Annual Report and Accounts 2018
Time for a change...
St Ives has become...
“The digital transformation
market is large, growing and we
are well positioned to capitalise
on this opportunity.”
J Schwan
Chief Executive Officer
Almost a decade ago, St Ives set out to fundamentally shift its market
focus, geographical reach and financial performance in response to the
emergence of new technologies and extraordinary speed of innovation.
Our strategic plan was clear and has not altered: to become a strategic
services business, embracing digital opportunity. Today, our goal is to
become a market leader in digital transformation services.
With the backdrop of an unprecedented pace of consumer digital
engagement, businesses are rethinking their operations and the role of
digital methodologies in expediting change. The digital transformation
market is huge and growing, and we believe we hold a unique and
compelling positioning in this market. We already have exceptional
capabilities in the digital transformation space. As we put the building
blocks in place, we’re prepared for our most significant transition to date.
St Ives has become Kin + Carta. We’re a 1,500-strong global team
with both the size and the reach to support some of the world’s
largest companies to invent, market and operate profitable new
products and services.
We know instinctively that connectedness fuels growth. Our new
Connective business model will enable us to deliver the future,
for our clients, colleagues, and investors, in a profoundly new way.
OUR JOURNEY
2010
New strategy
The Group acquires its first
strategic marketing business,
Occam DM Ltd.
1981
Incorporation
The activities of the Group
comprised of printing, book
binding and the supply of
printing materials to the trade.
2013
Evolved
The Group extends its
digital capabilities by acquiring
Amaze Ltd.
2018
Re-launch
Following the disposal of the
last remaining print business,
the Group relaunches as
Kin + Carta.
WELCOME TO
Operational Highlights
• J Schwan appointed as CEO
• Strategic review complete
and new strategy announced
• Now positioned as a digital
transformation business
following the disposal of
Books and Marketing
Activation
• Continuing businesses
restructured and aligned
to new strategic focus
Financial Highlights
• Revenue growth of 9%
from continuing operations
(11% at constant currency)
• Adjusted profit before tax
up 38%
• Net debt reduced by 50% to
£26.0 million, representing a
net debt to Adjusted EBITDA
ratio of 1.1x (2017 – 1.6x)
• Pension scheme now in
small surplus of £1.9 million
(2017 – deficit of £16.0 million)
Continuing Operations2
Revenue
£178.4m
Adjusted profit before tax1
£18.5m
2018
2017
£178.4m
2018
£18.5m
£162.9m
2017
£13.4m
Adjusted basic earnings per share1
Statutory loss before tax
10.10p
2018
2017
£(31.2)m
10.10p
2018
£(31.2)m
7.27p
2017
£(19.2)m
Statutory basic loss per share
Full year dividend
(22.09)p
1.95p
2018
2017
(22.09)p
2018
(12.59)p
2017
1.95p
1.95p
Net debt
£26.0m
Continuing and Discontinued
Operations
Statutory loss after tax
£(29.2)m
2018
2017
£26.0m
2018
£(29.2)m
£54.6m
2017
£(43.4)m
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 St Ives Defined Benefits Pension Scheme (note 7).
2 Continuing operations excludes the results of the Books and Marketing Activation segments disposed during the year (note 8).
Further details are provided within Alternative Performance Measure section pages 29 to 32.
Kin + Carta Annual Report and Accounts 2018 01
OUR CONNECTED TRIBES
Read more about our strategy on page 9 and our business model on pages 10 to 11.
02
Strategic Report
04 Chairman’s Statement
06 Chief Executive’s Performance Review
09 Our Strategy
10 Business Model
12 Strategy in Action
26 Financial Review
29 Alternative Performance Measures
33 Key Performance Indicators
34 Business Review
36 Principal Risks and Uncertainties
42 Corporate Social Responsibility
48
Corporate Governance
50 Corporate Governance Report
54 Board of Directors
56 Audit Committee Report
58 Nomination Committee Report
61 Letter from Chair of Remuneration
Committee
63 Directors’ Remuneration Report
81 Directors’ Report
85 Statement of Directors’
Responsibilities
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86
Our Figures
88 Independent Auditors’ Report
to the Members of Kin and Carta plc
98 Consolidated Income Statement
99 Consolidated Statement
of Comprehensive Income
100 Consolidated Statement
of Changes in Equity
101 Consolidated Balance Sheet
102 Consolidated Statement of Cash Flows
103 Notes to the Consolidated Financial
Statements
150 Company Balance Sheet
151 Statement of Changes in Equity
152 Notes to the Company Financial Statements
160 Shareholder Information and
Financial Calendar
Kin + Carta Annual Report and Accounts 2018Strategic Report
02
Kin + Carta Annual Report and Accounts 2018 Strategic
Report
04 Chairman’s Statement
06 Chief Executive’s Performance Review
09 Our Strategy
10 Business Model
12 Strategy in Action
26 Financial Review
29 Alternative Performance Measures
33 Key Performance Indicators
34 Business Review
36 Principal Risks and Uncertainties
42 Corporate Social Responsibility
03
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Strategic ReportKin + Carta Annual Report and Accounts 2018Strategic Report
04
CHAIRMAN’S STATEMENT
A YEAR OF TRANSITION
Completing the transition to a digital
transformation business is a change of
significant magnitude which places people
and technology at the heart of our strategy.
It has been a momentous year.
We have completed the transition to a
non-print business, a strategy that spanned
almost a decade. We’ve unveiled a new
name, Kin + Carta, befitting of a new
people-driven business, and opportunities
for clients and employees created by
expanding operations in multiple markets.
A new CEO has also taken the reins.
Just over eight years ago, the Group was
100% print. Today, that figure has been
reduced to zero. It’s a change of significant
magnitude that puts us on the launchpad
for a very different strategy; one with
a powerful combination of people and
technology at its heart.
It would be remiss of me not to mention
the divestment of the print and books
businesses without highlighting the
commitment of all the people who
worked at them. Transitioning between
owners is not easy and we would like to
thank all those involved for their ongoing
commitment in the transition process.
Our change in leadership, with J Schwan
replacing Matt Armitage as CEO, is a
natural progression. J, founder and former
CEO of Solstice, previously spent time as
the Group’s Chief Digital Officer and has
vast experience of digitally-led business
transformation. Matt oversaw a period
of intense change with distinction and
integrity, and we owe him our gratitude
for his hard work.
Despite creating a group that is smaller
by workforce and turnover, profit margins
have already increased. This is driven
by a collection of digital and consulting
businesses that have a proven track record
of success.
As part of the long-term strategy, we have
focused on widening relationships with
our existing customer base. Many clients
initially came to us for print but asked us
to deliver other leading-edge services too,
such as digital and consultancy.
It’s important to note we have spread risk
across our client base. We are now far less
reliant on a handful of major customers
than in recent years, putting us on a firmer
footing. There is also huge opportunity
to connect clients with different partners
throughout the Group, which is a major
part of our strategy.
We have continued to build for growth,
merging Amaze and Realise to form
one larger agency, and aligning the
data businesses under the Edit banner.
In Pragma, Incite and Hive we have
a strong consulting division.
We encourage entrepreneurship within
the Group, which has led to the creation
of several new ventures during the past
few years. Moreover, we are building a
culture that allows resource to be shared,
and knowledge built, across businesses.
This will strengthen our offering while
giving employees new career opportunities.
Kin + Carta Annual Report and Accounts 2018 Kin + Carta Annual Report and Accounts 2018
05
Governance
There are additional changes to
the Board. We bade farewell to
non-executive director Ben Gordon
with thanks for his important contribution
during the past four years. We also
welcomed David Bell as non-executive
director. David was the former CEO of
Interpublic Group (‘IPG’), one of the largest
media services groups in the world. He has
been instrumental in building digital-first
organisations in the US, and is an adviser to
companies including Google and AOL. His
arrival signals our intent for the next phase
of growth at our digital businesses.
During this period of change we have
strengthened the balance sheet by
significantly reducing borrowing. We
continue to consider areas for growth,
including acquisition and international
expansion, and will update on these
opportunities when appropriate.
The Board takes its role in corporate
governance very seriously, implementing
rigorous and robust systems to meet the
high standards demanded by our investors
and the regulators. We are working to
ensure our compliance measures are
up to date in advance of changes to the
Corporate Governance Code, made by
the Financial Reporting Council, that will
come into force on 1 January 2019. These
include the annual election of directors –
which we have held for several years –
and a requirement for employees to have
a voice in the boardroom, a policy we are
currently reviewing.
Health and Safety
As ever, the Board takes health and safety
very seriously. While we may no longer be
a business operating heavy machinery and
fleet vehicles we remain committed to our
employees’ wellbeing.
RICHARD STILLWELL
CHAIRMAN
We are vigilant about physical and mental
health issues, and constantly review our
systems to make the Group a secure and
fulfilling workplace for every employee.
Outlook
The Board has maintained constancy of
purpose throughout the ups and downs
of the Group’s transition. There were
undeniably difficult periods but we
always tried to steer a steady course
through the changes.
We thank our investors, clients and
employees for their patience and support.
We can now look forward together with
optimism to a new era with the potential
for high growth and opportunities for all
stakeholders.
Richard Stillwell
Chairman
8 October 2018
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Strategic Report
06
CHIEF EXECUTIVE’S PERFORMANCE REVIEW
NEW FOCUS
The launch of Kin + Carta sets the seal on the
old St Ives. We are now a digital transformation
business with a growing number of the world’s
leading companies as clients.
Primary Drivers for Focus on Digital
$44bn
Global market for digital
transformation services
18%*
CAGR of market
1,500
Kin + Carta specialists
across the globe
* https://www.consultancy.uk/news/17223/digital-
transformation-consulting-market-accelerates-to-44-billion
Introduction
This has been a transformational year
for our business. During the period, we
successfully completed the disposals
of both our Marketing Activation and
Books segments, achieving our long-
term ambition of moving away from
our print legacy to focus solely on
digital transformation.
Our digital transformation businesses
now make up the entirety of the Group,
which relaunched to the market as
Kin + Carta on 2 October 2018.
Kin + Carta applies creativity, data and
technology to help the world’s largest
companies invent, operate and market
profitable new products and services.
Our digital transformation businesses
continued to deliver significant growth,
with revenue up 9% and a 38% increase in
Adjusted profit before tax over the period.
Performance Highlights
The Group’s revenue from continuing
operations was £178.4 million
(2017 – £162.9 million) which delivered
growth of 11% at a constant currency.
The statutory loss before tax from
continuing operations was £31.2 million
(2017 – £19.2 million), which includes
Adjusting Items of £49.6 million
(2017 – £32.6 million) of which
£47.8 million relates to amortisation
of acquired intangibles, impairment of
goodwill and intangibles related to Hive
and contingent consideration required
to be treated as remuneration (from
previous acquisitions).
The Group’s Adjusted profit before
tax from continuing operations was
£18.5 million (2017 – £13.4 million),
up 38%.
I am encouraged by our growth in the
past year, as well as the strengthening
of our balance sheet. In addition to
the disposals, we’ve also made several
strategic moves to prepare us for the
opportunity ahead.
We’ve merged Occam, Response One,
Amaze One and Branded3 into a new
communications proposition, Edit. This
move has allowed us to diversify away
from GDPR impacted service offerings.
I’m happy to say the new proposition is
resonating in the market with some
recent large global customer wins.
We’ve also merged our two digital design
and build agencies, Amaze and Realise into
one firm, AmazeRealise, now the largest
agency of its kind in the UK. This move
has allowed us to more easily position
AmazeRealise for international expansion.
We’ve also merged our retail property
consultancy FSP into strategy firm Pragma,
bringing a more comprehensive strategic
proposition to our retail client base.
Though our healthcare communications
firm, Hive, has struggled this year, we
are realigning its strategic positioning
with our new digital focus. Although this
represents a significant shift from its
current proposition, we are optimistic
that this will allow our healthcare
experts to focus on larger, more strategic
initiatives for Hive’s blue chip client base.
Overall these moves required a lot of
hard work by our teams and I’d like to
congratulate and thank them all. With
the majority of these costs being incurred
in the 2018 financial year, we can now
focus on the market opportunities we
see ahead of us.
Kin + Carta Annual Report and Accounts 2018
07
Our New Strategic Focus
In January 2018, we began a strategic
review of the Group’s businesses,
redefining our path forward. As a result,
we have defined a new set of core values,
a new strategy, a new organisational model
and a new brand.
The Group, now known as Kin + Carta,
is focused on becoming a global leader
in digital transformation services. Digital
transformation is increasingly vital for
businesses, who, in today’s increasingly
digital world, require a reset of their
company’s market strategy, offerings,
and ways of working, to ensure they
are grounded in new technologies.
There are four primary drivers for our
strategic focus on digital transformation:
1. The digital transformation services
market is large and growing quickly.
The global market is already $44 billion
in size and growing at a CAGR of 18%.*
2. Over 80% of Kin + Carta’s FY18 revenue
from continuing operations was being
driven from digital transformation
services (strategy, innovation and
communication): we have the critical
mass and the reach to succeed in this
market.
3. Our competitors, which include big
consultancies and large agency groups,
are finding it challenging to adapt to the
right operating model to succeed in this
space, leaving room for new entrants.
4. By combining our 1,500 specialists across
the globe into a joined up proposition, we
are competing successfully in this rapidly
growing market.
New Connective Operating Model
Over the past few months, we have
reorganised ourselves to integrate
our services into a single, well-rounded
operating model to match the evolving
needs of our clients and the ambitions
of our employees. We call this “The
Connective”.
The Connective is grouped into four
key service pillars:
• Strategy (where to play) – Our
strategists help our clients better
understand the shifts in their market
and the potential digital brings.
• Innovation (what to build) – We utilise
emerging technologies to create new
products and services for our clients to
bring to market.
J SCHWAN
CHIEF EXECUTIVE OFFICER
• Communication (who to tell) – We help
our clients find new audiences online and
convert those audiences into customers.
• Transformation (how to work) – We
integrate next-generation software and
teach our clients agile ways of working
to adapt to a rapidly changing world.
Although there is still much work to do,
we are encouraged by the collaboration
of the nearly 200 employees across the
businesses who were involved in creating
The Connective operating model. In
our early market tests, The Connective
is being positively received with both
new Connective customer wins and
the expansion of some existing client
relationships. New global clients such
as Rockwell Automation, Kwik Fit and
Gallagher are already leveraging multiple
Connective services.
Our new Brand, Kin + Carta
We felt it was important to create a new
identity for our new business. Although
St Ives will forever be a proud part of our
history, our new strategic focus was a
prime opportunity to pick a name reflecting
our position in an increasingly digital world.
The name Kin + Carta embodies what
The Connective stands for: connection,
collaboration and courage.
Growth Catalysts
There is a significant growth opportunity
in front of us for which we have identified
five key areas of focus for our management
team:
Scaling our Sales Functions –
The Connective proposition will significantly
aid the cross-selling of our services. We
will be adding central sales capabilities
to support larger Connective business
opportunities. We will also draw on the best
practices of our fastest growing businesses
and ensure each business’ sales function is
set up to adopt what’s best in class.
Deepen Sector Focus – Instead of
trying to be everything to everybody,
we will use the sector strengths of our
strategic consultancies to focus on the
sectors where our businesses possess
differentiating experience. These include
Financial Services, Transportation, Retail
and Distribution, Healthcare, Industrials
and Agriculture.
Geographic Expansion – We will bring the
Communication portion of The Connective
proposition to the Americas, leveraging our
already strong presence in Chicago, New
York, San Francisco and Buenos Aires.
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Strategic ReportKin + Carta Annual Report and Accounts 2018Strategic Report
08
CHIEF EXECUTIVE’S PERFORMANCE REVIEW continued
Acquisitions
Acquisitions will be an important component
of our growth strategy in the medium
term. We will focus on acquiring digital
capabilities with significant scale that can be
fully integrated into our existing Connective
proposition. Our strategy will be driven
by acquiring complementary skill sets and/
or geographic reach: growing our existing
business in the US is an example of this.
We do not delude ourselves: we will
be competing for these businesses or
teams with the very best companies in
the world. However, we believe that as a
nimble and young Group, driven by the
entrepreneurial culture embedded in the
non-hierarchical Connective structure
that we can offer something different and
appealing to the opportunities we identify.
We have already started the process.
Outlook
Trading at the start of the new financial year
has been in line with expectations, with a
strong pipeline and a number of exciting
project wins from existing and new clients.
With our recently strengthened balance
sheet, clarity on our priorities and the
people and structure in place, I believe the
future for Kin + Carta is very bright indeed.
J Schwan
Chief Executive Officer
8 October 2018
New Capabilities and Ventures – We will
continue to invest in new capabilities, for
example, expanding our new and fast-
growing Artificial Intelligence (‘AI’) practice.
We have also created a new venture
model to encourage The Connective’s
‘intrapreneurs’ to develop new business
ideas that strengthen The Connective
proposition.
Financial Targets
To accelerate our organic growth rate,
over the new financial year we intend to
make an investment of £2.0 million in our
central marketing and sales capability.
Although this investment could be rolled
out gradually over the next few years,
we’ve made the decision to fast track this
initiative to take advantage of the market
opportunity in front of us. This is a real
cost to the business that may impair
our earnings for the 2019 financial year,
but we believe the payback thereafter
will outstrip the short-term drag on
profitability.
The regrouping of the business into The
Connective also affords us opportunities
to create synergies and cost savings to
further boost our organic growth.
As a result we expect, for the 2019 financial
year, to see mid-single digit revenue
growth at constant currency and Adjusted
operating margin of greater than 10%
as we make the investment for future
growth. In the 2020 financial year and
beyond, we expect double digit revenue
CAGR and a minimum 12% margin.
We also expect to manage net debt to
EBITDA down to below one times by
the end of the 2020 financial year.
Kin + Carta Annual Report and Accounts 2018 09
OUR STRATEGY
POISED TO BE A MARKET
LEADER IN DIGITAL
TRANSFORMATION
SERVICES
There is a space for a new proposition that
combines the wants of top talent and the needs
of enterprise clients anxious to transform in an
increasingly digital world.
Kin + Carta is perfectly positioned
to capitalise. Our global workforce is
1,500 strong, and our employees’ digital
capabilities have been built from the
ground up to address today’s challenges.
We are big enough to matter but small
enough to remain agile to the changing
market forces.
With a fresh new focus on the power
of Connected Customer Experiences,
we’ve questioned the strengths and
weaknesses of today’s digital servicing
models and created a new organisational
structure to deliver the future. The result
is our transformation from a group to
a Connective.
Kin + Carta is strategically focused on
becoming a market leader in digital
business transformation services, which
is the restructuring of businesses and
their organisational models to leverage
the opportunities that new digital
technologies are providing.
The Connective, our new organisational
model, was created to integrate
Kin + Carta’s services into a digital
transformation proposition and to
respond to the career aspirations
of our people.
Read more about our Connective
proposition in our Business Model
on page 10.
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Kin + Carta Annual Report and Accounts 2018Strategic Report
10
OUR BUSINESS MODEL
A UNIQUE PROPOSITION
We deliver transformative growth for the world’s
leading organisations. Combining strategy, innovation
and communication, we help our clients invent, operate
and market new digital products and services.
The Connective
CTED
E
N
N
O
C
STRATEGY
C
U
S
T
O
M
E
R
TRANSFORMATION
COMMUNICATION
INNOVATION
EXPERIEN C E S
The Connective proposition is a set of
integrated next generation technology,
marketing and consulting capabilities to
help transform our clients for the digital
age. The proposition is grouped into four
key service pillars:
Strategy
Our strategists help our clients better
understand the shifts in their market and
the potential digital brings.
Innovation
We utilise emerging technologies to create
new products and services for our clients
to bring to market.
Communication
We help our clients find new audiences
online and convert those audiences
into customers.
Transformation
We integrate next-generation software
and teach our clients agile ways of working
to adapt to a rapidly changing world.
Kin + Carta Annual Report and Accounts 2018
11
A winning
team
The Connective’s unique organisational
structure attracts the best talent. Empowered by
a belief in networks over hierarchies, our experts
are able to thrive in their own “tribes” while
connected to other specialists through a red
thread of culture, values and ways of working.
