About Kin + Carta

Kin + Carta is a London Stock Exchange-listed global digital transformation consultancy committed to working alongside clients to build a world that works better for everyone.

Kin + Carta's c1,600 strategists, engineers, and creatives around the world bring the connective power of technology, data, and experience to the world's most influential companies - helping them to accelerate their digital roadmap, rapidly innovate, modernise their systems, enable their teams, and optimise for continued growth. Headquartered in London and Chicago with offices across three continents, the border-less model of service allows for the best minds to be connected to collaborate on client challenges.

With purpose at its core, Kin + Carta is a Certified B Corporation in the United States and Europe, meeting the highest standards of verified social and environmental performance, public transparency, and accountability to balance the triple bottom line of people, planet, and profit.

For more information, please visit https://www.kinandcarta.com.

Chief Executive's Review

CEO's Review - Annual Report FY21

Transformation into a scaling, pure-play DX business

The work of focussing the Company on the DX market has been completed and our growth has accelerated.

This year has highlighted the gap between businesses with the technical agility to pivot at the pace of evolving consumer demand and those who failed to modernise ahead of the COVID-induced volatility. As a result, there is now accelerated investment in digital transformation (DX) services and a market that was growing at 18% per annum is now projected to grow at a CAGR of more than 20% over the next five years. The World Economic Forum predicts cloud-based digital transformation to be a US$100 trillion business in the next ten years.

At the same time, the nature of the DX market is changing with a clear shift from technology-led to outcome-led transformation. DX 2.0 has arrived. There is now a need for greater agility and faster speed-to-value, with a sharper focus on demonstrable return on investment. DX 2.0 demands a radical redesign of our client's businesses, and Kin + Carta is well placed to both serve these evolving needs and capitalise on increased demand within the DX market.

The seeds of our own transformative change were sown ahead of the pandemic. Today, Kin + Carta is a digitally native consultancy operating at the intersection of technology, data and experience to drive what we call 'connected outcomes' for our clients, typically in the areas of Innovation, Modernisation, Enablement and Optimisation. The ability to connect these domains and outcomes, progressively scaled on our integrated global platforms, is how we are driving value.

While the first half of FY21, particularly the first quarter, was challenging, our agility, the breadth of our offering and unwavering focus on supporting our clients and partners produced a quarter-by-quarter sequential return to growth in the rest of the year, which has continued into FY22.

This could not have been achieved without our continuing ability to attract and develop some of the world's top digital talent as a responsible business with a commitment to continued investment in learning and career development. Our Kin have risen to the challenges faced in the last 12-18 months and I would like to thank them on behalf of the whole leadership team for their special efforts during this time.

The new frontiers of growth

Significant progress has been achieved in the delivery of organic growth through our four growth levers of Capability, Partnerships Channel, Territory and Sector.

In terms of Capability, we have evolved our global operating model to facilitate scale with a highly relevant suite of DX Service Lines across the areas of Cloud + Platforms, Data + AI, Products + Services, Strategy + Innovation, and Managed Services. These Service Lines are delivered by specialist Practices within which our Kin learn and grow their crafts.

This model facilitates seamless global scale, more borderless resourcing, and easier onboarding for future acquisitions. It also creates clear career paths for our Kin while fostering frictionless innovation. Crucially, it allows us to better target prospective clients with tailored propositions and specialist leadership. 

The continued maturity of our Partnerships Channel saw attributed new business revenue increase from £7 million to £21 million within the year. Our cloud partners Google and Microsoft were a key focus, accelerated by activating the most progressive Product Partners that sit within their ecosystems (Optimizely, commercetools, Confluent). Material gains were also made in the MACH (microservices, API-led, headless and cloud-native) sector, notably with Contentful and Contentstack, giving our clients high flexibility, improved speed-to-market, and lower total cost of ownership over the lifecycle of the technology.

The Territories that Kin + Carta serve continue to expand. In the Americas region, we invested in the Northwest through the Cascade Data Labs, LLC ("Cascade Data Labs") acquisition in Portland, and initiated new South American nearshore delivery capabilities in Colombia and Peru to complement our established Buenos Aires production base. Europe grew beyond our UK base to include a Northern European growth-hub in Amsterdam and a delivery centre in Athens.

Our industry Sector focus matured our positions in Financial Services, Consumer, B2B, Transportation and Healthcare, while developing emerging specialisms in Energy and the Public Sector. Investment in Public Sector leadership has led to wins worth £9 million and built a significant pipeline for the year ahead.

Acquisitions and disposals

It has been a busy year that included an acquisition, the continued integration of Spire from FY20 and several non-core disposals as we optimised the business mix towards pure-play DX. Further acquisitions are important drivers to Kin + Carta's growth.

