Source - LSE Regulatory
RNS Number : 8363F
Kin and Carta PLC
24 March 2022
 

 

 

 

 

1 AUGUST 2021 TO 31 JANUARY 2022

 

 

 

 

 

24 March 2022

Kin and Carta plc
('Kin + Carta', the 'Group', or the 'Company')


Half Year Results
Strong organic growth continues, up 59% like-for-like

Divestments concluded early in H1, with capital redeployed into recent DX acquisitions

On track to meet recently raised guidance for the full year
 

Kin + Carta, the international digital transformation company, today announces interim results for the period from 1 August 2021 to 31 January 2022
 

Financial Highlights

●       Net revenue of £85.6 million from continuing operations*, 2, +63% YoY and +59% like-for-like

●       Net revenue growth accelerated in H1:

○    Americas net revenue grew 76% YoY to £58.5 million; H1 net revenue 13% higher than H2 FY21

○    Europe net revenue grew 41% YoY to £27.1 million; H1 net revenue 10% higher than H2 FY21

●       Record backlog8 of £106 million, with continuing strong demand

●       Adjusted profit before tax from continuing operations* of £5.0 million3 (H1 FY21: £0.6 million)

●       Total loss before tax from continuing operations* of £3.1 million (H1 FY21: loss of £8.1 million)

●       Adjusted operating cash inflow before working capital from continuing operations* of £9.1 million (H1 FY21: inflow of £3.0 million)

●       Net cash of £5.4 million (31 July 2021: net debt of £19.2 million)

●       Legacy pension scheme accounting surplus increased to £25.5 million (H1 FY21: £5.0 million) on strong asset performance and remains fully hedged against interest and inflation rate risk

 

Operational Highlights

●       Completed divestment of non-core Ventures businesses for net proceeds of £33 million

●       Three DX acquisitions for total estimated consideration of £20.8 million at completion and a further £9.5 million potential earnouts over a period of up to three years, expected to result in less than 0.5X adjusted net debt to EBITDA ratio in H2. These acquisitions will add annualised net revenue of c. £16 million when completed

●       New client wins including Wayfair, Wendy's, Canadian National, L'Atelier, plus continued growth in the UK public sector

●       Higher pricing, adding more junior talent (Kin Accelerator Programme) and additional margin-efficient nearshore delivery mitigating market salary inflation and macroeconomic cost pressures

●       Employee value proposition reimagined for hybrid working with an embedded commitment to social responsibility that is resonating in the talent market and keeping attrition below market rates

●       Achieved goal to be the first certified B Corporation on the London Stock Exchange

 

Outlook

Trading remains strong with robust demand and a record backlog entering H2. This underpins our recently raised guidance (10 February 2022) of 35-40% organic net revenue growth and adjusted operating margin of 10-11% for the financial year. 

Medium term guidance of 15%+ CAGR and incremental operating margin improvement is unchanged.

 

J Schwan, CEO, said:
"Momentum is continuing with strong organic revenue growth and a record £106 million backlog of orders, setting us up for an even better second half. The last of our non-core legacy businesses were successfully divested, and our acquisition programme has accelerated with three pure-play DX acquisitions that bring new capabilities and enhance pricing power. We are countering industry-wide wage inflation through the growth of our own junior talent and the expansion of nearshore delivery, while retaining staff with an embedded commitment to social responsibility and the career development of our people. Continued strong demand and growing spend from our larger clients gives us confidence in meeting recently raised guidance for the year."

 

 

 

 

 
6 months to
 31 January 2022
 
6  months to
31  January 2021
(restated)*
%
change
like- for- like
growth
1

Net revenue (continuing operations*) 2

£85.6m
£52.5m
63%
59.3%

Adjusted profit before tax (continuing operations*) 3

£5.0m
£0.6m
682%
 

Adjusted basic earnings per share (continuing operations*) 4

2.30p
0.25p
821%
 

Total profit before tax (continuing and discontinued operations*) 5

£23.2m
£0.0m
 
 

Total basic earnings per share (continuing and discontinued*) 6

12.50p
0.63p
 
 

Interim dividend

Nil
                    Nil
 
 

 

 

 

 

 

Net cash /(debt)7

£5.4m

 (£22.6m)

-      

-

*  Results for the 6 months ended 31 January 2021  have been restated to reflect continuing operations only.  Continuing operations exclude the results of the divestments of Incite Marketing Planning Limited,  Incite New York LLC,  Edit Agency Limited, Relish Agency Limited, 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 excluding adjusting items. Adjusted results exclude adjusting items to enhance understanding of the ongoing financial performance of the Group. Adjusting items comprise acquisition costs, amortisation of acquired intangibles, restructuring costs, gain or loss on disposal of subsidiaries, contingent consideration required to be treated as remuneration, and interest income and costs related to the Company's Defined Benefit 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   Cash and cash equivalents less bank loans payable and US government loans payable under the Paycheck Protection Program,

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.


 

 

 

 

 

 

For further information, please contact:
 

Kin and Carta plc

J Schwan, Chief Executive Officer

Chris Kutsor, Chief Financial Officer
+44 (0)20 7928 8844

Numis Securities Limited
Nick Westlake / Matt Lewis
+44 (0)207 260 1345

 

Powerscourt

Robin O'Kelly / Jane Glover

+44 (0) 7713 246126

 

Peel Hunt LLP
Edward Knight / John Welch
+44 (0) 20 7418 8900

 

 

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 1,700 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 became the first publicly traded business on the London Stock Exchange to achieve B Corp certification as a PLC. It meets 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

Momentum Accelerating

 

INTRODUCTION

 

I am pleased to report that Kin + Carta has performed well in our first half of fiscal 2022 and we look forward to a strong second half. We are carefully monitoring the implications of the war in Ukraine. We have no clients or employees in Ukraine, Russia or Belarus, so we see no near term impact. Nonetheless, we are mindful that the macroeconomic effects are still unfolding.

 

Within this period, we grew across all regions, all Service Lines, and in our larger accounts including Discover Financial Services, Corteva, Tesco and Santander. In addition, there were exciting new wins in both our Americas and Europe regions that included Wayfair, Wendy's, Canadian National, L'Atelier, plus continued growth in the UK public sector. We are achieving higher pricing while also hiring highly skilled, but more junior talent to help mitigate macroeconomic inflationary pressure. The acquisition of Melon Group further strengthens our nearshoring capacity with high calibre, lower cost talent adding leverage to our margins.

 

We remain confident in achieving our recently raised full-year guidance, underpinned by strong demand in both regions driving our largest ever backlog of committed work valued at £106 million. In line with our strategy, our revenue footprint in the US continues to increase (now 68% of total), strengthening our position in the largest digital transformation market in the world.

 

Having successfully divested our non-core businesses, we are now operating as a pure play DX business and executing on both our organic growth ambitions and our acquisition expansion plans.

 

OPERATIONAL HIGHLIGHTS

 

We are seeing increases in demand across the Company in all regions and across our key service lines of Cloud Modernization, Products and Experiences, and Data and AI. The effects of the pandemic coupled with more recent geo-political uncertainty is driving a realisation that sustainable digital transformation, and the long-term scale and efficiencies that it enables, is a business necessity.

 

This increase in demand has led to workforce expansion, with associated investments in talent hiring and employee experience to attract and retain the best digital talent in the industry. Our employment initiatives have reduced our attrition rates below the benchmarks of the markets in which we operate. There are three notable attraction and retention drivers:

 

●     Social Responsibility: Kin + Carta is the first certified B Corporation trading on the London Stock Exchange and the only certified consulting firm in the world. We are a purpose-led business with recognition at the Diversity in Tech Awards, European Diversity Awards, and Best Place to Work for LGBTQ Equality during this period.

●     Employee Value Proposition (EVP): We have reimagined employee experience for hybrid working and are achieving Best Place to Work recognition across our regions and territories.

●     Career Progression: We are investors in talent. Our operating model ensures continuous learning and development for enhanced career paths.

