Kin and Carta Regulatory News (KCT)

14 March 2019

Kin and Carta plc

('Kin + Carta', or the 'Company')

Half Year Results

Kin + Carta, the international digital transformation Company, today announces interim results for the period from

4 August 2018 to 31 January 2019.

Operational Highlights

● Good progress in accessing the fast-growing digital transformation ('DX') market

● Ongoing double-digit growth of the Company's Innovation pillar

● Continued repositioning of other two pillars, aligning them with DX focus

● Significant progress across management priorities: growth investments on track

Financial Highlights

● Revenue of £87.2 million in line with prior half year on a like-for-like basis3

● Adjusted profit before tax £8.0 million in line with the prior half year on a like-for-like basis3

● Sale of warehouse in Redditch for net proceeds of £7.2 million realising a profit on sale of £2.0 million

● Net debt £33.3 million, representing a net debt to Adjusted EBITDA ratio of 1.4x (3 August 2018: 1.1x)

● Interim dividend maintained at 0.65 pence per share

1 Adjusted results exclude Adjusting Items to enhance understanding of the ongoing financial performance of the Group. Adjusting Items comprise of redundancies, restructuring costs; gain or loss on disposal of properties; impairment or amortisation charges related to goodwill, tangible and intangible assets; contingent consideration required to be treated as remuneration; movements in deferred consideration and costs related to the Company's Defined Benefits Pension Scheme (note 4)

2 Continuing operations excludes the results of the Books and Marketing Activation segments disposed in the prior year (note 11)

3 Further details are provided within Alternative Performance Measure section (note 14)

J Schwan, CEO, said:

"During the first six months we have both added new clients and expanded existing client relationships, whilst at the same time rolling out our central sales and marketing functions to accelerate growth. We are continuing to reposition our Strategy and Communications pillars to better align them with our digital transformation focus. We are also deepening our software partnerships with Pivotal and Google Cloud which, coupled with the other initiatives we are undertaking across the Company, will position us to accelerate our pace of growth in the future".

For further information, please contact:

Chief Executive's Review

Introduction

It has been a busy six months for Kin + Carta as we make progress on refocusing our capabilities into a consolidated and differentiated proposition within the rapidly expanding digital transformation ("DX") market. Adding a new central sales and marketing function, scaling our capabilities into the Americas and implementing changes to ensure consistency of operations across our three pillars are all steps in this process.

The market we operate in continues to gain momentum. A recent report published by IDC (https://www.idc.com/getdoc.jsp?containerId=prUS44440318) increases their forecast of the DX market to reach nearly $2 trillion by 2022 and predicts that by 2020, 30% of the top 2000 global companies will have allocated capital budgets equal to at least 10% of their revenue to fuel their digital strategies.

I am pleased with the progress we continue to make with structuring and aligning our three pillars comprising of Strategy, Innovation and Communications to access the considerable opportunity we see ahead for the Company.

Financial Performance Highlights

On a reported basis the Company's revenue from continuing operations was £87.2 million (2018: £91.7 million). This year the Company has commenced reporting on a calendar month basis after changing from a 52 or 53 week year. This change has resulted in the number of billable days falling from 135 in 2018 to 129 in 2019. Adjusting 2018 to reflect this results in the 2019 revenue being 0.4% below the comparative 2018 period.

Whilst revenue growth is slightly less than our targeted mid-single digit run rate, operating margins are as targeted at better than 10%. We are targeting to increase both our revenue growth and our Adjusted operating margins during the next financial year.

Strong revenue growth in our Innovation pillar (18% growth on a like-for-like basis) against a strong comparable period (63% growth for H1 FY18 against H1 FY17) was driven by several significant new client wins and increased demand from existing ones. These are trends we watch carefully, as new digital product and service development are core to the Kin + Carta DX proposition.

Revenue from our Strategy and Communications pillars decreased during the period (8% and 14%, on a like-for-like basis respectively) as we migrate these pillars away from lower margin work in the short term, shifting their propositions to allow us to target larger clients and higher margin DX revenue in the longer term.

The statutory loss before tax from continuing operations was £1.6 million (2018: loss of £19.3 million), which includes adjusting items of £9.6 million (2018: £27.7 million) of which £3.4 million relates to the amortisation of acquired intangibles, £1.6 million of consideration required to be treated as remuneration (from previous acquisitions), £5.1 million relating to the Company's Defined Benefits Pension Scheme, and restructuring costs of £1.4 million. Adjusting items also includes the profit on the sales of property, plant and equipment of £1.9 million; predominantly relating to the sale of a warehouse located in Redditch. Further details are provided within note 4 and the Alternative Performance Measures contained in note 14.