As a people business, creating an award-winning
employee experience is key to the continued
growth and success of Kin + Carta. We believe
happy employees want to be part of a winning
team, so we will continue to invest in our
employee experience through ongoing training,
social, health and wellbeing initiatives.
T h e value we create
G rowth catalysts
An engine
for growth
The Connective is an engine for growth in a
large and fast growing market. Its joined-up
proposition provides a platform for expanding
into new regions, integrating new acquisitions
quickly and providing an incubation bed for
new ventures.
The Connective model allows us to grow cash
flows for accelerated investment and balance
sheet strengthening in the near term, while in
the longer term providing us with the ability to
share additional returns with our shareholders.
Our People
Shareholders
Scaling our
sales function
Deepen sector
focus
a
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e
L e v
g e t he assets we h
a
v
e
THE CONNECTIVE
E
x
p
a
n
d our capabil i t i e s a
d r e ach
n
Geographic
expansion
New capabilities
and ventures
Clients
The
Community
Transforming
businesses
By combining strategic consulting, next-
generation product development and digital
communications, we help legacy enterprises
transform into high growth digital businesses.
Our Connective structure allows us to attract
the best talent into our specialisms while
offering a holistic transformation proposition
to our clients.
for our stakehol d e r s
Making a
difference
We aim to leverage our unique capabilities to
make a difference in the societies in which we
operate. You can read more about our social
responsibility activities in the Corporate Social
Responsibility Report on pages 42 to 47.
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Kin + Carta Annual Report and Accounts 2018Strategic Report
12
nnual Report and Accounts 2018
STRATEGY IN ACTION
UNITE+ DISRUPT
ROCKWELL
One of Rockwell Automation’s
top priorities is to simplify its
customers’ experience. Its
Digital Business Transformation
Unit (‘DBx’) is tasked with
achieving that goal, and
Solstice is a key digital
innovation partner.
After mapping out customer journeys
for Rockwell’s key customer segments,
Solstice and the DBx team realised that
“random acts of digital” cost customers
three million man hours every year.
Following hard on the heels of
re-evaluating Rockwell's “browse-to-
order” customer experience in 2016,
Solstice and AmazeRealise helped
the company design, build, and launch
myRockwellAutomation from late 2017.
myRockwellAutomation is a personalised
environment for Rockwell Automation
customers that aggregates digital activities
to ensure a connected, streamlined
experience across critical touchpoints
and applications.
Search strategy was tackled first. The team
conducted a technology selection process,
installed and configured a new search
platform, and created a pilot experience
to test it.
As a result, Rockwell Automation was
able to release an entirely new search
experience to customers in less than nine
months. Solstice and AmazeRealise are
currently replacing Google Search across
the organisation. Future builds will use
the platform as a foundation, and will be
powered by machine learning, making
searches personalised and conversational
in nature.
The Kin + Carta businesses also joined
forces with Rockwell Automation’s IT
security team to deliver a new log-in
and registration system, retiring three
legacy applications. The updated system
brought more than 400,000 existing users
under a new access management solution.
myRockwellAutomation is at the heart
of the solution enabling Rockwell
Automation to deliver a more simplified,
differentiated digital experience for
customers. Solstice is proudly helping to
drive the strategy and implementation of
their vision. The search-forward platform
brings together information from every
corner of the business, features single
sign-on capabilities and visualises smart
plant equipment. Early conversational UX
prototypes are also delivering information
via chat functions to people on Rockwell
Automation’s plant floor.
myRockwellAutomation is at the heart of the
solution enabling Rockwell Automation to
deliver a more simplified, differentiated digital
experience for customers.
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14
STRATEGY IN ACTION continued
EVOLVE+ TRANSFORM
A modern software engineering
approach was employed to enhance
digital product development. It has
successfully removed obstacles that
previously impeded innovation, and
their in-house technical teams have
been transformed into cloud-based
Continuous Integration and Delivery
operations. Customers benefit hugely,
with CX improvements delivered in
real time. Previously, they would have
taken months to implement.
Solstice’s partnership with Gordon
Food Service has created a next-
generation ordering platform that is
exceeding customer expectations and
allowing the business to differentiate.
The team continues driving innovation
on the platform, using a scaled agile
framework model that enables around
80 programme team members to stay
involved in delivery and development
with confidence. Gordon Ordering was
piloted in summer of 2018 and is rolling
out to its Canadian customers in the
fall of 2018.
GORDON FOOD
SERVICE
Modernisation was the
key to future success for
Gordon Food Service. North
America’s largest privately
held foodservice distributor
was seeking to differentiate
its brand against existing
competitors and new entrants.
Additionally, Gordon Food Service
maintained separate ordering systems
for Canada and the United States and
averaged a 10-week cycle to release
for new system enhancements. The
company seized the opportunity to
deliver a single platform across
North America that felt like more of a
business to customer (‘B2C’) experience,
providing customer value in new ways.
Gordon Food Service required a
partner that could accelerate product
development under a blended team
approach to upskill its own employees
for the long term. It brought in
Solstice’s Customer Experience
Driven Development (‘CXDD™’).
From a CX perspective, Gordon Food
Service and Solstice established ongoing,
iterative feedback loops with customers
as the new normal. Allowing them to gain
increased confidence in features before
they were developed, while at the same
time, responding to feedback once live in
production. As a result, they dramatically
simplified the ordering experience in
a clean, intuitive design anchored on a
first-class search experience.
The company also needed to strike
a balance between new-found
speed to market and complex
legacy systems. A disciplined focus
on product management and the
creation of a Minimum Viable
Experience for premium customers
was the answer. The team delivered
a new ordering experience, piloted
among Canadian customers,
in just over 200 days.
Kin + Carta Annual Report and Accounts 2018
15
multiple digital Railcards could be
checked on mobile devices in the
short ticket inspection timeframe.
Usability issues were identified
and addressed early.
The Railcard app has built-in security
features to reduce fraud, including
an innovative digital hologram. It is
fully coded, using a mobile phone’s
existing sensors to generate non-linear
movement visible as the hologram’s
“sheen”. This makes it difficult to predict
and replicate.
The app’s use of background
updates is another key feature. It’s
a straightforward way to check any
Railcard is valid. Cards that aren’t
valid become locked when opened.
Background updates also allow
customers to avoid an anxious wait
for the Railcard to load during a ticket
inspection.
Because even low-level updates impact
battery life and data use, TAB’s engineers
harnessed native aspects of iOS and
Android technology to implement two
types: friendly and mandatory. There’s
less impact on battery life and data, while
Railcard security is robustly assured.
Result: improved user experience.
In just over three months, TAB and
RDG successfully transitioned National
Railcards to a digital format. Customer
response has been remarkable: the
Railcard app now boasts more than
300,000 monthly active users, and
fraudulent cards have been reduced
to zero.
Down the line, the app will provide a
highly flexible foundation for RDG to
rapidly test and release new Railcards
– such as the proposed new ‘Millennial’
26-30 Railcard.
RAILWAY
DELIVERY GROUP
Thanks to products like Apple
Wallet, customers increasingly
access cards and tickets via
mobile devices – whether
paying for a coffee or checking
in for a flight. It’s often
surprising, therefore, to find
that many services still rely
on physical tickets.
National Railcards save train passengers
across the UK up to a third on their
fare but the paper and plastic ticketing
system was in need of transformation.
The Rail Delivery Group (‘RDG’), which
represents the UK’s leading train
operators, recognised the risk of fraud
and inefficient processing. A delay of
up to five working days between
applying for and receiving a Railcard
was responsible for a loss of almost
7% of potential customers.
RDG wanted a smarter, more
efficient solution. It turned to TAB
for its extensive transport sector and
mobile-specific expertise. TAB led an
intensive, two-week Discovery phase
to clarify the product vision, and user
and business outcomes. The decision
was made to transform Railcards from
physical to digital.
Three clear customer outcomes
emerged. TAB conducted extensive
user research at London train stations,
testing prototype solutions directly
with passengers. The team uncovered
experiences and pain points of Railcard
users - from students to the elderly.
Wireframes and prototype designs went
through rapid iteration, informed by fast,
direct feedback loops.
TAB and RDG team members
also boarded trains to test solutions
with a second key user group: revenue
protection inspectors. Sessions across
train operating companies ensured
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STRATEGY IN ACTION continued
CREATIVITY+ CRAFT
The elegant experience was translated
into 18 languages and rolled out to 39
pan-European markets, winning a
Favourite Website Award. It created a
strong connection with Lexus website
visitors, garnering the following results:
• Completion rates of up to 55% – which
was very strong for a 10-step experience.
• 7% of users who saw Takumi Cat content
tried the Lexus car configurator and 0.6%
accessed the test-drive form.
• In the UK, Origami Cats users shared
their experience on social media,
advocating both the game and Lexus.
Christophe Meulemans, Communications
Manager, Lexus Europe, said: “Takumi
Craftmanship is key for Lexus. Lexus
Takumi masters are trained for 25 years to
master all their skills. We used imaginative
technology to create an interactive test
of speed and dexterity that centres on
the Japanese art of paper folding. We’re
delighted with the results our long-term
partner AmazeRealise has delivered,
providing a more-than-solid foundation
for ongoing digital transformation of
our business, while supporting us as we
establish Lexus as a global luxury
lifestyle brand.”
LEXUS
Lexus challenged AmazeRealise
to change perceptions of the
company by creating a digital
presence that would help the
marque stand out and signal
its transition to a global
luxury brand.
Takumi Cats was one component devised
to help Lexus achieve its objective of
helping customers “Experience Amazing”.
AmazeRealise developed the campaign
to support Craftmanship, one of four
key Lexus pillars. Takumi Masters can
fold paper into an origami cat in less than
90 seconds with their non-dominant hand.
Lexus Takumi masters are trained for
25 years to master all their skills, and
exemplify every aspect of craft and
quality that Lexus stands for. The agency
aimed to capture this by allowing users
to experience being a Takumi Master.
AmazeRealise created an interactive story
on the Lexus website that was in keeping
with the brand. The goal was to encourage
repeat visits and sharing on social media.
The challenge was based on Lexus’
expertise in developing and using cutting-
edge technologies. However, many of
the manufacturer’s most renowned skills
vastly predate the digital age. The origami
challenge beautifully illustrated this notion.
Users could experience a game simulating
the origami task through a new, unique
experience. They were asked to perform
a series of on-screen drawings that
followed the exact steps of folding an
origami cat, using their non-dominant
hand just like the Takumi.
“We’re delighted with the results our
long-term partner AmazeRealise has
delivered, providing a more-than-
solid foundation for ongoing digital
transformation of our business.”
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STRATEGY IN ACTION continued
ADVISE+ EMPOWER
BENCH
Bench is a successful Kin + Carta
venture that was developed in
response to our team identifying
a gap in the market for both
trusted and highly skilled
experts that are equipped to
support all aspects of a client’s
business transformation.
Dan Telling, Bench’s Managing Director,
spotted how big technology, consulting
and resourcing businesses were all failing
to provide clients with what they really
need: the ability to access experts in
both vertical consultancy and specialist
technology.
In order to address this need, Bench was
built to put the emphasis on knowledge
transfer and empowering clients to
“do it for themselves.” Bench’s vastly
experienced team of connected specialists
provide unmatched skill around the
implementation of marketing and
information management technology,
including Adobe, IBM, SAS, and Pitney
Bowes, as well as business and strategic
consulting that rivals the traditional
systems integrator model.
This unique and flexible associate model
gives clients access to best-in-class
technology and consulting expertise from
more than 600 specialists in the UK alone.
Bench has enjoyed spectacular 83%
year-on-year revenue growth and has
increased its client base to over 50 clients
that leverage the organisation’s end to
end services across three distinct areas:
1) Bench Consulting – providing
strategy, integration/implementation
and application services that rival the
traditional systems integrator model
to clients such as Kwik Fit, Ryanair,
Southern Co-operative, Investec
and the Royal National Lifeboat
Institute.
2) Bench Software – offering advice
and service around the purchase of
technology and software to clients
such as Sainsbury’s, Interflora and
sofa.com.
3) Bench Talent – tapping into the deep
expertise, insights, market trends and
challenges informed by the consulting
and software areas. This stream
delivers high-quality options to clients
in relation to permanent, contract,
retained services, headhunting,
search and selection, as well as staff
augmentation. It supports clients
such as Ernst & Young, Reach plc
and Fly Victor.
Bench also provides services to
Kin + Carta’s digital transformation
businesses to support resourcing and
software requirements. This service has
become a crucial part of The Connective
client delivery team leading to significant
savings and multiple new opportunities
for the businesses.
Andy Lane, Marketing Director of
Kwik Fit, said: “Bench immediately
understood what we were trying to
achieve. We especially liked the fact that
the senior experts were so involved in the
project. The depth of the expertise they
demonstrated from the start made us feel
in incredibly safe hands.”
“Bench immediately understood
what we were trying to achieve.
We especially liked the fact that
the senior experts were so
involved in the project.”
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STRATEGY IN ACTION continued
GOALS + TARGETS
RAC
Fleet management is a key
part of RAC’s business. A major
customer was having an issue
with one of its van models. The
automotive services company was
aware of the issue, but predicting
individual vehicles breaking down
and fixing them before it happened
was proving tricky.
RAC believed its connected vehicle technology
could offer a potential solution. It asked Edit
to develop a system that would capture
live vehicle data and apply RAC predictive
breakdown algorithms in real time.
Edit created a real-time cloud-based process
to monitor, evaluate, decide and execute
algorithms and one or more actions based
on every single telematics message issued.
The system is capable of processing more
than five million messages per day, involving
almost 40 database calls, more than 10 web
service calls, five communication channels
and 60-plus logic points.
Edit’s system processes messages from
thousands of vehicles, resulting in more
than 50,000 vehicle faults proactively
notifying customers of issues before they
result in breakdowns.
One of RAC’s customers is saving an
estimated total of 7,000 days of vehicle
downtime per year. The proactive
notification of faults allows engineers
to plan roadside repairs. This prevented
them from breaking down and requiring
attention from a dealer, which can
result in a vehicle being off the road
for several days.
The solution’s reach has been extended,
with captured data now used to send
each driver a Fitbit-style engagement
email that offers information on:
vehicle health; safety and efficiency
driving scores; fault warnings; distance
and journey data; and driver scoring
comparisons.
Kin + Carta Annual Report and Accounts 2018 21
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Just as England defied expectations on
the pitch, #AutoTraderGoals smashed
all targets around competition entries
and engagement rates. The brand
activation led to the hashtag – used
270,000 times – dominating social
media chatter when England played.
It trended in the top 10 for the UK on
Twitter after every goal, often being
the only brand within the top 20. There
were more than 100,000 competition
entrants, and the campaign boosted the
brand’s social following by 7%.
The primary objective for
#AutoTraderGoals was to raise
awareness of its new car offering. Of the
250,000 visitors to the campaign landing
page, 41% stayed onsite, of which 22%
went on to search for a new car. The huge
public and media interest in the campaign
also boosted Auto Trader’s search
rankings from 8th to 1st for “new car”
keywords. It came top for brand mentions
during the tournament, with 21% share
of voice compared to Coca-Cola’s 17%
and Visa’s 9%.
Lei Sorvisto, Audience and Brand
Director, said: “The engagement
from brand new audiences was
phenomenal, both in terms of its
volume and sentiment. The depth
of planning and preparation from
the team that went into allowing
us to behave in that responsive
way was a critical success factor.”
AUTO TRADER
Disrupting the World Cup
by winning the hearts and
minds of the nation with
#AutoTraderGoals.
The World Cup 2018 was a success
for England and Auto Trader wanted
to play its part. The brand turned to
AmazeRealise to help it disrupt the
tournament with the aim of trending
during England matches.
The premise for #AutoTraderGoals
was simple: every time England scored,
Auto Trader would give away a new car.
Entrants were only required to post
#AutoTraderGoals for a chance
of winning.
The strategy employed a “tease,
fanfare, sustain” model to optimise
budget spend and brand amplification
during the campaign period. More than
90 assets were created to build and
maintain momentum; from a launch
video featuring the cars being driven
around a football pitch, to a spoof
film starring Auto Trader’s miserable
“finance director”.
The playful content and tone of voice
captured the mood of the nation as
everyone got swept up in England’s
surprise success.
An hour before each England match
began, Twitter’s “Like to Remind”
technology was harnessed to deliver
95,500 notifications to users’ phones.
The opt-in rate for this timely reminder
was 95%. Alongside this, the intensive
“war room” set up on match days
ensured Auto Trader could react in real
time to what was happening on the pitch.
AmazeRealise’s responsive approach
helped deliver 160,000 individual
engagements during the campaign.
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STRATEGY IN ACTION continued
INNOVATE + ENABLE
Beyond client delivery, we have also
rolled out a collection of research and
development (‘R&D’) experiences to
showcase how AI can transform and
enhance our daily lives. Solstice’s
BrAInwave, which debuted earlier this
year at the firm’s annual Solstice FWD
digital innovation symposium, combined
seven best-in-class AI technologies.
These included computer vision and
text sentiment analysis to create a
networking experience that connected
participants on a deeper emotional
level. KoKo, another AI-powered
Solstice creation unveiled at Google’s
2018 National User Conference,
leverages image recognition to identify
and translate American sign language,
so hearing impaired people can more
easily communicate.
Solstice and Edit believe AI projects will
be a new revenue stream by the end of
2019, with AI as a focal point for most
of the businesses’ projects within the
next two to five years. The remarkable
potential of AI technology, coupled
with the recent formalisation of AI
practices within Kin + Carta, establishes
AI-driven innovation as the fuel for the
Connective Intelligence.
NEW CAPABILITIES
Artificial intelligence (‘AI’)
technology has been around
for nearly six decades. Yet
recent innovations in machine
learning, conversational
interfaces and cloud
computing make AI a hot
prospect in the digital
landscape. There is huge
room for growth as enterprise
clients are only just beginning
to experiment with this
revolutionary technology.
Kin + Carta businesses Solstice and Edit
have both launched formal AI practices
this year as we seek to capitalise.
Solstice has delivered over 10
intelligent experiences (chatbots,
voicebots and robotics) across various
industries such as agriculture, industrial
automation, and financial services.
Specifically speaking, the Solstice team
has created experiences that leverage
machine learning for farmer crop yield
predictions, enable customers to find
products through intelligent search
experiences and reduce customer churn
through tailored, personal insights for
customers.
Edit is also developing its machine
learning practice with a special
focus on personalisation, predictive
modelling, text mining, natural
language processing and clustering.
The business aims to enhance both
enterprise understanding and customer
experience through the lens of AI.
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DEEPEN SECTOR
FOCUS
Our deep industry expertise
allows us to define our
clients’ issues and create
meaningful change for
them. We help set the pace
for innovation and market
response. Verticalisation
enables fine-tuning of
product design, targeting
of well-defined audiences
and establishes clients as
the authority in a particular
sector.
Kin + Carta possesses businesses
with significant vertical strength.
These include:
• Hive – a leading healthcare
strategic consulting and
communications business that
serves many of the world’s leading
healthcare companies.
• Incite – an award-winning strategic
marketing consultancy with offices
in Europe, Asia and North America,
working with many major consumer
brands, such as Heinz, Virgin Trains,
McDonald's and Samsung.
• Pragma – a leading retail specialist
counting industry operators and
investors among its clients, such as
Pret A Manger, Cath Kidston and
Mountain Warehouse.
The Connective is also strong in
financial services, transportation,
industrials and agriculture.
Using The Connective’s global team
of teams, our vertical and capability
experts work with clients to achieve
growth by optimising every customer
touchpoint. The data is primed to
generate new products, services and
customer experiences for our clients.
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STRATEGY IN ACTION continued
GROW + EXPAND
SCALING OUR
SALES FUNCTION
The Connective’s growth will be
founded on the strength of our
demand generation efforts.
Kin + Carta will increase investment
in demand generation teams within
each of its businesses for years to come.
In practice, this includes rolling out proven demand
training to new business and client service teams.
We will also throw additional focus on filling vacant
new business and senior client service roles.