 

In parallel, tech sector salary inflation has required considerable mitigation. We have countered these market cost pressures through:

 

●     Pricing: Rate increases averaging more than 5% have been applied to 75% of our revenue base. New client business rates are well above legacy rates, in some cases higher by double digits YoY.

●     Homegrown Talent: Hiring, training and deploying diverse junior analysts through several Americas Kin Accelerator Programme (KAP) cohorts accounting for 5% of the total Americas workforce, and launching KAP in Europe.

●     Nearshore Delivery: Continued investment of margin-efficient nearshore capabilities to more client projects across South America and Southern Europe, as shown with the pending Melon Group acquisition.

 

Execution of our M&A strategy remains a key focus. Investment in the Kin + Carta Expansion Platform has accelerated progress and further grown the pipeline of future acquisition opportunities, targeting US reach, global DX capability expansion, and greater South American nearshore delivery scale. The agreement to acquire Melon Group and their operations in Bulgaria, North Macedonia and Kosovo, allows us to combine existing operations in Greece into a new Southern Europe Territory reporting to European Regional leadership. The acquisition of Loop further unlocks the fast-growing eCommerce sector, and responsible artificial intelligence (AI) data platform Octain deepens Kin + Carta Data Labs' intelligent data and analytics capabilities.

 

FINANCIAL PERFORMANCE

 

Group net revenue from continuing operations of £85.6 million was up 63% on the comparable period driven by continued strong demand in both regions. Organic net revenue at constant currency rates was up 59%. Net revenue from continuing operations in H1 grew 12% over H2 FY21 and is expected to accelerate in the second half of FY22. We recently raised organic net revenue growth expectations for the year to 35-40% which will be further augmented by recent acquisitions.

 

Those acquisitions include Octain, which was completed in December 2021. Subsequent to the half year period, the acquisition of the remaining 50% of Loop was completed in February, and we announced the intent to acquire Melon Group, with completion anticipated in H2, pending regulatory approval. For all three acquisitions, total consideration is £20.8 million at completion with the potential for an additional £9.5 million to be paid over the next three years contingent upon achieving revenue or EBITDA growth targets.

●     Through Octain, we have acquired the intellectual property of an ethical, machine learning data platform that provides custom artificial intelligence models for our clients.

●     Loop is a Chicago-based full-stack eCommerce consultancy that generated net revenue of US$9.3m and US$1.8m of adjusted operating profit for the year ended 31 December 2021.

●     Melon Group provides margin-efficient nearshore software engineering in Bulgaria, North Macedonia and Kosovo with c. 300 engineers which has been growing net revenue at 20%+ in recent years.  Melon Group generated revenues of €9.0m and operating profit of €2.2m for the year ended 31 December 2021.

 

The incremental operating profit impact to Kin + Carta of Loop post-acquisition will be the remaining half of Loop's total results, as we previously recorded 50% of Loop's profits on a single line under adjusted other income using the equity accounting method. This meant that none of Loop's net revenue was previously recorded in the consolidated group revenue because of the equity accounting treatment. Post-completion, 100% of Loop's results will be consolidated on a line-by-line basis, but the incremental impact on earnings and profit will only be 50 per cent of its total profit. 

 

We delivered strong revenue growth across both regions. Americas Region H1 net revenue grew 76% year on year to £58.5 million, with H1 net revenue 13% higher than H2 FY21. The Americas Region now accounts for 68% of the total H1 net revenue. Europe's H1 net revenue grew 41% year on year to £27.1 million, with H1 net revenue 10% higher than H2 FY21. The Europe Region now accounts for 32% of the total H1 net revenue.

 

Adjusted operating margin of 7.0% for the period was as expected, and includes seasonal headwinds of significant holiday months August and December landing in our first half of our financial year. Adjusted operating profit also includes £1.7 million of share-based compensation expense compared to £1.0m million in the prior period. Share-based compensation is higher due to expansion of the eligible employee pool to align with global technology benchmarks, and ultimately improve employee attraction and retention. We expect strong double-digit H2 organic net revenue growth to deliver a full year adjusted operating margin in line with expectations of 10-11%.

 

Adjusted profit before tax from continuing operations was £5.0 million (H1 FY21: £0.6 million). Compared to H1 FY21, the higher adjusted profit is primarily due to increased revenue and associated gross margin as well as the effects of income and expenses associated with government assistance programmes and lower interest costs on lower levels of net debt.

 

Compared to H1 FY21, adjusted profit before tax shows an improvement before and after removing the effects of income and expenses associated with government assistance programmes in the prior year period as summarised below.

 

(£ millions)

H1 FY22

H1 FY21

Continuing operations adjusted PBT as reported

5.0

0.6

US PPP forgiveness income

-

(0.8)

Project costs funded by government assistance program

-

3.0

Adjusted PBT excluding items above 

5.0

2.8

 

The total loss before tax from continuing operations in the period was £3.1 million (H1 FY21: loss of £8.1 million), which is stated after net adjusting cost items of £8.2 million (H1 FY21: £8.8 million). Adjusting items in the current period include £7.5 million related to acquisitions which is comprised of: £2.9 million related to the amortisation of acquired intangibles, £3.9 million of consideration required to be treated as remuneration for the Cascade Data Labs and Spire acquisitions and £0.7 million of acquisition related costs. Adjusting items also includes £0.9 million relating to the Company's legacy Defined Benefit Pension Scheme. Further details are provided within note 6 and the Alternative Performance Measures below.

 

Our balance sheet has further strengthened, with net assets increasing by £28.9 million since 31 July 2021. This was due to the net profit of £21.6 million as well as the increase in the legacy pension scheme surplus of £3.5 million, net of tax, and non-income movements in equity related to share-based transactions of £4.1 million. The cash inflow from operations before working capital of £7.4 million for H1 FY22 is up 61% on the comparable prior half year, due to the strong recovery in net revenue and EBITDA generation. The net working capital outflow of £10.3 million reflects working capital related to strong revenue growth versus the final quarter of the prior financial year. On a continuing operations basis, before the cash effect of adjusting items and working capital movements, we saw an operating cash inflow of £9.1 million which is an increase of £6.1 million on the comparable prior year period. Cash flows related to finance charges decreased with the reduction in net debt, and there was a tax-related net cash inflow in the period due a refund of £0.8 million UK overpayments in prior periods, offset by payments of £0.7 million in the US.

 

Investing cash inflow of £31.8 million includes the proceeds from the Incite, Edit and Relish divestments, net of capital expenditure of £1.2 million, and acquisition outflows of £0.2 million in the period related to Octain. Lease payments were in line with the comparable prior year period at £2.0 million. The resulting free cash inflow was used to pay down bank debt. As a result, we ended the half year with a net cash position of £5.4 million compared to a net debt position of £19.2 million at 31 July 2021.

 

The IAS19 pension accounting surplus increased at the half year to £25.5 million from £19.3 million at 31 July 2021 due to the strength of performance of scheme assets. 40% of the asset portfolio is currently allocated to growth assets of which less than half is allocated to equities, and the Scheme remains fully hedged against interest rate and inflation rate risk. The Scheme was also in a technical surplus of £3.9 million at 31 December 2021 on a roll forward basis, which applies the demographic assumptions used in the 2019 technical valuation. The difference between the two measures of the surplus relates principally to the assumption on improvements in future mortality, where the technical provisions incorporate an additional level of prudence. The trustees have commenced work on the 2022 technical valuation, which we anticipate will show a high level of funding on the statutory measure.

 

Our liquidity position remains very strong, with only modest claims on our operating cash flows beyond growth-related working capital investments, and substantial undrawn capacity on our credit facility of £85 million committed until November 2025. Taking into account the effect of the acquisitions completed or signed after the balance sheet date, and notwithstanding further acquisitions completing prior to 31 July 2022, our pro forma leverage ratio (net debt to adjusted EBITDA) will be less than 0.5X for the rest of the current financial year. We continue to have significant debt capacity which will be used in part to fund further acquisitions.

 

OUTLOOK

Trading remains strong with robust demand and a record backlog entering H2. This underpins our recently raised guidance (10th February 2022) of 35-40% organic net revenue growth and adjusted operating margin of 10-11% for the financial year. 

