2022 Annual Report and Accounts and Notice of AGM

RNS Number : 9255E

Kin and Carta PLC

01 November 2022

 

1 November 2022

Kin and Carta plc

2022 Annual Report and Accounts and Notice of AGM

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

a)  the Annual Report and Accounts for the year ended 31 July 2022 ('the Annual Report 2022');

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

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

(together the 'Shareholder Documents')

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

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

The Company's Annual General Meeting will be convened at 2.00pm on Thursday, 1 December 2022 at the offices of Herbert Smith Freehills LLP, Exchange House, Primrose Street, London EC2A 2EG.

For the purposes of complying with Disclosure Guidance and Transparency Rule 6.3.5R, we set out below in the Appendix the principal risks and uncertainties facing the Company.   The appendix has been extracted from the Annual Report 2022  in unedited full text  and the page numbers in the text refer to the page numbers in that document . This information should be read in conjunction with the Company's 2022 full year results announcement, released on 12 October 2022, which contained a condensed set of financial statements and which can be found at  https://investors.kinandcarta.com/   (the 'Full Year Results Announcement'). Together, the Annual Report 2022 and Full Year Results Announcement constitute the material required by DTR 6.3.5R to be communicated to the media in unedited full text through a Regulatory Information Service.

Daniel Fattal

Company Secretary

1 November 2022

Enquiries:

Daniel Fattal  020 7928 8844

Appendix: Principal Risks

The table on pages 102 to 110 details Kin + Carta's principal risks, key mitigating activities in place to address them and their relevance to the strategic priorities set by the Board. The changes in the risk ratings from the Board's assessment in the prior year have also been highlighted.

1. Economy and volatility

Description

Challenging economic and political conditions may inhibit growth and create uncertainty. This could lead to volatility in earnings. It could also impact the outcome of strategic priorities set by the Board. Several shocks such as higher than expected inflation worldwide, invasion of Ukraine, worse than expected slowdown in China, coupled with issues arising from political instability, have hit a world economy already weakened by the pandemic. While the business has long-term contracts with clients, the level of spend is predominantly at the client's discretion rather than being derived from guaranteed sales volumes. A worsening of the global economic climate could lead to an increase in our cost base, attrition in employees and wellbeing of our people.

Mitigating activities

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

Trend

Increase

2. Our people

Description

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

Mitigating activities

Strong emphasis on culture and responsibility, which are part of our strategic priorities where initiatives are focused on supporting a diverse, inclusive and responsible business, with an exceptional employee experience. Continued focus on enhancing employee experience in all relevant areas of our EVP framework (as detailed on pages 65 and 66). Succession planning for senior management. Launching a new global HRIS ("Human Resources Information System") providing us with a single system for numerous activities, giving more power to our people and uniting our processes. Tracking of eNPS scores and continued efforts on becoming recognised as a "best place to work". Launching wellbeing support programmes. Integrating our Kin from newly acquired businesses onto common platforms and cohort communities to help them feel supported and part of Kin + Carta.

Trend

No change

3. Growth

Description

Growth is core to Kin + Carta's long-term strategy. This includes organic growth driven by strategic initiatives and inorganic growth driven by acquisitions. Growth channels may be underinvested or not pursued in the right locations or sectors with the right service offering and may therefore fail to deliver growth. Failure to adhere to compliance related to newly introduced service offerings.

Mitigating activities

Monitoring three distinct but complementary growth channels which focus on: a. Existing enterprise client base b. New business channel c. Partnerships channel These channels are underpinned by four growth levers; Services, Partners, Sectors and Territories (see page 30 for further information on our growth model). Investment in our people, bringing new service lines to market and targeting new locations. Linking growth targets to incentives for the majority of our people within the business. Targeting clients from new geographic markets through the acquisition of businesses with similar ethos to Kin + Carta, while our M&A Platform helps integrate the newly acquired businesses to realise synergies. Our priorities are the US and expanding nearshore delivery capabilities in Latin America and Europe.

Trend

No change

4. Client concentration

Description

Kin + Carta holds relationships with a number of key clients and is a strategic partner to these clients. Should Kin + Carta lose several of its largest key clients in a short time period, this could have a significant impact on its revenue, profits and people.