The Adjusted profit before tax from continuing operations was £8.0 million (2018: £8.4 million). On a like-for-like basis the Adjusted profit before tax was in line with the prior period.

Net debt at the end of the period was £33.3 million (3 August 2018: £26.0 million) with a net debt to Adjusted EBITDA ratio of 1.4x (3 August 2018: 1.1x). As previously indicated net debt has increased predominantly as a result of the payment of £13.0 million of deferred consideration partially offset by the sale of the surplus Redditch warehouse for net proceeds of £7.2 million. We maintain our medium term target of managing net debt to 1x EBITDA by the end of fiscal year 2020.

Operational Update

Kin + Carta has three core pillars that combine to deliver powerful DX programmes for our clients.

Strategy

Our Strategy pillar has the credentials in business transformation, market research and digital experience to provide a differentiated, cutting edge solution within our combined DX proposition. Much of the past six months have been spent building closer alignment to our Innovation and Communications pillars.

During this process we have established a much closer working relationship between our three Strategy businesses: Pragma, Incite and Hive. This change in focus has had some impact on near term revenue, but we believe a single front end to the Kin + Carta proposition will generate increased and higher quality revenue in the long term. We do not anticipate significant continued revenue decline in this pillar in the near term and expect its contribution to Kin + Carta's growth to become increasingly evident in future financial years.

Innovation

Innovation represents the core of the Kin + Carta's DX proposition, representing 46% (2018: 39%) of revenue over the past six months. Our Innovation proposition is market leading and scaling in both the US and the UK. Our priority is to continue to grow this specialism through the priorities outlined below.

Communications

Our Communications pillar has award winning design and build, digital communication and data science capabilities. These are essential to the integrated delivery of our DX engagements. However, this pillar operates in a very competitive segment of the market. In addition, before our US expansion started a few months ago, our Communications capability was rooted in the UK and therefore experienced some drag due to GDPR impacts and Brexit uncertainty. Nonetheless, our team has won nine industry awards and has seen some significant new client wins.

We have restructured six of our brands into two within this pillar (Kin + Carta Edit and Kin + Carta AmazeRealise), expanded into the US and are effectively cross-selling current Communications clients into the Innovation pillar. We believe these changes will allow this pillar to contribute to our growth during FY2020.

Management Priorities

At the launch of Kin + Carta we highlighted key areas of management focus to create an engine for future growth.

Rolling out The Connective

The Connective is the global ecosystem we are building of 1,500 technologists, strategists and creatives that allows us to harness the very best of our capabilities to better serve our clients and is a powerful concept that puts clients first and foremost at Kin + Carta wherever we operate. During the period, we have made good progress in rolling out The Connective, securing significant client mandates that we would not have won without this new approach.

Scaling our Sales Function

We have invested in building a central sales and marketing function for the Company, led by Gregg Wheeler and Dan Ptak of Kin + Carta Solstice, our US based digital innovation consultancy. This initiative included creating central inbound marketing, outbound lead generation and a new direct sales team focused on cross-selling into our existing client base. We are also moving all of our specialisms onto a single ERP and CRM system, to allow for stronger real-time reporting and forecasting capabilities.

During the period, this team has secured a number of new DX mandates with blue chip companies, such as Kwikfit and Kingfisher in the UK and Gallagher and Country Financial in the US and is also building a healthy pipeline of new opportunity.

Deepening Sector Focus

We have a clear focus on the industry sectors experiencing significant digital disruption and where our businesses possess a highly relevant proposition. These sectors include Financial Services, Industrials and Agriculture, Retail and Distribution, Transportation, and Healthcare, all of which are going through structural change and afford us a deep pool of opportunity.

The Healthcare sector is an important area of growth for us. We recently won the Market Research Society's Healthcare Research Award for our ongoing work with Nestle Health Science and our focus on this sector has resulted in new client wins including Leo Pharma, Healthfirst and one of the largest health insurance firms in the US. These DX programmes, ranging from the development of a next-generation claims processing system to a global patient experience portal, represent the strategic nature of the DX work we will continue to deliver in this sector.