The acquisition of Cascade Data Labs in Portland, Oregon, USA, and its successful integration in the first half of the year, illustrates the value potential in our acquisition pipeline. Cascade Data Labs brought exceptional relationships with a blue-chip client base, including Adidas, Hewlett-Packard and Starbucks, providing the catalyst to launch Kin + Carta Data Labs in the Americas and Europe, thus deepening our capabilities to capitalise on the highly relevant and fast growing data domain.

We will continue to pursue geographic and capability expansion in the year ahead, notably commercial hubs that expand territorial reach in the US, and nearshore delivery centres in Europe and South America.

Last year I told you that we would continue to review our Ventures businesses as we increase focus on pure-play DX. Following the recommendations of this review, we proceeded with the divestment of the non-strategic businesses Pragma and Hive within the fiscal year, and Incite post-year end. These divestments in total have generated proceeds of £27.2 million net of costs and adjustments for debt and working capital , providing balance sheet flexibility and additional acquisition capability.

Regions

Americas

The Americas region represented 60% of net revenue in FY21, with a 23% increase of £15.8 million within the period.

This growth was supported by continued investment in headcount, reaching 900 employees at the end of FY21, an increase of 58% over the year. Accelerated nationwide recruitment in the US and expanded hiring in South America allows us to employ the best digital talent, regardless of location. We will continue investment in hiring, training and retaining digital talent to scale in-line with demand and fuel growth in FY22.

Successful organic and cross-selling growth has generated 20 clients with more than US$1 million in net revenue in the year. Significant wins include data modernisation for Gordon Food Services, product development for Uplight, and e-commerce with US Foods. Our focus is on leveraging partnership relationships to expand new accounts and new wins into long-term partnerships. 

The Healthcare sector continues to represent a significant market opportunity as we win large clients like Blue Cross Blue Shield Kansas City and Healthfirst, in addition to well-funded startups and ventures like Redesign Health. Our partner strategy is resulting in notable growth opportunities from Google Cloud.

Following the successful acquisition and integration of Cascade Data Labs and increased nearshore production capacity in Colombia and Peru, the Americas region has deployed Kin + Carta's global operating model across an expanding set of territories: Central (Chicago), East (New York), West (Denver and Portland), and Latin America (Buenos Aires, Lima, Bogotá).

Further territorial expansion is planned for FY22. The southern part of the US, specifically the South East and South Central, represents a targeted market for growth and expansion, as does Canada to the North. In Latin America, our expansion strategy is focussed on accessing talent as part of our nearshore delivery expansion.

Europe

The European region represented 31% of net revenue in FY21. Although Europe grew just 1% for the full year, net revenue grew 28% in H2 compared to H1 with a sharp recovery late in the year.

In line with the evolution from Pillars to Regions, this year has seen the establishment of a European regional business from the existing UK DX businesses in order to accelerate profitable growth. Our primary footprint is in the UK, where we have over 450 people in London, Manchester, Liverpool and Edinburgh. We have a growth hub in Northern Europe (Amsterdam) and have, this year, initiated a delivery hub in South-East Europe (Athens).

Following the appointment of a strong European leadership team, the first step was to integrate the regional demand team, bringing together 40 people across lead generation, marketing, partnerships and sales to ensure we could take our full range of service offerings to all clients. As a result, we achieved notable wins with the UK Government Home Office, Santander, and Dunnhumby.

Targeted hiring has added depth to our leadership experience in high-value sectors. Financial Services remains an area of strength with depth and longevity in our client base. Expansion into Healthcare, recognising the growth potential in the sector and clear alignment to our purpose, has driven a number of key wins with well-funded healthtech companies Kooth, Cera Care and Current Health, while every time the NHS opens a new COVID testing centre, it is using software built by Kin + Carta. Investment has been made in Public Sector industry leadership to accelerate our momentum, and progress is encouraging. £9 million of Public Sector deals have been won, and a growing pipeline of opportunities gives us cause for optimism in this space.

We benefit from both a stable and diverse European client portfolio. Some 75% of our revenue comes from existing clients who average five years of tenure, and we are focused on growing these long-term established relationships, as we have with Toyota Lexus through enhanced digital customer experience. We are also able to partner with technology start-ups as they scale, like unicorns Cazoo and Current Health. Our top ten European clients represent 50% of our revenue in the region and this diversity provides a substantial foundation for growth.

Although Europe took longer to recover due to macro-economic differences than our US business, growth accelerated sharply in Q4. Public sector momentum, growing managed services capabilities, record pipeline and strengthened leadership leave the business well positioned and executing on profitable growth.

