(6,451)
(33,848)
Income tax (charge)/ credit
(556)
1,848
1,292
357
2,167
Net profit/ (loss) from continuing operations
2,338
(7,477)
(5,139)
(6,094)
(31,681)
Net profit/ (loss) from discontinued operations
5
1,030
5,176
6,206
468
(570)
Net profit/ (loss) for the period
3,368
(2,301)
1,067
(5,626)
(32,251)
Basic earnings/ (loss) per share (p)
Continuing operations
1.39
(4.43)
(3.04)
(3.83)
(19.33)
Discontinued operations
0.61
3.06
3.67
0.29
(0.35)
Continuing and discontinued operations
9
2.00
(1.37)
0.63
(3.54)
(19.68)
Diluted earnings/(loss) per share (p)
Continuing operations
1.36
(4.43)
(3.07)
(3.83)
(19.33)
Discontinued operations
0.60
3.06
3.66
0.29
(0.35)
Continuing and discontinued operations
9
1.96
(1.37)
0.59
(3.54)
(19.68)
*Results have been restated to show continued and discontinued operations separately. Further details are in note 5, 6b and 14.
**Adjusted results exclude Adjusting Items to enhance understanding of the ongoing financial performance of the Group. Adjusting Items comprise of redundancies, restructuring costs; gain or loss on disposal of properties, tangible and intangible assets; contingent consideration required to be treated as remuneration; and costs related to the Company's Defined Benefits Pension Scheme. Further details are provided within the Alternative Performance Measure section (note 14).
Condensed Consolidated Statement of Comprehensive Income - unaudited
6 months to 31 January 2021
£'000
6 months to
31 January
2020
£'000
Year to
31 July
2020
£'000
Profit/ (loss) for the period
1,067
(5,626)
(32,251)
Items that will not be reclassified subsequently to profit or loss:
Actuarial gain/ (loss) on defined benefits pension scheme
4,082
(2,808)
(7,358)
Tax (charge)/credit on items taken through other comprehensive income
(776)
477
1,342
Total items that will not be reclassified to profit or loss
3,306
(2,331)
(6,016)
Items that may be reclassified subsequently to profit or loss:
Transfers of (gains)/ losses gains on cash flow hedges
(21)
201
201
Gains/ (losses) on cash flow hedges
51
118
(52)
Foreign exchange losses
(354)
(2,570)
(669)
(324)
(2,251)
(520)
Other comprehensive income/ (expense) for the period
2,982
(4,582)
(6,536)
Total comprehensive income/ (expense) for the period
4,049
(10,208)
(38,787)
Condensed Consolidated Statement of Changes in Equity - unaudited
Share
capital
£'000
Additional paid-in capital^
£'000
ESOP
reserve
£'000
Treasury shares
£'000
Share
option
reserve
£'000
Hedging
and
translation
reserve
£'000
Other
reserves
£'000
Retained earnings/ (accumulated deficit)
£'000
Total
£'000
Balance at 3 August 2019
15,343
70,665
(21)
(163)
804
2,285
73,570
(924)
87,989
Loss for the period
-
-
-
-
-
-
-
(5,626)
(5,626)
Other comprehensive expense
-
-
-
-
-
(2,251)
(2,251)
(2,331)
(4,582)
Total comprehensive expense
-
-
-
-
-
(2,251)
(2,251)
(7,957)
(10,208)
Adjustment following adoption of IFRS 16
-
-
-
-
-
-
-
(1,770)
(1,770)
Share placement
1,533
11,651
-
-
-
-
11,651
-
13,184
Currency translation
-
132
-
-
-
-
132
-
132
Dividends
-
-
-
-
-
-
-
(1,993)
(1,993)
Recognition of share-based payments
-
-
-
-
407
-
407
-
407
Recognition of share-based contingent consideration deemed as remuneration
-
-
-
-
137
-
137
-
137
Balance at 31 January 2020
16,876
82,448
(21)
(163)
1,348
34
83,646
(12,644)
87,878
Loss for the period
-
-
-
-
-
-
-
(26,625)
(26,625)
Other comprehensive income
-
-
-
-
-
1,731
1,731
(3,685)
(1,954)
Total comprehensive income
-
-
-
-
-
1,731
1,731
(30,310)
(28,579)
Share placement
-
(132)
-
-
-
-
(132)
-
(132)
Dividends
-
-
-
-
-
-
-
-
-
Recognition of share-based contingent consideration deemed as remuneration
-
-
-
-
510
-
510
-
510
Revaluation
-
-
-
-
-
143
143
-
143
Purchase of own shares
-
-
(47)
-
-
-
(47)
-
(47)
Recognition of share-based payments
-
-
-
-
(136)
-
(136)
-
(136)
Tax on share-based payments
-
-
-
-
75
-
75
-
75
Balance at 31 July 2020
16,876
82,316
(68)
(163)
1,797
1,908
85,790
(42,954)
59,712
Profit for the period
-
-
-
-
-
-
-
1,067
1,067
Other comprehensive (expense)/income
-
-
-
-
-
(324)
(324)
3,306
2,982
Total comprehensive (expense)/income
-
-
-
-
-
(324)
(324)
4,373
4,049
Share allocation
18
1
(19)
-
-
-
(18)
-
-
Purchase of shares
-
-
(59)
-
-
-
(59)
(59)
Recognition of share-based payments
-
-
-
-
880
-
880
-
880
Recognition of share-based contingent consideration deemed as remuneration
-
-
-
-
876
-
876
-
876
Settlement of share-based payment
-
-
15
-
(110)
-
(95)
95
-
Balance at 31 January 2021
16,894
82,317
(131)
(163)
3,443
1,584
87,050
(38,486)
65,458
^ Additional paid capital includes share premium, merger reserve and capital redemption reverse
Condensed Consolidated Balance Sheet - unaudited
Note
31 January 2021
£'000
31 January 2020
£'000
31 July 2020
£'000
Assets
Non-current assets
Property, plant and equipment
16,370
23,218
17,714
Investment property
4,572
4,841
4,707