We continue to win new blue chip clients in our other core sectors as well. Recent DX wins in the last six months have included Santander in Financial Services, Kwikfit in Retail, BMW Mini in Transportation and a global leader in the Agriculture sector.

Geographic Expansion

We have opened our first Kin + Carta AmazeRealise office in Chicago, with a focus on bringing our Communications capabilities to the Americas on the back of Kin + Carta Solstice's extensive client base. We now have a team in place in both Chicago and Buenos Aires and are steadily building our international pipeline.

We also opened our first Kin + Carta Pragma office in New York City, further strengthening our Strategy capabilities in the US. Sales and pipeline for this new office are currently ahead of plan.

New capabilities and Partnerships

We have put a strong focus on building out our Cloud Transformation and Artificial Intelligence ('AI') capabilities. Accordingly, we have expanded our partnerships with Pivotal and Google (specifically Google's GCloud and Artificial Intelligence divisions). These software partners will assist us to support our shared enterprise clients as they move their data centre computing to the Cloud. Cloud Transformation work is a core offering of Kin + Carta's Innovation pillar and a rapidly growing segment of the DX sector. Our AI focus is a longer-term growth stream which we are already rolling out to our existing client base, building our capabilities in the AI space to ensure we are positioned to ride this next wave of innovation.

We are identifying DX businesses to add to our existing capabilities and reinforce our presence in the marketplace. We are also seeking opportunities to grow regionally, complementing our existing footprint. An important dynamic in this is for us to follow where major corporations have centred their DX capabilities. Currently we are up and running in two delivery centres in the US, Chicago and New York and planning two more in Southern and Western US. We believe we can acquire small to midsize companies in these areas and scale them quickly on the back of our integrated DX proposition.

Dividend

The Board is recommending a maintained interim dividend of 0.65 pence per ordinary share, which will be paid on 10 May 2019 to shareholders on the register at 12 April 2019, with an ex-dividend date of 11 April 2019.

Outlook

We are making steady progress in shaping and aligning the component parts of our business to better access the considerable growth of the DX market. This work is ongoing. Whilst we remain mindful of current political uncertainty, we currently do not expect revenue to decline in our Strategy and Communication pillars in the second half. Our Innovation pillar has shown good growth in the period and we expect this to continue in the second half.

Whilst we still have much to do to generate higher returns from our businesses, we believe we are on track to meet the Board's expectations for Adjusted profit before tax for the current year.

J Schwan

Chief Executive Officer

14 March 2019

Condensed Consolidated Income Statement

Adjusted results exclude Adjusting Items to enhance understanding of the ongoing financial performance of the Group. Adjusting Items comprise of redundancies, restructuring costs; gain or loss on disposal of properties; impairment or amortisation charges related to goodwill, tangible and intangible assets; contingent consideration required to be treated as remuneration; movements in deferred consideration and costs related to the Company's Defined Benefits Pension Scheme. Further details are provided within Alternative Performance Measure section (note 14)

\* The results for the 189 days to 2 February 2018 have been re-presented to reflect the results of the Books and Marketing Activation segments as discontinued operations following their disposals in the prior period (note 11)

ϐThe results for the 189 days to 2 February 2018 and 371 days to 3 August 2018 have been restated for certain types of cost reclassifications (note 9)

Condensed Statement of Comprehensive Income

Condensed Statement of Changes in Equity

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

Condensed Consolidated Balance Sheet

Condensed Consolidated Balance Sheet (continued)

These financial statements were approved by the Board of Directors on 14 March 2019. 

Condensed Consolidated Cash Flow

1. Basis of preparation

The condensed financial statements have been prepared in accordance with IAS 34 "Interim Financial Statements" and in accordance with the Disclosure and Transparency Rules of the UK's Financial Conduct Authority ("FCA").

The financial information contained in these half year financial statements has been prepared in accordance with the accounting policies set out in the Group's Annual Report and Accounts 2018 except as described below, prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards as adopted by the European Union commission, and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The half year statements have not been audited but have been reviewed by the Company's auditor.

The financial information for the 181 days ended 31 January 2019 and prior half year (189 days) and full year (371 days) comparatives do not comprise statutory accounts for the purpose of Section 435 of the Companies Act 2006. The abridged information for the 371 days to 3 August 2018 has been extracted from Kin and Carta's Annual Report and Accounts 2018 which have been filed with the Registrar of Companies. The Auditors' report on the accounts of Kin and Carta plc ('Group') 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 except as described below.

