2023 Annual Report and Accounts and Notice of AGM

Kin and Carta PLC

06 November 2023

 

7 November 2023

Kin and Carta plc

2023 Annual Report and Accounts and Notice of AGM

Kin and Carta plc (the "Company") confirms that copies of:

a)    the Annual Report and Accounts for the year ended 31 July 2023 (the "2023 Annual Report and Accounts");

b)    the Notice of Annual General Meeting of the Company; and

c)    the Form of Proxy in relation to the Annual General Meeting,

(together the "Shareholder Documents"),

have today been posted or made available to shareholders, submitted to the National Storage Mechanism and will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

The Shareholder Documents will shortly be available to download from the Company's investor website at https://investors.kinandcarta.com/ under Reports and Events.

The Company's Annual General Meeting will be convened at 2.30pm on Thursday, 7 December 2023 at The Spitfire Building, 71 Collier Street, London N1 9BE.

For the purposes of complying with Disclosure Guidance and Transparency Rule 6.3.5R, we set out below in the Appendix the principal risks and uncertainties facing the Company. The appendix has been extracted from the 2023 Annual Report and Accounts in unedited full text and the page numbers in the text refer to the page numbers in that document. This information should be read in conjunction with the Company's 2023 full year results announcement, released on 2 November 2023, which contained a condensed set of financial statements and which can be found at https://investors.kinandcarta.com/ ("Full Year Results Announcement"). Together, the 2023 Annual Report and Accounts and Full Year Results Announcement constitute the material required by DTR 6.3.5R to be communicated to the media in unedited full text through a Regulatory Information Service.

Lucy Maxwell

Company Secretary

7 November 2023

Enquiries:

Lucy Maxwell                       020 7928 8844

Appendix: Principal Risks

The table on 114 to 121 details Kin + Carta's principal risks, key mitigating activities in place to address them and their relevance to the strategic priorities set by the Board. The changes in risk ratings from the Board's assessment in the prior year have also been highlighted.

1.   Economy and volatility

Description Challenging economic and political conditions may inhibit growth and create uncertainty. This could lead to volatility in earnings. It could also impact the outcome of strategic priorities set by the Board. Macroeconomic headwinds including Inflationinduced interest rate hikes in the US and UK markets, enterprise clients remain cautious to commit to large programmes of work in this environment, which has slowed new business growth.

Mitigating activities Diversification into sectors that are capable of delivering growth. Offering a highly relevant suite of digital transformation service lines across areas of Strategy + Innovation, Cloud + Platforms, Products + experiences, AI + Data and Managed Services to our clients, collaborating with strategic partners where appropriate. Secure more long-term client relationships and contracts with a greater emphasis on recurring revenue. Offering of nearshore capability to limit the impact on Kin + Carta's margin and an ongoing review of Kin + Carta's cost base. Increase our global footprint, which will give us the flexibility to take advantage of favourable local economic climate.

Trend: Increase

2.            Growth

Description Growth is core to Kin + Carta's long-term strategy. This includes organic growth driven by strategic initiatives and inorganic growth driven by acquisitions. Growth channels may be underinvested or not pursued in the right locations or sectors with the right service offering and may therefore fail to deliver growth. Failure to monitor competition sufficiently to meet competitive threats and take advantage of opportunities. Failure to offer value propositions to our clients in line with the industry trends. This includes the choice for onshore/nearshore offering.

Mitigating activities Monitoring three distinct but complementary Growth channels, which focus on: a.    Existing Enterprise Client Base b.    New Business channel c.     Partnerships channel These channels are underpinned by four growth levers; Services, Partners, Sectors and Territories (see page 24 for further information on our growth model). Investment in our people, bringing new service lines to market and targeting new locations. Linking growth targets to incentives for the majority of our people within the business. Expanding into new geographic markets through the acquisition of businesses with similar ethos to Kin + Carta and continuing to integrate the newly acquired businesses to realise new opportunities and synergies. Focus on a robust blend of onshore/nearshore offering to provide competitive offering to our clients.

Trend: Increase

3.            Scalability

Description Achieving scalability is important in order to pursue a high-growth strategy in a profitable and sustainable way. While included as a risk, achieving greater scalability is also an opportunity for the business. Scale requires investment in sales, systems and tools, people and operations. This adds cost and complexity in the near term, which is expected to earn a payback with growth. Digital transformation businesses may not have sufficient scale within their sectors to secure substantial customer contracts. Without sufficient scale, our businesses may find it more challenging to secure larger client contracts.