Medium term guidance of 15%+ CAGR and incremental operating margin improvement is unchanged.

 

J Schwan

 

Chief Executive Officer

 

24 March 2022

 

 

 

 

 

 

Alternative Performance Measures (APMs)

The half year results include both statutory and adjusted results. In the management's view, the adjusted results reflect the underlying 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, are used to measure the performance of our business and are the basis for remuneration.

 

The adjusted results exclude the items listed below as their inclusion could distort the understanding of the performance for the year and the comparison with prior years.

 

Key adjustments for adjusted operating profit, profit before tax and EPS

Adjusted operating profit is calculated by adding back costs relating to acquisition costs, amortisation of acquired intangibles; restructuring costs; gain or loss on disposal of subsidiaries contingent consideration required to be treated as remuneration; interest income and costs related to the Company's Defined Benefit Pension Scheme. The tax effects of these adjustments are reflected in the adjusted tax charge. The adjustments are detailed below:
 

1.     Amortisation of acquired intangibles and impairments - the amortisation and impairment of assets acquired through business combinations are excluded from adjusted results. These costs are acquisition related and are not part of the underlying trading performance of the business. The amortisation of computer software is included within the adjusted results as it is part of trading performance.
 

2.     Acquisition costs consist of contingent consideration required to be treated as remuneration, and increases in deferred consideration - our acquisitions, where deferred consideration arises, are structured such that the consideration is contingent on continued employment within the Group and the level of financial performance achieved post-completion. Under IFRS3 this is treated as an expense and, therefore, part of the statutory result. Where the purchase price has been determined and there is a subsequent increase or decrease arising from the payment of deferred consideration under IFRS3 this is required to be expensed. We do not consider either of these items to be part of the underlying trading performance.

 

3.     Administrative expenses related to St Ives Defined Benefit Pension Scheme - the Scheme was closed to new members in 2002 and ceased future accrual in 2008. There are now only two employees who are members of the Scheme and still employed by the Group. The costs of the Scheme including administration costs, past service costs related to Guaranteed Minimum Pension (GMP) and the pension finance income are not considered to be part of the ongoing performance of the Group and they are excluded from the performance measures. As such they are treated as adjusting items.

 

4.     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 the efficiency and collaboration across the Group. The initiatives reflect a significant change in the organisational structure of a business area and are assessed on an individual basis and excluded from the adjusted results.

 

The analysis of adjusting items from continuing operations is set out below:

 

 

6 months to

31 January

2022

£'000

6 months to

31 January

2021

£'000

Year to

31 July

2021

£'000

Amortisation of acquired intangibles

2,853

4,353

7,527

Expenses related to restructuring items

-

312

181

Contingent consideration required to be treated as remuneration

3,936

1,659

4,956

Acquisition costs

665

248

966

Expense related to St Ives Defined Benefits Pension Scheme

875

2,197

2,542

Total adjusting items added back to the total operating profit

8,329

8,769

16,172

Pension finance credit

(166)

(8)

(21)

Total adjusting items added back to the total profit before tax

8,163

8,761

16,151

Tax related to adjusting Items

(821)

(1,741)

(1,524)

Total adjusting items added back to the total profit after tax

7,342

7,020

14,627

 

 

The key APMs frequently used by the Group for continuing operations are:
 

Net revenue: The measure is defined as revenue less project-related costs as shown on the consolidated income statement. Project-related costs comprise primarily of third-party pass-through expenses and direct costs attributable to a project.

 

 

6 months to

31 January

2022

£'000

6 months to

31 January

2021

£'000

Year to

31 July

2021

£'000

Revenue (continuing operations)

89,256

55,808

137,321

Project-related costs

(3,699)

(3,263)

(8,402)

Net revenue (continuing operations)

85,557

52,545

128,919

 

 

 

 

 

 

 

 

 

 

Like-for-like net revenue at constant currency: The measure is defined as the net revenue from continuing operations when comparing the current period to the prior period at constant currency rate of exchange excluding the effects of acquisition or disposal.

 

6 months to

31 January

2022

£'000

6 months to

31 January

2021

£'000

Year to

31 July

2021

£'000

Net revenue

85,557

52,545

128,919

Impact of acquisition in prior period*

(2,668)

-

-

Effect of constant currency**

838

-

1,895

Like-for-like adjusted net revenue

83,727

52,545

130,814

Like-for-like adjusted net revenue increase /(decline) %

59.3%

 

 

 

*In the first five months of the current period, there is no corresponding comparative of Cascade Data Labs' net revenue in the prior period due to the timing of the acquisition (completion occurred in late December 2020). This is therefore deemed an acquisition effect.

**The impact of retranslating H1 FY22 and FY21 net revenue at the H1 FY21 average exchange rate.

 

Adjusted operating profit: This measure is defined as the operating profit or loss less adjusting items.

 

6 months to

31 January

2022

£'000

6 months to

31 January

2021

£'000

Year to

31 July

2021

£'000

Total operating loss

(2,354)

(6,957)

(4,007)

Add back total adjusting items excluding pension finance income and tax

8,329

8,769

16,172

Adjusted operating profit

5,975

1,812

12,165

 

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 excluding the effects of acquisition or disposal.

 

6 months to

31 January

2022

£'000

6 months to

31 January

2021

£'000

Year to

31 July

2021

£'000

Adjusted operating profit

5,975

1,812

12,165

Impact of acquisitions in current period*

(1,054)

-

-

Effect of constant currency**

138

-

294

Like-for-like adjusted operating profit

5,059

1,812

12,459

Like-for-like adjusted operating profit increase/ (decline) %

179%

 

 

 

*In the first five months of the current period, there is no corresponding comparative of Cascade Data Labs' net revenue in the prior year due to the timing of the acquisition (completion occurred in late December 2020). This is therefore deemed an acquisition effect.

**The impact of H1 FY22 and FY21 adjusted operating profit retranslated at the H1 FY21 average exchange rate.

 

 

 

 

Adjusted profit before tax: This measure is defined as the Group net profit or loss before tax from continuing operations excluding adjusting items.

 

6 months to

31 January

2022

£'000

6 months to

31 January

2021

£'000

Year to

31 July

2021

£'000

Total loss before tax

(3,137)

(8,119)

(5,939)

Add back total adjusting items before tax

8,163

8,761

16,151

Adjusted profit before tax

5,026

642

10,212

 

 

Adjusted profit after tax: This measure is defined as the Group profit or loss after tax from continuing operations excluding adjusting items:

 

6 months to

31 January

2022

£'000

6 months to

31 January

2021

£'000

Year to

31 July

2021

£'000

Total loss after tax

(3,357)

(6,492)

(6,428)

Add back total adjusting items after tax

7,342

7,020

14,627

Adjusted profit after tax

3,985

528

8,199

 

Adjusted basic earnings per share from continuing operations: This measure is defined as basic earnings per share after adjusting items.

 

 

6 months to

31 January

2022

£'000

6 months to

31 January

2021

£'000

Year to

31 July

2021

£'000

Adjusted profit after tax

3,985

528

8,199

Weighted number of shares ('000)

173,007

168,714

171,273

Adjusted basic earnings per share (pence)

2.30

0.31

4.79


Adjusted operating margin: This measure is defined as the percentage of adjusted operating profit over net revenue.

 

 

6 months to

31 January

2022

£'000

6 months to

31 January

2021

£'000

Year to

31 July

2021

£'000

Net revenue

85,557

52,545

128,919

Adjusted operating profit

5,975

1,812

12,165

Adjusted operating margin

7.0%

3.4%

9.4%

 

Adjusted EBITDA: 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. The covenant adjustment includes an adjustment to present on a 'frozen GAAP' pre-IFRS 16 basis.

The adjusted EBITDA for 2022 has been determined on the basis of continuing and discontinued operations solely for the purpose of calculating the ratio of bank net debt to EBITDA for bank covenant purposes.