Goodwill
71,608
91,746
68,010
Other intangible assets
16,613
29,792
21,948
Investment in joint arrangements
1,051
610
880
Retirement benefits surplus
10
4,950
5,240
1,081
Other non-current assets
19
79
-
Deferred tax assets
1,652
2,636
2,477
116,835
158,162
116,817
Current assets
Trade and other receivables
33,268
39,837
28,165
Derivative financial instruments
25
135
48
Income tax receivable
523
-
-
Assets held for sale
-
-
9,843
Cash and cash equivalents
25,930
5,662
24,408
59,746
45,634
62,464
Total assets
176,581
203,796
179,281
Liabilities
Current liabilities
Lease liabilities
3,992
4,288
3,492
Trade and other payables
29,085
23,421
24,510
Derivative financial instruments
-
-
40
Income tax payable
364
1,368
110
Deferred consideration payable
3,344
4,498
3,277
Liabilities held for sale
-
-
2,652
Deferred income
7,039
6,650
7,565
Provisions
662
1,795
1,141
44,486
42,020
42,787
Non-current liabilities
Lease liabilities
14,414
18,895
16,287
Loans
48,482
45,172
56,007
Deferred consideration payable
1,134
4,267
624
Other non-current liabilities
101
120
-
Provisions
1,503
1,107
1,368
Deferred tax liabilities
1,003
4,320
2,496
66,637
73,881
76,782
Total liabilities
111,123
115,901
119,569
Net assets
65,458
87,895
59,712
Capital and reserves
Share capital
8
16,894
16,876
16,876
Other reserves
87,050
83,646
85,790
Accumulated deficit
(38,486)
(12,627)
(42,954)
Total equity
65,458
87,895
59,712
These financial statements were approved by the Board of Directors on 9 March 2021.
Condensed Consolidated Statement of Cash Flows - unaudited
Note
6 months to
31 January 2021
£'000
6 months to
31 January 2020
£'000
Year to
31 July 2020
£'000
Operating activities
Cash generated from operations
11
3,030
5,727
22,850
Interest paid
(882)
(1,204)
(1,600)
Income taxes paid
(749)
(1,268)
(1,598)
Net cash flows from operating activities
1,399
3,255
19,652
Investing activities
Purchase of property, plant and equipment
(431)
(654)
(858)
Purchase of other intangibles
(11)
(280)
(213)
Proceeds on disposal of subsidiaries
12,634
-
-
Cost of acquisition in current period
3
(4,970)
(10,996)
(17,310)
Deferred consideration paid for acquisitions made in prior periods
-
(1,171)
(2,000)
Net cash flows from investing activities
7,222
(13,101)
(20,381)
Financing activities
Purchase of shares for Employee Benefit Trust
(59)
-
(47)
Proceeds of share placement
-
13,185
13,184
Dividends paid
8
-
(1,993)
(1,993)
Lease payments
(2,049)
(1,937)
(4,843)
Decrease in bank loans
11
(4,727)
(14,007)
(856)
Net cash flows from financing activities
(6,835)
(4,752)
5,445
Net increase/ (decrease) in cash and cash equivalents
1,786
(14,598)
4,716
Cash and cash equivalents at beginning of the period
24,408
22,017
22,017
Effect of foreign exchange rate changes
(264)
(1,757)
(2,325)
Cash and cash equivalents at end of the period
25,930
5,662
24,408
Included in the figures above are the following cash flows from discontinued activities
6 months to
31 January 2021
£'000
6 months to
31 January 2020
£'000
Year to
31 July 2020
£'000
Net cash generated from operating activities
2,004
2,732
2,840
Net cash flows from investing activities
12,634
(13)
(36)
Net cash used in financing activities
(100)
(200)
(400)
Net increase in cash and cash equivalents
14,538
2,519
2,404
Notes to the Condensed Consolidated Interim Financial Statements
1. Basis of preparation
The Condensed Consolidated Financial Statements for the six months ended 31 January 2021 have been prepared in accordance with IAS 34 "Interim Financial Statements" as adopted by the European Union and in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the UK's Financial Conduct Authority ("FCA").
The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, except for the estimation of income tax. Income tax expense is recognised based on management's estimate of the weighted average effective annual income tax rate expected for the full financial year.
The half year statements (also the "Condensed Consolidated Financial Statements") have not been audited but have been reviewed by the Company's auditor.
The financial information for the six months ended 31 January 2021 and prior half year comparatives do not comprise statutory accounts for the purpose of Section 434(3) of the Companies Act 2006. The abridged information for the year to 31 July 2020 has been extracted from the Group's Annual Report and Accounts 2020 which have been filed with the Registrar of Companies. The Auditors' report on the Group's Annual Report and Accounts for that period was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under Sections 498(2) or (3) of the Companies Act 2006.
Accounting policies
New accounting standards, amendments to standards, and IFRIC interpretations which became applicable during the period were either not relevant or had no impact on the Group's net results or net assets.