Mitigating activities Investing in digitising and upgrading our systems and processes under the Operations Platform to achieve efficiencies and drive best practices and thus a scalable offering. Continued investment in our Service and Expansion Platforms, acquisition of high-growth digital transformation businesses and greater focus on securing longer-term contracts and revenue from partner-aligned managed services.

Trend: Increase

4.            Operational resilience

Description Services may not meet clients expectations with new technological advances or an unplanned event can impact our ability to deliver services to the client. Kin + Carta may not be able to stay ahead of the technological advances in its three core domains: technology, data and experience. By providing new innovation solutions to our clients, there is a risk of failure to deliver and embed new capabilities with the business. Failure to deliver services securely with evolving technological advances. Failure to achieve optimum utilisation.

Mitigating activities Focus on a highly relevant suite of digital transformation service lines to complement the talent of our People. The Chief Strategy Officer, along with leaders of the Services Platform, are focused on continuous evolution of our service lines. The Regional Service Line and Practice Leaders in the Americas and Europe regions are senior experts in their areas and they continue to enhance Kin + Carta's delivery framework with new tools and technology. Acquisitions can complement or expand Kin + Carta's service offerings. Focus on our three key areas of technology, data and experience. Providing new innovative solutions in support of our clients' evolving technology needs. Also we continue to work with clients to understand their future requirements and viability of the new technology to ensure we are investing in relevant future capabilities. Continue to monitor unutilised staff percentage to ensure it is proportional to revenue pipeline.

Trend: No change

5.            Client concentration

Description Kin + Carta holds relationships with a number of key clients and is a strategic partner to these clients. Should Kin + Carta lose several of its top ten clients in a short time period, this could have a significant impact on its revenue, profits and people. The top 20 clients represented 73% of Kin + Carta's net revenue.

Mitigating activities Our largest clients have multiple, bespoke services and solutions being delivered to different client stakeholders, and usually with different budgets. We encourage our clients to think strategically about their future direction and differentiation and how, together, we can make the world work better for their customers. This approach also distinguishes Kin + Carta's offering from its competitors. These services also typically have various statements of work associated with them with varying lengths of time and completion dates. We strive to achieve or exceed service level agreements with clients. There is continuous effort by our leaders in the Growth Platform to diversify the range of clients across its key operating territories and sectors. Devising acquisition strategy that targets business with a strong addressable client base and with cross-selling opportunities. Continuous monitoring of Client KPIs such as Net Revenue predictability, top clients' spend and client longevity.

Trend: No change

6.            Laws and regulations

Description Kin + Carta's growth strategy includes geographic expansion of operations in new territories in Latin America and Europe. As a result, Kin + Carta is subject to a range of local and international laws and regulations. Also, introducing new service lines, entering into new sectors as well as retaining/recertifying B Corp certification requires Kin + Carta to adhere to additional regulations. Failure to comply with or promptly respond to the applicable laws and regulations and contractual obligations could lead to fines, penalties, restriction in trading activities and would cause reputational and financial damage to Kin + Carta. Failure to comply with local labour laws would impact our reputation in the local labour market.

Mitigating activities Kin + Carta maintains in-house Data Protection, Finance, Corporate Governance, Information Security and Legal functions who are subject matter experts and help define policies and processes in order to maintain governance and compliance standards across Kin + Carta. External consultants are also used to advise on local legal and regulatory requirements. Our global policies, as set out in the responsible business section (see pages 58 to 63), provide guidance to our People on our "Positive Impact Approach" to behave ethically, strive to comply with applicable local and international laws and regulations. We continue to develop frameworks when entering into new sector and services as well as when moving into a new geographic area working with external consultants when required.

Trend: No change

7.            Our people

Description Attracting and retaining talent is a key priority for Kin + Carta as it continues to expand and invest in new and innovative service lines and fulfil client demand. Failure to attract and retain people due to the highly competitive environment for top talent in local markets would impact the ability of the business to deliver the services sought by our clients and support the growth of the business.