Mitigating activities

Our largest clients have multiple, bespoke services and solutions being delivered to different client stakeholders, and usually with different budgets. We encourage our clients to think strategically about their future direction and differentiation and how, together, we can make the world work better for their customers. This approach also distinguishes Kin + Carta's offering from its competitors. These services also typically have various statements of work associated with them with varying lengths of time and completion dates. We strive to achieve or exceed service level agreements with clients. There is continuous effort by our leaders in the Growth Platform to diversify the range of clients across its key operating territories and sectors. Devising acquisition strategy that targets business with a strong addressable client base and with cross-selling opportunities. Continuous monitoring of client KPIs such as net revenue predictability, top 30 clients' spend and client longevity.

Trend

No change

5. Integration

Description

Following the recent acquisitions of Melon Group and Loop Integration, failure to integrate these businesses into Kin + Carta's operating model could manifest in the form of temporary challenges as cultures are merged and common practices are implemented. This has led to an increase in the risk rating.

Mitigating activities

Stringent selection criteria for pursuing acquisitions that fit within the Kin + Carta strategy and culture. A defined structured plan and dedicated integration team for the integration of new acquisitions. Identifying and facilitating resource requirements to manage the changes. Our responsible business initiatives encourage greater collaboration across Kin + Carta with a common goal, while our employee experience programmes foster an aligned culture with shared values across the business. Kin + Carta continues to identify areas for assimilation and integration to create a solid platform for growth through a responsible business lens.

Trend

No change

6. Scalability

Description

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

Mitigating activities

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

Trend

No change

7. Information, cyber security and systems

Description

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

Mitigating activities

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

Trend

Increase

8. Data protection

Description

Regulatory changes The evolution of privacy laws around the globe with previously unregulated territories now being regulated and existing regulations reinforced and broadened to cover new technologies, processing methods and international transfers. This includes increased activity of data privacy regulators within the EU, UK divergence from the European GDPR, and further state level privacy legislation in the US. This leads to an increased number of applicable data privacy laws within our scope, and, while many of these laws share the same genesis, there are unique elements to all which increase the risk of infraction. The partial funding of the Information Commissioner's Office ("ICO") by fines threatens its impartiality and increases risk of fines for any business investigated. The enhanced threat of data breaches is raised as Kin + Carta extends its search for talent and engagements into new regions. Technology changes Acceptance of previously "new" technology now being in place as standard (e.g. biometric access) increases risk of moving the business into regulated areas which increase the risk of accidental infraction and punishment. Data The loss or theft of critical and sensitive data such as personally identifiable information could have a significant impact from a reputational, contractual, regulatory and financial standpoint. This, combined with the change in working practices and behaviour, has significantly increased the risk profile of our business.

Mitigating activities

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

Trend

Increase

9. Being a responsible business

Description

Risk of misalignment of expectations in respect of our culture, values and ESG, together with our commitment to the triple bottom line initiatives with our stakeholders, could result in lost business opportunities, adverse effect on our share price and failure to attract and retain the necessary talent.

Mitigating activities

Alignment throughout the business to demonstrate that Kin + Carta's purpose is to build a world that works better for everyone. People and Responsibility Platforms that span across Kin + Carta, covering employee experience, B Corp and IDEA initiatives, which are embedded into Kin + Carta's culture through grassroots participation across the business. Launching projects such as embedding inclusivity, accessibility and sustainability within our service line strategies and helping our clients with positive impact projects seeks to ensure client work is delivered through responsible methods. Monitoring of the responsible business KPIs that are set out in the "A responsible business" section (pages 62 to 64).

Trend

No change

10. Operational resilience

Description

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

Mitigating activities

Focus on a highly relevant suite of digital transformation service lines to complement the talent of our people. The Chief Strategy Officer along with leaders of the Services Platform are focused on continuous evolution of our service lines. In the current year, we appointed Regional Service Line and Practice Leaders in the Americas and Europe regions who are senior experts in their areas and they continue to enhance Kin + Carta's delivery framework. Acquisitions can complement or expand Kin + Carta's service offerings. Focus on our three key areas of technology, data and experience. Providing new innovative solutions in support of our clients' evolving technology needs. Also we continue to work with clients to understand their future requirements and viability of the new technology to ensure we are investing in relevant future capabilities. We continue to invest in our people with an emphasis on improving and developing our capability.

