Trading Update

RNS Number : 9702Q

Kin and Carta PLC

24 February 2023

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

For immediate release

24 February 2023

Kin and Carta plc

Trading Update

Kin and Carta plc ("Kin + Carta" or the "Company"), the global digital transformation ("DX") consultancy, provides a trading update covering the six-month period ended 31 January 2023 ("H1"), ahead of the announcement of its half year financial results expected 15 March 2023.

Current trading

Following the impact of macro headwinds in late H1, the Company is reducing expectations for the year to reflect more cautionary client spending and elongated sales cycles seen across the industry.

Trading in H1 generated net revenue growth of 15% to £99 million with similar adjusted operating margins to the comparable period in the previous year. Like-for-like (organic, constant currency) net revenue was down 6% in total with a 1% decline in Americas and a 16% decline in Europe, driven by particularly difficult trading conditions in the UK. Adjusted operating margin in H1 is in line with the prior period at c. 8% with H2 expected to be stronger.

	H1 FY21	H1 FY22	H1 FY23
Net Revenue	£52.5m	£85.6m	£98.8m
Adjusted Operating Margin %1	c. 3%	c. 9%	c. 8%

H2 FY23 net revenue is expected to grow 8-12% over H1 FY23, with higher operating margin vs. H1 as revenue from new contract wins ramps up. These include:

● The largest contract to date in Europe - a £14 million, two-year contract in the UK Public Sector secured during H1 which ramps up in H2.

● Data services contract for up to $9 million over three years with a large US automotive manufacturer

These new large, strategic wins, combined with more than 20 additional new client wins, a record backlog and a strong pipeline gives us confidence that the long-term needs of the Company's clients remain unchanged: technology investment is core to client strategies. Despite the temporary macroeconomic headwinds, the Company's track record of double digit organic, constant currency net revenue growth since 2017 provides us with confidence for continued long term growth.

The quality of the Company's client base strengthened during the period, with revenue from enterprise clients increasing 81% YoY within the top 20 clients, replacing non-enterprise clients and scale-ups more exposed to macro volatility.

The Company continues to execute on its strategy to grow its higher margin nearshore delivery capabilities, up from 9% of delivery headcount last year to more than 30% expected this year, bolstered by the recent Melon acquisition in South East Europe which is growing net revenue by double digits. This increase in nearshore delivery together with continued pricing power with clients will bolster gross margins. A reduction in operating costs of £3 million per annum during the period provides an improved cost structure heading into H2 and contributes to confidence in profitable FY24 growth.

The balance sheet remains strong with net debt at the half-year of £11.9 million, less than 0.5X adjusted EBITDA, which reflects £8.4 million for share purchases by the Employee Benefit Trust and c. £5.5 million of deferred cash payments in the period related to share scheme awards and prior year acquisitions, respectively. The Company continues to pursue accretive acquisitions whilst maintaining investment levels in the business.

Outlook

For the current financial year ending 31 July 2023, the Company now expects net revenue growth of 8-12%, with organic net revenue at constant currency showing a low single digit percentage decline from the prior year. Demand remains strong heading into H2, with a strong sales pipeline of £166 million, up 45% year-on-year and record order backlog of £124 million, up 17% on prior year.

As in prior years, the second half is expected to show a stronger performance with sequential net revenue growth c. 8%-12% over H1 driven by organic growth, along with improved operating margins. FY23 adjusted operating margin is expected to be in line with prior years¹ at 11%-12%. As a consequence we expect adjusted operating profit for FY23 to be below market expectations. We expect a return to a more normal level of growth with improved profitability in FY24 supported by the current levels of demand, increased nearshore delivery and improved cost structure.

The Company's medium term guidance of 15%+ net revenue growth and adjusted EBITDA margins in the mid-to-high teens remains unchanged.

Kin + Carta's Chief Executive Officer Kelly Manthey commented:

"Despite macro headwinds tempering short-term growth across the industry, we remain focused on our long-term strategy that prioritises enterprise clients with high quality, resilient revenue, delivered with higher margin nearshore delivery. Our record backlog demonstrates the ongoing demand for our services. The measures that we are currently implementing in the business give me confidence that we are continuing to build a firm platform for future growth. Our ambition for Kin + Carta has not changed."

1 prior periods restated to present share-based payment charges as Adjusting items

- Ends -

Enquiries:

Kin + Carta Kelly Manthey CEO Chris Kutsor CFO & COO	[phone]
Powerscourt Elly Williamson / Jane Glover	[phone]
Numis Securities Limited Nick Westlake / Tejas Padalkar Peel Hunt LLP John Welch / Paul Gilliam	[phone]   [phone]

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 2,000 consultants, engineers and data scientists 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 borderless 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 company listed on the London Stock Exchange to achieve B Corp certification. It meets high 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.

Important notices

This announcement contains inside information and is issued on behalf of the Company by Daniel Fattal, Company Secretary.

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.

 

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