Mitigating activities Strong emphasis on culture and responsibility, which is part of our strategic priorities where initiatives are focused on supporting a diverse, inclusive and responsible business, with an exceptional employee experience. Continued focus on enhancing employee experience in all relevant areas of our EVP framework (as detailed on page 64). Succession planning for senior management. Launching a new global HRIS (Human Resources Information System) providing us with a single system for numerous activities, giving more power to our people and uniting our processes. Tracking of eNPS scores and continued efforts on becoming recognised as a "best place to work". Launching wellbeing support programs. Integrating our Kin from newly acquired businesses onto common platforms and cohort communities to help them feel supported and part of Kin + Carta.

Trend: Decrease

8.            Being a responsible business

Description Risk of misalignment of expectations in respect of our culture, values, our stakeholders could result in lost business opportunities, adverse effect on our share price and failure to attract and retain the necessary talent. This could also compromise the ability to successfully recertify as a B Corp business.

Mitigating activities Alignment throughout the business to demonstrate that Kin + Carta's purpose is to build a world that works better for everyone. People and Responsibility Platforms that span across Kin + Carta, covering employee experience, B Corp and IDEA initiatives, which are embedded into Kin + Carta's culture through grass roots participation across the business. Where possible, we seek to contribute to the client's ESG strategy within the scope of their project. In such cases we work together with our client to identify and deliver positive impact projects, which takes into account a number of environmental, societal and reputational and remit variables. Monitoring of the Responsible Business KPIs that are set out in the "A responsible business" section (pages 52 to 55).

Trend: Increase

9.            Data protection

Description Regulatory changes: The continued change in privacy laws across the globe with standards being uplifted directly through new legislation e.g., Argentina, Colorado, Delaware etc. or updates to existing legislation e.g. the Data Protection and Digital Information 2 bill in the UK provide a slow but constantly moving environment for the business to undertake its activities. The threat of non-compliance or breaches are raised as Kin + Carta has long-term engagements and as its geographical scope widens. Increasing complex digital business environments: The increasing number of tools and systems that can provide specific processes during the lifecycle of data within a digital business environment can present increased challenges to the research, monitoring and auditing of an increasing number of processors or service providers. Emerging technologies: The rapid adoption of Generative AI ("GenAI") has presented challenges across the market, with its inclusion in many tools and services along with best practices being built alongside the adoption of and use of this technology the risk levels of this fast moving and increasing widely adopted technology presents a risk to many organisations including Kin + Carta. Data: The loss or theft of critical and sensitive data such as personally identifiable information could have a significant impact from a reputational, contractual, regulatory and financial standpoint. This combined with the changing in working practices and behaviour has significantly increased the risk profile of our business.

Mitigating activities The Data Protection Officer is responsible for Group-wide compliance with data protection legislation, and putting in place guidance, training and processes. Our data protection framework is closely linked to our Connective Digital Services ("CDS") and Services Platforms with continuous efforts to ensure the data we process remains secure and confidential. The framework is reviewed on an on-going basis to ensure Kin + Carta has robust processes to adhere to local regulations. Growth of team to ensure more trained individuals are available to review and protect the business. Increased legal support both internally and externally to assist with the assessment of new and changing regulation and activities. Onboarding training for new hires and employee training reinforces awareness and proper processes are followed.

Trend: No change

10.          Information, cyber security and systems

Description The inability to identify the diverse asset portfolio utilised by Kin + Carta and thus contextually control access to critical data and platforms based upon stakeholder persona and requirements, device ownership and device security health is the most significant threat to our business. Failure to adequately secure and control access to third-party devices used by our Kin as Kin + Carta scales globally could lead to breach of stakeholder contractual agreements, in violation of data sovereignty, possible theft of our intellectual property resulting in reputational and financial damage. Furthermore the limitations of access and device control, especially as a digital transformation business, increasingly exposes Kin + Carta to the impact of hacking and ransomware. Visibility of tracking activities in respect of data handling and system usage on our, or third-party platforms, as well as to adequately protect, prevent and respond to a cyber threat or unauthorised access to our systems and devices is paramount to our business. Failure to actively manage and respond to these activities in a timely manner would expose Kin + Carta to non-compliance with the applicable local data protection laws, reputational damage, fines, compensation or damages, disruption to the business and/or the loss of information for our clients and our people. Kin + Carta relies on multiple third-party platforms to communicate and deliver the services to our clients. A disruption to the availability of multiple services at a point in time could have a significant impact on Kin + Carta's finances and reputation. Evolving cyber threat landscape continues to generate vulnerability to all businesses globally with additional threats to regions directly or indirectly affected by geopolitical events.