Scaling with purpose

During the year, we retained focus on our Strategic Plan, which included the following milestones and investments:

●     The development and launch of Connected Commerce, a partner-integrated e-commerce accelerator for the B2B sector, combining Google Cloud, commercetools and Contentstack. It is our belief that Connected Commerce will be an area of significant growth in the year ahead.

●     The initiation of an M&A-focused Expansion Platform to acquire and integrate acquisitions, including the development of an integration playbook to bring the Carta platforms efficiently and swiftly to acquired organisations.

●     The launch and activation of the global IDEA strategy, championing inclusion, diversity and equity in all areas of the business.

●     B Corp certification achieved for Kin + Carta Americas (excluding Spire, Cascade Data Labs and Ventures) in H1, and Kin + Carta Europe (excluding Ventures and head office) in October 2021. Kin and Carta plc group certification on track to complete in calendar year 2021.

●     The launch of the Kin + Carta Employee Value Proposition ("EVP") achieving ten employer awards including Consulting Magazine's 'Best large companies to work for' and Fast Company's 'Best workplaces for innovators'.

In the year ahead, we will bring a focus to the following strategic initiatives:
 

●    The launch and global activation of a partner-aligned managed services Service Line, bringing recurring revenue and a valuable bridge to further production opportunities.

●    The continued application and maturity of Kin + Carta's integrated operating model in all regions and territories to drive our organic growth strategy while enabling borderless opportunities for our Kin.

●     The measurement of inclusivity, accessibility and sustainability in all Service Lines, ensuring responsible client work is delivered through sustainable methods.

●    The establishment of the Kin + Carta Accelerator as a learning and development platform for our existing Kin, and an entry point into our organisation for diverse junior talent.

●    The increased digital maturity of our global Operations Platform to increase business insight, drive operational efficiency, and act as a critical enabler in the integration of future acquisitions.

●    Further to that, we have committed increased investment and leadership to our M&A-focused Expansion Platform for the identification, acquisition and integration of key strategic targets.

Business for good

We exist to build a world that works better for everyone. This is our "Why": the promise that guides our unified determination that Kin + Carta is a force for good, coupled with recognition of our role as architects of tomorrow's inclusive technology.

We choose to be a responsible business that actively champions inclusion, accessibility and sustainability, and we have chosen to hold ourselves accountable and to provide transparency through the B Corp social responsibility framework and its independent certification process.

As well as being right for society, standing as a socially responsible business is proving to be both an important attraction and retention differentiator in a supply-restrained labour market. It is also increasingly proving an important qualification criteria for prospective clients. Our staff and our clients are looking to see their values reflected in the behaviours of our business.

Last year, I told you that we were focusing on two areas: progressing with B Corp certification across our regions, and developing a new strategic plan for our Inclusion, Diversity, Equity and Awareness ("IDEA") programme.

As we enter FY22, we are proud to have achieved full B Corp certification in our Americas and Europe regions. Further to this, Kin + Carta shareholders have voted overwhelmingly in favour of amendments to the articles of association that enable us to achieve full B Corp certification for Kin and Carta plc, taking us one step closer to being the first listed business on the London Stock Exchange to become a certified B Corp. We expect to have achieved this milestone by our FY22 half-year results.

I am especially proud of the progress we have made since launching our IDEA strategy (kinandcarta.com/idea):

●     Pay equity is 95%+ across the Connective.

●     Gender pay gap has decreased across the Company from 17.5% to 14.2%.

●     Female representation is 40% in Latin America (8% increase), 39% in Europe (2.5% increase) and 38% in the US (22.6% increase).

●     Ethnic minority representation has increased 26.9% in the US.

●     LGBTQIA+ representation has increased 10% across the Company.

A responsible platform for growth

Growth takes many forms.

When our people learn and develop in diverse and inclusive environments, they grow. When strategic acquisitions bring new capabilities and experience, we grow. When the strength of our partnerships enrich client opportunities, our relationships grow. When we choose to be a responsible business, our communities grow.

This is sustainable growth today, and it is because of this, that our value grows.

We have growth aspirations to double organic FY21 net revenue and expand margins over the next four years, scaling the business globally through acquisition, partnerships, territorial expansion and new market-defining digital technology services.

J Schwan
Chief Executive Officer
26 October 2021

Financial Review 

Overview

FY21 was remarkably volatile due to the effects of the pandemic. It was a very difficult start to the year with declining net revenue and profitability amidst the global economic uncertainty caused by COVID-19. Despite the challenging circumstances, the Company maintained high levels of client service and partnership. As a result, by the end of H1, there were clear signs of recovery with improving demand in our pipeline and stabilising net revenue. By the middle of H2, net revenue growth and improved margins not only returned, but accelerated through our financial year end and into the new financial year. One of the clear implications highlighted by the pandemic is the critical nature of DX to the global enterprise market that we serve. We are increasingly well positioned to capture this opportunity for significant, profitable growth.