 

31 January

2022

£'000

31 January

2021

£'000

31 July

2021

£'000

Adjusted operating profit

16,329

11,416

15,028

Add: depreciation and amortisation

10,143

15,436

13,191

Less: amortisation of intangibles classified as adjusting items

(6,149)

(10,769)

(8,651)

Adjusted EBITDA

20,323

16,083

19,568

Covenant adjustment

(3,172)

(2,118)

(1,072)

Adjusted EBITDA for covenant purposes

17,151

13,965

18,496

 

Net debt: This measure is calculated as the total of loans and other borrowings excluding finance leases, less cash and cash equivalents.

 

31 January

2022

£'000

31 January

2021

£'000

31 July

2021

£'000

Loans

2,259

48,482

64,218

Cash and cash equivalents

(7,679)

(25,930)

(44,971)

Net (cash) /debt

(5,420)

22,552

19,247

 

For the measurement of the bank covenants, cash, cash equivalents and borrowings denominated in currencies other than GBP Sterling are translated at an average rate over the preceding twelve months rather than at the period end spot rate used in the Consolidated Balance Sheet. Borrowings drawn under the US Paycheck Protection Program are excluded from the calculation. The reconciliation between balance sheet net (cash)/debt and the covenant measure is as follows:

 

31 January

2022

£'000

31 January

2021

£'000

31 July

2021

£'000

Net (cash) /debt

(5,420)

22,552

19,247

Foreign exchange difference between spot rate and average rate

(61)

1,683

848

Deduct Paycheck Protection Program loan

(768)

(5,611)

(1,853)

Net (cash) /debt for leverage covenant purposes

(6,249)

18,624

18,242

 

Net debt to adjusted EBITDA for bank covenant purposes: This measure is calculated by dividing Net Debt for covenant purposes by adjusted EBITDA for covenant purposes. The adjusted EBITDA is based on the total of continuing and those discontinued operations that were not divested at the balance sheet date.

 

31 January

2022

£'000

31 January

2021

£'000

31 July

2021

£'000

Adjusted EBITDA for covenant purposes

17,151

13,965

18,496

Net (cash) /debt for covenant purposes

(6,249)

18,624

18,242

Net (cash) /debt to adjusted EBITDA for covenant purposes

(0.36)

1.3

0.9

 

 

Condensed Consolidated Income Statement - unaudited

 

 

 

 

6 months to 31 January 2022

6 months to

31 January 2021

(Restated)*^

Year to 31 July 2021 (Restated)*^

 

Note

 

Adjusted

Results**

 

£'000

 

Adjusting Items

£'000

 

Statutory

Results

 

£'000

Statutory

Results

 

£'000

Statutory

Results

 

£'000

Revenue

2

89,256

-

89,256

55,808

137,321

Project-related costs

 

(3,699)

-

(3,699)

(3,263)

(8,402)

Net revenue

 

85,557

-

85,557

52,545

128,919

Cost of service

 

(46,833)

-

(46,833)

(28,030)

(69,269)

Gross profit

 

38,724

-

38,724

24,515

59,650

Selling costs

 

(10,060)

-

(10,060)

(5,799)

(12,674)

Administrative expenses

 

(23,130)

(875)

(24,005)

(20,484)

(42,703)

Other operating income

4

-

-

-

847

4,469

Share of results of joint arrangements

 

441

-

441

222

700

Amortisation of acquired intangibles

 

-

(2,853)

(2,853)

(4,351)

(7,527)

Contingent consideration treated as remuneration

 

-

(3,936)

(3,936)

(1,659)

(4,956)

Acquisition costs

 

-

(665)

(665)

(248)

(966)

Operating profit/ (loss)

6a

5,975

(8,329)

(2,354)

(6,957)

(4,007)

Net pension finance income

 

-

166

166

8

21

Other finance expense

7

(949)

-

(949)

(1,170)

(1,953)

Profit/ (loss) before tax

6b

5,026

(8,163)

(3,137)

(8,119)

(5,939)

Income tax (charge)/ credit

 

(1,041)

821

(220)

1,627

(489)

Net profit/ (loss) from continuing operations

 

3,985

(7,342)

(3,357)

(6,492)

(6,428)

Net profit from discontinued operations

5

1,141

23,839

24,980

7,558

9,123

Net profit for the period

 

5,126

16,497

21,623

1,066

2,695

Basic earnings/ (loss) per share (p)

 

 

 

 

 

 

Continuing operations

 

2.30

(4.24)

(1.94)

(3.85)

(3.78)

Discontinued operations

 

0.66

13.78

14.44

4.48

5.37

Continuing and discontinued operations

8

2.96

9.54

12.50

0.63

1.59

Diluted earnings/(loss) per share (p)

 

 

 

 

 

 

Continuing operations

 

2.20

(4.24)

(2.05)

(3.85)

(3.78)

Discontinued operations

 

0.63

13.14

13.77

4.41

5.20

Continuing and discontinued operations

8

2.83

9.09

11.92

0.62

1.54

 

*Results have been restated to show a revised grouping of continuing and discontinued operations.  Further details are in note 5 and 6b.

^The Income Statements for 6 months ended 31 January 2021 and the year ended 31 July 2021 have also been restated to reclassify amounts of £0.7m and £1.4 million respectively, from the 'Cost of service' line to the 'Administrative expenses' line, relating to the employment costs of certain US non-billable delivery staff, in order to correct a classification which was not in line with the accounting policies for the group. This reclassification has no impact on operating profit for the 6 months ended 31 January 2021 or year ended 31 July 2021 but has the effect of increasing prior year's gross margin and administrative expenses by the same amounts.

**Adjusted results exclude adjusting items to enhance understanding of the ongoing financial performance of the Group. Adjusting items comprise; redundancies; restructuring costs; contingent consideration required to be treated as remuneration; and costs related to the Company's Defined Benefit Pension Scheme. Further details are provided within the Alternative Performance Measure section above. Notes 1 to 14 form part of these interim financial statements.

 

 

Condensed Consolidated Statement of Comprehensive Income - unaudited

 

 

 

 

6 months to 31 January 2022

£'000

6 months to

31 January

2021

£'000

Year to

31 July

2021

£'000

Profit for the period

21,623

1,066

2,695

Items that will not be reclassified subsequently to profit or loss:

 

 

 

Actuarial gain on St Ives Defined Benefit Pension Scheme

4,354

4,082

17,877

Tax charge on items taken through other comprehensive income

(827)

(776)

(3,401)

Total items that will not be reclassified to profit or loss

3,527

3,306

14,476

Items that may be reclassified subsequently to profit or loss:

 

 

 

Transfers of (gains)/ losses gains on cash flow hedges

(9)

(21)

52

(Losses) / gains on cash flow hedges

(22)

51

(13)

Foreign exchange gains/ (losses)

636

(354)

(492)

 

605

(324)

(453)

Other comprehensive income for the period

4,132

2,982

14,023

Total comprehensive income for the period

25,755

4,048

16,718

 

Notes 1 to 14 form part of these interim financial statements.
 