Going concern
The Directors, having made appropriate enquiries, consider that adequate resources exist for the Group to continue in operational existence for a period of at least 12 months from the date of approval of the Condensed Consolidated Financial Statements. These include the assumptions around the Group's products and markets, expenditure commitments, expected cash flows and borrowing facilities. Taking into account reasonable possible changes in trading performance, and after making enquiries, the directors consider it appropriate to continue to adopt the going concern basis in preparing the Condensed Consolidated Interim Financial Statements for the six months ended 31 January 2021.
Critical estimates and critical judgements
The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results might differ from these estimates.
1. Basis of preparation (continued)
In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 July 2020, with the exception of changes in estimates that are required in determining the provision for income taxes.
2. Segment reporting
The Group delivers transformative growth for the world's largest companies and delivers services regionally in the US and Europe across three specialisms; Advise, Create and Connect, collectively called The Connective and additionally through its Ventures. See the 'About Kin + Carta' section above for details.
The Group reports its results through one segment - The Connective - and with corporate costs shown as a separate segment based on the Group's internal reporting to the Chief Operating Decision Maker ('CODM'). The CODM has been determined to be the Chief Executive Officer and Chief Financial Officer who are primarily responsible for the assessment of the performance of the businesses/ brands which currently operate under The Connective.
The corporate costs are reported separately to the single operating segment as this presentation better reflects the segment's underlying profitability.
Results from continuing operations for the current period:
6 months to 31 January 2021
The Connective
£'000
Corporate costs
£'000
Total
£'000
Revenue
77,130
-
77,130
Net revenue
64,122
-
64,122
Adjusted net revenue
64,122
-
64,122
Operating profit/ (loss) before Adjusting Items
7,709
(3,567)
4,142
Adjusting Items
(7,136)
(2,197)
(9,333)
Total operating profit/ (loss)
573
(5,764)
(5,191)
Results from continuing operations for the prior period ended 31 January 2020:
The Connective
£'000
Corporate costs
£'000
Total
£'000
Revenue
84,079
-
84,079
Net revenue
71,575
-
71,575
Adjusted net revenue
71,575
-
71,575
Operating profit/ (loss) before Adjusting Items
9,386
(2,832)
6,554
Adjusting Items
(10,167)
(1,185)
(11,352)
Total operating loss
(781)
(4,017)
(4,798)
2. Segment reporting (continued)
Results from operations for the prior period ended 31 July 2020:
Year to 31 July 2020
The Connective
£'000
Corporate costs
£'000
Total
£'000
Revenue
158,369
-
158,369
Net revenue
137,691
-
137,691
Adjusting Items
88
-
88
Adjusted net revenue
137,779
-
137,779
Operating profit/ (loss) before Adjusting Items
20,247
(6,419)
13,828
Adjusting Items
(42,292)
(2,252)
(44,544)
Statutory operating loss
(22,045)
(8,671)
(30,716)
No disclosure of assets and liabilities as no assets and liabilities are allocated to Corporate costs.
Geographical segments
Revenue by geographical segment is based on the location where goods and services have been provided.
Continuing operations
31 January 2021
£'000
31 January 2020
£'000
31 July 2020
£'000
United States of America
38,744
38,762
77,504
United Kingdom
37,768
44,812
79,984
Rest of the world
618
505
881
Total
77,130
84,079
158,369
Revenue by customer location
The Group derives 50% (6 months ended 31 January 2020: 46%) of its revenue from customers located in the United States of America, 49% (6 months ended 31 January 2020: 53%) customers located in the United Kingdom and 1% (6 months ended 31 January 2020: 1%) from customers located in the rest of the world.
Net revenue by customer location
The Group derives 60% (6 months ended 31 January 2020: 53%) of its net revenue from customers located in the United States of America, 36% (6 months ended 31 January 2020: 41%) customers located in the United Kingdom and 4% (6 months ended 31 January 2020: 6%) from customers located in the rest of the world.
3. Acquisitions
Cascade Data Labs, LLC
On 23 December 2020, the Group acquired 100% of the issued stock of Cascade Data Labs, LLC ("Cascade"), a data transformation business based in Portland, Oregon, USA. Given the proximity of the acquisition to 31 January 2021 the purchase price allocation has not been completed and the surplus of consideration over historical net assets has provisionally been allocated to goodwill. The purchase price allocation, which will be complete by 31 July 2021, will likely see a significant portion of the provisional goodwill figure reallocated to customer relationships and proprietary techniques. In line with the provision of IFRS 3, further fair value adjustments may be required within the 12-month period from the date of acquisition. Any fair value adjustments in this period will result in an adjustment to the goodwill balance reported above. The goodwill that arose on the combinations can be attributed to the value of future growth from new customers and the assembled workforce. The provisional amounts recognised for each class of assets and liabilities at the acquisition date were as follows:
Fair value of net assets
£'000
Trade and other receivables
487
Bank balances and cash
268
Trade and other payables
(214)
Net assets acquired
541
Goodwill
4,697
Total consideration
5,238
The fair value of the components of estimated total consideration payable are as follows:
Non-contingent consideration
£'000
Contingent consideration
£'000
Total consideration
£'000
Cash consideration payment in the current period
5,238
-
5,238
Estimated future consideration payable in cash and shares
-
7,400
7,400
Total consideration
5,238
7,400
12,638
Up to 75% of the estimated future consideration may be paid in ordinary shares of Kin and Carta plc at the Company's discretion.
Deemed Remuneration £'000
Deemed remuneration - current liability
66
Deemed remuneration - non-current liability
59
125
Recorded within equity
375
500
Estimated payable in cash and shares not yet accrued
6,900
7,400
3. Acquisitions (continued)
Consideration which is contingent upon service by the potential recipients is recognised in the income statement over the period of the contingent arrangement as deemed remuneration. Deferred consideration is payable dependent upon the level of incremental EBITDA achieved by Cascade for the periods ending 30 June 2021 and 30 September 2022. Any deferred consideration payable vests over variable periods, the last of which ends in September 2024.