Mitigating activities The CDS team is responsible for actively identifying risks, designing internal controls and implementing change across all parts of the Company. CDS has been focused upon maturing policy and people. These controls are effective for managing current known risks. For evolving risks and stakeholder requirements Kin + Carta continue to assess and invest in digital platforms to modernise and strengthen the IT infrastructure and to generate further return on investment such as multi-factor authentication and single sign-on solutions. The evolution of our digital ecosystem incorporates a degree of platform diversity to provide availability of data and communication tools thereby reducing reliance and impact from a single vendor or system. Accompanied with an independent cloud backup for our core platforms, the additional focus to utilise our client environments reduces impact to project timelines due to unforeseen outages.

Trend: No change

11.          Financing

Description Kin + Carta's ability to trade may be compromised by a lack of cash funds. Ability to finance working capital and carry out operations is fundamental to the business. Ability to fund the remaining contingent consideration in respect of recent acquisitions. Inadequate financing to appropriately fund selective  acquisitions or reinvest in Growth, Services, Operations, People and Responsibility Platforms.

Mitigating activities Kin + Carta secured an extension of the Revolving Credit Facility of £85 million until September 2026. As at 31 July 2023 the unused portion of this facility was £65 million. Should there be strain on Kin + Carta's liquidity, there are cost management programmes in place to limit the impact. The leadership team prioritises areas of investment that aligns with our strategic priorities set by the Board. The management undertakes the following activities to monitor the liquidity of the business: ●      Reviews to assess the headroom on liquidity and banking covenants for potential acquisition targets. ●      Conduct half-yearly "going concern" reviews and longer-term viability assessments. ●      Ongoing monitoring of Kin + Carta's performance against its banking covenants with a target of Net Debt/EBITDA ratio below 2.0x. ●      Monthly reviews of forecasts, working capital, cash forecasts and headroom on banking covenants. ●      Periodically review Kin + Carta's financial KPIs with its bankers. ●      Conduct half-yearly "going concern" reviews and longer-term viability assessments.

Trend: No change

12.          Legacy Defined Benefit Pension Scheme

Description The Scheme surplus/deficit is impacted by changes in Scheme asset values, and by changes in other key financial assumptions most significantly the expected inflation rate and the discount rate derived from UK Government gilt yields, as well as changes in demographic assumptions, such as expected mortality, rates of pension commutation and transfers of members out of the Scheme. The 2022 triennial technical valuation showed a surplus of £5.8 million as at 5 April 2022. A return to a deficit could lead to a resumption of the need for deficit repair in cash contributions by the Company to the Scheme. The Scheme deploys a liability driven investment strategy, which includes the use of derivative instruments linked to UK interest rates. Continued high volatility in the market for UK public debt securities could cause liquidity constraints, as the Scheme meets counterparty demands for collateral and margin calls on related interest rate derivative instruments, which could lead to reductions in the levels of hedging practically achieved. The strength of the sponsoring employer's covenant in relation to the Scheme could be adversely impacted by the shortfall of the consolidated net assets of the Group (£63.7 million excluding the pension accounting surplus at 31 July 2023) versus the Scheme's solvency deficit, a measure of the deficit in an insolvency scenario (approximately £53 million at 5 October 2023).

Mitigating activities The Scheme was in a technical surplus at 5 April 2022 and now fully hedged against interest and inflation risks. Following the move into a technical surplus, the Company has agreed with the Trustees to increase the proportion of scheme assets invested in instruments that match the variation in the value of the Scheme liabilities or which match expected cash flows, from 60% to 70% in order to reduce scheme asset volatility. Although the Scheme was in surplus as at 5 April 2022, the Company agreed to pay a further £3 million of voluntary contributions after that date, in order to accelerate the point at which the Scheme reaches a state of low dependency on the Company. The solvency deficit has further reduced, standing at approximately £53 million at 5 October 2023 (£117 million at 5 April 2022). This is also an estimate of the cost of scheme "buy out", a full transfer of the Company's obligations to an insurer. The Scheme is fully hedged against interest and inflation risks. Also a significant proportion of its assets are invested in matching assets in order to manage investment risk. Regular engagement with the Trustee Directors in discussions on Kin + Carta's performance. Work with an external advisor and follow regulatory compliance.

Trend: No change

 

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