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 to31 January 2021 |
6 months to31 January 2020(restated)* |
%change |
like- for- like
|
Net revenue (continuing operations) 2 |
£64.1m |
£71.6m |
(10%) |
(1 6)% |
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 |
Numis Securities Limited
|
Powerscourt
Elly Williamson / Jessica Hodgson
|
Peel Hunt LLP
|
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.
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 Officer
9 March 2021
|
|
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) |
*Resultshave 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).
|
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) |
| 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
| 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.
| 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
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.
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) |
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.
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 |
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 |
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.
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) |
Adjusting items from continuing operations disclosed on the face of the Consolidated Income Statement are as follows:
Continuing Operations | 6 months to | 6 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.
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.
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.
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 |
Adjusting Items |
Total |
Adjusted |
Adjusting Items |
Total |
Adjusted |
Adjusting Items |
Statutory |
Net 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) |
| 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 |
| 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 |
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 |
| 6 months to | 6 months to 31 January 2020 | Year to 31 July 2020 | |||
Continuing and discontinued operations | Earnings | Earnings | Earnings | Earning per share pence (Restatd) | Earnings | Earning per share |
Earnings/ (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.
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.
Reconciliation of cash generated from operations
|
| 6 months to £'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 |
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 | Financing | Forgiveness through | Other non-cash items | Exchange differences | 31 January |
US 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.
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.
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.
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.
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.
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.
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 |
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 £'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 £'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% | - |
Adjusted profit before tax: This measure is defined as the Group net profit or loss before tax less Adjusting Items.
| 6 month to £'000 | 6 months to £'000 | Year to31 July 2020 |
Total 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 £'000 | 6 months to £'000 | Year to 31 July 2020 |
Total 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 |
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 |
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.
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.
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.
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