Condensed Consolidated Statement of Changes in Equity - unaudited

 

Share

capital

£'000

Additional paid-in capital

£'000

ESOP

reserve

£'000

Treasury shares

£'000

Share

option

reserve

£'000

Hedging

and

translation

reserve

£'000

Other

reserves

£'000

Retained earnings/ (accumulated deficit)

£'000

 

 

 

Total

£'000

Balance at 1 August 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

Profit for the period

-

-

-

-

-

-

-

1,629

1,629

Other comprehensive income

-

-

-

-

-

(130)

(130)

11,170

11,040

Total comprehensive income

-

-

-

-

-

(130)

(130)

12,799

12,669

Shares issued to settle consideration for acquisitions

361

4,196

-

-

(2,919)

-

1,277

-

1,638

Recognition of share-based contingent consideration deemed as remuneration

-

-

-

-

1,005

-

1,005

-

1,005

Hyperinflation revaluation

-

-

-

-

-

128

128

-

128

Settlement of share-based payment using own shares

-

-

63

-

(57)

-

6

(6)

-

Recognition of share-based payments

-

-

-

-

1,064

-

1,064

-

1,064

Tax on share-based payments

-

-

-

-

1,220

 

1,220

-

1,220

Balance at 31 July 2021

17,255

86,513

(68)

(163)

3,756

1,582

91,620

(25,693)

83,182

Profit for the period

-

-

-

-

-

-

-

21,623

21,623

Other comprehensive income

-

-

-

-

-

605

605

3,527

4,132

Total comprehensive income

-

-

-

-

-

605

605

25,150

25,755

Dividends paid*

-

-

-

-

-

-

(37)

(37)

Shares issued to settle

employee share options

178

215

(25)

-

(1,154)

-

(964)

1,032

246

Purchase of own shares

-

-

(1,595)

-

-

-

(1,595)

-

(1,595)

Settlement of share-based payment using own shares

-

-

353

-

-

-

353

-

353

Recognition of share-based payments

-

-

-

-

1,419

-

1,419

-

1,419

Recognition of share-based contingent consideration deemed as remuneration

-

-

-

-

2,711

-

2,711

-

2,711

Tax on share-based payments

 

 

 

 

(68)

 

(68)

-

(68)

Hyperinflation revaluation

-

-

-

-

-

67

67

-

67

Reclassification to retained earnings**

-

(5,357)

-

-

-

-

(5,357)

5,357

-

Balance at 31 January 2022

17,433

81,371

(1,335)

(163)

6,664

2,254

88,791

5,809

112,033

 

 

Additional paid capital includes share premium, merger reserve and capital redemption reverse.

* Dividend equivalents in respect of prior years paid in the period to employees who exercised their share options during the period.

**£5.4 million of merger reserves relating to divested subsidiaries (refer to note 5), which are realised profits and have been transferred to retained earnings.

 

Notes 1 to 14 form part of these interim financial statements.

 

Condensed Consolidated Balance Sheet - unaudited

 

Note

31 January 2022

£'000

31 January 2021

£'000

31 July 2021

£'000

Assets

 

 

 

 

Non-current assets

 

 

 

 

Property, plant and equipment

 

14,488

16,370

14,027

Investment property

 

4,303

4,572

4,438

Goodwill

 

63,451

71,608

68,372

Other intangible assets

 

12,672

16,613

15,072

Investment in joint arrangements

 

1,402

1,051

1,080

Retirement benefits surplus

9

25,512

4,950

19,267

Other non-current assets

 

-

19

28

Deferred tax assets

 

3,174

1,652

3,524

 

 

125,002

116,835

125,808

Current assets

 

 

 

 

Trade and other receivables

 

38,291

33,268

36,862

Derivative financial instruments

 

22

25

13

Income tax receivable

 

-

523

559

Assets held for sale

 

-

-

7,099

Cash and cash equivalents

 

7,679

25,930

44,971

 

 

45,992

59,746

89,504

Total assets

 

170,994

176,581

215,312

Liabilities

 

 

 

 

Current liabilities

 

 

 

 

Lease liabilities

 

2,835

3,992

2,823

Loans

 

768

-

1,853

Trade and other payables

 

26,862

29,085

30,617

Income tax payable

 

1,794

364

514

Deferred consideration payable

 

824

3,344

-

Liabilities held for sale

 

-

-

7,552

Deferred income

 

5,523

7,039

6,631

Provisions

 

313

662

538

 

 

38,919

44,486

50,528

Non-current liabilities

 

 

 

 

Lease liabilities

 

12,291

14,414

12,490

Loans

 

1,491

48,482

62,365

Deferred consideration payable

 

2,398

1,134

1,888

Other non-current liabilities

 

-

101

-

Provisions

 

191

1,503

829

Deferred tax liabilities

 

3,671

1,003

4,030

 

 

20,042

66,637

81,602

Total liabilities

 

58,961

111,123

132,130

Net assets

 

112,033

65,458

83,182

Capital and reserves

 

 

 

 

Share capital

8

17,433

16,894

17,255

Other reserves

 

88,791

87,050

91,620

Retained earnings /(accumulated deficit)

 

5,809

(38,486)

(25,693)

Total equity

 

112,033

65,458

83,182

 

These interim financial statements were approved by the Board of Directors on 23 March 2022. Notes 1 to 14 form part of these interim financial statements.
 

Condensed Consolidated Statement of Cash Flows - unaudited

 

 

Note

6 months to

31 January

2022

£'000

6 months to

31 January

2021

£'000

Year to

31 July

2021

£'000

Operating activities

 

 

 

 

Cash (used in)/ generated from operations

10

(2,947)

3,030

10,847

Interest paid

 

(366)

(882)

(1,660)

Income taxes received/(paid)

 

130

(749)

(3,382)

Net cash flows (used in)/ from operating activities

 

(3,183)

1,399

5,805

 

 

 

 

 

Investing activities

 

 

 

 

Purchase of property, plant and equipment

 

(807)

(431)

(1,332)

Purchase of other intangibles

 

(352)

(11)

(82)

Proceeds on disposal of subsidiaries

 

33,161

12,634

12,630

Cost of acquisition in current period

3

(240)

(4,970)

(4,381)

Deferred consideration paid for acquisitions made in prior periods

 

-

-

(1,656)

Net cash flows from investing activities

 

31,762

7,222

5,179

 

 

 

 

 

Financing activities

 

 

 

 

Proceeds from share issuances

 

246

-

-

Purchase of treasury shares

 

(1,595)

(59)

(59)

Dividends paid

 

(37)

-

-

Lease payments

 

(2,006)

(2,049)

(4,214)

(Decrease)/ increase in bank loans

10

(62,965)

(4,727)

14,976

Net cash flows from financing activities

 

(66,357)

(6,835)

10,703

 

 

 

 

 

Net (decrease) / increase in cash and cash equivalents

 

(37,778)

1,786

21,687

Cash and cash equivalents at beginning of the period

 

44,971

24,408

24,408

Effect of foreign exchange rate changes

 

486

(264)

(1,124)

Cash and cash equivalents at end of the period

 

7,679

25,930

44,971

 

Included in the figures above are the following cash flows from discontinued operations:

 

 

 

6 months to

31 January

2022

£'000

6 months to

31 January

2021

£'000

Year to

31 July

2020

£'000

Net cash (used in)/ generated from operating activities

 

(1,656)

3,565

7,788

Net cash flows from investing activities

 

33,147

12,586

12,548

Net cash used in financing activities

 

(542)

(751)

(1,504)

Net increase in cash and cash equivalents

 

30,949

15,400

18,832

 

Notes 1 to 14 form part of these interim financial statements.
 

Notes to the Condensed Consolidated Interim Financial Statements

1. Basis of preparation

The Condensed Consolidated Interim Financial Statements for the six months ended 31 January 2022 have been prepared in accordance with UK-adopted IAS 34 'Interim Financial Reporting' 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 Interim 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 2022 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 2021 has been extracted from the Group's Annual Report and Accounts 2021 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 Interim 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 2022.

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 interim financial statements for the year ended 31 July 2021, with the exception of changes in estimates that are required in determining the provision for income tax.

2. Segment reporting

 

The Group reports results through one segment, 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 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:

 

 

 

 

The Connective

Corporate costs

Total

 

£'000

£'000

£'000

Revenue

89,256

-

89,256

Net revenue

85,557

-

85,557

Operating profit/ (loss) before adjusting items

9,629

(3,654)

5,975

Adjusting items

(7,454)

(875)

(8,329)

Total operating profit/ (loss)

2,175

(4,529)

(2,354)

 

Results from continuing operations for the prior period ended 31 January 2021:

 

Restated

The Connective

Corporate costs

Restated

Total

 

£'000

£'000

£'000

Revenue

55,808

-

55,808

Net revenue

52,545

-

52,545

Operating profit/ (loss) before adjusting items

5,310

(3,498)

1,812

Adjusting items

(6,572)

(2,197)

(8,769)

Total operating loss

(1,262)

(5,695)

(6,957)

 

 

2. Segment reporting (continued)

Results from continuing operations for the year ended 31 July 2021:

 

Restated

The Connective

Corporate costs

Restated

Total

 

£'000

£'000

£'000

Revenue

137,321

-

137,321

Net revenue

128,919

-

128,919

Operating profit/ (loss) before adjusting items

19,273

(7,108)

12,165

Adjusting items

(13,449)

(2,723)

(16,172)

Total operating profit/ (loss)

5,824

(9,831)

(4,007)

 

 

No disclosure of assets and liabilities as no assets and liabilities are allocated to Corporate costs.