As each organisation continues to grow, revenue
will be reinvested into sales teams. They will be
empowered to build market awareness, uncovering
new opportunities around Connective propositions.
We will produce more global events, designed to mirror
Solstice’s industry-leading, annual innovation summit,
Forward (‘FWD’). Featuring digital innovation accelerators
by TAB, as well as teams and clients from AmazeRealise, this
year’s FWD enticed more than 500 executives and digital
leaders for a full-day symposium that continues to be a key
demand generation tactic for Solstice and Kin + Carta as a
whole. Leaders across the Group plan to host events like
FWD globally with a focus on showcasing various
organisations within The Connective.
Kin + Carta Annual Report and Accounts 2018
25
GEOGRAPHIC
EXPANSION
Solstice’s Buenos Aires
office, which opened in
2014, gives Kin + Carta a
strong foothold in South
America. The city boasts a
strong talent pool proficient
in English and a time zone
and culture that align with
partner offices in the US.
The office in Argentina offers multiple
services to clients and has doubled in
size rapidly as a result of early strategic
success. Leveraging a managed
services strategy and a group of
skilled production support specialists,
including an exceptional in-house
employee experience (‘EX’) team,
Solstice delivers client experience that
far outweighs expectations.
Blended teams are deployed on
projects, allowing greater flexibility,
communication and delivery of
more holistic client experiences. This
approach builds trust and regularly
results in repeat client work with
leading enterprises such as Rockwell
Automation, Bosch and COUNTRY
Financial, as well as numerous referrals.
Development, quality assurance, user
experience design and product design
are all significant areas of focus for the
Argentina head quarters. Mirroring
growth practices across Solstice,
further expansion is also planned in
Artificial Intelligence, machine learning,
cloud services and other platform-
specific capabilities. Meanwhile,
internal training and coaching will
underpin sustainable growth.
Collaboration, encouraged throughout
The Connective, is key for the Buenos
Aires team. It engages regularly
with sister offices to ensure smooth
handovers across specialists based
in diverse locations. Meanwhile, the
team will work in tandem with other
Kin + Carta businesses including Edit,
AmazeRealise and Bench to strengthen
the partnership culture.
With a strongly proactive strategy
for future growth, Buenos Aires is
poised to become an integral part
of Kin + Carta’s future success.
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FINANCIAL REVIEW
POISED FOR
FURTHER GROWTH
The year saw revenue grow by 9%
and Adjusted Operating Profit* by 29%.
Financial Highlights
+11%
Growth revenue
at constant currency
+38%
Adjusted profit before tax*
Overview
After a transformational year, the
Group which is now entirely focused
on higher growth, higher margin digital
transformation businesses (previously
referred to as Strategic Marketing).
The disposals of our legacy Marketing
Activation and Books segments have
been treated as discontinued operations
for both the current and comparative
periods within the Consolidated Income
Statement. The results that follow
are discussed in terms of continuing
operations. The results are for a
53 week period compared to the
prior period of 52 weeks.
A. Statutory results
53 weeks to 52 weeks to
3 August 2018 29 July 2017
The Group’s statutory results are
set out in the table A.
Revenue
Statutory loss before
interest and tax
Statutory loss
before tax
Basic loss per share
£178.4m £162.9m
£(28.2)m £(15.5)m
£(31.2)m £(19.2)m
(22.09)p
(12.59)p
* Further details are provided in the Alternative Performance
Measurements section on pages 29 to 32.
The Group’s statutory loss before tax
of £31.2 million (2017 – £19.2 million)
includes Adjusting Items of £49.6 million
(2017 – £32.6 million), of which
£47.9 million relates to non-cash items
in the current period. Adjusting non-cash
items include contingent consideration
treated as remuneration of £24.0 million,
an increase of deferred consideration of
£3.1 million, the impairment of goodwill
and acquired intangibles of £12.1 million
and the amortisation of intangibles of
£8.7 million.
The Group prepares Adjusted results,
which, in management’s view reflect
how the business is managed and show
the performance in a manner consistent
with the previous year. Adjusted results
exclude items such as costs related to
restructuring activities, acquisitions
made in current and prior periods,
disposal of sites, impairment charges
and St Ives Defined Benefits Pension
Scheme charges. Further details are
provided in the Alternative Performance
Measures section on pages 29 to 32.
The Group delivered revenue growth
of 9% and a 29% increase in Adjusted
operating profit from £16.4 million to
£21.2 million.
Revenue and Adjusted
Operating Profit
Revenue growth at constant currency was
11% (£18.7 million) offset by a 2% adverse
currency impact. Revenue at constant
currency grew by 23% in the first half and
1% in the second half reflecting a softer
comparative in the first half of the prior
year. There was a 2% negative contribution
from currency translation in each half.
Revenue generated from clients
located outside of the UK increased
from £63.6 million to £79.6 million over
the financial year, and now represent 45%
of Group revenue (2017 – 37%).
The Adjusted operating profit increased
from £16.4 million (Adjusted operating
profit margin of 10.1%) to £21.2 million
(Adjusted operating profit margin
of 11.8%).
A significant amount of restructuring
has taken place during the year to
improve the offering to clients and
also operational efficiencies within the
business units. This has reduced the
cost base and improved the Adjusted
operating margin from 10% to 12%.
The General Data Protection Regulations
(‘GDPR’) that came into force in May 2018
affected our data brands. Clients have
withdrawn from certain marketing activity
and our data brands have repositioned their
market offering to accommodate the new
regulations. During the current period, we
have focused on ensuring that our brands
meet the requirements of GDPR. Our
new proposition is finding resonance with
clients as they redirect marketing spend
into new areas.
Kin + Carta Annual Report and Accounts 2018
27
Our healthcare brand has seen some
weakness in revenue primarily due to
a number of clients seeking a network
solution to their communication strategy.
As a result an impairment charge of
£11.8 million was recorded as an
Adjusting Item relating to Hive’s
goodwill and intangibles. Recent new
client projects have improved revenue
visibility in this sector.
Central costs were £5.3 million
(2017 – £4.4 million). The Group has
separately identified these central
costs that cannot be directly attributed
to the individual trading entities of the
Group. Central administration costs
represent 3% of Group revenue.
Central costs comprise the costs of running
the executive office, which includes the
Board, a central finance team, the company
secretarial function, a legal department, a
central IT team, the rental and associated
costs of the Group’s head office. The
Group’s head office is also shared with
the AmazeRealise London team. We
do not believe that additional value or
understanding of the results is created by
charging these costs to individual brands.
Acquisitions
No acquisitions were made in the current
period. However, the total cash outflow for
businesses acquired in prior periods was
£16.5 million and 10.6 million shares were
also issued.
Solstice – during the year 4.9 million shares
were issued and a payment of £12.4 million
in cash was made to the previous owners of
Solstice. Subsequent to the year end a final
payment of £3.1 million was made in August.
There are no further payments to be made
in relation to the Solstice acquisition.
TAB – TAB’s third deferred consideration
for the year ended 30 April 2018 has been
agreed. This was based on incremental
EBITDA. The Group has issued 5.7 million
shares during the current year and,
subsequent to the year end, also made a cash
payment of £9.7 million and issued a loan
note of £6.8 million to settle the deferred
consideration. The loan note is exercisable
six months after issue. There remains a
liability of £2.0 million that the Group
expects to settle in the financial year 2020.
This item is treated as an Adjusting Item
and is recorded as contingent consideration
required to be treated as remuneration.
Balance Sheet
The net assets of the Group have reduced
from £97.2 million to £81.4 million primarily
due to the statutory loss incurred of
£29.2 million offset by a net actuarial gain
of £9.2 million. As a result of the disposals of
BRAD GRAY
CHIEF FINANCIAL OFFICER
the Group’s legacy manufacturing segments,
the composition of the balance sheet has
changed significantly.
Total assets have reduced from
£301.8 million to £191.7 million and
total liabilities from £204.6 million to
£110.3 million. Non-current assets consist
largely of goodwill and intangible assets of
£116.2 million (2017 – £151.5 million).
The Group retained the property that its
legacy Books segment, Clays, operates from,
which is classified as an investment property
within non-current assets at £4.5 million.
There has been a significant reduction in
inventories and trade and other receivables
of £56.9 million and a corresponding fall
in trade and other payables and deferred
income of £45.9 million.
On the disposal of SP Group Limited (‘SP’),
a Marketing Activation company, the
Group entered into a lease to rent out a
warehouse in Redditch to the acquirer, who
subsequently exercised a break clause. As
a consequence, this building is now being
marketed for sale and is disclosed as an
“asset held for sale” at £5.3 million.
Disposals
During the period, the Group undertook
a strategic review of its legacy segments
Marketing Activation and Books. The
review concluded that it was in the best
interests of all stakeholders of the Group
to actively seek buyers for the segments.
As a result, the Group ran an extensive
process to dispose of the segments, which
concluded in June 2018.
On 5 March 2018 the Group announced the
disposal of a significant part of its Marketing
Activation segment. This comprised of the
point of sale business, SP Group Limited,
the large format printer Service Graphics
Limited and the field marketing businesses
Tactical Solutions UK Limited and Flare
Limited. The consideration was based on an
enterprise value of £6.0 million and resulted
in a net cash inflow of £2.5 million after costs
and working capital adjustments.
On 1 May 2018 the Group announced
the disposal of its Books segment. The
enterprise value was £23.8 million. The
net cash inflow after costs, working capital
adjustment and a contribution of £2.5 million
to the St Ives Defined Benefits Pension
Scheme (the ‘Scheme’) was £16.5 million.
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Kin + Carta Annual Report and Accounts 2018Strategic Report
28
FINANCIAL REVIEW continued
The disposal of St Ives Management Services
Limited, the remaining part of the Marketing
Activation segment, was announced on
25 June 2018. The enterprise value was
£11.0 million resulting in a net cash inflow of
£10.9 million after costs and working capital
adjustments.
The total net cash inflow from disposals in
the period after costs and working capital
adjustments was £32.4 million.
The impact of the disposals on the
Consolidated Income Statement until
the date of disposal and for the 52 week
comparator period is shown as a single
line within the Consolidated Income
Statement. Further details are shown
in note 8. The net profit included in the
Consolidated Income Statement from
discontinued operations was £3.2 million
(2017 – loss £25.4 million).
Tax
The total tax charge for continuing
operations was £1.2 million
(2017 – credit of £1.2 million). A number
of Adjusting Items are not deductible for
taxation purposes. Further details are
provided in the Alternative Performance
Measures section on pages 29 to 32.
The Group’s effective tax rate on the
Adjusted profit before tax was 19.8%
(2017 – 22.6%) compared to the standard
rate of tax of 19.0% (2017 – 19.63%) for
the Group. The Adjusted tax charge was
£3.7 million (2017 – £3.0 million). The
Group’s effective tax rate on Adjusted profit
is lower than the prior year due to the lower
UK and US corporate income tax rates.
A net income tax of £2.8 million
(2017 – £0.3 million) was paid in the
UK in respect of the 2017 and 2018
financial years.
Dividend
The Board is recommending a final
dividend of 1.30 pence per ordinary share
(2017 – 1.30 pence) giving a total dividend
of 1.95 pence (2017 – 1.95 pence).
The dividend is covered 5.2 times by
Adjusted earnings and will be paid on
17 December 2018 to shareholders on
the register at 23 November 2018, with
an ex-dividend date of 22 November 2018.
Pensions
The Group closed the Scheme to new
members in 2002 and ceased future accrual
within the Scheme in 2008. The Group
accounts for post–retirement benefits in
accordance with IAS 19 Employee Benefits.
The Consolidated Balance Sheet reflects the
net surplus on the Scheme at 3 August 2018
based on the market value of the assets at
that date and the valuation of liabilities using
AA non-gilt bond yields.
B. Capital expenditure
Continuing Operations
Discontinued Operations
Total
On an IAS 19 basis, the net surplus
on the Scheme was £1.9 million
(2017 – deficit of £16.0 million) before
the related deferred tax liability. The
value of the plan assets decreased to
£353.4 million (2017 – £354.5 million).
Approximately 65% of the plan assets are
invested in return seeking assets providing a
higher level of return over the longer period.
Plan liabilities decreased to £351.6 million
(2017 – £370.5 million). The decrease in the
plan liabilities is primarily attributable to an
increase in the discount rate, a number of
experience adjustments and a fall in the rate
of increase in life expectancy.
The Scheme’s actuarial valuation reviews
determine any cash deficit payments by the
Group. The Scheme’s triennial valuation
was as at April 2016 with the next review at
April 2019. The Group makes deficit funding
contributions of £2.6 million per annum and
a contribution of £0.4 million per annum
(2016: £0.4 million) towards the costs of
administration. On the disposal of the Books
segment the Group made a contribution of
£2.5 million to the Scheme.
The charge for the year for the Group’s
defined contribution schemes was
£2.1 million (2017 – £2.2 million).
Cash Flow
Cash generated from operations was
£25.8 million (2017 – £30.7 million) of
which £20.5 million was generated from
continuing operations and £5.3 million
from discontinued operations.
Total dividends paid were £2.8 million.
This consisted of a final dividend for
the 2017 financial year of 1.30 pence
per share and an interim dividend of
0.65 pence per share.
Total capital expenditure was £4.6 million
(2017 – £3.5 million) and included capital
expenditure incurred within the Marketing
Activation and Books segments until their
disposal as explained in table B.
The capital expenditure incurred within
the continuing business primarily related
to the fit out of new office space or the
refurbishment of offices.
Solstice moved into a new office in Chicago
allowing them to house all employees in one
building and have capacity for future growth.
2018
£’m
2017
£’m
4.1
0.5
4.6
2.1
1.4
3.5
The merger of the data businesses allowed
Occam and Response One to occupy one
building in Bath. The freehold building that
Response One had previously occupied was
sold for a cash consideration of £3.2 million.
The sale of the legacy businesses created
extra capacity at the Group’s Head Office
in London which allowed us to house the
employees of AmazeRealise who previously
operated from two locations. Pragma
combined with FSP and relocated to Amaze’s
previous London premises with MyBench
locating to Realise’s previous London office,
thereby limiting the amount of underutilised
office space across the Group.
The total inflow of funds from the disposal
of the legacy businesses was £32.4 million.
Debt
At the balance sheet date the Group’s
revolving credit facility was £95.0 million
with an expiry date of March 2019.
Subsequent to the 2018 financial
year end, the Group has successfully
negotiated a new revolving credit facility
of £85.0 million that will expire on
30 November 2022 on terms broadly
in line with the previous agreement. The
banking group will consist of HSBC Bank
plc, Bank of Ireland and Fifth Third Bank.
Net debt decreased during the year from
£54.6 million to £26.0 million, partly
reflecting the disposal of the legacy
businesses. At 3 August 2018, Kin + Carta
had drawn £40.4 million on its revolving
credit facility, leaving an unutilised
commitment of £54.6 million. The Group had
cash and cash equivalents of £14.4 million.
At 3 August 2018, the ratio of net debt
to EBITDA before Adjusting Items was
1.1 times (2017 – 1.6 times) as shown in the
Alternative Performance Measures section
on pages 29 to 32.
In future, the Group will report on a calendar
month basis. As such the Group’s financial
year end will be on 31 July from 2019
onwards.
Brad Gray
Chief Financial Officer
8 October 2018
Kin + Carta Annual Report and Accounts 2018
ALTERNATIVE PERFORMANCE MEASURES
MEASURING OUR
PERFORMANCE
29
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 and KPIs 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 St Ives 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 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.
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 is contingent on continued employment within the Group.
Under IFRS 3 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 IFRS 3 this is required to be
expensed. We consider this and not part of the underlying trading performance.
4. Administrative expenses related to St Ives Defined Benefits Pension Scheme – the Scheme was closed to new members in 2002 and
ceased future accrual in 2008. There are now less than 10 employees who are members of the Scheme and employed by the Group.
On 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.
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30
ALTERNATIVE PERFORMANCE MEASURES continued
The analysis of Adjusting Items from continuing operations is set out below:
Adjusting Items description:
Profit on disposal of property, plant and equipment
Amortisation of acquired intangibles
Expenses related to restructuring items
Impairment of goodwill and other assets
Contingent consideration required to be treated as remuneration
Increase in deferred consideration
Costs associated with prior period acquisitions and setup of subsidiaries
Administrative (income)/expenses related to St Ives Defined Benefits Pension Scheme
Total Adjusting Items added back to the statutory operating profit
Pension finance charge
Total Adjusting Items added back to the statutory profit before tax
Tax related to Adjusting Items
Total Adjusting Items added back to the statutory profit after tax
The key APMs frequently used by the Group for continuing operations are:
53 weeks to
3 August 2018
£’000
52 weeks to
28 July 2017
£’000
(1,542)
8,659
3,062
12,082
23,994
3,094
–
(31)
49,318
324
49,642
(2,436)
47,206
(2,760)
9,889
283
242
15,550
7,362
99
1,253
31,918
638
32,556
(4,228)
28,328
Revenue growth at constant currency: The measure is defined as the percentage increase in revenue when comparing the current period
to the prior period from continuing operations at constant currency. This is calculated by converting revenue of the prior year at the
average exchange rate determined during the current year.
Revenue
Retranslation at current year rate
Revenue at constant currency
Revenue growth at constant currency
53 weeks to
3 August 2018
£’000
178,355
–
178,355
11% –
52 weeks to
28 July 2017
£’000
162,948
(3,318)
159,630
The average exchange rate for each functional currency is calculated as an average of the 12 monthly Sterling exchange rate ruling
at the end of each period.
Adjusted operating profit: This measure is defined as the operating profit or loss less Adjusting Items.
Statutory operating loss
Add back total Adjusting Items excluding pension finance charge and tax
Adjusted operating profit
53 weeks to
3 August 2018
£’000
(28,153)
49,318
21,165
52 weeks to
29 July 2017
£’000
(15,512)
31,918
16,406
Kin + Carta Annual Report and Accounts 2018
Adjusted profit before tax: This measure is defined as the Group net profit or loss before tax less Adjusting Items.
Statutory loss before tax
Add back total Adjusting Items excluding tax
Adjusted profit before tax
53 weeks to
3 August 2018
£’000
(31,171)
49,642
18,471
Adjusted profit after tax: This measure is defined as the Group profit or loss after tax before Adjusting Items:
Statutory loss after tax
Add back total Adjusting Items
Adjusted profit after tax
53 weeks to
3 August 2018
£’000
(32,394)
47,206
14,812
Adjusted basic earnings per share: This measure is defined as basic earnings per share after Adjusting Items.
Adjusted profit after tax
Weighted number of shares (‘000)
Adjusted basic earnings per share (pence)
53 weeks to
3 August 2018
£’000
14,812
146,654
10.10
Adjusted operating margin: This measure is defined as the percentage of Adjusted operating profit over revenue.
Revenue
Adjusted operating profit
Adjusted operating margin
53 weeks to
3 August 2018
£’000
178,355
21,165
12%
31
52 weeks to
28 July 2017
£’000
(19,167)
32,556
13,389
52 weeks to
28 July 2017
£’000
(17,959)
28,328
10,369
52 weeks to
28 July 2017
£’000
10,369
142,642
7.27
52 weeks to
28 July 2017
£’000
162,948
16,406
10%
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32
ALTERNATIVE PERFORMANCE MEASURES continued
Adjusted EBITDA: This measure is defined as the Adjusted operating profit or loss before depreciation, amortisation, finance expense
and taxation. The amortisation charge is adjusted to remove the effect of the amortisation of acquired intangibles, which is included
as an Adjusting Item.
The Adjusted EBITDA for 2017 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.
Adjusted operating profit
Add:
Depreciation and amortisation – continuing operations for the current year
Less: Amortisation of intangibles classified as Adjusting Items
Adjusted EBITDA
53 weeks to
3 August 2018
£’000
52 weeks to
28 July 2017
£’000
21,165
27,105
11,025
(8,659)
23,531
16,773
(9,889)
33,989
Net debt: This measure is calculated as the total of loans and other borrowings (both current and non-current),
less cash and cash equivalents.
Loans – current liabilities
Loans – non-current liabilities
Cash and cash equivalents
Net Debt
2018
£’000
40,363 –
–
(14,398)
25,965
2017
£’000
80,245
(25,651)
54,594
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.