The total consideration payable, including contingent consideration payable which is deemed as remuneration, is capped at £22.3 million.
The maximum amount of the performance-related deferred consideration payable is £17.3 million, and the minimum is £nil. The amount of deferred payments to be treated as deemed remuneration has been recognised as the estimated amount payable based on available business forecasts, and has not been discounted since the effect of discounting is not considered to be material.
The acquisition had the following impact on cash outflows in the current period:
£'000
Cash consideration
5,238
Less cash acquired
(268)
Investing cash outflows
4,970
Acquisition costs recognised in adjusting administrative expenses.
248
Net cash outflow
5,218
4. Other Income
In the prior financial year, partially forgivable loans of £6.6 million were received by US entities under the US Government CARES Act Payment Protection Program. These were recorded as loans in the balance sheet at 31 July 2020, and an application for forgiveness of £4.5 million of eligible loans was made. In January 2021 we received confirmation of forgiveness of £0.8 million of these loans. The forgiveness has been recorded within adjusted other income in the income statement in accordance with IAS20 Government Grants. In respect of the further £3.6 million we expect to receive confirmation before the end of the current financial year, and further forgiveness will be recorded as adjusted other income. The remaining balance will be repaid on maturity in May 2022.
5. Discontinued Operations
Discontinued operations comprise the results of two divested businesses: Pragma, a commercial retail space consulting business, and Hive, a healthcare communications consultancy. On 31 August 2020, Pragma was divested for a consideration of £0.25 million, before adjustments for cash, debt and working capital items, received in cash at completion. On 16 December 2020, Hive was divested for a consideration of £13.8 million before adjustments for cash, debt and working capital items received in cash at completion. After adjustments for cash, debt and working capital, net proceeds from the two divestments of £12.6 million were received in the period. The net gain on divestment of the two businesses was £5.2 million. Both businesses were classified as assets held for sale at 31 July 2020.
The impact of discontinued operations on the group was as follows;
6 months ended 31 January 2021
6 months ended 31 January 2020
Year ended 31 July 2020
Profit from discontinued operations before Adjusting Items:
Revenue
3,659
5,537
9,647
Operating costs
(2,375)
(4,920)
(8,548)
Operating profit before Adjusting Items
1,284
617
1,099
Interest charges
(13)
(39)
(12)
Profit before tax before Adjusting Items
1,271
578
1,087
Income tax charge
(241)
(110)
(230)
Profit after tax before Adjusting Items
1,030
468
857
Adjusting Items after tax
-
-
(1,427)
Gain on divestment of discontinued operations
5,176
-
-
Total Adjusting Items
5,176
-
(1,427)
Profit/ (loss) from discontinued operations:
Profit after tax before adjusting items
1,030
468
857
Adjusting Items
5,176
-
(1,427)
Total profit/ (loss) after tax
6,206
468
(570)
6a. Adjusting items
Adjusting items from continuing operations disclosed on the face of the Consolidated Income Statement are as follows:
Continuing Operations
6 months to
31 January 20216 months to
31 January 2020
Year to
31 July 2020
Expense/ (income)
£'000
£'000
£'000
£'000
£'000
£'000
Restructuring items
Redundancies and other charges
160
819
3,456
Losses related to closure of subsidiary
-
412
318
(Credit)/ costs associated with empty properties
-
(208)
1,262
Impairment of tangible assets
154
89
2,475
Reduction in lease liabilities
-
-
(758)
Gain on sale of investment in minority interest
-
-
(198)
314
1,112
6,555
Defined Benefits Pension Scheme costs
Scheme administration costs
537
263
624
Scheme past service costs - GMP equalisation
604
-
-
Other Scheme related costs
1,056
922
1,051
2,197
1,185
1,675
Costs relating to acquisitions made in current and prior periods
Costs associated with businesses acquired in the current period
248
533
669
Amortisation of acquired intangibles
4,915
4,709
10,563
Impairment of goodwill and acquired intangible assets
-
-
18,850
Contingent consideration required to be treated as remuneration
1,659
3,813
6,186
6,822
9,055
36,268
Adjusting Items in expenses
9,333
11,352
44,498
Loss on disposal of property, plant and equipment
-
-
46
Adjusting Items before interest and tax
9,333
11,352
44,544
Net pension finance income in respect of defined benefits pension scheme
(8)
(78)
(161)
Adjusting Items before tax
9,325
11,274
44,383
Income tax credit
(1,848)
(1,270)
(4,168)
Adjusted results after tax
7,477
10,004
40,215
Restructuring items
Redundancy and restructuring costs of £0.3 million relate to severances in the US and a property lease termination in the UK under restructuring programs commenced in the prior financial year.
Defined Benefits Pension Scheme costs
The Scheme charges include service costs of £0.5 million, £0.6 million of further past service costs related to GMP equalisation on members who have transferred out of the Scheme following further clarification on the Lloyds case and costs in relation to running the scheme of £1.1 million. These items are recorded in corporate costs.
Costs related to acquisitions made in the current and prior periods
Acquisition costs of £0.2 million were incurred as part of the acquisition of Cascade Data Labs, LLC in December 2020.
Charges relating to the amortisation of acquired customer relationships, proprietary techniques and software amounted to £4.9 million in the current period.