Trend

No change

11. Laws and regulations

Description

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

Mitigating activities

Kin + Carta maintains in-house Data Protection, Finance, Corporate Governance, Connective Digital Services ("CDS" or IT) and Legal functions who are subject matter experts and help define policies and processes in order to maintain governance and compliance standards across Kin + Carta. External consultants are also used to advise on local legal and regulatory requirements. Our global policies, as set out in the "A responsible business section" (see pages 88 to 92), provide guidance to our people on our ("positive impact approach") to behave ethically, comply with all applicable local and international laws and regulations, and adhere to the mandatory requirements as defined in the policies at all times. The M&A team, together with subject matter experts, continue to develop a framework of processes when moving into a new geographic area working with local consultants when required.

Trend

Increase

12. Pandemic shocks

Description

As a result of the COVID-19 pandemic, Kin + Carta has adopted new ways of working including hybrid working practices for our Kin, and the way we deliver services to our clients. Should a new virus or a vaccine resistant-virus emerge then the risk including revenue loss and cyber and data security might increase.

Mitigating activities

Our agile, digital ways of working enable Kin + Carta to adapt quickly to change. Activation of cost management programmes across the business. Regular dialogue with employees and wellbeing initiatives with new hybrid working practices. New business targets are focused on industries that are likely to be less negatively impacted by pandemics. Utilising pandemic-specific government schemes, if required. Kin + Carta continues to adapt its business continuity plans to respond to future shocks. In general the COVID-19 pandemic has accelerated the growth of the digital transformation market and Kin + Carta has been well placed to take advantage of this opportunity.

Trend

Decrease

13. Legacy Defined Benefit Pension Scheme

Description

The Scheme surplus/deficit is impacted by changes in Scheme asset values, and by changes in other key financial assumptions - most significantly the expected inflation rate and the discount rate derived from UK Government gilt yields, as well as changes in demographic assumptions, such as expected mortality, rates of pension commutation and transfers of members out of the Scheme. The 2022 triennial technical valuation showed a surplus of £5.6 million as at 5 April 2022. A return to a technical deficit could lead to a resumption of the need for deficit repair in cash contributions by the Company to the Scheme. The Scheme deploys a liability driven investment strategy which includes the use of derivative instruments linked to UK interest rates. Continued high volatility in the market for UK public debt securities could cause liquidity constraints, as the Scheme meets counterparty demands for collateral and margin calls on related interest rate derivative instruments, which could lead to reductions in the levels of hedging practically achieved. The strength of the sponsoring employer's covenant in relation to the Scheme could be adversely impacted by the shortfall of the consolidated net assets of the Group (£126 million excluding the pension accounting surplus, net of related tax, at 31 July 2022) versus the Scheme's solvency deficit, a measure of the deficit in an insolvency scenario (£117 million at 5 April 2022 as per the 2022 valuation).

Mitigating activities

The Scheme was in a technical surplus at 5 April 2022 and is now fully hedged against interest and inflation risks. Following the move into a technical surplus, the Company has agreed with the Trustees to increase the proportion of Scheme assets invested in instruments that match the variation in the value of the Scheme liabilities or which match expected cash flows, from 60% to 70% in order to reduce the volatility of the Scheme surplus. Although the Scheme was in surplus as at 5 April 2022, the Company agreed to pay a further £3 million of voluntary contributions after that date, in order to accelerate the point at which the Scheme reaches a state of low dependency on the Company corresponding to full funding at a funding rate of gilts +0.5% by 2030. The Scheme manages liquidity carefully, and was able to navigate the very high volatility seen in the UK gilt market in September 2022 without any need to liquidate those Scheme assets which provide a Scheme hedging function in order to meet margin calls on interest rate derivatives with hedging counterparties. The hedging strategies remained intact in this high stress scenario which avoided excessive fluctuation in the Scheme funding level. The solvency deficit has halved since the last triennial valuation, standing at £117 million at 5 April 2022 (£237 million at 5 April 2019). This is also an estimate of the cost of Scheme "buyout", a full transfer of the Company's obligations to an insurer. New risk transfer solutions are emerging, most significantly pension "superfunds" which could allow a full transfer of the Company's obligations at a lower value than an insurer would require. It is likely that, if current trends continue, a full risk transfer would become affordable in the next five to seven years. The Scheme is fully hedged against interest and inflation risks. Also a significant proportion of its assets are invested in matching assets in order to manage investment risk. Regular engagement with the Trustee directors in discussions on Kin + Carta's performance. Work with an external advisor and follow regulatory compliance.

Trend

Decrease

14. Financing

Description

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

Mitigating activities

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

Trend

No change

 

END

 

 

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