Adjusted EBITDA
Net Debt
Net debt to Adjusted EBITDA
53 weeks to
3 August 2018
£’000
52 weeks to
28 July 2017
£’000
23,531
25,965
1.10
33,989
54,594
1.61
Kin + Carta Annual Report and Accounts 2018
KEY PERFORMANCE INDICATORS
33
Growth Catalyst
KPI
2018 Performance
Scaling Our Sales
Functions
Strategic Customer
Average Spend
Deepen Sector Focus
Revenue by Sector
Geographic Expansion
Revenue by Region
>£1mMinimum spend of top 30 clients
Focus on five sectors:
• Healthcare: £12.5 million
• Financial: £48.1 million
• Transportation: £23.5 million
• Industrial and Agriculture: £25.3 million
• Retail and Distribution: £38.4 million
36%Of total revenue derived from the US
Group KPI
Revenue Growth at
Constant Currency
Adjusted Operating Profit Margin
+11%
12%
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Kin + Carta Annual Report and Accounts 2018Strategic Report
34
BUSINESS REVIEW
WHAT WE ARE DOING
Following the disposals of the legacy businesses,
the Group’s continuing operations can be reviewed
under the following headings:
COMMUNICATION
2018 – 40%
2017 – 46%
STRATEGY
2018 – 20%
2017 – 23%
REVENUE
£178.4m
(2017 – £162.9m)
INNOVATION
2018 – 40%
2017 – 31%
PERFORMANCE BY CAPABILITIES
Capabilities have touch points across a
number of the businesses, for example,
AmazeRealise and Solstice both have
strategists however the businesses
have been placed in capability groups
for presentation purposes.
STRATEGY
(Hive, Incite, Pragma)
Our strategy consultancies help
organisations understand shifts in their
market, and the potential that digital brings
across product, marketing and operational
areas of the business.
INNOVATION
(Solstice and TAB)
Our innovation firms help organisations
capitalise on emerging technologies and
industry-leading design to bring new
products and services to market.
COMMUNICATION
(AmazeRealise and Edit)
Our marketing and communication
agencies help businesses acquire new
customers, and build loyalty with existing
customers through full-service, integrated
digital marketing and commerce.
REVENUE BY SECTOR
Healthcare
2018
2017
Financial Services
Transportation
£12.5m
2018
£48.1m
2018
£18.1m
2017
£39.7m
2017
£23.5m
£23.9m
Industrial and Agriculture
Retail and Distribution
Other
2018
2017
£9.5m
2017
£33.8m
2017
£37.9m
£25.3m
2018
£38.4m
2018
£30.5m
Kin + Carta Annual Report and Accounts 2018 REVENUE BY REGION
35
UK & IRELAND
55%(2017 – 63%)
REST OF EUROPE
NORTH AMERICA
REST OF THE WORLD
7%(2017 – 8%)
36%(2017 – 26%)
2%(2017 – 3%)
Sector Performance
We have identified specific sectors
as targeted areas of focus to drive
growth: Financial Services; Healthcare;
Transportation; Industrials and Agriculture;
and Retail and Distribution.
Integration and Innovation
During the year, Amaze and Realise
completed their integration to become
AmazeRealise. The new business delivers
an improved proposition with combined
capabilities to clients and enhances the
roll-out of The Connective.
Strategic Planning
We have developed our Group strategic
planning framework around “scaling up”.
This shared initiative allows us to align
around common goals while giving each
of our businesses the autonomy to chart
their own course on how to get there.
During the year, the Group’s revenue
derived from the Financial Services sector
increased by 21%, compared to the prior
period, to £48.1 million. In the Industrials
and Agriculture sector, the Group’s
revenue increased from £9.5 million
to £25.3 million, which was largely
attributable to projects at Solstice
such as Rockwell Automation.
Revenue derived from Healthcare
fell from £18.1 million in the previous
year to £12.5 million. This was primarily
due to a number of clients seeking a
network solution to their communication
strategy. As a result, an impairment charge
of £11.8 million was recorded as an
Adjusting Item relating to Hive’s goodwill
and intangibles. However, due to the
unique capabilities of the Group, combined
with widespread opportunities in this
sector, we witnessed new business wins
towards the end of the financial year, such
as AbbVie and Pfizer.
Expansion into the Americas
Expansion into the Americas has remained
a strategic objective for a number of
years and we have seen further organic
growth of 32% during the year, with
revenue reaching £64.3 million (2017
– £48.8 million). Our Innovation and
Transformation areas of expertise already
exist in the Americas, and we will continue
to enhance these capabilities, as well as
seeking further expansion opportunities
for Communication.
Meanwhile, our former data businesses
embarked upon a journey to unify their
propositions. This resulted in the creation
of Edit, a data science, technology,
Customer Relationship Management
(‘CRM’) and media agency housing the
companies that previously identified as
Response One, Occam, Amaze One
and Branded3.
At the heart of our “scaling up” initiative are
objectives around new business growth,
employee experience, collaboration and
client service. For instance, in August 2018
we deployed a demand generation team to
work across the whole of The Connective,
focused on reaching out to new and
existing businesses, strategic events and
developing partnerships.
The Connective is about valuing our
people through networks of individuals
coming together to make decisions,
rather than being constrained by the
traditional hierarchies used at other
organisations. Our people across
The Connective were instrumental in
developing the new Kin + Carta brand.
Developments in Innovation include our
new capabilities and ventures. This year,
we saw continued growth derived from
our joint venture, Loop Integration LLC,
which specialises in Hybris software
integration, and Bench, our specialist
technology business.
Employees
As a professional services, people-driven
business, our employees are key to the
success of Kin + Carta. The Group has
established a network to support the
interests of employees and to attract
and retain the best talent. This propels
us towards our vision to become an
internationally recognised “best place
to work”.
We have also worked hard to create a set
of shared values – Deeply Connected,
Always Courageous and Instinctively
Compassionate – which bind every
employee and business together in The
Connective. The ongoing integration of our
brands during the year continues to enable
us to achieve a greater sense of our shared
values and ways of working.
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Kin + Carta Annual Report and Accounts 2018Strategic Report
36
PRINCIPAL RISKS AND UNCERTAINTIES
APPROPRIATE RISK
MANAGEMENT
The Board is responsible for carrying out a robust assessment of
the principal risks facing the Group, including those threatening our
ability to achieve our business model, strategic objectives, solvency
and liquidity. On behalf of the Board, the Audit Committee reviews
the effectiveness of the Group’s risk management processes.
Approach to Risk Management
The Group’s risk management framework
is discussed on pages 52 and 53. A Group
Risk Register is reviewed and debated
by the Board and Audit Committee
twice-yearly, supported by a further
open discussion on business risks and
challenges at the Board’s annual strategy
day. The Group Risk Register includes risks
that are specific to the holding company,
such as corporate financing, and risks
escalated from our individual businesses
making up The Connective which might
have a material effect on the Group as a
whole. Risks at subsidiary level are further
considered by the Executive Directors
during quarterly presentations by each
operating business. The presentations
include an update on the forecast, current
market conditions, strategic direction
and a SWOT (Strengths, Weaknesses,
Opportunities and Threats) analysis
provided annually.
The longer-term viability of the Group
has been assessed by the Board over
a three-year period during the year.
Details of this review are on page 82.
Risk Appetite
The Board has reviewed its risk appetite
in different areas of the business during
the year. Risk appetite relates to the
degree of risk we are willing to take or
accept to achieve our strategic objectives.
It is a key consideration in decision-making
across the Group and helps to define
the mitigating activities required to
manage risks.
Other than the change during the year
to the Group’s end-market exposure
as noted above, the risk appetite of the
Group across the principal risks was not
altered materially during the year after
consideration by the Board. The Board
will continue to assess risk appetite
annually in light of changes to the economic
environment, strategic progress and the
performance of the businesses.
Evolving of Principal
Risks and Uncertainties
The schedule opposite shows how the
Group’s principal risks have evolved since
the prior year. Two risks from the prior
year are no longer shown as principal
risks relating to: Legacy businesses; and
Reputational risk. The Legacy businesses
risk is no longer a principal risk following
the disposal of the legacy print businesses
during the year and Reputational risk,
predominantly concerned with Health
and Safety, is no longer considered to be
a principal risk of the Group now that
there are no manufacturing businesses
and our makeup is now entirely that of
offices. That said, the health and safety
of our people and visitors remains the
highest priority for the Group.
It is recognised that the Group is exposed
to risks wider than those listed below.
The risks disclosed are ones believed to
have the greatest impact on our business
at this point in time and which have
been debated at recent Board or
Audit Committee meetings.
The Board seeks to minimise liquidity
risks and risks associated with the
welfare of our people and thereby has
a particularly low risk appetite in these
areas. The Connective model facilitates
the opportunity for our people to have
the opportunity to work in different areas
within the organisation and to gain from
wider experiences. For liquidity risk,
the Group has detailed procedures for
monitoring headroom in its bank facility
and the associated leverage and interest
cover covenants. In other aspects, such as
rolling out a new brand to take the business
forward, the Board takes a more balanced
approach on risk taking. Following the
disposal of the legacy Books and Marketing
Activation segments during the year,
the Group is now principally focused on
the provision of digital transformation
services to clients. This end-market is
currently very fast growing and dynamic,
but is subject to rapid technological change
which can make the market’s evolution
and growth difficult to predict. As a result,
the Board acknowledges that narrowing
the Group’s exposure to only this end-
market, whilst presenting an enhanced and
very significant growth opportunity, also
potentially presents a higher and above
average level of inherent operational risk.
This degree of appetite is aided by the level
of experience gained by The Connective
and our controls and processes such as
the delegated authorities. Thus, the Board
has accepted a managed risk profile, whilst
attempting to mitigate risks effectively,
as we seek to deliver our strategic goals.
Kin + Carta Annual Report and Accounts 2018 Evolution of Risk Key
Consolidation of risks
No longer a principal risk
Change in scope or focus
No or limited change year on year
New risk category
PRINCIPAL RISK IN 2017
PRINCIPAL RISK IN 2018
ACQUISITION STRATEGY
ORGANIC GROWTH
SCALABILITY
LEGACY BUSINESS
ECONOMY
CLIENTS
EMPLOYEES
GROWTH
SCALABILITY
ASSIMILATION
ECONOMY AND VOLATILITY
CLIENTS
OUR PEOPLE
BRAND AND CULTURE
FINANCING
FINANCING
PENSION SCHEME
PENSION SCHEME
REPUTATIONAL
DATA SECURITY
DATA SECURITY AND GDPR
37
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38
PRINCIPAL RISKS AND UNCERTAINTIES continued
The following table details the Group’s principal risks and the key
mitigating activities in place to address them. A risk rating from low
to high has been incorporated for both the inherent risks and the
residual risks by considering both the impact and the likelihood of
each risk. The inherent risk rating is measured before taking into
account mitigating actions whereas residual risk ratings are after
these mitigations have been factored. The changes in the risk ratings
from the Board’s assessment in the prior year have been highlighted
as well as any new key risks that have been added to the register
during the year.
Where applicable the relevant growth catalysts from the
Group’s business model (see page 10) have been attributed
to each principal risk.
RISK
DESCRIPTION
RISK RATING
(INHERENT)
CHANGE IN 2018
MITIGATING ACTIVITIES
RISK RATING
(RESIDUAL)
Growth
Growth initiatives
may be under invested
or not pursued in
the right sectors or
territories and may
therefore fail to deliver
growth.
L, E
Whilst our digital
transformation
businesses have
strong client servicing
organisations, some
have under invested
in new business and
partnership channels,
compromising
potential growth rates.
Achieving scalability is
important within our
Digital Transformation
businesses in order
to pursue a high
growth strategy.
Whilst included as a
risk, achieving greater
scalability is also an
opportunity for the
Group.
Short-term impact
from merging
businesses could
manifest in the form of
temporary challenges
as cultures are
merged and logistic
considerations are
managed.
Scalability
Digital Transformation
businesses may not
have sufficient scale
within their sectors
to secure substantial
customer contracts.
L, E
Assimilation
The Group has
merged six of its
businesses into two
digital platforms –
AmazeRealise and
Edit. Whilst this is
the right move in
order to create a solid
platform for growth,
there is a risk of short-
term impacts as the
businesses assimilate.
L
Achieving growth remains a key
strategic objective for the Group.
The Board considers that the risk
rating has increased compared
to the prior year due to the
increased focus and smaller
size of the Group following
the disposal of the legacy print
businesses. As such it is the
impact rather than the likelihood
that has resulted in the increase.
• Further investment in new business
functions.
• Developing the Group’s proposition
(The Connective) to encourage
collaborative behaviour and growth
opportunities.
• Detailed budgets and three-year
plans submitted to the Board for
review.
• Stringent selection criteria followed
for pursuing acquisitions that fit
within the Group’s strategy and
culture.
The inherent risk rating remains
the same; however, the Board
considers the residual risk
rating to be lower than the prior
year due to the encouraging
signs within The Connective,
greater collaboration and the
merging of businesses (see
Assimilation risk below).
This risk has been added as a
key risk this year following the
recent merging of businesses.
It is considered to be a short-
term risk during the integration
phase and will continue to be
monitored by the Board.
• Collaboration by businesses such as
working on joint pitches.
• Organic growth of businesses
through recruitment drives and
opening of new offices.
• Bringing businesses closer together
under a single senior management
team (such as in Data) to achieve a
greater combined scalable offering.
• Investment in high growth digital
transformation businesses and
greater focus on securing longer-
term contracts.
• New office moves to house new
businesses in the same location and
to create a more positive working
environment.
• People focused initiatives and
bonding to encourage a uniform
culture.
• Developing processes and
procedures to increase efficiency.
Kin + Carta Annual Report and Accounts 2018 39
Principal Risk Key
Change Key
Link to Growth Catalysts
Evolution of Risk Key
High
Medium
Low
Increase
No change
Decrease
New risk
L Leverage our assets
E Expansion of
our capabilities
Consolidation of risks
No longer a risk
Change in scope or focus
No or limited change year on year
New risk category
RISK
DESCRIPTION
RISK RATING
(INHERENT)
CHANGE IN 2018
MITIGATING ACTIVITIES
RISK RATING
(RESIDUAL)
Economy and
volatility
Challenging economic
conditions may inhibit
growth and create
uncertainty. This could
lead to volatility in
earnings given the
smaller size of the
Group following the
disposal of the legacy
print businesses.
L, E
Uncertainty in the
economy, largely
associated with
Brexit, could result in
marketing campaigns
or projects being
cancelled or deferred
at short notice. Whilst
the Group does have
long-term contracts
with clients, the level of
spend is predominantly
at the client’s
discretion rather than
being derived from
guaranteed sales
volumes.
Clients
Competitive pressure
that may result in the
loss of a key client.
L
The Group has
a variety of key
clients. Long-term
relationships have
been fostered with
many of these clients
over a number of
years.
This risk rating remains high.
Whilst selling the print legacy
businesses has in part de-risked
exposure to markets that have
been noticeably impacted
by economic developments
(e.g. the grocery sector), an
economic downturn could still
have a very significant impact on
the Group’s activities.
Following the disposal of
the legacy print businesses
this risk, whilst significant,
has been revised as a lower
risk compared to the prior
year. The print segments had
experienced over capacity with
price pressure largely prevalent.
No single client makes up more
than 5% of the Group’s revenue.
• Diversification into markets that
are capable of delivering profit
growth with an increasing range
of our businesses.
• Diversification through growth in
the US and opportunities pursued
to open overseas offices, where
client demand warrants it.
• Investment in a wider range
of services offered to clients.
• A continual review of the Group’s
cost base.
• Secure more long-term client
relationships and contracts.
• Seek to increase market share
by investing in sophisticated and
targeted sales lead generation.
• A regular review of performance
of all businesses against their
budgets, monthly forecasting and
implementing remedial action,
where needed.
• Encourage collaborative behaviour
across the Group’s businesses and
create a commitment to cross-
selling that will distinguish the
Group’s digital transformation
offering from its competitors’.
• Achieve or exceed service level
agreements with clients.
• Broaden our capabilities, providing
marketing solutions in support of
our clients’ marketing strategies.
• Avoid over reliance on any single
client.
• Implement bespoke propositions
for securing the renewal of key
client contracts, providing Group
support where appropriate
• Conduct client satisfaction surveys.
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PRINCIPAL RISKS AND UNCERTAINTIES continued
Principal Risk Key
Change Key
Link to Growth Catalysts
Evolution of Risk Key
High
Medium
Low
Increase
No change
Decrease
New risk
L Leverage our assets
E Expansion of
our capabilities
Consolidation of risks
No longer a risk
Change in scope or focus
No or limited change year on year
New risk category
RISK
DESCRIPTION
RISK RATING
(INHERENT)
CHANGE IN 2018
MITIGATING ACTIVITIES
RISK RATING
(RESIDUAL)
Retaining and
recruiting staff is a
key priority for the
Group as it continues
to invest in new
and existing service
orientated businesses.
Following the disposal
of the legacy print
businesses, the
Group is now entirely
a people focused
business.
It is vital that the
brand architecture
is cohesive and
easily understood by
customers and top
talent globally.
Our people
A failure to attract,
develop and retain
employees with the
necessary talent for
our businesses.
L, E
Brand and culture
The Group has
undergone a
rebranding and whilst
considerable thought
has gone into this,
there is a risk that it
might not resonate
with the Group’s
stakeholders and not
facilitate the culture
being promoted.
L, E
Finance
The Group’s ability
to trade may be
compromised by a lack
of cash funds.
Being able to finance
working capital and
carry out operations
is fundamental to the
Group.
L, E
This risk rating is consistent
with the prior year and reflects
how central and key our people
are to everything the Group is
striving to achieve.
This is a new risk following
the launch of the new brand,
Kin + Carta.
• Implement appraisals and fulfil
training needs where identified.
• Develop a collaborative culture
across the Group’s businesses.
• Operate discretionary share-based
incentive schemes, and other
benefits.
• Pay part of consideration in
shares to vendor directors of
acquired businesses, with ‘lock-in’
obligations.
• Ability of people to second or
transfer to different parts of the
Group which is enabled by the
makeup of The Connective.
• Involving the operating businesses
with the rebranding and its launch
through undertaking a thorough
consultation process.
• Strong leadership alignment at
the top of the organisation to
demonstrate that the Group’s
purpose is to serve its employees
and not the other way around.
The risk rating is consistent
with the prior year. The bank
facility was renewed on
3 September 2018 and runs
up to 30 November 2022
with an option to extend for
a further year; further details
are provided on page 135.
• Conduct ‘going concern’ reviews
and longer-term viability
assessments twice yearly.
• Continually monitor the Group’s
performance against its banking
covenants.
• Undertake monthly reviews of
working capital, cash forecasts and
headroom on banking covenants.
• Periodically review the Group’s
financial KPIs with its bankers.
Kin + Carta Annual Report and Accounts 2018
41
RISK
DESCRIPTION
RISK RATING
(INHERENT)
CHANGE IN 2018
MITIGATING ACTIVITIES
RISK RATING
(RESIDUAL)
The volatility of the
Scheme’s deficit
is impacted by the
inflation rate, changes
in the discount rate
derived from gilt
yields and changes in
actuarial assumptions,
such as mortality.
This includes the
risk of loss of data,
sabotage or disruption
to the business,
fraud, reputation
damage, and possible
fines.
Pension scheme
The volatility of the St
Ives Defined Benefits
Pension Scheme deficit
(‘the Scheme’).
Data security
and GDPR
Exposure to
reputational or
financial damage
due to corruption
or theft of company
owned or client
owned data or data
breaches arising or
non-compliance with
the General Data
Protection Regulation
(‘GDPR’).
This risk rating associated with
the Scheme has reduced from
the prior year as the accounting
deficit has been eliminated in
the current year. As at 3 August
2018, the Scheme has a surplus
of £1.9 million compared to a
deficit of £16.0 million in the
prior year.
This risk rating is considered
to be consistent with the prior
year following a comprehensive
exercise to assess data security
risks and the requirements to
comply with GDPR.
• Agree deficit recovery plan with the
Pension Scheme Trustee.