During the period, charges relating to contingent consideration deemed as remuneration of £1.7 million (2020: £3.8m) were recorded in the Consolidated Income Statement as Adjusting Items. The charges in the period are in respect of the acquisition of Kin and Carta Denver (formally SpireMedia, Inc. d.b.a. Spire Digital) (£1.1 million) and Cascade (£0.5 million).
In the current period, the tax credit of £1.8 million (2020 - £1.3 million) relates to the items discussed above.
6b. Impact of Adjusting items on Group results
The table below shows an analysis and impact of adjusting items on continuing and discontinued operations on certain of the Group's headline results:
6 months to 31 January 2021
6 months to 31 January 2020
12 months to 31 July 2020
Adjusted
Results
£'000
Adjusting Items
£'000
Total
Results
£'000
Adjusted
Results
£'000
Adjusting Items
£'000
Total
Results
£'000
Adjusted
Results
£'000
Adjusting Items
£'000
Statutory
Results
£'000Net Revenue
64,122
-
64,122
71,575
-
71,575
137,691
-
137,691
Operating profit/ (loss)
4,142
(9,333)
(5,191)
6,554
(11,352)
(4,798)
13,828
(44,544)
(30,716)
Net pension finance income
-
8
8
-
78
78
-
161
161
Other finance expense
(1,248)
-
(1,248)
(1,731)
-
(1,731)
(3,293)
-
(3,293)
Profit before tax/ (loss) from continuing operations
2,894
(9,325)
(6,431)
4,823
(11,274)
(6,451)
10,535
(44,383)
(33,848)
Profit/ (loss) before tax from discontinued operations
1,271
5,176
6,447
578
-
578
1,087
(1,427)
(340)
Profit before tax
4,165
(4,149)
16
5,401
(11,274)
(5,873)
11,622
(45,810)
(34,188)
Income tax (charge)/ credit from continuing operations
(556)
1,848
1,292
(913)
1,270
357
(2,001)
4,168
2,167
Income tax charge from discontinued operations
(241)
-
(241)
(110)
-
(110)
(230)
-
(230)
Net profit/ (loss) for the period
3,368
(2,301)
1,067
4,378
(10,004)
(5,626)
9,391
(41,642)
(32,251)
Net profit/ (loss) from continuing operations
2,338
(7,477)
(5,139)
3,910
(10,004)
(6,094)
8,534
(40,215)
(31,681)
Net profit/ (loss) from discontinued operations
1,030
5,176
6,206
468
-
468
857
(1,427)
(570)
Net profit/ (loss) for the period
3,368
(2,301)
1,067
4,378
(10,004)
(5,626)
9,391
(41,642)
(32,251)
7. Other finance costs
6 months to
31 January 2021
£'000
6 months to
31 January 2020
£'000
Year to
31 July 2020
£'000
Interest and bank arrangement fees on bank overdrafts and loans
819
1,204
2,193
Interest on lease liabilities
429
527
1,100
1,248
1,731
3,293
8. Dividends
per share
6 months to 31 January 2021
£'000
6 months to 31 January 2020
£'000
Year to 31 July 2020
£'000
Final dividend paid for the period ended 3 August 2019
1.30p
-
1,993
1,993
Dividends paid during the period
-
1,993
1,993
9. Earnings per share
The calculation of the basic and diluted earnings per share are based on the following:
6 months to 31 January 2021
'000
6 months to 31 January 2020
'000
Year to
31 July 2020
'000
Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share
168,714
159,147
163,870
Effect of dilutive potential ordinary shares:
Share options
2,609
-
2,313
Weighted average number of ordinary shares for the purposes of diluted earnings per share
171,323
159,147
166,183
9. Earnings per share (continued)
Basic and diluted earnings per share
6 months to
31 January 2021
£'0006 months to 31 January 2020
£'000Year to 31 July 2020
£'000Continuing and discontinued operations
Earnings
£'000Earnings
per share
penceEarnings
£'000
(Restated)Earning per share pence (Restatd)
Earnings
£'000Earning per share
penceEarnings/ (loss) and basic earnings/ (loss) per share
Adjusted earnings and adjusted basic earnings per share
3,368
2.00
4,378
2.75
9,391
5.73
Adjusting Items
(2,301)
(1.37)
(10,004)
(6.29)
(41,642)
(25.41)
Earnings/ (loss) and basic earnings/ (loss) per share
1,067
0.63
(5,626)
(3.54)
(32,251)
(19.68)
Earnings/ (loss) and diluted earnings/ (loss) per share
Adjusted earnings and adjusted diluted earnings per share
3,368
1.96
4,378
2.75
9,391
5.73
Adjusting Items
(2,301)
(1.37)
(10,004)
(6.29)
(41,642)
(25.41)
Earnings/ (loss) and diluted earnings/ (loss) per share
1,067
0.59
(5,626)
(3.54)
(32,251)
(19.68)
Adjusted earnings is calculated by adding back Adjusting Items (note 6), as adjusted for tax, to the profit or loss for the period.
10. Retirement benefits
As at 31 January 2021 the Group reported a net surplus in respect of the Defined Benefit Pension Scheme (the 'Scheme') of £5.0 million compared to a surplus of £1.1 million reported as at 31 July 2020. The increase in the surplus is due to the performance of growth assets.