 

Geographical segments

Revenue from continuing operations by geographical segment is based on the location where goods and services have been provided.

 

Continuing operations

31 January 2022

£'000

Restated

31 January 2021

£'000

Restated

31 July 2021

£'000

United States of America

65,741

36,365

96,327

United Kingdom

23,491

18,825

40,029

Rest of the world

24

618

965

Total

89,256

55,808

137,321

 

Revenue by customer location

The Group derives 70% (6 months ended 31 January 2021: 66%) of its revenue from customers located in the United States of America, 26% (6 months ended 31 January 2021: 28%) from customers located in the United Kingdom and 4% (6 months ended 31 January 2021: 6%) from customers located in the rest of the world.

 

Net revenue by customer location

The Group derives 71% (6 months ended 31 January 2021: 66%) of its net revenue from customers located in the United States of America, 25% (6 months ended 31 January 2021: 29%) from customers located in the United Kingdom and 4% (6 months ended 31 January 2021: 5%) from customers located in the rest of the world.

 

 

 

 

 

 

 

 

3. Acquisitions

On 22 December 2021, the Group acquired 100% of the issued membership units of Datorium, LLC, a Californian company that owns Octain, a responsible AI data platform ("Octain"). Octain provides clients advanced insight, predictions and recommendations governed by socially responsible AI principles. The Group paid £0.2 million of initial consideration in December 2021, in cash, and there is deferred consideration of up to £0.7 million contingent on additional net revenue from the platform, up to 100% of which may be settled in Kin and Carta plc ordinary shares at the Group's discretion.  The deferred consideration is payable after three years. Given the proximity of the acquisition to 31 January 2022, the purchase price allocation has not been completed and the surplus of consideration over historical net assets of £0.2 million has provisionally been allocated to goodwill. The provisional accounting purchase price allocation will be completed by 31 July 2022.

 

After the balance sheet date, the Group completed the purchase of the remaining 50% shareholding in the joint venture, Loop and exchanged contracts to acquire Melon Group, a software development company based in the southern Balkans. Refer to note 12 for further details.

 

 Contractual commitments for consideration linked to acquisitions:

 

At the date of this report, the Group had contractual commitments related both to acquisitions which were completed prior to 31 January 2022 in respect of deferred consideration, and to acquisitions which were completed or signed after 31 January 2022 in respect of initial and deferred consideration. Maximum future contracted amounts payable for historical and committed future acquisitions are detailed below:

 

Period of acquisition

12 months ended 31 July 2020

12 months ended 31 July 2021

6 months ended 31 January 2022

6 months ended 31 July 2022

6 months ended 31 July 2022

 

Acquired entity

Spire

Cascade Data Labs

Octain

Loop

Melon Group

Total

 

 

 

 

 

 

 

Period of payment/vesting

£'m

£'m

£'m

£'m

£'m

£'m

Total completion amounts paid during the period ended 31 January 2022

-

-

0.2

-

-

0.2

Total actual/ estimated completion amounts paid/payable after 31 January 2022.

-

-

-

2.9

17.7

20.6

Total amounts paid /payable at completion

-

-

0.2

2.9

17.7

20.8

FY22 deferred payments

-

-

-

0.5

-

0.5

FY23 deferred payments

6.8

9.2

-

1.5

1.6

19.1

FY24 deferred payments

-

3.3

-

1.1

2.8

7.2

FY25 deferred payments

-

3.3

0.7

-

1.3

5.3

Total estimated maximum deferred consideration payable after 31 January 2022

6.8

15.8

0.7

3.1

5.7

32.1

Total estimated maximum consideration paid /payable for historical and committed future acquisitions

6.8

15.8

0.9

6.0

23.4

52.9

 

 

 

 

 

 

 

Settled or to be settled in cash

3.4

4.0

0.2

3.2

12.9

23.7

To be settled in shares

3.4

11.8

0.7

2.8

10.5

29.2

Total

6.8

15.8

0.9

6.0

23.4

52.9

 

All amounts shown which are to be settled in the future will be determined initially in US dollars or Euros and are therefore subject to future currency fluctuation when measured in British pounds. Total amounts for each acquisition are subject to maximum caps. The level of deferred consideration is contingent upon future performance for all acquisitions, so actual amounts payable may be less than the amounts shown,  which correspond to the capped maximums.

 

Spire and Cascade Data Labs were acquired in prior periods. Completion amounts and deferred amounts in respect of those acquisitions which have already been settled in prior periods are not included in the table. Octain was acquired in the current period. Loop was acquired on 14 February 2022 and Melon Group was signed after the balance sheet date, and completion is subject to competition clearance which is expected in the second half of the current financial year. The amounts shown for Melon Group exclude customary adjustments for cash, debt and working capital that may arise on completion.

 

No assets or liabilities are recorded at the balance sheet date in respect of the acquisitions of Loop or Melon Group. Amounts related to future payments in respect of future deferred consideration for Spire, Cascade Data Labs and Octain have been recorded within current and non-current liabilities and equity at the balance sheet date, based on the likely method of settlement and the vesting periods associated with the deferred consideration amounts. In addition to the amounts shown above , the acquisition of Melon Group will trigger an option for Melon  Group to buy, and for the current minority owners to sell the 49 percent  minority share in Frakton, a subsidiary of the Melon Group for a fixed price of £0.8m.

 

The amounts shown as 'to be settled in shares' correspond to the maximum proportion that may be settled in shares of Kin and Carta plc, assuming the maximum contracted consideration amount is payable. The Company may alternatively, at its sole discretion, settle any portion of the 'to be settled in shares' amounts in cash, other than the amounts related to the initial consideration for Melon Group and the remaining Spire deferred consideration, which must be settled in shares. The shares in respect of the share amount shown for Spire were allotted in February 2021 , but are subject to a reverse vesting mechanism and will be fully vested in February 2023. No shares have been allotted in respect of the other 'to be settled in shares' amounts.

 

 

4. Other Income

In May 2020, the Group received £6.7 million in unsecured loans under the Paycheck Protection Program ("PPP") provided by the US Government, provided as part of the US CARES Act. £0.8 million of the PPP loan was forgiven by the US Government in H1 FY21 and £3.7m in H2 FY21. The forgiveness was recorded within adjusted other income in the prior year in the income statement in accordance with IAS20 Government Grants. There was no corresponding loan forgiveness-related income in the 6-month period ended 31 January 2022.

 

The remaining balance of £0.8 million at 31 January 2022 will be repaid in full by 31 May 2022.

 

5. Discontinued Operations

In the current period, discontinued operations comprise the results of three businesses divested in HI FY22: Incite, Edit and Relish.

 

In the restated prior periods, discontinued operations comprise the results of the five businesses divested since 1 August 2020: Pragma, Hive, Incite, Edit and Relish.

 

 

Current Period Divestments

Discontinued operations in the current period include the results of three businesses which were divested in the period:

                                                               

Incite - on 28 September 2021, the Group completed the sale of Incite, a strategic marketing and planning consultancy for a consideration of £15.1 million before adjustments for cash, debt and working capital items.  After adjustments for cash, debt and working capital, and costs, net cash proceeds arose on the sale of Incite of £14.6 million at completion, with a further £1.0 million receivable on 31 July 2022, which is not contingent on business performance. The net gain on divestment of Incite is £15.3 million and this has been recorded in adjusting items.

 

Relish - on 4 November 2021, the Group completed the sale of Relish, a product sampling agency specialising in the beauty and fast-moving consumer goods sectors, for a consideration of £5.6 million before costs and customary adjustments for cash, debt and working capital. The net gain recorded in adjusting items relating to the sale is £3.8 million.