• Regularly engage the Trustee
directors in discussions on the
Group’s performance.
• Manage possible Section 75 debts
arising from business disposals and
closures.
• Contribute to discussions on the
Scheme’s investment strategy.
• Proactively seek to limit the growth
in the pension liability.
• IT functions in place around
the Group with responsibility
to protect data (e.g. encryption,
firewalls, restricted access).
• Periodic reviews by Internal
Audit, utilising in-house IT
as well as specialist external
consultants. Cyber security and
IT questionnaires completed
periodically by subsidiaries to
highlight areas of potential risk,
together with any mitigating
actions performed in order to
address this risk.
• The appointment of a Data
Protection Officer for the Group
to assist with the Group’s GDPR
compliance and to provide a report
to the Board prior to each Board
meeting.
• GDPR audits and the rolling out
of new policies, processes and
procedures.
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Kin + Carta Annual Report and Accounts 2018Strategic Report
42
CORPORATE SOCIAL RESPONSIBILITY
RESPONSIBLE AND
THOUGHTFUL BUSINESS
Edit’s award-winning innovation
aids humanitarian efforts.
Edit’s development of the prototype is
an example of the power of technology
and how it can transform people’s lives.
Damian Coverdale, CEO of Edit, adds:
“I’m delighted that one of our own has
developed a best-in-class example of
what an existing piece of tech can do.
At Edit, we work closely with IBM as an
approved partner, and we will continue
to push the boundaries of tech at our
fingertips, both now and in the future.”
Edit was named as a finalist at the 2018
IBM Beacon Awards for an innovative
tech solution it developed to improve
humanitarian aid efforts in Africa. The
IBM Beacon Awards recognise IBM
Business Partners that have delivered
exceptional solutions, using IBM
products and services.
Using IBM Watson Visual Recognition,
Edit developed a sophisticated prototype
called “image classifier”, for use by aid
volunteer teams in Africa. This concept
locates items of interest within an image
and combines the result with a custom
classifier in order to recognise dwellings
in rural areas.
The solution was developed in response
to a common problem faced by
humanitarian teams on the ground in
Tanzania. They were finding that their
response times were being hampered
by a lack of accurate geographical data,
especially those identifying settlements
and occupied buildings.
The project was intended to assist
charities in identifying areas in rural
Tanzania where homesteads are likely to
be present, therefore highlighting where
focused aid or support may be required.
Volunteers currently use the MissingMaps
app to pre-select areas on satellite or
aerial images that are of interest prior
to detailed mapping. This can take up to
six weeks. The technology created by
Edit, however, using IBM Watson Visual
Recognition can reduce this process to
a matter of hours. Representatives from
Crowd2Map Tanzania, Doctors without
Borders and British Red Cross, who are
working in Tanzania to end FGM, have
shown an interest in Edit’s prototype,
with discussions now taking place on
how this technology may be implemented.
Simon Peel, Technical Consultant at Edit,
who led the team on the image classifier
solution, explains: “Having seen the work
of charities in Tanzania I discovered
that a number of time-critical mapping
projects don’t get completed within the
required time, leaving the humanitarian
teams on the ground without the local
maps they need. The aim of this solution
is to dramatically speed up the mapping
process so teams can quickly provide
humanitarian assistance.”
Kin + Carta Annual Report and Accounts 2018 43
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Strategic ReportKin + Carta Annual Report and Accounts 2018Strategic Report
44
CORPORATE SOCIAL RESPONSIBILITY continued
Our Relationships with Stakeholders
The Board is committed to working in a
responsible way that benefits all of the
Group’s stakeholders including our clients
and suppliers, our people, the community
and our shareholders. It also understands
the importance of ensuring that corporate
social responsibility is reflected in our
business practices.
In this report we outline how we seek
to meet the responsibilities to our
stakeholders and how we measure the
Group’s corporate social responsibility
performance, now and in the future.
The Group has had no human rights
issues that need to be disclosed for an
understanding of the development,
performance or position of the Group’s
corporate social responsibility.
Clients and Suppliers
All of our businesses report on how they
manage their relationships with key clients,
which will help to ensure consistency of the
customer journey through The Connective.
In order to promote responsible business
practices with our clients, the CEO or
Managing Director of each business, has
signed up to the Group’s Anti-corruption
and Bribery Policy which, together with the
Ethical Trading Policy, is publicised to all
employees. It is a disciplinary offence for
any employee to breach the Group’s Anti-
corruption and Bribery Policy, which sets
out various principles; such as the Group
not permitting political donations or gifts
or the making of facilitation payments.
The Group is committed to building
strong working relationships with its
suppliers, ensuring that they are aligned
on quality, delivery, innovation, risk
and compliance. The Group operates a
rigorous onboarding process. For principal
suppliers, this involves the completion
of a questionnaire covering financials,
conflicts of interest and other relevant
information. They are also required to
adhere to our Anti-corruption and Bribery
Policy, as mentioned above, and our Ethical
Trading Policy. This sets out our ethical
and compliance values, such as promoting
trade and use of goods which are produced
and marketed under conditions that are
socially, environmentally and financially
responsible; and considering the social
and economic wellbeing of current and
future generations through our business
practices.
We are committed to ensuring that there is
no slavery or human trafficking within our
supply chains and we expect our suppliers
to adhere to the Modern Slavery Act
2015 (‘MSA’). We have undertaken steps,
as far as is reasonable and practicable,
to ensure the requirements of the MSA
are implemented within our supply chain.
Our MSA statement can be found on our
website at www.kinandcarta.com.
Payment terms granted to suppliers are
negotiated according to the amount at risk
and the financial strength of the supplier
concerned, which will be adhered to,
provided that they perform in accordance
with the agreed terms.
The average creditor days outstanding at
3 August 2018 for the Group was 71 days
(2017 – 79 days). The Company Secretary
maintains a Bribery Risk Register, which
is refreshed annually and reviewed by the
Board together with a report from the
Head of Internal Audit on how the Group’s
Anti-corruption and Bribery Policy has
been applied during the year. The Internal
Audit function will follow up any high-risk
areas identified from this exercise.
Our People
We are a people business. Therefore,
creating an award-winning employee
experience is key to the Group’s
continued growth and success. We
will continue to invest in our employee
experience through training, social,
health and wellbeing initiatives. Current
initiatives across the Group range from
mental-health training, flexible working
hours and inhouse exercise classes.
The Connective organisational structure
provides our employees with a unique
way of working and this year we launched
our shared values – Deeply Connected,
Always Courageous, and Instinctively
Compassionate – which bind our
employees and businesses together. As we
grow, our shared values and our culture
becomes more important than ever.
Therefore, we are striving to encapsulate
a culture where our people feel valued,
appreciated and enjoy their work.
Attracting, developing and retaining the
best people who will thrive in our unique
working environment remains a top priority
for us. We seek to pay our employees
competitive remuneration packages and
incentives. We also operate various policies
to protect the interests of our employees
such as a Dignity at Work Policy to
ensure that the Group provides a working
environment free from harassment and
bullying, and a clear procedure to tackle
such behaviour.
We communicate regularly with our
employees on a range of subjects such
as recent client projects and the Group’s
overall strategy and objectives, and our
employees are encouraged to give us
their feedback and suggest where we
can make improvements to our business.
We’ve continued to build employee
engagement by rolling out an all employee
communication channel where the Chief
Executive Officer regularly provides
updates to all employees on how the Group
is performing and how individuals can
contribute to achieving the Group’s aims.
We are aware of the importance of making
it easy for employees to raise concerns
about their job and each subsidiary
applies appraisal systems relevant to their
business. We also have a Group Speak
Up policy which is readily available to
all employees to ensure they can raise a
concern about the business confidentially.
As at 3 August 2018, we employed 1,453
people including 1,382 full-time and 71
part-time employees. The Group is an
Equal Opportunities Employer and no
job applicant or employee receives less
favourable treatment on the grounds
of age, disability, sex, sexual orientation,
marital or civil partner status, race,
colour, nationality, religion or belief.
Employees who become disabled during
their working life will be retained in
employment wherever possible, and will
be given help with necessary rehabilitation
and retraining. Wherever practicable,
the Group will modify procedures or
equipment so that full use can be made
of an individual’s ability.
By gender, the Group’s employees are
made up of 897 males and 556 females
(62% and 38% of employees respectively)
(2017 – 2,184 and 1,036, 68% and 32%);
and its senior management is made up of
55 males and 37 females (60% and 40%
of senior management respectively)
(2017 – 64 and 32, 67% and 33%).
The Board is currently made up of six
males (86%) and one female (14%).
Details of the Group’s pension schemes
are set out in note 29 to the financial
statements.
Kin + Carta Annual Report and Accounts 2018
Charitable Donations
In addition to focusing on one or two themes
– such as mental health – or projects each
year, the Group makes donations to a broad
range of charities. Donations are usually
made in cash but may include the provision
of time and materials to provide added-
value services for charities.
The Group supports charities by: setting and
then donating an annual budget to charities
serving communities in which the Group
operates or to which employees or clients
have a particular affinity; matching the
total contribution made by the Chairman
from forgoing a proportion of his fees and
supporting fundraising events for charities
nominated by employees.
During the year, the Group made donations
of varying sums to a wide spectrum of
charities including: Crisis UK (the UK’s
national charity for homeless people); CALM
(a charity aimed at bringing the suicide rate
down among men); Cancer Research UK;
Brain Tumour Research and Macmillan.
Shareholder Relations
The Board believes in maintaining good
relationships with its shareholders.
Effective two-way communication with
institutional shareholders and analysts
takes place through regular presentations
involving the Chief Executive Officer and
the Chief Financial Officer.
The Board receives an investor relations
report at each of its regular meetings.
The Chief Executive Officer and the Chief
Financial Officer conduct bi-annual analysts’
briefings and, where appropriate, meet the
Company’s major shareholders to further
explain the Group’s investment proposition.
A number of major shareholders have
accepted the opportunity to meet Non-
Executive Directors including the Chairman.
The Company’s top 20 shareholders hold
approximately 66% (2017 – 72%) of the
Company’s issued share capital. Those
which have an obligation to notify the
Company of their voting interests are
shown on page 83.
The Annual General Meeting is regarded
as an opportunity to communicate directly
with shareholders and the chair of the Audit,
Nomination and Remuneration Committees
are available at each meeting to answer
shareholders’ questions.
workshop of meditation and play,
which created a safe and supported
environment for the employees to
express themselves.
Several employees used these
workshops to express themselves
and get to know one another, which,
in some circumstances, made the
experience quite emotional. By
sharing personal stories and beliefs,
the workshops gave each employee a
different perspective of themselves
and the people they work with, and
helped bring staff together, with
around 80% of the business agreeing
they felt a real sense of connectedness
following the sessions.
Following the success of Edit’s Energy
Week, there is now an overriding sense
of the benefits of doing more together.
Emma Hogan, Head of Employee
Experience at Edit, explains: “Creating
a great workplace is about supporting
and nurturing the people within it;
giving our employees the opportunity
to connect and support one another to
be great. Having completed a hugely
successful Energy Week, we are
definitely one step closer to this goal,
and will continue to encourage feelings
of positivity and connectedness
between our employees.”
A PASSIONATE
APPROACH TO
CONNECTING
OUR PEOPLE
In believing that a workforce
with better connections
will result in a more positive
outcome for both clients and
staff, Edit planned an activity
week for its employees
around the theme of “energy”.
Edit devised activities that not
only encouraged their people to
feel energised about their working
week ahead but also deepened the
connections between them. Within
a couple of hours of announcing
Energy Week, Edit had more than 25
employees signed up as volunteers.
These employees worked extra
hours around busy client schedules
to organise activities throughout
the week that catered to the varying
interests of the diverse workforce.
These activities included a Samba
band, talks on how the brain works,
Kung Fu and hula-hooping lessons.
Edit also collaborated with a local
charity, Make-a-Move, which uses
techniques in music, movement
and mindfulness to build positive
mental health and boost wellbeing in
communities. In addition to holding
morning and afternoon sessions to
“power up” and “power down” in the
office, Make-a-Move hosted a daily
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CORPORATE SOCIAL RESPONSIBILITY continued
Total Group carbon emissions
(thousand tonnes)
2018
2017
2016
9.9
13.7
14.7
Scope 1 – emissions from activities owned
or controlled by the Group:
2.6 thousand tonnes (2017 – 2.8).
Scope 2 – emissions associated with our
consumption of purchased electricity, heat,
steam and cooling: 7.3 thousand tonnes
(2017 – 10.5).
CO2e intensity measure
– grams per £ of revenue:
Group: 30.9 (2017 – 33.9)
Water consumption
(’000 m3)
2018
2017
2016
38.5
47.1
57.9
Environment
We are committed to minimising our
impact on the environment and believe
that our responsibilities in respect to
environmental protection rank in equal
importance with other key business
objectives. The Board is responsible for
setting the Group’s Environmental Policy
and publishes an Environmental Policy
Statement each year on its investor website
at: www.investors.kinandcarta.com. In
an effort to minimise our impact on the
environment, a deemed consent letter
was sent to shareholders in August 2018
regarding the Group’s use of electronic
communications.
We continually monitor and work to reduce
the Group’s carbon emissions, waste sent
to landfill and water consumption. We
report our CO2e emissions in line with the
requirements of the Companies Act 2006
(Strategic Report and Directors’ Report)
Regulations 2013. In doing so we have
adopted the following methodology:
a) An operational boundary approach has
been applied on Scope 1 and Scope 2
emissions in the UK using Department
for Business, Energy and Industrial
Strategy (‘BEIS’) Standard Set conversion
factors for 2018.
b) Where actual energy consumption data
cannot be obtained we have estimated
emissions, pro rata, based on the data
recorded by similar sites in the Group.
Using this methodology, the estimated
emissions from these sites equate to
0.4% of the Group’s total emissions.
c) Scope 3 emissions are not reported on as
they are outside our operational control.
The Board will, however, keep this under
review.
The charts show the Group’s Scope 1 and
Scope 2 CO2e emissions and our CO2e
intensity measure (which is grams of CO2e
per £ of revenue). The CO2e emissions
performance of reporting segment is not
included this year given the Group is purely
a digital transformation business, following
the disposals of the Marketing Activation
and Books segments.
The most significant finding is the change
in the Group’s intensity ratio, which
has decreased year on year by 9% from
33.9 CO2e / £ revenue to 30.9. This has
come about due to the restructuring of
the Kin + Carta portfolio during the
period ended 3 August 2018. Due to
the energy-intensive nature of the Books
and Marketing Activation segments,
the disposals of these businesses had a
significant effect on the Group’s Intensity
Ratio. This pattern is set to continue, and
next year will be the first year with no
contribution from the Books and Marketing
Activation segments.
The most significant change in the Group’s
energy profile can be found in electricity,
which has fallen from 77% of the carbon
dioxide emitted by the Group to 73.8%
as a result of the disposals and move
away from energy-intensive lines of
business. Electricity emissions have
fallen to 7,282 tonnes of CO2 in 2018
from 10,545 in 2017, a reduction of 31%.
This single change is responsible for
the vast majority of the reduction in the
Group’s CO2 emissions. There has also
been a reduction in vehicle emissions as
a result of the disposal of the Marketing
Activation segment. The 2018 total vehicle
emissions figure is 586 tonnes of CO2
(a reduction of 58% from 1,384 in
2017) and in natural gas emissions, the
2018 figure was 521 tonnes of CO2 (a
reduction of 21% from 660 in 2017). These
reductions in emissions are due to the
disposals of the Marketing Activation and
Books segments, resulting in the Group
being a digital transformation business.
Water Consumption and Waste to Landfill
The Group’s water consumption reduced
due to the disposals of the Marketing
Activation and Books segments during
the year. Since the majority of the water
consumption relates to the disposed
businesses, the level relating to the
continuing operations is immaterial.
Waste to landfill was immaterial during the
year and this trend is expected to continue.
Kin + Carta Annual Report and Accounts 2018 Health and Safety
Health and Safety of our employees is
a priority for the Board at all times. The
Board ensures that responsibilities for
Health and Safety are properly assigned,
accepted and carried out within the
organisation. A Statement of the Board’s
approach to Health and Safety is publicised
at all of the Group’s offices, and each
business’s CEO or Managing Director
has formally acknowledged their role in
ensuring that all employees are aware of
their legal duties under health and safety
legislation.
The first item on the agenda for each
parent Board meeting is to receive a
report on health and safety-related KPIs,
selected to measure and manage the
Group’s health and safety performance,
which are as follows:
• monthly and cumulative statistics
on near misses, all accidents, all lost
time accidents, total days lost and
Reportable Accidents; the Group’s
Accident Frequency Rate, the Group’s
Injury Incidence Rate and a report on
employment liability insurance claims;
• the circumstances of any lost time
accidents and Reportable Accidents and
management action taken as a result are
also considered; and
• Group initiatives for improving health
and safety performance.
The Group operates a bespoke online
health and safety management
system for:
• reporting accidents and near-miss
incidents;
• hosting a health and safety document
library; and
• applying standards of accreditation to
contractors who apply for consent to
work at our sites.
A driver safety awareness programme is in
place throughout the Group.
The total number of accidents at the
Group’s sites for the period ended 3 August
2018 which resulted in at least seven days’
absence each was two (2017 – four).
This is a 50% improvement on 2017.
There was one significant injury during
the period (2017 – zero) relating to a
wrist injury and this occurred in Tactical
Solutions UK Ltd, which was disposed
of during the period. Due to the Group
moving from high-hazard manufacturing
sites to lower-hazard, office-based sites,
following the disposal of the Group’s
legacy businesses, the number of days’
work lost from all accidents at work was
55 days (2017 – 201) which is a 72%
improvement on last year. The number of
near-miss events recorded during the year
was 525 (2017 – 1,095) which represents
a 52% decrease from 2017.
Kin + Carta’s accident and RIDDOR rates
dropped dramatically towards the end
of the period, which reflects the reduced
risk profile of the Group due to the sale
of the Marketing Activation and Books
segments, both of which worked within
high-hazard manufacturing environments.
The remaining businesses are now working
across office-based sites, which are lower
hazard and expose employees to a lower
injury risk.
The focus of the Group going forward
will be to continue to improve working
practices, focusing on training in the
reduction of potential long-lead ill health
issues, such as repetitive strain injuries,
eye strain from the use of display screen
equipment, stress-related illness, poor
manual handling techniques and proactive
fire reduction and evacuation processes.
A copy of the Group’s Health
and Safety Policy is available at
www.investors.kinandcarta.com.
This Strategic Report on pages 4 to 47 was
approved by the Board of Directors and
signed on its behalf by
J Schwan
Chief Executive Officer
8 October 2018
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Kin + Carta Annual Report and Accounts 2018 Kin + Carta Annual Report and Accounts 2018
49
Corporate
Governance
50 Corporate Governance Report
54 Board of Directors
56 Audit Committee Report
58 Nomination Committee Report
61 Letter from Chair of Remuneration Committee
63 Directors’ Remuneration Report
81 Directors’ Report
85 Statement of Directors’ Responsibilities
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CORPORATE GOVERNANCE REPORT
GUIDANCE + DELIVERY
Sound corporate governance contributes
to the success and sustainability of
performance as well as the reputation
of the Group’s business.
Dear Shareholder
The Board invests a significant
amount of time on maintaining
high standards of governance,
in recognition of the value that
sound corporate governance
can add to the success and
sustainability of performance
as well as the reputation of the
Group’s business. I am pleased,
therefore, to introduce our
Corporate Governance Report
for the period ended 3 August
2018 (‘the period’), which
includes individual reports
from the Chair of each of the
Audit Committee, Nomination
Committee and Remuneration
Committee on pages 56 to 80.
Board of Directors and its
Membership
The Board’s membership throughout the
period and the Directors’ attendance at
pre-arranged meetings of the Board is set
out in the table on page 52.
The Board meets at regular intervals and
is responsible to the shareholders for
overall Group strategy, acquisitions and
divestments, major capital projects, risk and
financial matters. Senior executives within
the Group make regular presentations
to the Board to apprise the Directors on
their markets and how they serve them,
growth opportunities and future challenges
and how they propose to address them.