11. Notes to the consolidated cash flow statement
Reconciliation of cash generated from operations
6 months to
31 January 2021£'000
6 months to
31 January 2020
£'000
Year to 31 July
2020
£'000
Loss from continuing operations
(5,191)
(4,798)
(30,716)
Profit/ (loss) from discontinued operations
6,460
617
(328)
Operating profit/ (loss)
1,269
(4,181)
(31,044)
Adjustments for:
Depreciation of property, plant and equipment
1,961
2,933
5,995
Share of results of joint arrangements
(222)
(427)
(721)
Disbursements from joint arrangement
-
303
303
Impairment losses
151
89
22,790
Amortisation of intangible assets
5,033
4,832
10,789
Forgiveness of US government loans
4
(849)
-
-
Loss on disposal of property, plant and equipment
-
-
92
Gain on disposal of subsidiaries
(5,176)
-
-
Share-based payment charge
880
544
272
Non-cash reductions in lease liabilities
-
-
(758)
Increase in fair value of derivatives
-
(293)
-
Increase / (decrease) in retirement benefit obligations
214
(1,306)
(1,614)
Increase in contingent consideration required to be treated as remuneration
1,659
3,813
6,186
Decrease in provisions
(345)
(346)
(628)
Operating cash inflows before movements in working capital
4,575
5,961
11,662
(Increase)/ decrease in receivables
(6,249)
2,483
11,003
Increase/ (decrease) in payables
4,963
(3,538)
(2,189)
(Decrease)/ increase in deferred income
(259)
821
2,374
Cash generated from operations
3,030
5,727
22,850
11. Notes to the consolidated cash flow statement (continued)
Cash and cash equivalents (which are presented as a single class of assets on the face of the consolidated balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.
The effective interest rates on cash and cash equivalents are based on current market rates.
Analysis of financing liabilities
1 August 2020
£'000Financing
cash flows
£'000Forgiveness through
operating
cash flow
£'000Other non-cash items
£'000Exchange differences
£'00031 January
2021
£'000US government loans
(6,721)
-
849
-
261
(5,611)
Bank loans
(49,286)
4,727
-
1,688
(42,871)
Lease liabilities
(19,779)
2,049
-
(1,242)
565
(18,407)
As detailed in note 4, US government loans received under the Paycheck Protection Program of £0.8 million were forgiven in the period and the forgiveness has been recorded in the Consolidated Income Statement under "Other operating income". The extinguishment of the US government loans through forgiveness has been recorded as an adjustment in arriving at cash generated from operations.
Included in other non-cash lease liability movements are the liabilities created in respect of new leases net of those extinguished through early lease termination as well as finance lease interest.
12. 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 financial statements.
No executive officers of the Company or their associates had material transactions with the Group during the period.
12. Related parties (continued)
The Group holds a 50% interest in Loop Integration LLC ("Loop"), incorporated in Delaware, USA. Loop is an e-commerce consultancy specialising in Hybris software integration. Loop earned revenue of £1.7 million (2020: nil) from the Group. The Group provided services to Loop for £1,500 in the period (HY 2020: £52,000). On 31 January 2021 the following balances were outstanding for services rendered between Loop and the Group. The Group owed Loop £0.9 million (HY 2020: receivable from Loop of £2,500). In the prior period the Group received a distribution of USD 250,000 and loan repayment of GBP 150,000 from Loop.
SpireMedia, Inc (d.b.a. Kin and Carta Denver) a 100% subsidiary was acquired by the group in November 2019. Simoleon LLC ("Simoleon") used to provide office space to Kin and Carta Denver in a lease that ended in December 2020. Simoleon LLC is partly controlled by Adam Hasemeyer and Michael Gellman with another third party, and they also controlled Kin and Carta Denver before it was acquired by the Group. Mr Hasemeyer and Mr Gellman became employees of the Group following the acquisition of Spire. During the period Kin and Carta Denver paid USD 104,500 (HY 2020: USD 60,488) to Simoleon LLC for office space. There were no outstanding amounts due to Simoleon LLC at 31 January 2021.
13. Post-balance sheet event
On 2 March 2021 the final deferred consideration associated with the acquisition of SpireMedia, Inc (d.b.a. Kin and Carta Denver) was determined. This will be settled in the form of cash of $6.5 million together with the allotment of 3.6 million ordinary shares of Kin and Carta plc to the former owners. It is expected that in March 2021 $2.2 million of the total $6.5 million cash amount will be paid and 1.3 million of the shares will be allocated to the former owners on a fully vested basis. The balance of 2.3 million shares (the "unvested shares") will also be allocated at the same time, subject to lock-up and orderly market arrangements, and will not be vested until 1 March 2023. At that later date, the remaining cash of $4.3 million (the "unvested cash") will be paid to the former owners. The unvested shares and unvested cash are both subject to service conditions for the individual recipients.
14. Alternative Performance Measures ('APMs')
The half year results include both statutory and Adjusted results. In the management's view, the Adjusted results reflect the ongoing performance of the business, how the business is managed on a day to day basis and allows for a consistent and meaningful comparison.
The APMs are aligned to our strategy and are used to measure the performance of our business and are the basis for remuneration.
The Adjusted results exclude the items listed below as their inclusion could distort the understanding of the performance for the year and the comparison with prior years.
Key adjustments for Adjusted operating profit, profit before tax and EPS
Adjusted operating profit is calculated by adding back costs relating to restructuring activities, acquisitions made in current and prior periods, the disposal of surplus property, impairment charges, movements in deferred consideration beefed it up now. and the St Ives Defined Benefit Pension Scheme. The tax effects of these adjustments are reflected in the Adjusted tax charge. The adjustments are detailed below:
1. Profit on the disposal of property plant and equipment and restructuring costs - these items are excluded in order to reflect the performance of the business in a consistent manner and how the performance of the business is managed on a day to day basis. They are not considered to be part of the core activities of the business.