 

Edit - on 12 November 2021, the Group completed the sale of Edit, a marketing services company, for a consideration of £12.5 million before costs and customary adjustments for cash, debt and working capital. The net gain recorded in adjusting items relating to the sale is £5.5 million.

 

Prior Period Divestments

 

In addition to the results of the three businesses noted above which were divested in the current period, prior period discontinued operations include the results of Pragma, a commercial retail space consulting business and Hive, a healthcare communications consultancy, both of which were divested in the prior period.

 

Pragma - 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. The loss on disposal of Pragma of £0.2 million is recorded within adjusting items.

 

Hive - 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 Hive of £12.35 million were received in the prior year. The gain on disposal of Hive of £5.4 million is recorded within adjusting items.

 

The results of the discontinued operations were as follows:

 

 

 

6 months ended 31 January 2022

Restated

6 months ended 31 January 2021

Restated

Year ended 31 July 2021

Profit from discontinued operations before adjusting items:

 

 

 

Revenue

10,115

24,981

43,038

Operating costs

(8,686)

(21,368)

(36,743)

Operating profit before adjusting items

1,429

3,613

6,295

Interest charges

(32)

(91)

(210)

Profit before tax before adjusting items

1,397

3,522

6,085

Income tax charge

(256)

(683)

(1,223)

Profit after tax before adjusting items

1,141

2,839

4,862

 

 

 

 

Adjusting Items from discontinued operations

 

 

 

Gain on divestment of discontinued operations

24,632

4,612

4,047

Release of provision

265

-

-

Adjusting items before tax

24,897

4,612

4,047

Tax (charge)/ credit on adjusting items

(1,058)

107

214

Adjusting items after tax

23,839

4,719

4,261

 

 

 

 

Profit/ (loss) from discontinued operations

 

 

 

Profit after tax before adjusting items

1,141

2,839

4,862

Adjusting Items

23,839

4,719

4,261

Total profit after tax

24,980

7,558

9,123

 

6a. Adjusting items

Adjusting items from continuing operations disclosed on the face of the Consolidated Income Statement are as follows:

Continuing Operations

6 months to 31 January 2022

6 months to 31 January 2021

Year to 31 July 2021

Expense/ (income)

£'000

£'000

£'000

Costs related to acquisitions

 

 

 

Acquisition costs

665

248

966

Amortisation of acquired intangibles

2,853

4,353

7,527

Contingent consideration required to be treated as remuneration

3,936

1,659

4,956

 

6,260

13,449

Defined Benefit Pension Scheme costs

 

 

 

Scheme administration costs

537

773

Past service cost (GMP equalisation uplift)

604

604

Other related costs

613

1,056

1,165

 

875

2,197

2,542

 

 

 

 

Restructuring items and other charges

-

312

181

 

 

 

 

Adjusting items before interest and tax

8,769

16,172

Net pension finance income in respect of defined benefit pension scheme

(166)

(8)

(21)

Adjusting items before tax

8,163

8,761

16,151

Income tax credit

(821)

(1,741)

(1,524)

Continuing operations adjusting items after tax

7,342

7,020

14,627

Discontinued operations adjusting items net profit after tax

(23,839)

(4,719)

(4,261)

Continuing and discontinued adjusting items after tax

(16,497)

2,301

10,366

Costs related to acquisitions made in the current and prior periods

Acquisition costs of £0.7 million were incurred as part of acquisitions that were agreed and/or completed after the end of the current period including Melon Group and the full acquisition of the joint venture, Loop (note 12). Charges relating to the amortisation of acquired customer relationships and proprietary techniques amounted to £2.9 million (H1 FY21: 4.4 million). During the period, charges relating to contingent consideration deemed as remuneration of £3.9 million (H1 FY21: £1.7 million) 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 (SpireMedia, Inc "Spire") (£0.9 million) and Cascade Data Labs (£3.0 million), which took place in prior periods.

Defined Benefit Pension Scheme costs

The Scheme charges include service costs of £0.3 million (H1 FY21: £0.5 million) and costs in relation to running the scheme of £0.6 million (H1 FY21: £1.1 million). These items are recorded in corporate costs.

Restructuring items and other charges                                                                         

Restructuring and other charges incurred in prior periods relate to site closure and empty property costs.

 

Tax                                                                                     

In the current period, the tax credit of £0.8 million (HY FY21: £1.8 million) relates to the items noted above.

6b. Impact of adjusting items on Group results

The table below shows an analysis and impact of adjusting items on continuing and discontinued operations on certain of the Group's headline results:

 

 

6 months to 31 January 2022

6 months to 31 January 2021

12 months to 31 July 2021

 

 

Adjusted

Results

£'000

 

Adjusting Items

£'000

 

 

Results

£'000

Restated

Adjusted

Results

£'000

 

Adjusting Items

£'000

 

Restated

Results

£'000

Restated

Adjusted

Results

£'000

 

Adjusting Items

£'000

 

Restated

Results

£'000

Net Revenue

85,557

-

85,557

52,545

-

52,545

128,919

-

128,919

Operating profit/ (loss)

5,975

(8,329)

(2,354)

1,812

(8,769)

(6,957)

12,165

(16,172)

(4,007)

Net pension finance income

-

166

166

-

8

8

-

21

21

Other finance expense

(949)

-

(949)

(1,170)

-

(1,170)

(1,953)

-

(1,953)

Profit/ (loss) before tax from continuing operations

5,026

(8,163)

(3,137)

642

(8,761)

(8,119)

10,212

(16,151)

(5,939)

Profit before tax from discontinued operations

1,397

24,897

26,294

3,522

4,612

8,134

6,085

4,047

10,132

Profit before tax

6,423

16,734

23,157

4,164

(4,149)

15

16,297

(12,104)

4,193

Income tax (charge)/ credit from continuing operations

(1,041)

821

(220)

(114)

1,741

1,627

(2,013)

1,524

(489)

Income tax (charge)/ credit from discontinued operations

(256)

(1,058)

(1,314)

(683)

107

(576)

(1,223)

214

(1,009)

Net profit/ (loss) for the period

5,126

16,497

21,623

3,367

(2,301)

1,066

13,061

(10,366)

2,695

 

 

 

 

 

 

 

 

 

 

Net profit/ (loss) from continuing operations

3,985

(7,342)

(3,357)

528

(7,020)

(6,492)

8,199

(14,627)

(6,428)

Net profit from discontinued operations

1,141

23,839

24,980

2,839

4,719

7,558

4,862

4,261

9,123

Net profit/ (loss) for the period

5,126

16,497

21,623

3,367

(2,301)

1,066

13,061

(10,366)

2,695

 

 

7. Other finance costs

 

6 months to

31 January 2022

£'000

Restated

6 months to

31 January 2021

£'000

Restated

Year to

31 July 2021

£'000

Interest and bank arrangement fees on bank overdrafts and loans

582

819

1,260

Interest on lease liabilities

367

351

693

 

949

1,170

1,953

8. Earnings per share

 

The calculation of the basic and diluted earnings per share are based on the following:

 

 

 

6 months to 31 January 2022

'000

6 months to

31 January

2021

'000

Year to

31 July

2021

'000

Weighted average number of ordinary shares for the purposes of basic earnings/(loss) per share

173,007

168,714

169,985

Effect of dilutive potential ordinary shares:

 

 

 

Share options

8,425

2,609

5,419

Weighted average number of ordinary shares for the purposes of diluted earnings/(loss) per share

181,432

171,323

175,404

 

 

 

8. Earnings per share (continued)

Basic and diluted earnings per share

 

 

6 months to

31 January

2022

£'000

Restated

6 months to

31 January

2021*

£'000

Restated

Year to

31 July

2021*

£'000

Continuing and discontinued operations

Earnings

£'000

Earnings

per share

pence

Earnings

£'000

Earnings

per share

pence

Earnings

£'000

Earnings

per share

pence

Earnings/ (loss) and basic earnings/ (loss) per share

 

 

 

 

 

 

Adjusted earnings and adjusted basic earnings per share

5,126

2.96

3,367

2.00

13,061

7.68

Adjusting items

16,497

9.54

(2,301)

(1.36)

(10,366)

(6.10)

Earnings/ (loss) and basic earnings/ (loss) per share

21,623

12.50

1,066

0.63

2,695

1.59

Earnings/ (loss) and diluted earnings/ (loss) per share

 

 

 

 

 

 

Adjusted earnings and adjusted diluted earnings per share

5,126

2.83

3,367

1.97

13,061

7.45

Adjusting items

16,497

9.09

(2,301)

(1.36)

(10,366)

(6.10)

Earnings/ (loss) and diluted earnings/ (loss) per share

21,623

11.92

1,066

0.62

2,695

1.54

 

Adjusted earnings is calculated by adding back adjusting items (note 6), as adjusted for tax, to the profit or loss for the period.