All Directors receive agendas and papers
in advance of each Board meeting.
Following the meeting, detailed minutes
are recorded and actions followed up.
The Board is satisfied that it has an
effective and appropriate balance of skills
and experience and that, throughout
the period, each of the Company’s Non-
Executive Directors was independent in
character and free from any business or
other relationship which could materially
interfere with the exercise of his or her
judgement. In reaching this opinion, the
Board has carefully considered potential
conflicts of interest and the balance
between applying good practice and
what it believes is in the shareholders’
best interests. The Non-Executive
Directors have a clear understanding of
their roles and responsibilities, which
are appropriately documented. The
Non-Executive Directors met during the
period, without any Group executive being
present. Mike Butterworth fulfilled the role
of Senior Independent Director.
The roles of Chairman and Chief Executive
Officer are separate and distinct, and an
appropriate division of responsibilities
between the two has been set out in
writing and approved by the Board.
The Chairman has responsibility for the
management of the Board and related
matters whilst the Chief Executive
Officer has responsibility for executive
leadership of the Group, and for strategy
implementation and performance.
The Company’s articles of association set
out detailed provisions for the retirement
of Directors and their re-appointment or
appointment at the forthcoming Annual
General Meeting (‘AGM’). Although
not required under the UK Corporate
Governance Code (April 2016) (‘the Code’),
all of the Directors continue to voluntarily
agree to retire at the 2018 AGM and
seek re-election, except for J Schwan and
David Bell who were appointed as Chief
Executive Officer and Non-Executive
Director respectively on 4 August 2018
and will therefore seek shareholder
approval for their appointments at the
forthcoming AGM.
Board Activity
During the period, the Board carried out
a review of matters reserved to it for
decision. The Executive Directors meet
regularly with the chief executive officers
and managing directors of the Group’s
businesses to discuss strategy alignment,
knowledge sharing, performance, major
customers, sales growth (including cross
selling and collaboration opportunities),
risks and people matters.
All Directors have full and timely access
to all relevant information needed to
enable them to properly discharge their
responsibilities and have unrestricted
access to other executives within the
business to discuss any matter of concern
to them. A procedure exists for Directors
to seek independent professional advice
in the furtherance of their duties and to
be reimbursed their reasonable legal fees.
Each Director also has access to the advice
and services of the Company Secretary.
Kin + Carta Annual Report and Accounts 2018 AUDIT COMMITTEE
A
The
Board
R
REMUNERATION
COMMITTEE
N
NOMINATION
COMMITTEE
Audit
Committee
The Audit Committee is
responsible for monitoring
and reviewing the integrity
of the financial reporting
process, including: the
appropriateness of any
judgements and estimates
taken in preparing the
financial statements; the
internal and external audit
functions; the effectiveness
of the risk management
systems and the monitoring
of all internal controls.
Nomination
Committee
The Nomination
Committee is responsible
for reviewing the size,
structure and composition
of the Board, including
the consideration of
skills, knowledge and
experience of Board
members. It also manages
succession planning and
selects potential new
Board candidates when
appropriate.
Remuneration
Committee
The Remuneration
Committee is responsible
for determining the
remuneration policy and
the application of the policy
in relation to the Executive
Directors’ remuneration,
whilst supporting
shareholder value and the
delivery of the Group’s
strategic priorities.
The areas of focus for the Board during
the period were: divestment of the legacy
print businesses, the Group’s strategy
and rebranding, health and safety
performance; trading performance;
risk; corporate governance; and Board
composition and performance. The Board
also held an annual strategic review away-
day at which, inter alia, presentations were
received from the senior executives of
four of the Group’s digital transformation
businesses.
Board Performance
The Board confirms, following a
performance review, that all of the
Directors standing for re-election continue
to perform effectively and demonstrate
commitment to their roles.
Recommendations following the formal
evaluation of the effectiveness of the
Board by a third party consultancy,
The People Stuff, in July 2017 were
implemented during the period.
These included:
• improving the review around strategy
and risks at Board meetings to achieve
greater alignment; and
• restructuring the Board meeting agenda
to incorporate all important areas
covered in meetings.
This period, the evaluation was conducted
on a less formal basis, following the formal
evaluation in July 2017, taking the form
of one-to-one interviews between the
Chairman and each Director. The Board
is satisfied that the Board is operating
effectively and agreed to implement
recommendations that arose from the
interviews in the forthcoming year. An
evaluation of the Chairman was also carried
out by the Non-Executive Directors, led
by the Senior Independent Director.
51
Our Board and
Committee Structure
The Board is supported by Audit,
Nomination and Remuneration
Committees.
Board Activity
All Directors have full and
timely access to all relevant
information needed to enable
them to properly discharge
their responsibilities.
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INTRODUCTION TO GOVERNANCE continued
On appointment, each Director receives an induction appropriate to their previous experience and their knowledge of the markets in
which the Group operates. J Schwan joined the Board as Chief Executive Officer on 4 August 2018 and, as part of his induction, he met
with the Board of Directors and the managing directors of each of the businesses, as well as receiving appropriate induction materials
and briefing sessions. David Bell joined the Board as Non-Executive Director on 4 August 2018 and received induction materials such
as company policies and information related to the Company’s Directors’ and Officers’ liability insurance.
Board Committees
The Board is supported by Audit, Nomination and Remuneration Committees. The Company Secretary acts as Secretary
to all the Committees and each Committee has written terms of reference available on the Group’s investor website
(www.investors.kinandcarta.com).
The Audit Committee Report on pages 56 to 59 discusses the principal activities conducted by the Committee during the period, the
significant matters which were considered and how the Committee addressed these issues.
A report on the work of the Nomination Committee is set out on page 60.
A statement from the Chair of the Remuneration Committee and the Directors’ Remuneration Report can be found on pages 61 to 80.
As a third party consultancy, The People Stuff, referred to on page 51 and with whom the Company has no other connections, carried
out formal evaluations of the effectiveness of the Board’s Committees in July 2017, and internal questionnaires were sent to the
Committees’ members to assess Committee effectiveness during the period. The outcome in each case was that they continued to run
well and were effectively chaired and supported.
The membership of each Committee throughout the period under review is set out in the aforementioned reports.
Board and Committee Attendance
In the opinion of the Board, the Board and its Committees each met sufficiently frequently to properly discharge the responsibilities
set out in their respective terms of reference.
Details of Directors’ attendance at Board and Committee meetings based on their maximum possible attendance during the period
are as follows:
Matt Armitage
Mike Butterworth (Senior Independent Director and Chair, Audit Committee)
Ben Gordon
Brad Gray
Helen Stevenson (Chair, Remuneration Committee)
Richard Stillwell (Chair, Nomination Committee)
Nigel Pocklington
Board
9/9
9/9
2/3
9/9
9/9
8/9
9/9
Audit
Committee
Nomination
Committee
Remuneration
Committee
–
3/3
1/1
–
3/3
–
3/3
3/3
3/3
1/1
3/3
3/3
3/3
2/3
–
5/5
2/2
–
5/5
–
5/5
* This table only shows details of attendance at meetings in the pre-arranged annual meeting calendar. Other ad-hoc meetings were held during the period.
Note: As J Schwan and David Bell were appointed to the Board after the year end on 4 August 2018, they were not eligible to attend any of the Board meetings during the period.
Throughout the period at least three Independent Non-Executive Directors served on each of the Audit, Nomination and Remuneration
Committees.
Internal Control and Risk Management
The Group has in place a corporate reporting and risk management framework in compliance with Principle C3 of the Code after having
due regard to the Financial Reporting Council Guidance.
The Board is responsible for the Group’s system of internal controls, including financial, operational and compliance controls and risk
management, and for reviewing its effectiveness. A workable and realistic system can only be designed to manage and mitigate, rather
than eliminate, the risk of failure to achieve business objectives, safeguard the Group’s assets against material loss and fairly report the
Group’s performance and position in line with relevant legislation, regulation and best practice. Therefore, the system can only provide
a reasonable and not absolute assurance against material misstatement or loss.
As part of the annual budget process, each business is required to submit an analysis of strengths, weaknesses, opportunities and
threats to the Board’s Executive Directors. Once consolidated by the Group’s finance function, the Board’s Executive Directors review
this detail with senior managers of the subsidiaries, and if necessary, findings from this analysis will be elevated to Board level discussion
for further consideration. The Company puts in place a series of forecasting mechanisms in order to receive information from the
businesses across the Group and to forecast as efficiently and effectively as possible.
Kin + Carta Annual Report and Accounts 2018
53
Risks within the business relating to strategic, market, operational, financial, legislative, regulatory, contractual and reputational matters
are referred to the Board as necessary and the Directors consider themselves collectively responsible for ensuring that these risks are
suitably managed.
The Group recognises that taking and managing risks is inherent in any business and in delivering its strategy. On pages 36 to 41 we set
out the principal risks and uncertainties that have been identified from the reporting and risk management framework; their possible
impact on the business; and what mitigating actions the Board has approved.
The Board carries out reviews twice per annum and considers the impact that these principal risks and challenges might have on the
business and on the Group’s ability to meet its strategic objectives.
The process by which the Board exercises control is by holding (a) nine scheduled Board meetings per annum; (b) an annual Board
strategy away-day; (c) regular meetings of senior management within each business which are chaired by an Executive Director; and
(d) regular management meetings of each operation within the businesses. Risk is reported on and monitored between the senior
management teams of each business and the Executive Directors, and any new areas of significant risk to the businesses are then raised
at the next Board meeting if considered appropriate.
The Group’s Internal Audit function consists of a qualified accountant who, as necessary, draws on additional resource from professional
services firms. The work planned for Internal Audit to undertake is linked closely to the risk management framework, with the internal
audit plan designed to give assurance around key risk areas. The Committee has commenced a process in order to evaluate the
effectiveness of the Internal Audit function during the 2018/2019 financial year.
The Internal Audit function independently reviews the risk identification procedures implemented by management. Internal Audit
reviews subsidiary risk registers and ensures they are updated by the heads of finance in each business. Verification of mitigating actions
takes place on a cyclical basis as part of the annual audit cycle.
During the period the Internal Audit function performed work on the Group’s internal controls; reviewing the control environment and
conducting testing of key controls. Controls testing of procurement, accounts payable, payroll, accounts receivable and credit control
cycles took place at selected sites, including work at the Group’s Shared Services Centre which provides centralised accounts payable,
credit control and general ledger services to a number of the Group’s companies. High risk issues identified within audit reports, together
with corrective actions were considered in detail at the meetings of the Audit Committee.
Annual internal control questionnaires, supplemented by a half year questionnaire, are completed by all the Group’s businesses and
reviewed by the Head of Internal Audit and supplied to the external auditors. Any inconsistencies with the Group’s established corporate
governance regimes which are identified are disclosed to the Audit Committee.
Compliance Statement
The corporate governance rules applying to Kin and Carta plc (as a FTSE ‘small-cap’ company listed on the London Stock Exchange) for
the period ended 3 August 2018 are contained in the UK Corporate Governance Code (April 2016) (‘the Code’). The Code requires us to
describe in our Annual Report our application generally of the Code’s Principles and specifically our dealing with any non-compliance of
the Code’s provisions. The Code can be read in full on the Financial Reporting Council’s website (www.frc.org.uk).
In the opinion of the Board, the Company has, throughout the period, been in compliance with the Code’s Provisions.
This Corporate Governance Report, together with the reports on pages 56 to 80, describes how the Board has applied the Principles
contained in the Code and, where appropriate, where it has adopted elements of corporate governance good practice.
In July 2018 the FRC published a revised Corporate Governance Code which will come into effect on 1 January 2019. The Board is
currently reviewing the extent and implications of changes that have been made. During the course of 2019 the Board intends to make
any changes to its practices and procedures with a view to establishing the appropriate level of compliance by the start of the 2019/2020
financial year.
Approved by the Board of Directors and signed on its behalf by
Richard Stillwell
Chairman
8 October 2018
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BOARD OF DIRECTORS
STRONG LEADERSHIP
David Bell
Independent
Non-Executive
Director
J Schwan
Chief Executive
Officer
Mike Butterworth
Senior
Independent
Non-Executive
Director
Helen Stevenson
Independent
Non-Executive
Director
Brad Gray
Chief Financial
Officer
Richard Stillwell
Chairman
Nigel Pocklington
Independent
Non-Executive
Director
Committee Membership
Member of the
Audit Committee
Member of the
Remuneration Committee
Member of the
Nomination Committee
Kin + Carta Annual Report and Accounts 2018 55
David Bell
Independent Non-Executive Director
J Schwan
Chief Executive Officer
Appointed: 4 August 2018
Appointed: 4 August 2018
Committee:
Experience: David has served as CEO of two of the world’s largest
Advertising Marketing Services companies, NYSE-listed True North and
Interpublic Group (‘IPG’). He was also CEO of Bozell Worldwide, which he
helped grow to a top-ten global agency. From 2006 to 2009, David was a senior
advisor to Google and has been in a similar position with AOL/Oath since 2009.
David was elected by his peers into the Advertising Hall of Fame in the US in
2007 and in 2013, the Hall of Fame established the David Bell Award which is
given to one inductee who has best demonstrated this level of service. David
was an independent director at Time Inc. between 2014 and 2018 and has
previously served on numerous other US listed company boards, as well as
many growth stage companies in the marketing and media technology sectors.
Other roles: David is currently an independent director of Creative
Realities Inc.
Experience: J is the Founder and former CEO of Solstice. After founding the
company in 2001, he continued to lead his growing team with the vision of
helping industry leading global brands evolve and capitalise on new technology.
His mission was to usher these large enterprise corporations into a post-mobile
era dominated by disruptive technologies and digital startups. J received his
Bachelors in Engineering from the University of Illinois at Urbana-Champaign
and began his career at Andersen Consulting. He is passionate about building
a company with a foundation on servant leadership and fostering an innovative
culture that puts people first.
Mike Butterworth
Senior Independent Non-Executive Director
Helen Stevenson
Independent Non-Executive Director
Appointed: 1 August 2010
Committee:
Appointed: 1 May 2012
Committee:
Experience: Mike Butterworth, ACA served for eight years as Group Finance
Director of Cookson Group plc, a FTSE250 company, until December 2012
when Cookson was de-merged. Previously, Mike was Group Finance Director of
Incepta Group plc for five years, an international marketing and communications
group, prior to which he spent five years as Group Financial Controller at BBA
Group plc, the international aviation and materials technology group. Mike is the
Senior Independent Non-Executive Director and chairs the Audit Committee.
Experience: Helen Stevenson was Chief Marketing Officer UK at Yell Group
plc from 2006 to 2012 and, prior to this, served as Lloyds TSB Group Marketing
Director. Helen started her career with Mars Inc where she spent 19 years,
culminating in her role as European Marketing Director, leading category
strategy development across Europe. Helen has in the past served as a
Non-Executive Director on the main board of the Department of Work
and Pensions. Helen chairs the Remuneration Committee.
Other roles: Mike currently holds Non-Executive Directorships, and is
Chairman of the Audit Committee, at Cambian Group plc, Johnston Press plc
and Stock Spirits Group plc.
Other roles: Helen currently holds Non-Executive Directorships with the
Skipton Building Society, Reach plc and Shirlaws Group, and serves
on the Strategic Advisory Board of Henley Business School.
Brad Gray
Chief Financial Officer
Richard Stillwell
Chairman
Appointed: 1 August 2014
Committee:
Appointed: 26 April 2011
Committee:
Experience: Brad Gray, ACA joined the Group from Grant Thornton in
1988, and held a number of finance positions for the following six years. In
1994 he was appointed Finance Director of the Group’s magazine printing
business before serving as its Deputy Managing Director until 2007. Brad
then continued in general management, as Managing Director of SIMS, and
subsequently as the Group’s Operations Director. In 2010 he was appointed
Corporate Development Director, playing a key role in implementing the
Group’s acquisition strategy. In 2012 Brad’s responsibilities were broadened
to include the responsibilities of Deputy Finance Director. He was appointed
Chief Financial Officer on 1 August 2014.
Experience: Richard Stillwell joined the Board on 1 September 2006 and was
appointed Chairman of the Company on 26 April 2011. Richard was Executive
Vice President of ICI plc, where he had held various posts for 26 years until
2000, before changing career and qualifying as a barrister. More recently
Richard has held Non-Executive Directorships at Penna Consulting plc,
Scott Bader Ltd, TBI Ltd and Fibreweb plc, as well as Albertis Motorways UK Ltd
and Albertis Overseas (UK) Ltd. Richard chairs the Nomination Committee.
Other roles: Richard is currently a Non-Executive Director of Curo Group
(Albion) Ltd, a not-for-profit company involved in the provision of housing
and community services.
Nigel Pocklington
Independent Non-Executive Director
Appointed: 1 June 2016
Committee:
Experience: Nigel held a variety of senior management positions within
Expedia Inc., including President of eBookers and Chief Marketing Officer
of Hotels.com, from 2007 to 2016. He spent a decade of his early career
at Pearson plc, including a period leading the digital operations of the
Financial Times.
Other roles: Nigel is Managing Director, Insurance and Home services
at Moneysupermarket Group plc, and is also responsible for the group's
Travelsupermarket business.
Board Structure
1
4
2
Chairman
Executive
Non-Executive
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AUDIT COMMITTEE REPORT
The Audit Committee’s key role is to gain assurance around processes that support financial
reporting, including internal control, risk management and legal and regulatory compliance,
together with financial reporting itself.
Dear Shareholder
I am pleased to present a report on the role of the Audit Committee and its activities during the period ended 3 August 2018.
Current Membership
I chair the Committee and bring recent and relevant financial experience to it, having served as Chief Financial Officer of a FTSE250
company for eight years until December 2012. Throughout the period under review and the current financial year to date, the other
members of the Committee were Helen Stevenson and Nigel Pocklington. Ben Gordon was a member of the Audit Committee until he
stepped down from the Board on 30 November 2017. The Audit Committee as a whole has competence relevant to the sector in which
the Company operates.
In addition to the Committee members, the Chairman, the Executive Directors of the Board, the Head of Internal Audit and the external audit
partner are invited to attend each meeting. The Committee members do, however, meet separately at least twice a year with the external
auditors and the Head of Internal Audit and I am in frequent contact with both the external audit partner and the Head of Internal Audit.
Role of the Committee
The Committee carries out the functions required by DTR 7.1.3R of the UKLA Disclosure and Transparency Rules. The principal
responsibilities of the Committee are set out in the Committee’s terms of reference, which are available from the Group’s investor
website (www.investors.kinandcarta.com).
Main Activities of the Committee in 2017/2018
The Committee held three scheduled meetings in the period at which it:
• agreed an internal audit plan;
• considered reports from the Group’s Head of Internal Audit;
• monitored the quality of work performed by the Internal Audit function;
• considered the appropriateness of the Group’s risk management process, including the results of an internal controls questionnaire,
completed by management within the Group’s operating sites;
• considered the external auditor’s reports to the Committee, their fees and their independence, including an assessment of the
appropriateness to conduct any non-audit work;
• participated in the external auditor tender process;
• ensured the integrity of the financial reporting process was upheld;
• reviewed the Group’s trading updates and Half Year Report prior to release;
• considered significant accounting and reporting issues pertinent to the preparation of the Half Year Report and the
Annual Report and Accounts;
• analysed the effectiveness of the external audit by reviewing replies to questionnaires completed by management and
Audit Committee members;
• agreed a process for the review of the Committee’s effectiveness;
• received the Group’s updated bribery risk register and considered the effectiveness of recommendations by Internal Audit;
• approved the Group’s policy on the provision of non-audit services, in alignment with EU rules;
• approved the Committee’s terms of reference;
• approved the Group’s Speak Up policy which covers whistleblowing arrangements;
• assisted the Board with the review of the Company’s Business Risk Register;
• considered an assessment of the Group’s longer-term viability; and
• received a report setting out the Going Concern review undertaken by management.
The Committee was satisfied with the effectiveness of the internal controls within the Group during the period.