They have arisen as a result of initiatives to reduce the cost base and improve efficiency and collaboration across the group. The initiatives reflect a significant change in the organisational structure of a business area are assessed on an individual basis and are excluded from the Adjusted results.
2. Amortisation of acquired intangibles and impairments - the amortisation and impairments of assets acquired through business combinations are excluded from Adjusted results. These costs are acquisition related and are not part of the ongoing trading performance of the business. The amortisation of computer software is included within the Adjusted results as it is part of the ongoing trading performance.
3. Contingent consideration required to be treated as remuneration, and increase in deferred consideration - our acquisitions, where deferred consideration arises, are structured such that the consideration payable to former owners who remain as employees is contingent on continued employment within the Group. Under IFRS 3 this is treated as an expense. Where the purchase price has been determined initially based on assumptions around future deferred consideration and there is a subsequent increase or decrease arising from the reassessment of deferred consideration, under IFRS 3 this is required to be expensed. We consider this not to be part of the ongoing trading performance.
4. Administrative expenses related to St Ives Defined Benefits Pension Scheme - the Scheme was closed to new members in 2002 and ceased future accrual in 2008. There are now less than five employees who are members of the Scheme and still employed by the Group. On the disposal of the Books segment Kin and Carta plc is the last remaining employer. The costs of the Scheme including administration costs, past service costs related to Guaranteed Minimum pension 'GMP' and pension finance charge/(credit) are not considered to be part of the on-going performance of the Group and they are excluded from the performance measures. As such they are treated as Adjusting items.
14. Alternative Performance Measures (continued)
The analysis of Adjusting Items for continuing operations is set out below:
6 months to
31 January 2021
£'000
6 months to
31 January 2020
£'000
Year to
31 July 2020
£'000
Loss on disposal of property, plant and equipment
-
-
46
Amortisation of acquired intangibles
4,915
4,709
10,563
Expenses related to restructuring items
160
1,023
6,555
Impairment of goodwill and other assets
154
89
18,850
Contingent consideration required to be treated as remuneration
1,659
3,813
6,186
Acquisition costs
248
533
669
Expense related to St Ives Defined Benefits Pension Scheme
2,197
1,185
1,675
Total Adjusting Items added back to the total operating profit
9,333
11,352
44,544
Pension finance credit
(8)
(78)
(161)
Total Adjusting Items added back to the total profit before tax
9,325
11,274
44,383
Tax related to Adjusting Items
(1,848)
(1,270)
(4,168)
Total Adjusting Items added back to the total profit after tax
7,477
10,004
40,215
The key APMs frequently used by the Group are:
Adjusted net revenue: The measure is defined as Adjusted revenue less project-related costs as shown on the consolidated income statement. Project-related costs are primarily in our Ventures businesses, and comprise primarily third-party pass-through expenses and direct costs attributable to a project.
6 months to
31 January 2021
£'000
6 months to
31 January 2020
£'000
Year to
31 July 2020
£'000
Adjusted revenue (continuing operations)
77,130
84,061
158,239
Project-related costs
(13,008)
(12,486)
(20,460)
Adjusted net revenue (continuing operations)
64,122
71,575
137,779
14. Alternative Performance Measures (continued)
Like-for-like Adjusted net revenue at constant currency: The measure is defined as the Adjusted net organic revenue from continuing operations when comparing the current period to the prior period at constant currency rate of exchange.
6 months to
31 January 2021£'000
6 months to
31 January 2020
£'000
Adjusted net revenue
64,122
71,575
Impact of acquisition in current period
(5,020)
-
Effect of constant currency
1,176
-
Like-for-like Adjusted net revenue
60,278
71,575
Like-for-like Adjusted net revenue decline %
-15.8%
Adjusted operating profit: This measure is defined as the operating profit or loss less Adjusting Items.
6 months to
31 January 2021
£'000
6 months to
31 January 2020
£'000
Year to
31 July 2020£'000
Total operating loss
(5,191)
(4,798)
(30,716)
Add back total Adjusting Items excluding pension finance charge and tax
9,333
11,352
44,544
Adjusted operating profit
4,142
6,554
13,828
Like-for-like Adjusted operating profit at constant currency: The measure is defined as the Adjusted organic operating profit from continuing operations when comparing the current period to the prior period at constant currency rate of exchange.
6 months to
31 January 2021
£'000
6 months to
31 January 2020
£'000
Adjusted operating profit
4,142
6,554
Impact of acquisition in current period
(1,244)
-
Effect of constant currency
167
-
Like-for-like Adjusted operating profit
3,065
6,554
Like-for-like Adjusted operating profit decline %
-53.2%
-
14. Alternative Performance Measures (continued)
Adjusted profit before tax: This measure is defined as the Group net profit or loss before tax less Adjusting Items.
6 month to
31 January 2021£'000
6 months to
31 January 2020£'000
Year to31 July 2020
£'000Total loss before tax
(6,431)
(6,451)
(33,848)
Add back total Adjusting Items before tax
9,325
11,274
44,383
Adjusted profit before tax
2,894
4,823
10,535
Adjusted profit after tax: This measure is defined as the Group profit or loss after tax before Adjusting Items:
6 months to
31 January 2021£'000
6 months to
31 January 2020£'000
Year to
31 July 2020
£'000Total loss after tax
(5,139)
(6,094)
(31,681)
Add back total Adjusting Items after tax
7,477
10,004
40,215
Adjusted profit after tax
2,338
3,910
8,534
Adjusted basic earnings per share: This measure is defined as basic earnings per share after Adjusting Items.