IFRS 9 Financial Instruments

The Group adopted IFRS 9 Financial Instruments ('IFRS 9') for the financial period beginning on 4 August 2018.

Under the standard, trade receivables and cash will continue to be accounted for at amortised cost. IFRS 9 introduces an expected credit losses model, rather than the current incurred loss model, when assessing the impairment of financial assets. Given the historic rate of revenue loss and aging of the trade receivables, the expected loss model does not have a material impact on Group's opening retained earnings on application as at 4 August 2018 and the current period. Therefore in line with the transition guidelines in IFRS 9, the Group has not restated its financial statements for the current and prior period.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 Revenue from Contracts with Customers ('IFRS 15') was adopted by the Group for the financial period beginning on 4 August 2018. In accordance with the transition provisions, the new rules have been adopted using the simplified retrospective transition method. The transition to IFRS 15 did not have a material impact on the Group's opening retained earnings. As a result a reconciliation of retained earnings is not required. Following the adoption of IFRS 15, certain liabilities which were previously presented as deferred income are now presented as contract liabilities.

A number of amendments to IFRSs became effective for the financial period beginning on 4 August 2018. These amendments did not have any impact on the Group's accounting policies and did not require retrospective adjustments.

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 twelve months from the date of approval of the condensed consolidated financial statements and that, therefore, it is appropriate to adopt the going concern basis in preparing the combined financial information for the period ended 31 January 2019.

2. Segment reporting

The Group reports its results through one segment and with corporate costs shown separately. This is 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 as they are primarily responsible for the allocation of resources and the assessment of performance of the segment.

The operating segment includes all of the digital transformation brands; AmazeRealise, The App Business ('TAB'), Solstice, Edit, Pragma, Incite and Hive. The result of our joint venture, Loop, is also reported within this segment.

Results from continuing operations for the current period:

Results from continuing operations for the prior period ended 2 February 2018:

2. Segment reporting (continued)

Results from continuing operations for the prior period ended 3 August 2018:

Geographical segments

Revenue by geographical segment is based on the location where the provision of goods and services have been provided.

The Group derives 54% (2018: 55%) of the total revenue from customers located in the UK, 39% (2018: 38%) of the total revenue from customers located in the US and 7% (2018: 7%) from customers located in the rest of the world.

3. Acquisitions

The total impact on investing cash outflow in the current period relating to acquisitions made in prior periods is as follows:

4. Adjusting items

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

Restructuring items

The restructuring items in the current period include redundancy and restructuring costs of £0.8 million incurred by AmazeRealise, Hive, Incite, Edit and Head Office resulting from the shift to the Group's new proposition. The costs associated with disposed businesses of £0.4 million relate to redundancies and onerous lease commitments connected with disposal of the Group's Books and Marketing Activation segments.

Disposal of properties

The profit on disposal of property, plant and equipment of £1.9 million relates primarily to the sale of property and associated plant and machinery in Redditch.

Defined Benefits Pension Scheme costs

The Scheme charges include service costs of £0.4 million, a past service cost of £3.9 million relating to the equalisation of Guaranteed Minimum Pensions ('GMP') benefits between men and women, and costs in relation to running the scheme of £0.9 million (note 7). These items are recorded in corporate costs.

Costs related to acquisitions made in prior periods

Charges relating to the amortisation of acquired customer relationships, proprietary techniques and software amounted to £3.4 million in the current period.

In the current period, the tax credit of £1.5 million (2018 - £1.1 million) relates to the items discussed above.

5. Dividends

6. Earnings per share

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

Number of shares

Basic and diluted earnings per share

Continuing operations:

Basic and diluted earnings per share

Continuing and discontinued operations:

Adjusted earnings is calculated by adding back Adjusting Items, as adjusted for tax, to the loss for the period.

7. Retirement benefits

As at 31 January 2019 the Group reported a net deficit in respect of the Defined Benefits Pension Scheme (the 'Scheme') of £9.8 million compared to a surplus of £1.9 million reported as at 3 August 2018. This is due to an estimated increase in plan liabilities of £3.9 million as a result of a High Court ruling in relation to the UK deferred benefits pension schemes of Lloyds Banking Group. A consequence of this judgement is that the vast majority of UK deferred benefits pension schemes are now required to equalise benefits to take account of unequal GMP benefits between men and women. The Scheme was further adversely impacted by the investment performance in the later part of 2018 and early 2019.