 

9. Retirement benefits

As at 31 January 2022 the Group reported a net IAS19 surplus in respect of the Defined Benefit Pension Scheme (the 'Scheme') of £25.5 million compared to a surplus of £19.3 million reported as at 31 July 2021. The increase in the surplus is due to the strong performance of growth assets.

 

 

 

 

 

 

10. Notes to the consolidated cash flow statement

Reconciliation of cash generated from operations

 

 

 

6 months to

31 January

2022

£'000

6 months to

31 January

2021

£'000

Year to

31 July

2021

£'000

Loss from continuing operations

 

(2,354)

(5,191)

(2,268)

Profit from discontinued operations

 

26,325

6,460

8,604

Operating profit

 

23,971

1,269

6,336

 

 

 

 

 

Adjustments for:

 

 

 

 

Depreciation of property, plant and equipment

 

2,205

1,961

4,322

Amortisation of intangible assets

 

2,969

5,033

8,869

Share-based payment charge

 

1,419

880

1,944

Increase in contingent consideration required to be treated as remuneration

 

3,936

1,659

3,342

Share of results of joint arrangement

 

(441)

(222)

(700)

Disbursements from joint arrangement

 

147

-

440

Impairment losses

 

-

151

456

Gain on disposals of subsidiaries

 

(24,632)

(5,176)

(5,171)

(Decrease)/ increase in retirement benefit obligations

 

(1,927)

214

(286)

Forgiveness of US government loans (note 4)

 

-

(849)

(4,541)

Non-cash reductions in lease liabilities

 

-

-

(306)

Decrease in provisions

 

(281)

(345)

(877)

Operating cash inflows before movements in working capital

 

7,366

4,575

13,828

(Increase)/ decrease in receivables

 

(7,576)

(6,249)

(13,736)

(Decrease)/increase in payables

 

(2,700)

4,963

10,377

(Decrease)/ increase in deferred income

 

(37)

(259)

378

Cash (used in) generated from operations

 

(2,947)

3,030

10,847

 

 

 

 

 

 

 

 

 

 

 

 

 

10. Notes to the consolidated cash flow statement (continued)

Cash and cash equivalents (which are presented as a single class of assets on the face of the consolidated balance sheet) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less. The effective interest rates on cash and cash equivalents are based on current market rates.

Analysis of loan financing liabilities

 

 

31 July

2021

£'000

Draw down

£'000

Repayment

£'000

Foreign exchange gains

£'000

31 January

2022

£'000

Current liabilities

 

 

 

 

 

US Government Loans

1,853

-

(1,152)

67

768

Non-current liabilities

 

 

 

 

 

Bank loans - Revolving credit facility

62,365

5,270

(67,083)

938

1,491

Total financing liabilities

64,218

5,270

(68,235)

1,005

2,259

11. Related parties

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. No material related party transactions have been entered into during the period, which might reasonably affect the decisions made by the users of these interim financial statements.

 

No executive officers of the Company or their associates had material transactions with the Group during the period.

 

The Group held a 50% interest in Loop Integration LLC ("Loop"), incorporated in Delaware, USA. On 14 February 2022 the Group purchased the remaining 50% interest, details are provided in note 12 below.

 

Loop is an e-commerce consultancy specialising in Hybris software integration. Loop earned revenue of £2.1 million (HY FY21: £1.7 million) from the Group. The Group provided services to Loop for £142,000 in the period (HY FY21: £100,900). On 31 January 2022 the following balances were outstanding for services rendered between Loop and the Group. The Group owed Loop £1.4 million at the period end (HY FY21: payable to Loop of £0.9 million). In the current period the Group received a distribution from Loop of £147,000.

 

 

 

 

 

 

12. Post-balance sheet events

After the balance sheet date, the Group completed the purchase of the remaining 50% shareholding in the  joint venture, Loop and exchanged contracts to acquire 100% of Melon Group, a software development company based in the southern Balkans.

Loop                                                                            

                                            

On 14 February 2022, the Group acquired the remaining 50% interest, which it did not already own, in the Chicago-based e-commerce consultancy Loop. The initial consideration comprised £2.2 million in cash at completion before customary adjustments for cash, debt and working capital, with deferred consideration contingent upon service and revenue growth for the two years ended 31 December 2023, capped at £3.8 million for a total cap of £6 million before customary adjustments for cash, debt and working capital. Up to 75% of the deferred contingent consideration amounts may be settled in ordinary shares of Kin and Carta plc at the Group's discretion.

 

The provisional accounting purchase price allocation will be completed by 31 July 2022.

 

Melon Group

 

On 21 February 2022, the Group signed an agreement to acquire the software development company Melon Group, which is headquartered in Sofia, Bulgaria with offices in Skopje, North Macedonia and Pristina, Kosovo. The acquisition is conditional on the Group receiving clearances from the North Macedonian and Kosovan competition authorities and will complete following the receipt of these clearances, which are expected to be in the second calendar quarter of 2022 ("Completion").

 

The consideration payable comprises an estimated initial amount of £17.7 million plus customary adjustments for cash, debt and working capital, of which 40 percent is payable in Kin and Carta plc ordinary shares, and the balance payable in cash, with both amounts to be settled at Completion. In addition, an earnout is potentially payable over three years, linked to growth in adjusted EBITDA from 1 January 2022 to 31 December 2023. Up to 60 percent of the earn out may be payable in Kin and Carta plc ordinary shares at the Company's discretion. Following the Completion of the acquisition, the Company will have an option to purchase and the minority owners will have an option to sell the 49 percent minority stake in Melon's Kosovo subsidiary, Frakton SH.P.K, for £0.8 million within a 3 month period (the "Frakton option"). The total consideration for Melon including potential earnout amounts is capped at £23.5 million, with a further £0.8 million payable in cash if the Frakton option is exercised by either party.

13. Principal risks and uncertainties

 

The Board considers that the categories of principal risks and uncertainties which could have a material impact on the Group's performance in the remaining six months of the financial year remain the same as those stated on pages 102 to 110 of the 2021 Annual Report and Accounts, which is available on our website https://investors.kinandcarta.com.

14. Statement of Directors' Responsibility

The Directors' confirm that these Condensed Consolidated Interim Financial Statements have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority, namely:

●     an indication of important events that have occurred during the first six months and their impact on the Condensed Consolidated Interim 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 2021 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 the Financial Services and Markets Act 2000.

At the date of this statement, the Directors are those listed in the Kin and Carta plc 2021 Annual Report and Accounts with the exception of:

●     Maria Gordian who was appointed Non-Executive Director on 1 November 2021, and

●     Helen Stevenson who resigned as Non-Executive Director on 14 December 2021.
 

J Schwan

 

Chief Executive Officer

24 March 2022

 

Cautionary statement regarding forward-looking statements

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

 

 

Independent review report to Kin and Carta plc

Report on the condensed consolidated interim financial statements

Our conclusion

We have reviewed Kin and Carta plc's condensed 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 2022 (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 UK adopted International Accounting Standard 34, 'Interim Financial Reporting' 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 2022;

●     the Condensed Consolidated Income Statement and Condensed Statement of Comprehensive Income 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 UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Half Year Results, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the Half Year Results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Half Year Results based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Half Year Results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

 

 

PricewaterhouseCoopers LLP

Chartered Accountants

London

24 March 2022

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