The Company's improving performance is not only about accelerating growth, but winning and nurturing larger client engagements that contribute to more durable and predictable revenue growth. In FY21, we had 30 client engagements with annual net revenue of more than £1 million compared to 19 in the prior year. Likewise, our client tenure is increasing as we provide more comprehensive offerings and outcomes. The average client tenure in both our Americas and Europe regions exceeds five years providing revenue predictability and durability. 

With the significant DX growth opportunity ahead, we continue to plan and invest for scale. This includes investments in sales capabilities, such as our partnership channels with Google, Microsoft and others. It also includes expanding our service offerings, opening up new locations and training and developing our people. Our internal investment also includes new IT systems and tools as we continue the journey of consolidating and digitising our own business operations. We are confident that the future performance of the Group will continue to benefit from these investments.

We divested non-core Ventures business(es) Pragma and Hive during the year for £12.6 million net proceeds, and Incite after the year-end for net proceeds of £14.6 million which, coupled with resilient operating cash flow, has taken the Company closer to a nil net bank debt position in September 2021. Two Ventures businesses remain and are in advanced stages of the divestment process, which will soon conclude our shift to being a pure-play DX business.

Putting the Company's capital to work effectively is critical to long-term value creation. We updated the Company's capital allocation framework earlier this year as follows:

• In the near term, given the scale of the DX opportunity in front of us, our priority is growth. The Company is therefore focused on reinvesting cash for both organic and inorganic growth, aligned with our strategic initiatives.
• Given the significant opportunity to grow the business, the Board has decided not to pay dividends for the foreseeable future.
• To undertake meaningful M&A, whilst maintaining a prudent level of financial gearing.
•  Excluding temporary M&A impacts, the normalised net debt/EBITDA ratio is expected to be in a range of approximately 0-2.0x, as the business continues to de-lever through growth and higher cash flows.

Our overriding priority is growth that delivers significant shareholder value through scale and return on capital, whilst remaining mindful of prudent pension support, de-levering and potential share repurchases or dividend payments.

Aligned with this growth strategy, we have a robust funnel of acquisition opportunities that includes:

• Bolt-ons that enhance existing or add new capabilities;
• Near-shore delivery centres that augment our US and Europe client base;
• North America regional expansion; and
• Larger, very selective transformative opportunities, which are fewer in number.

In addition to being accretive to earnings, our acquisition criteria include operational and cultural alignment with financial returns in excess of our cost of capital.

The Kin + Carta Expansion Platform, coupled with our relatively modest size, excellent client base, people and purpose-driven culture, B Corp status, agility and large ambition, is proving to be an attractive combination to potential acquisition candidates. We offer immediate scale to smaller companies, providing access to our Google and Microsoft partnerships, a global brand, an Operations Platform that comprises IT, legal, finance and HR support that are aligned with optimising the returns to Kin + Carta. The management teams joining are likewise motivated to maximise their earnout while also becoming part of the Kin + Carta leadership team for a new region or capability, with representation on the Company's global leadership team. Finally, a significant portion of the initial consideration and earnouts are made in shares, strongly aligning shared outcomes. The two recent acquisitions of Spire in Denver, Colorado and Cascade Data Labs in Portland, Oregon, have both been exceeding expectations and embody many of the dynamics described.

Excluding acquisitions, our ambition is to double net revenue from FY21 over the next four years. When coupled with carefully targeted M&A, we expect to achieve meaningful scale with double digit growth, improving operational efficiencies and margins with improved cash generation.

Financial Summary

Group net revenue from continuing operations of £141.4 million, including £3.0 million from Cascade Data Labs acquired in December 2020, is up 12.5% compared to FY20 and was driven by a strong H2 recovery from the pandemic. Organic net revenue at constant currency rates grew 11.3% year-on-year.

H1 net revenue was down 10% compared to H1 FY20 due to the pandemic, whilst H2 net revenue was up 42% sequentially compared to H1 as robust client demand for our digital offerings returned. Our Americas region recovered first and more quickly than Europe, but both closed the year with robust demand and accelerating growth.

Group statutory loss before tax from continuing operations was £4.3 million compared to a loss of £36.3 million in FY20. Adjusted profit before tax from continuing operations improved to £13.0 million compared to £8.1 million in FY20 due to the recovery and return to growth.

Likewise, we improved our net debt position excluding finance leases during the year from £31.6 million to £19.2 million. This includes the favourable impact of US Government loan forgiveness of £4.5 million, and currency movements of £2.2 million. Post year-end, we divested Incite for £18.0 million (£14.6 million of net proceeds after cost and adjustments for working capital and debt items), further strengthening the balance sheet.