Kin + Carta Annual Report and Accounts 2018 57
Annual Report and Accounts 2018
The Committee undertook a review and assessment of the Annual Report and Accounts 2018 (the ‘Annual Report’) in order to determine
whether, in its opinion, the Annual Report for the period, taken as a whole is fair, balanced and understandable and provides shareholders
with the information they need to assess the Group’s position, performance, business model and strategy. To provide additional support
to the Board in making this assessment, the Committee approved and monitored a detailed review and verification process of the Annual
Report undertaken by management and provided confirmation to the Board that this process was both followed and effective. In this
respect, the Committee:
• received reports on the requirements of Provision C.1.1. of the Code, which were updated as an ongoing part of the year end process;
• reviewed a full draft of the Annual Report, using an evaluation tool to help judge what constitutes ‘fair’, ‘balanced’ and ‘understandable’;
how performance is reported; the explanation of the business model; and the articulation of the Group’s strategy and whether the
Annual Report, in the opinion of the Committee, complies with Provision C.1.1. of the Code; and
• reviewed the outcomes of reviews performed by the external auditors.
Significant Financial Matters
The Committee has assessed whether suitable accounting policies have been adopted and whether management has made appropriate
estimates and judgements in respect of significant financial matters. The Committee considered accounting papers which provided
details on the main financial reporting judgements and classifications, which were addressed as follows:
SIGNIFICANT MATTERS CONSIDERED
HOW THE COMMITTEE ADDRESSED THESE ISSUES
The assessment of the carrying value of
goodwill (£84.7 million) and intangible
assets (£31.5 million)
The Committee received reports in relation to the assessment of the carrying value of the goodwill for each cash
generating unit (‘CGU’). The Committee considered key judgements including the discount rate, terminal growth
rates and the future cash flow forecast of each CGU to which goodwill and investments are allocated, based upon the
projected forecasts approved by the Board. The conclusion of the review and the key assumptions are disclosed in the
notes to the Consolidated Financial Statements.
The Committee considered reports on the carrying value of acquired intangible assets where there were indicators
of impairment such as loss of clients, maintenance of proprietary techniques and trademarks. The Committee also
reviewed disclosures where a reasonably possible change indicated a material impairment.
During the period, the Committee reviewed the impairment assessment of goodwill and intangible assets for the
Hive CGU that had been carried out by management, and concluded that impairment charges of £9.6 million and
£2.1 million respectively were recorded in the Consolidated Income Statement. This was due to a decline in Hive’s
revenue. A further impairment charge of £0.4 million was recognised in respect of Fripp, Sandeman and Partners’
intangible assets due to obsolete technology.
The above charges have been recorded as Adjusting Items in the Consolidated Income Statement (note 7).
The Board uses Adjusted results as the measure of the ongoing financial performance of the Group’s businesses
and excludes such items that are considered to distort the comparison of the trading performance of the Group and
across its businesses. The Audit Committee assessed the classification of these Adjusting Items according to their
nature and value, in line with ESMA and the FRC Guidance (‘APMs’). The Committee reviewed reports outlining the
accounting policy on the classification of Adjusting Items and satisfied itself with the treatment applied.
The accounting policy on Adjusting Items can be found in note 7 to the Consolidated Financial Statements and
in the Alternative Performance Measure section on pages 29 to 32.
The valuation of the St Ives Defined Benefits Pension Scheme (the ‘Scheme’) is judgemental mainly due to underlying
assumptions used to determine the Scheme’s liability. This includes assumptions such as the discount rate, inflation
and life expectancy of the Scheme members at the balance sheet date. The Committee reviewed reports from
management outlining the assumptions used, and agreed with those assumptions as outlined in note 29. The
assumptions presented to the Audit Committee by management are underpinned by actuarial advice. The Audit
Committee considered the suitability of the actuary.
The classification of Adjusting Items
(£49.6 million before tax)
The valuation of the St Ives Defined Benefits
Pension Scheme (£1.9 million surplus)
The accounting treatment of discontinued
operations (£3.2 million profit after tax)
During the period, the Group disposed of its Marketing Activation and Books segments, giving rise to profit after
tax from discontinued operations of £3.2 million. The Committee assessed the treatment of these discontinued
operations and was satisfied with the approach taken.
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AUDIT COMMITTEE REPORT continued
Going Concern
The Committee received a report setting out the Going Concern review undertaken by management that forms the basis of the Board’s
going concern conclusion on page 82.
Viability
An overview of the viability process undertaken was provided to the Audit Committee and reviewed for completeness. The viability
evaluation was then provided to the Board to assist in its assessment of the Company’s longer-term viability in order to make the
statement found on page 82.
External Auditors
The external auditor’s appointment is reviewed regularly and, in accordance with the Financial Reporting Council’s (‘FRC’) Ethical
Standard, the Lead Audit Partner is rotated at least once every five years. As such, a new Lead Audit Partner for the external audit was
appointed in the 2016/2017 financial year.
Governance in Action – External Auditor Tender
In line with UK and EU laws that require an auditor’s maximum period as auditor to a listed company to be 20 years, with a
competitive tender process required at least once every 10 years, the Company decided to put its statutory audit work out to
tender in 2018 with the intention of nominating a new external auditor for the reporting period ending in 2019.
Desktop due diligence was conducted to confirm which firms would be invited to participate in the audit tender. The following
factors were considered:
• Experience of auditing comparable organisations;
• Size and scale;
• Audit quality record; and
• US presence.
As part of the due diligence, the Company also sought assurance that each firm would be capable of being independent before
being appointed auditor.
Based on this exercise, five firms were shortlisted for the tender and issued with audit invitation to tender letters. Given that Deloitte
has been the Company’s external auditor for more than 20 years, Deloitte was not invited to retender for this appointment.
The audit tender was overseen by the Audit Committee, which agreed on the objectives and desired outcomes, and approved the
design of the process. The Audit Committee was assisted by a sub-committee consisting of the Chief Financial Officer, the Group
Company Secretary, the Group Financial Controller and the Head of Internal Audit.
The audit tender was designed to implement a selection process which was efficient, fair and effective. The participating firms
had clearly identified internal points of contact, a structured series of meetings and access to a virtual data room to download
company information.
Evaluation was conducted using a standardised scorecard to assess each firm’s commitment, competence and cultural
compatibility. The cost of the audit was also taken into consideration, as well as the transition plan to ensure that there will be an
orderly and thorough handover process from the existing auditor.
At the conclusion of the process, the Audit Committee was able to recommend a preferred choice to the Board, from two
shortlisted firms. PricewaterhouseCoopers (‘PwC’) was recommended as the preferred choice based on audit quality, evaluation
scores as well as the capabilities and competences that it was able to demonstrate throughout the tender process.
After considering the Audit Committee’s recommendation, the Board approved the appointment of PwC as the Company’s new
external auditor commencing for the period ending 31 July 2019, subject to the approval of shareholders at the 2018 Annual
General Meeting.
Kin + Carta Annual Report and Accounts 2018 59
The Committee’s policy for determining the level of fees for non-audit services that the external auditor can provide, which reflects the
EU rules, is as follows:
a) certain types of engagement shall not be undertaken by the external auditor, including services related to the Internal Audit function
and tax;
b) relevant ethical guidance shall be taken into account regarding any proposal to request the Group’s external auditors to perform
non-audit services;
c) cumulative non-audit fees from 2019/2020 onwards are capped at 70% of the average of the audit fees for the Group for the
preceding three-year period;
d) subject to (e) below, the Board shall appoint whoever, in its opinion, will provide the most cost effective and timely service for
undertaking a particular project; and
e) the Chief Financial Officer is to consult with the Chairman of the Audit Committee in advance of any non-audit work in excess of
£25,000 per project that the external auditor may be invited to perform for the Group, so that an agreed view might be taken on
whether to put the project out to tender.
The Committee has satisfied itself that this policy has been appropriately applied. The split between audit and non-audit fees for the
period is disclosed in note 5 to the Consolidated Financial Statements. The non-audit fees were £270,000 for the period (for reporting
accountants services relating to the Group’s disposals and services relating to the closure of the Group’s office in Shanghai) and were not
considered by the Committee to compromise the objectivity and independence of Deloitte. The Committee agreed to select Deloitte to
provide these services due to their inherent knowledge of the Group.
The Committee also considered the robustness of Deloitte’s safeguards and procedures to counter threats or perceived threats to
their objectivity, the application of their independence policies and their adherence to the Ethical Standard published by the FRC. In all
these respects the Committee was satisfied with Deloitte’s objectivity and independence. The Committee is satisfied that there are no
relationships between the Company and Deloitte, its employees or its affiliates that may reasonably be thought to impair the auditors’
objectivity and independence. Private meetings are held with Deloitte to ensure that no restrictions are placed on the scope of their audit
and to offer the external auditor opportunities to discuss any items the auditors did not wish to raise with the executives being present.
A review of the effectiveness of the external audit for the 2016/2017 year end was performed during the period which involved the
completion of two questionnaires containing assertions of ‘best practice’ – one by each member of the Audit Committee containing
10 assertions – and another completed by the management of each subsidiary containing 15 assertions. The areas covered included:
the audit team expertise and experience; the audit planning process; audit execution; communication; adding value; responsiveness;
reporting; timeliness; and focus. Participants were requested to score each assertion between one and four to indicate their level of
agreement or disagreement. The results were then reviewed by the Audit Committee and Chief Financial Officer and discussed with
the external auditors. The completed questionnaires showed in aggregate that the external audit had achieved a clear majority of the
assertions in each area of focus. Areas of improvement that had been noted were addressed at the Audit Committee meeting during the
period and continued to be implemented throughout the external audit for the period.
Mike Butterworth
Chair of the Audit Committee
8 October 2018
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NOMINATION COMMITTEE REPORT
The Nomination Committee’s key role is to lead the process for Board appointments and make
recommendations to the Board.
Dear Shareholder
On behalf of the Nomination Committee, I am pleased to report to you on the work it undertook during the period ended 3 August 2018.
Current Membership
The Board has decided that a Nomination Committee, consisting of six serving Board Directors, is workable given the size of the Board and,
indeed, desirable. All Committee members are given a voice in deciding on the method for reaching a shortlist, nominating and deciding
on the selection of new members of the Board. It is important to a small board such as ours that the process of selection is right to suit the
particular circumstances and that any decision made to nominate a new member of the Board is unanimous by all the Directors on the
Committee. Committee members interview all candidates for appointments to Executive Director and Non-Executive Director positions.
The Board supports the increasing focus on the composition of boards and the emphasis on diversity. The Group’s policy on affording
equal opportunities to all employees and suitable applicants extends to the Board. Anyone appointed to the Board will however be selected
on merit against objective criteria, taking into account the skills, expertise, and experience of the candidates. The Board agrees that diversity
within the boardroom and within the operating businesses is important to the success of the Group and is pleased to see an increasing
proportion of female members in the senior management teams across the Group. The Committee seeks to reflect this view and will
continue to assess the Board make up in the forthcoming year. To this effect, a diversity policy is being implemented for the forthcoming year.
When we look outside the Group to recruit we are keen to consider candidates from all parts of the community in terms of gender, ethnicity,
nationality, disability, age, sex, sexual orientation, marital or civil partner status, race, colour, religion or belief and will continue with this policy.
Our disclosure on diversity generally can be found on page 44 within the Strategic Report.
Role of the Committee
The principal role of the Committee is to consider and recommend to the Board candidates who are appropriate for Executive or
Non-Executive Director roles in order to maintain an appropriate balance of skills and experience represented on the Board and ensure
that the Board is appropriately refreshed.
Main Activities of the Committee in 2017/2018
During the period the Committee’s main tasks were to consider the composition of the Board and Board level succession planning.
The Committee performed succession planning during the period for the Chief Executive Officer role having engaged an external agency,
The Zygos Partnership, with which the Company has no other connections, to consider prospective candidates as a future successor.
As part of this process, external candidates and J Schwan, founder and previous CEO of Solstice, were assessed and the Committee
identified J Schwan as the most suitable successor. Following the resignation of Matt Armitage as Chief Executive Officer, the Board
unanimously approved the appointment of J Schwan to the Board, as Chief Executive Officer. J had already made a considerable impact
in his previous role as Group Chief Digital Officer and is believed to be best placed to lead the Company in becoming a worldwide digital
business transformation group.
In considering the composition of the Board, the Committee has recognised the focus on the growth of its digital business service
companies in the US as part of the Group’s strategy, and concluded that the Company would benefit from the appointment of a
Non-Executive Director who had extensive knowledge and experience of the US market. To this end, David Bell, who had worked
extensively with Solstice as a member of their advisory board, prior to the acquisition of Solstice by the Company in March 2015,
was considered by the Committee for the role of Non-Executive Director due to the valued work he had performed. David was duly
appointed to the Board with effect from 4 August 2018, subject to his election at the 2018 AGM.
The makeup of the business will continue to develop through organic growth, investment in the acquired businesses and, in the longer term,
future acquisitions. Any appointment to the Board involves a thorough process where talent is assessed and benchmarked against the
expectations of the role and as part of this process, all members of the Committee have a one-to-one meeting with any potential candidate.
The Committee discharged its other principal duties by:
• ensuring that an appropriate review of Board, Committee and Director effectiveness was undertaken during the period;
• considering whether the Non-Executive Directors were sufficiently independent for corporate governance purposes; and
• approving the division of responsibilities between the Chairman and the Chief Executive Officer.
Richard Stillwell
Chair of the Nomination Committee
Kin + Carta Annual Report and Accounts 2018 LETTER FROM CHAIR OF REMUNERATION COMMITTEE
61
I am pleased to present our Directors’
Remuneration Report for the period
ended 3 August 2018.
HELEN STEVENSON
Chair of the Remuneration Committee
At a glance:
Summary for Executive Directors
Performance and remuneration for
2017/2018
• 2017/2018 annual bonus pay-out
of 100% of maximum
• 2015 LTIP award vesting 0%
Implementation for 2018/2019
• New Chief Executive Officer salary of
£400,000, as per outgoing CEO’s salary,
8.7% salary increase for Chief Financial
Officer
• Bonus of up to 100% salary, based 75%
on Adjusted PBT and 25% on strategic/
personal objectives
• LTIP vesting 70% on Absolute TSR,
15% on growth in Adjusted revenue
and 15% on growth in Adjusted PBT
• LTIP grants at 100% of salary
• LTIP vesting underpinned by
Committee discretion
• LTIP holding period of two years
post vesting
The Remuneration Committee’s key role is to set the broad policy
for remunerating the Executive Directors and recommend a
remuneration policy which supports the creation of value for
shareholders and the delivery of the Group’s strategic priorities.
The Committee is mindful of the intense scrutiny around executive
remuneration and seeks to adopt best practice where appropriate
taking into account its position in the small cap sector.
Dear Shareholder
On behalf of the Remuneration Committee (‘the Committee’), I am pleased to present
the Directors’ Remuneration Report for the period ended 3 August 2018 covering the
remuneration of Executive and Non-Executive Directors.
This report is split into three parts: this Annual Statement, a Policy Report and an
Annual Report on Remuneration. The Committee considers that the policy approved by
shareholders at the 2017 AGM remains fit for purpose and accordingly is not proposing
any changes this year. This report contains an abbreviated Policy Report to give context to
decisions taken by the Committee during the year, with the full Policy Report, as approved
by shareholders, available in our Annual Report and Accounts 2017 on the Company’s
website. As required by legislation, we will be submitting this year’s Annual Report on
Remuneration to an advisory vote at the Annual General Meeting on 29 November 2018.
Approval of Remuneration Policy
As detailed in last year’s report, the Committee submitted a revised remuneration policy
to shareholders at the 2017 AGM. Reflecting the Committee’s view that the policy
remains appropriate for Kin + Carta at this time, you will recall that we proposed only
minor amendments; namely introducing a two-year holding period for vested long-term
incentive awards and allowing greater flexibility to vary the performance measures for
LTIP future cycles. The Committee was very pleased that 99.62% of shareholders voted in
favour of the relevant resolution.
Changes in Leadership
We announced to the market on 27 June 2018 that our Chief Executive Officer,
Matt Armitage, had informed the Board of his intention to retire from the Board
at the end of the 2017/2018 financial year. Effective 4 August 2018, Matt stepped
down as a Board Director but will remain in employment with the Group as a special
adviser for 12 months, until 31 July 2019, to assist with the leadership transition.
Details of the remuneration arrangements relating to Matt’s retirement from the
Group are included on page 76.
Matt is succeeded as Chief Executive Officer by J Schwan, an internal promotee who has
served most recently as the Group’s Chief Digital Officer. J’s remuneration arrangements
for 2018/2019 are detailed on pages 76 to 77; however in summary he will receive an
annual salary of £400,000, a pension contribution of 15% of salary, and will be eligible
to participate in the Group’s annual bonus and LTIP on the same basis as his predecessor.
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LETTER FROM CHAIR OF REMUNERATION COMMITTEE continued
Performance and Reward for 2017/2018
The strategy to dispose of the legacy print businesses was successfully completed during the period and we are now solely a digital
transformation business (previously referred to as strategic marketing). We see exciting opportunities for growth as we continue
to expand our operations in multiple markets.
Targets for Executive Directors’ 2017/2018 bonuses were based 75% on Adjusted PBT and 25% on strategic/personal objectives.
The Adjusted PBT target was revised to take into account the disposal of the legacy print businesses during the year. Further details
of the revisions to the target are disclosed on page 72. Adjusted PBT from continuing operations increased by 38.1% in the 2017/2018
financial year and therefore the PBT target was achieved in full. The strategic and personal objectives were also achieved in full and are
disclosed on page 72. In line with the Remuneration Policy, any bonus award in excess of 50% of basic salary will be deferred in Company
shares for a two-year holding period. A summary of actual performance against the targets set is included on page 72.
The Annual Report on Remuneration also gives details of LTIP awards granted in November 2015. The Company’s 2017/2018 Adjusted
basic EPS performance, which acts both as a primary performance condition and as an underpin to the Relative Total Shareholder Return
and proportion of operating profit from Strategic Marketing elements, did not meet the relevant targets and the awards will therefore
lapse. Further details are provided on page 73.
Implementation of Remuneration Policy for 2018/2019
As detailed above, J Schwan was appointed Chief Executive Officer on an annual salary of £400,000, in line with his predecessor. In respect
of the Chief Financial Officer, the Committee approved a 8.7% increase effective 4 August 2018, bringing his annual salary to £250,000.
In determining this increase the Committee was mindful of Brad’s exceptional contribution to the disposals made in 2017/2018 and of
the need for a period of stability at Board level following the retirement of the Chief Executive Officer. The increase equates to 2.7% per
annum since Brad’s salary was last increased in August 2015 which is below the average level of increases made to the broader employee
population over the same period.
The annual bonus will operate on a similar basis as in 2017/2018. Maximum bonus opportunities remain at 100% of salary, with any
amount earned over 50% of salary continuing to be deferred in shares for two years and subject to malus provisions. Reflecting the impact
of shares issuance to fund acquisition related earn-out payments, 75% of the bonus will continue to be based on Adjusted PBT, with the
remaining 25% based on the achievement of key strategic/personal objectives. The Committee would reiterate its intention that the use
of Adjusted PBT is a temporary change and that we expect to revert to EPS over the longer term.
LTIP grant sizes will be 100% of salary. Vesting will be subject to stretching targets, underpinned by Committee discretion. The LTIP will
operate on a similar basis as in 2017/2018 with 70% of the award based on Absolute TSR. The remaining 30% of the award will be split
equally between growth in Adjusted revenue and growth in Adjusted PBT. The Committee considers that adding a revenue measure will
help reinforce the Group’s growth strategy. As before, LTIP awards are subject to a two-year holding period after vesting.
Further details of the implementation of our Remuneration Policy for 2018/2019 are provided on page 76.
We continue to value any feedback from shareholders and hope to receive your support at the forthcoming AGM.
Helen Stevenson
Chair of the Remuneration Committee
8 October 2018
Kin + Carta Annual Report and Accounts 2018 DIRECTORS’ REMUNERATION REPORT
63
This Directors’ Remuneration Report has been prepared in accordance with The Large and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2013. The Report is also in accordance with the requirements of the Listing
Rules and the relevant recommendations contained within the UK Corporate Governance Code (April 2016) (‘the Code’) relating
to Directors’ remuneration and takes into account the views of our major shareholders. The legislation requires the auditors to report
to the Company’s members on certain disclosures contained in this report and to state whether in their opinion that part of the report
has been properly prepared in accordance with the Companies Act 2006. The sections, between pages 63 and 80, which are subject
to audit, have been highlighted.