8. Goodwill and Intangibles

At 3 August 2018 the Group held goodwill of £5.5 million and £0.3 million of intangibles in relation to Hive. As previously reported in the Annual Report and Accounts 2018, the forecasts and projected growth rates for Hive are highly dependent on a number of key clients. The impairment model at the half year assumes a projected five year revenue growth rate of 2.5%, a terminal term growth rate of 2.0%, and a pre-tax discount rate of 10%. Sensitivity analysis on the key assumptions included in the impairment model indicates that a reasonably possible decline in the growth rates or a reduction in forecast margin will potentially result in a further impairment of up to £5.5 million of goodwill and up to £0.3 million of intangibles.

9. Restatement

Previously the Group reported certain employee costs of the various businesses under cost of sales. The Group's accounting policy is to include these types of costs within selling costs and, accordingly, the comparatives have been restated to ensure consistency.

\* The results for the 189 days to 2 February 2018 have been re-presented to reflect the results of the Books and Marketing Activation segments as discontinued operations following their disposals in the prior period (note 11).

10. Notes to the consolidated cash flow statement

Reconciliation of cash generated from operations

Analysis of net debt

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

The effective interest rates on cash and cash equivalents are based on current market rates.

Analysis of financing liabilities

11. Disposals

Following the disposal of the Books and Marketing Activation segments in the prior period, the comparative period for the 189 days to 2 February 2018 has been re-presented in accordance with IFRS 5 Discontinued Operations and Assets Held for Sale.

Results of Discontinued Operations:

Adjusted results from discontinued operations are analysed below:

Adjusting Items from discontinued operations are analysed below:

12. Risks and uncertainties

With the exception of Brexit, the Board considers that the 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 36-41 of the 2018 Annual Report and Accounts, which is available on our website www.kinandcarta.com 

The potential economic impact of Brexit was previously highlighted as a risk and uncertainty. Additionally, the Board has since considered the impact on the international transfer of personal data in the event of a no-deal Brexit, which appears more likely now than when the 2018 Annual Report and Accounts was published. A relatively small proportion of the Group's activities, relating to the processing of personal data of data subjects in the EU, could be impacted in a no-deal scenario. A larger proportion of the Group's activities use tools and systems which in turn use international data centres or processors and this could be impacted in a no-deal scenario. To mitigate these risks, the Group plans to open an office within the EU to provide representation of the Group's EU activities.

In summary, the Group is subject to the following principal risks and uncertainties: ability to achieve growth targets, achieving scalability, challenges in bringing our businesses closer together, general economic conditions, the impact of Brexit, loss of key clients, attracting or retaining people, driving cultural changes, financing, volatility of the legacy defined benefits pension scheme and cyber security breaches. 

13. 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 financial statements.

On 5 November 2018, pursuant to the Directors' Deferred Bonus Scheme, a portion of the net bonus payable to the Company's Chief Financial Officer, Brad Gray, was used to purchase 64,174 ordinary shares in the Company from the Company's Employee Benefit Trust, on behalf of the Director, at a price of 94.5 pence per share.

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

The Group earned revenue of £45,000 (2018: £224,000) from Loop Integration LLC and the Group incurred charges of £19,000 for services received in the prior period. The Group also received a dividend of £382,000 and loan repayment of £494,000 in the prior period. At the reporting date, Loop Integration LLC owed the Group £74,000 (2018: £8,000) for services rendered.

14. Alternative Performance Measures ('APMs')

The Annual report includes both statutory and Adjusted results. In the management's view, the Adjusted results reflect the ongoing performance of the business, how the business is managed on a day to day basis and allows for a consistent and meaningful comparison.

The APMs are aligned to our strategy and are used to measure the performance of our business and are the basis for remuneration.

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

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

Adjusted operating profit is calculated by adding back costs relating to restructuring activities, acquisitions made in prior periods, the disposal of surplus property, impairment charges, movements in deferred consideration and the Group's Defined Benefits Pension Scheme. The tax effects of these adjustments are reflected in the Adjusted tax charge. The adjustments are detailed below:

1. Profit on the disposal of property plant and equipment and restructuring costs - these items are excluded in order to reflect the performance of the business in a consistent manner and how the performance of the business is managed on a day to day basis. They are not considered to be part of the core activities of the business.