6 months to
31 January 2021
£'000
6 months to
31 January 2020
£'000
Year to
31 July 2020
£'000
Adjusted profit after tax
2,338
3,910
8,534
Weighted number of shares ('000)
168,714
159,147
163,871
Adjusted basic earnings per share (pence)
1.39
2.46
5.21
14. Alternative Performance Measures (continued)
Adjusted operating margin: This measure is defined as the percentage of Adjusted operating profit over Net revenue.
6 months to
31 January 2021
£'000
6 months to
31 January 2020
£'000
Year to
31 July 2020
£'000
Adjusted net revenue
64,122
71,575
137,779
Adjusted operating profit
4,142
6,554
13,828
Adjusted operating margin
6%
9%
10%
Adjusted EBITDA for covenant purposes: 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. Covenant adjustments represent the deduction of pre-IFRS 16 property rent charges and the addition of pre-acquisition operating profit related to Cascade Data Labs, LLC for the period from 1 February 2020 to 31 December 2020.
31 January 2021
£'000
31 January 2020
£'000
31 July 2020
£'000
Adjusted operating profit (pro forma)
11,416
17,873
13,828
Add: depreciation and amortisation
15,436
12,406
16,206
Less: amortisation of intangibles classified as Adjusting Items
(10,769)
(7,947)
(10,563)
Adjusted EBITDA
16,083
22,332
19,471
Covenant adjustment
(2,118)
(409)
(2,185)
Adjusted EBITDA for covenant purposes
13,965
21,923
17,286
Net debt: This measure is calculated as the total of loans and other borrowings (both current and non-current) excluding finance leases, less cash and cash equivalents.
31 January 2021
£'000
31 January 2020
£'000
31 July 2020
£'000
Loans - non-current liabilities
48,482
45,172
56,007
Cash and cash equivalents
(25,930)
(5,662)
(24,408)
Net debt
22,552
39,510
31,599
14. Alternative Performance Measures (continued)
For the measurement of the bank covenants, cash, cash equivalents and borrowings denominated in currencies other than Pound Sterling are translated at an average rate rather than at the period end spot rate used in the Consolidated Balance Sheet. Borrowings drawn under the US government Paycheck Protection Program are excluded from the calculation. The reconciliation is as follows:
31 January 2021
£'000
31 January 2020
£'000
31 July 2020
£'000
Net debt
22,552
39,510
31,599
Foreign exchange difference between spot rate and average rate
1,683
283
487
Deduct Paycheck Protection Program loan
(5,611)
-
(6,721)
Net debt for leverage covenant purposes
18,624
39,793
25,365
Net debt to Adjusted EBITDA: This measure is calculated by dividing Net Debt by Adjusted EBITDA on a pre-IFRS 16 basis. The Adjusted EBITDA is based on the total of continuing and discontinued operations.
31 January 2021
£'000
31 January 2020
£'000
31 July 2020
£'000
Adjusted EBITDA for covenant purposes
13,964
21,923
17,286
Net debt
22,552
39,510
31,599
Net debt to Adjusted EBITDA
1.6
1.8
1.8
Net debt to Adjusted EBITDA for bank covenant purposes: This measure is calculated by dividing Net Debt by pro forma Adjusted EBITDA
31 January 2021
£'000
31 January 2020
£'000
31 July 2020
£'000
Adjusted EBITDA for covenant purposes
13,964
21,923
17,286
Net debt for covenant purposes
18,624
39,793
25,365
Net debt to Adjusted EBITDA for covenant purposes
1.3
1.8
1.5
15. Principal risks and uncertainties
The Board considers that the categories of principal risks and uncertainties which could have a material impact on the Group's performance in the remaining six months of the financial year remain the same as those stated on pages 80 to 87 of the 2020 Annual Report and Accounts, which is available on our website https://investors.kinandcarta.com
The Board continues to evaluate the potential impact of the Covid-19 pandemic on the Group's ongoing client projects, revenue pipeline, its people and business operations as the situation evolves, allowing mitigation activities to be embedded so that such risks are managed.
16. Statement of Directors' Responsibility
The directors' confirm that these Condensed Consolidated Financial Statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by Disclosure Guidance and Transparency Rules sourcebook 4.2.7 and 4.2.8, namely:
● an indication of important events that have occurred during the first six months and their impact on the Condensed Consolidated Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the financial period; and
● material related-party transactions in the first six months and any material changes in the related-party transactions described in the Kin and Carta plc 2020 Annual Report and Accounts.
Neither the Company nor directors accept any liability to any person in relation to the half-year financial report except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with section 90A and schedule 10A of Financial Services and Markets Act 2000.
At the date of this statement, the directors are those listed in the Kin and Carta plc 2020 Annual Report and Accounts.
J Schwan
Chief Executive Officer
9 March 2021
The foregoing contains forward looking statements made by the directors in good faith based on information available to them up to 10 March 2021. Such statements need to be read with caution due to inherent uncertainties, including economic, business, political and social risk factors underlying such statements.
Independent review report to Kin and Carta plc
Report on the consolidated interim financial statements
Our conclusion
We have reviewed Kin and Carta plc's consolidated interim financial statements (the "interim financial statements") in the Half Year Results of Kin and Carta plc for the 6 month period ended 31 January 2021 (the "period").
Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
· the Condensed Consolidated Balance Sheet as at 31 January 2021;
· the Condensed Consolidated Income Statement for the period then ended;
· the Condensed Consolidated Statement of Cash Flows for the period then ended;
· the Condensed Consolidated Statement of Changes in Equity for the period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Half Year Results of Kin and Carta plc have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Half Year Results, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the Half Year Results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the Half Year Results based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Half Year Results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
9 March 2021
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