They have arisen as a result of initiatives to reduce the cost base and improve efficiency and collaboration across the group. The initiatives reflect a significant change in the organisational structure of a business area are assessed on an individual basis and are excluded from the Adjusted results.

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

3. Contingent consideration required to be treated as remuneration, and increase in deferred consideration - our acquisitions, where deferred consideration arises, are structured such that the consideration payable to former owners who remain as employees is contingent on continued employment within the Group. Under IFRS3 this is treated as an expense. Where the purchase price has been determined initially based on assumptions around future deferred consideration and there is a subsequent increase or decrease arising from the reassessment of deferred consideration, under IFRS3 this is required to be expensed. We consider this not to be part of the ongoing trading performance.

4. Administrative expenses related to the Defined Benefits Pension Scheme - the Scheme was closed to new members in 2002 and ceased future accrual in 2008. There are now fewer than 10 employees who are members of the Scheme and employed by the Group. Following the disposal of the Books segment, Kin and Carta plc is the last remaining employer. The costs of the Scheme 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. 

The analysis of Adjusting Items from continuing operations is set out below:

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

Like-for-like revenue: The measure is defined as the revenue from continuing operations using the same number of working days when comparing the current period to the prior period. The Company moved to calendar month reporting from August 2018; the previous reporting cycle comprised of 52/53 week years. The number of working days in the current period was 129 against a comparator of 135 days. The comparator revenue has been adjusted to reflect an equal number of working days.

Adjusted operating profit: This measure is defined as the operating profit or loss less Adjusting Items.

Adjusted profit before tax: This measure is defined as the Group net profit or loss before tax less Adjusting Items.

Like-for-like Adjusted profit before tax: The measure is defined as the profit before tax from continuing operations using the same number of working days when comparing the current period to the prior period. The Group moved to calendar month reporting from August 2018; the previous reporting cycle comprised of 52/53 week years. The number of working days in the current period was 129 against a comparator of 135 days. The comparator operating profit has been adjusted to reflect an equal number of working days.

Adjusted profit after tax: This measure is defined as the Group profit or loss after tax before Adjusting Items:

Adjusted basic earnings per share: This measure is defined as basic earnings per share after Adjusting Items.

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

Adjusted EBITDA: This measure is defined as the Adjusted operating profit or loss before depreciation, amortisation, finance expense and taxation.

The Adjusted EBITDA for 189 days to 2 February 2018 has been determined on the basis of the Adjusted metric for continuing and discontinued operations for the purpose of calculating the ratio of net: EBITDA.

Net debt: This measure is calculated as the total of loans and other borrowings (both current and non-current), less cash and cash equivalents.

Net debt to Adjusted EBITDA: This measure is calculated by dividing Net Debt by Adjusted EBITDA. The Adjusted EBITDA for the prior year is based on continuing and discontinued operations.

15. Statement of Directors' Responsibility

The directors' confirm that these Condensed Consolidated Financial Statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

● an indication of important events that have occurred during the first six months and their impact on the Condensed Consolidated Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the financial period; and

● material related-party transactions in the first six months and any material changes in the related-party transactions described in the Group's Annual Report and Accounts 2018.

At the date of this statement, the directors are those listed in the Kin and Carta plc 2018 Annual Report and Accounts with the exception of the following appointments and resignations: 

Appointments: J Schwan - Chief Executive Officer - 4 August 2018

David Bell - Non Executive Director - 4 August 2018

Resignation: Matt Armitage - Chief Executive Officer - 4 August 2018

J Schwan

Chief Executive Officer

14 March 2019

The foregoing contains forward looking statements made by the directors in good faith based on information available to them up to 14 March 2019. Such statements need to be read with caution due to inherent uncertainties, including economic and business risk factors underlying such statement. 

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 181 day period ended 31 January 2019. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

∙ the Condensed Consolidated Balance Sheet as at 31 January 2019;

∙ the Condensed Consolidated Income Statement and Condensed Statement of Comprehensive Income for the period then ended;

∙ the Condensed Statement of Changes in Equity for the period then ended;

∙ the Condensed Consolidated Cash Flow for the period then ended; and

∙ the explanatory notes to the interim financial statements.

The interim financial statements included in the Half Year Results have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

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

14 March 2019