Policy Report
Summary of Directors’ Remuneration Policy
Kin + Carta’s remuneration policy was approved by shareholders at the Annual General Meeting on 30 November 2017, and took effect
from that date. We publish below an abbreviated version of the policy, updated as necessary, to give context to decisions taken by the
Committee during the year. The full policy report, as approved by shareholders, can be found in the Annual Report and Accounts 2017
available on the Company’s website.
Basic salary
Purpose and link to strategy
To provide competitive fixed remuneration that will attract and retain key employees of a high calibre
and which reflects their experience and position in the Company.
Operation
Normally reviewed annually with increases effective from 1 August; salaries are paid monthly.
In setting salaries, the Committee takes into account the following:
• capability of the individual;
• any changes in responsibility;
• increases awarded across the workforce;
• external economic factors such as inflation; and
• benchmarking for similar roles in comparable organisations.
Maximum potential value
Executive Directors’ salaries effective 4 August 2018 are as follows:
Chief Executive Officer, J Schwan: £400,000 p.a.; and
Chief Financial Officer, Brad Gray: £250,000 p.a.
No monetary maximum has been set, although increases are generally in line with the range (in
percentage of salary terms) awarded across the Group.
In accordance with normal practice at all levels in all parts of the Group, increases above this level
(in percentage of salary terms) may be made in certain circumstances such as where there is a change
in responsibility or a significant increase in the scale of the role or size and complexity of the Group.
Performance metrics
Not applicable.
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DIRECTORS’ REMUNERATION REPORT continued
Benefits
Purpose and link to strategy
To provide market competitive, yet cost effective, benefits to attract and retain high calibre
executives.
Operation
Benefits generally include provision of a car, or cash in lieu of car and fuel allowance, and private
medical and life assurance cover.
The Committee may introduce other ancillary benefits which are on similar terms to those offered
to the wider workforce or required in order to remain market competitive.
Overseas recruitment or an international assignment may require the benefits package to be
more tailored and may include, for example, relocation costs, tax equalisation arrangements, etc.,
as necessary.
Maximum potential value
The maximum annual car and fuel allowance is £15,520.
The maximum overall cost of total benefit provision (including but not limited to annual car and fuel
allowance) may vary each year subject to changes in the Company’s insurance premiums or changes
to the terms of the benefits provided.
The values for the year under review, expressed as a cost to the Company of providing the benefits,
are described in the Directors’ single figure table on page 71.
Performance metrics
Not applicable.
Pension
Purpose and link to strategy
To provide market competitive, yet cost-effective benefits.
Operation
Only basic salary is pensionable.
A Company contribution to a defined contribution pension scheme, a personal pension or provision
of a cash payment in lieu of a pension contribution (or combination of such) may be provided at the
discretion of the Committee.
Maximum potential value
Up to 15% of salary.
Performance metrics
Not applicable.
Kin + Carta Annual Report and Accounts 2018 65
Annual bonus
Purpose and link to strategy
Incentivises achievement of annual objectives which support the short-term performance goals of
the Company.
Operation
At the start of each year the Committee determines the choice of annual bonus measures and targets
to ensure they reflect the KPIs of the business at that time.
Payments under the annual bonus plan are subject to:
• compulsory payment of any bonus earned over 50% of salary (on an after tax basis) in the
Company’s shares under the Company Deferred Bonus Shares (‘DBS’) arrangement which are
subject to a holding period of two years; and
• the element of the annual bonus paid in shares is subject to malus provisions in the event of a
material misstatement of the Company’s financial position.
Deferred shares will generally be forfeited if a Director leaves the Group (unless in certain good
leaver situations or if the Committee determines otherwise).
Dividends and/or dividend equivalents are payable on the deferred bonus shares during the two-year
holding period.
Maximum potential value
100% of basic salary.
Performance metrics
Performance is measured over one financial year.
Bonus awards are subject to achievement against a sliding scale of challenging financial targets
and may also be subject to challenging strategic/personal objectives.
The majority of any bonus will be earned for achieving challenging financial targets aligned with
the Company’s key performance indicators (e.g. Adjusted PBT or EPS). A minority may be subject to
achieving pre-set strategic/personal objectives which reflect the key priorities of the role at the time.
Bonuses become payable once a threshold level of performance is achieved against the target(s)
which triggers a bonus payment of up to 25% of salary, rising to 100% of salary for meeting
(or exceeding) the maximum target(s) set. Measurement of financial metrics is made on the basis
of audited figures. Where strategic/personal targets are set it may not always be practicable to set
these using a sliding scale.
Page 77 of the Annual Report on Remuneration provides details of the performance measures
and weightings to apply for the year ended 31 July 2019.
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DIRECTORS’ REMUNERATION REPORT continued
Long-Term Incentives
Purpose and link to strategy
Incentivises executives to achieve superior financial growth and returns to shareholders over the
longer term.
Provides alignment with shareholders through awards of shares.
Promotes retention of key individuals.
Operation
The Long-Term Incentive Plan (‘LTIP’) was approved by shareholders in 2010.
Awards can be in the form of an option, a conditional award or a forfeitable award.
Eligibility to receive awards is at the discretion of the Committee each year.
An LTIP award may be made shortly after an appointment (subject to the Company not being
in a prohibited period) subject to the permitted maximum.
Awards are normally made on an annual basis and vest three years from grant subject to continued
employment and the satisfaction of challenging three-year performance targets.
A two-year holding period following LTIP vesting applies to grants from 2017/2018 onwards to
Executive Directors. In total, this results in a five-year combined vesting and holding period.
The Committee reviews the quantum of awards annually and monitors the continuing suitability
of the performance measures.
Participants benefit from the value of dividends paid over the vesting period to the extent that
awards vest. This benefit is delivered in the form of cash or additional shares at the time that awards
are exercised.
All Awards granted after November 2013 are subject to a malus provision and clawback for two
years after vesting, in the event of a material misstatement of the Company’s financial position.
Maximum potential value
Awards with a face value of up to 125% of basic salary (or 200% if the Committee believes there are
exceptional circumstances) can be made on an annual basis.
The Company operates within a 10% in ten years ABI (new share issue) dilution limit.
Performance metrics
Performance is measured over a three-year period.
Performance measures, weightings and targets are determined by the Committee in advance of
grant to support Company strategy and provide shareholder alignment. The majority of LTIP awards
will continue to be linked to financial and/or TSR performance.
Under each measure, threshold performance will result in 25% of maximum vesting for that element
(0% vests below this), increasing pro-rata to 100% for maximum performance.
Where TSR performance conditions are set, performance against the condition is monitored
independently on the Committee’s behalf and where financial targets are set performance against
the condition is tested based on numbers derived from the audited financial statements.
LTIP vesting is underpinned by Committee discretion such that for any shares to vest, the
Committee must be satisfied with the underlying performance of the business. In making this
assessment the Committee will take into account factors such as the strength of the balance sheet,
quality of earnings, etc.
Page 77 of the Annual Report on Remuneration provides details of the performance measures,
targets and weightings to apply for the year ending 31 July 2019.
.
Kin + Carta Annual Report and Accounts 2018 67
All-employee share schemes
Purpose and link to strategy
Encourages long-term shareholding in the Company.
Operation
Invitations made by the Committee under the HMRC Approved Sharesave Scheme.
Executive Directors may participate in a monthly savings contract on the same terms as other
employees of the Group.
Maximum potential value
As per HMRC limits (e.g. current maximum monthly savings towards share purchases is limited to
£500 per calendar month).
Performance metrics
Not applicable.
Share ownership guidelines
Purpose and link to strategy
To provide alignment between executives and shareholders.
Operation
The Committee operates shareholding guidelines of 200% of salary for the Chief Executive Officer
and 150% of salary for other Executive Directors.
The net of tax number of deferred bonus shares or vested shares under the Company’s LTIP will
normally be required to be retained until the guideline is met.
The Committee may take account of progress towards this target when determining LTIP awards.
Maximum potential value
Not applicable.
Performance metrics
Not applicable.
Notes to the Policy Table
1. While the remuneration policy for Executive Directors is designed having had regard to the policy for employees across the Group as a whole, there are some differences in the structure for senior
employees which the Committee believes to be necessary to reflect the different levels of responsibility within the Company. The following key differences exist between the Company’s policy for the
remuneration of Executive Directors and its approach to the payment of employees generally:
• there is an increased emphasis on performance related pay and, in particular, for share-based incentives at the Executive Director level;
• eligibility to participate in and the maximum opportunity in relation to an annual bonus vary, based on individual role and local practice;
• participation in the LTIP is limited to the Executive Directors and certain selected senior managers; and
• benefits offered to other employees vary by subsidiary to take account of relevant market conditions and local practice.
2. The choice of the performance metrics and range of targets applicable to the annual bonus plan for Executive Directors reflect the Committee’s belief that any incentive compensation should be
appropriately challenging and tied to both the delivery of robust performance relating to the Group’s financial key performance indicators and, where appropriate, specific individual objectives.
Performance metrics applicable to the LTIP are selected to support Company strategy and provide shareholder alignment. Awards made in 2017/2018 and 2018/2019 vest subject to stretching targets.
The 2017/2018 award vests subject to targets relating to Absolute TSR and growth in Adjusted operating profit from continuing operations and the 2018/2019 award vests subject to targets relating to
Absolute TSR, Adjusted revenue and Adjusted PBT. Targets applying to the annual bonus and LTIP are reviewed annually, based on a range of internal and external reference points. Performance targets
are set to be stretching but achievable, with regard to the particular strategic priorities and economic environment in a given year.
3. The share ownership guideline levels are detailed above. The shares that an Executive Director may count towards the shareholding guideline include: those held in the name of the Director; those held in
the name of the Director’s spouse, partner or children; any shares held in a family trust for the benefit of the Director and/or his/her spouse, partner or children; and any shares held in a personal pension
plan on behalf of the Director. The Committee may, in its absolute discretion, approve the holding of shares by alternate means (e.g. shares held under a deferred share bonus award) and, if permitted, on
such terms determined by the Committee, acting fairly and reasonably.
4. For the avoidance of doubt, in approving this Directors’ remuneration policy, authority is given to the Company to honour any commitments entered into with current or former Directors (such as
the payment of a pension or the vesting/exercise of past share awards) that have been disclosed to and approved by shareholders in previous remuneration reports. Details of any payments to former
Directors will be set out in the Annual Report on Remuneration as they arise.
5. The Committee operates the annual bonus, LTIP and Sharesave plans, in accordance with their rules, HMRC guidance and, where relevant, the Listing Rules. To ensure these incentive plans operate in an
efficient manner, the Committee retains a number of standard market practice discretions which include:
• determining the eligibility to participate in the plans;
• determining the timing of grant of awards and any payments;
• the size of awards and payments, although with quantum restricted to those detailed in the table above and the respective plan rules;
• the determination of whether the performance conditions have been met and the resulting vesting/pay out;
• dealing with a change of control (for example, the timing of testing performance targets) or restructuring of the Group;
• determining a good or bad leaver for incentive plan purposes, based on the rules of each plan and the appropriate treatment chosen;
• adjustments required in certain capital events such as rights issues, corporate restructuring, events and special dividends; and
• the annual review of performance conditions for the annual bonus plan and LTIP.
In some circumstances, such as a material acquisition/divestment of a Group business, or a change in Accounting Standards and Interpretations, which mean the original performance conditions are no
longer appropriate, the Committee can adjust the targets, set different measures and alter weightings as necessary, to ensure the conditions achieve their original purpose and are not materially less
difficult to satisfy.
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DIRECTORS’ REMUNERATION REPORT continued
Approach to recruitment and promotions
Basic salary levels will be set on appointment after having had due regard to the Company’s general remuneration policy but adjusted,
as appropriate, to reflect the experience and calibre of the individual and the market rates for similar roles in comparable organisations.
If it is considered appropriate to appoint a new Director on a below market salary (e.g. in the event of an internal promotion), they may be
the subject of a series of increases to a desired salary positioning over an appropriate time frame, subject to performance in post.
Should it be appropriate to recruit an executive from overseas or for the individual to relocate, then reasonable expenses and payments
may be paid in relation to such a relocation which would then be subject to disclosure in due course. Benefits and pension arrangements
would generally be in line with those offered to current executives but it may be necessary to tailor these to reflect for example, local
market norms, local legislation, etc.
The annual bonus maximum will be in line with current Executive Directors (i.e. 100% of basic salary), pro-rated for the period of service.
Depending on the timing of the appointment the Committee may use different performance measures, targets and weightings to that of
the current executives for the first year of service.
An LTIP award may be made shortly after an appointment (subject to the Company not being in a prohibited period) subject to the
permitted maximum. The total maximum variable remuneration that may be awarded in respect of recruitment is 300% of salary
(excluding buy-out awards referred to below).
The Committee may offer additional cash and/or share-based elements to replace deferred or incentive pay forfeited by an executive
leaving a previous employer. The Committee would seek to ensure, where possible, that these awards replicate the potential value
forfeited/lost in joining the Company, and in terms of time horizons, vesting periods, expected values and potential impact of performance
conditions, these factors are recognised in determining the quantum of such compensation. This award would be facilitated under the
existing incentive plans where possible, but also using Rule 9.4.2. of the Listing Rules if necessary.
For an internal Executive Director appointment, any variable pay element awarded in respect of the prior role may be allowed to pay out
according to its terms, adjusted as relevant to take into account the appointment.
Service contracts and loss of office payments
It is the Company’s policy that Executive Directors should serve under rolling service contracts of 12 months’ duration or less and that
there should be no special provisions for compensation in the event of termination (neither in the normal course nor following a change
in control of the Company) and that any compensation payments made should take account of the Director’s duty to mitigate his loss.
The Executive Directors’ current service contracts all comply with this policy.
The Remuneration Committee reviews the contractual terms for new Executive Directors to ensure these reflect best practice.
In summary, the contractual provisions are as follows:
Provision detailed terms
Notice period:
Termination payment:
Change of control:
Up to 12 months
Limited to a maximum of basic salary and benefits, paid monthly and subject to mitigation
No Executive Director’s contract contains additional provisions in respect of a change of control
The service contract for any new appointment would be made on similar terms to those described above.
In a leaver event, the following payments may also be made to departing Executive Directors:
1. Any share-based entitlements granted to an Executive Director under a Company share plan will be determined based on the relevant
plan rules. In certain prescribed circumstances, however, such as death, ill-health, disability, retirement or other circumstances at the
discretion of the Committee, a ‘good leaver’ status may be applied. Under the LTIP, for good leavers, future awards will normally be
tested for performance over the full performance period and be reduced pro-rata to reflect the proportion of the performance period
actually served, rounded-up to the next complete financial year, with Remuneration Committee discretion to determine that awards
vest at an earlier date and/or to disapply time pro-rating. Vested LTIP awards which are subject to an additional holding period will
typically be retained and released at the end of the holding period, with Committee discretion to treat otherwise. Under the DBS, in
certain prescribed circumstances, awards will be retained in connection with a leaver event (such as death or permanent disability or
any other reason permitted by the Remuneration Committee);
2. A pro-rata bonus may be payable for the period of active service in certain prescribed good leaver circumstances and in other
circumstances at the discretion of the Committee and subject to the achievement of the relevant performance targets;
Kin + Carta Annual Report and Accounts 2018
69
3. At the discretion of the Remuneration Committee, a contribution to reasonable outplacement costs in the event of termination of
employment due to redundancy. The Committee also retains the ability to reimburse reasonable legal costs incurred in connection
with a termination of employment; and
4. Any payment for statutory entitlements or to settle or compromise claims in connection with a termination of any existing or future
Executive Director as necessary.
Chairman and Non-Executive Directors
The following sets out the fee policy for the Chairman and Non-Executive Directors:
Purpose and link to strategy
To attract and retain high calibre individuals without prejudice to the application of independent views.
Operation
Non-Executive Directors’ remuneration is decided by the Executive Directors and the Chairman;
the Chairman’s fee is set separately by the Committee.
Fees are set periodically by taking account of the time required to fulfil the role and fees payable at
similar sized companies. Any increases in fees also take account of any increases payable to Executive
Directors and to the general workforce.
Non-Executive Directors may not participate in the Group’s cash or share-based incentive arrangements.
Non-Executive Directors also receive reimbursement of travel and office related expenses.
Maximum potential value
For 2018/2019, the fees comprise a base fee of £42,500 p.a. plus additional fees of £5,000 p.a.
for the Senior Independent Director position and £7,500 p.a. for chairing the Remuneration or
Audit Committees. The Chairman’s fee is set at £130,000 p.a.
These fees may be revised periodically in line with the Company’s policy. Given the periodic nature
of the review any increases (as a % of total fees) may be greater than that awarded to the wider
workforce in any particular year.
The maximum aggregate fees are set in accordance with the Company’s articles of association.
Performance metrics
Not applicable.
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Kin + Carta Annual Report and Accounts 2018Corporate Governance
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DIRECTORS’ REMUNERATION REPORT continued
Annual Report on Remuneration
The following section provides details of how Kin + Carta’s remuneration policy was implemented during 2017/2018 and how we intend
to implement the remuneration policy for 2018/2019.
Membership of the Committee
Mike Butterworth, Nigel Pocklington and Helen Stevenson, all independent Non-Executive Directors, served on the Committee
throughout the period. Ben Gordon served on the Committee until his resignation from the Board on 30 November 2017. Helen
Stevenson chaired the Committee throughout the period. The number of meetings held, attendances and a description of the principal
matters considered by the Committee in carrying out its duties during the period are described on pages 52 and 70.
During the period under review, the Committee, where appropriate, sought advice and assistance from the Company Secretary and
members of the Board, including the Chairman of the Board, the Chief Executive Officer and the Chief Financial Officer in connection
with carrying out its duties. None of these persons took part in decisions relating specifically to their own remuneration.
Role of the Committee
The Committee is responsible for determining and agreeing with the Board the overall remuneration policy and its implementation,
including setting the individual remuneration packages and contractual arrangements for the Executive Directors, senior management
and the Chairman of the Board, which support the creation of value for shareholders and the delivery of the Group’s strategic priorities.
The Committee is mindful of the intense scrutiny around executive remuneration and seeks to keep abreast of and adopt best practice
where appropriate taking into account its position in the FTSE.
When undertaking its duties, the Committee also ensures that due account is taken of pay and employment conditions throughout the
Group by keeping abreast of matters such as (i) the general level of salary increases (if any) applied throughout the Group; (ii) the levels
of bonuses paid (and bonus opportunity offered) to the workforce as a whole; and (iii) any widespread changes that are proposed to
Group-wide employment conditions.
The full terms of reference for the Committee are available on the Company’s investor website (www.investors.kinandcarta.com).
Committee’s advisers
During the period, the Committee retained Mercer | Kepler, part of the MMC group of companies, as an independent adviser to the
Committee. They were selected following a formal tender process conducted in 2015. Mercer | Kepler is a signatory to the Code of
Conduct for Remuneration Consultants in the UK, details of which can be found on the Remuneration Consulting Group’s website at
www.remunerationconsultantsgroup.com.
During the period, one of MMC’s other companies, Marsh Inc., acted as the Company’s insurance broker. The fees paid to Mercer | Kepler
in relation to advice provided to the Committee for 2017/2018 were £40,370 (2016/2017 – £49,675), on a time and materials basis.
The Committee has reviewed the advice provided by Mercer | Kepler during the year and is satisfied that it has been objective
and independent. The terms of engagement between the Company and Mercer | Kepler are available from the Company Secretary
upon request.
Summary of activities
During the year the Committee approved:
• outcomes of bonuses for the Executive Directors in respect of 2016/2017;
• the Directors’ Remuneration Report for 2016/2017;
• the Executive Directors’ salaries and pension provision for 2018/2019;
• the Chairman’s fees for 2018/2019;
• the grant of awards on 7 December 2017 under the Company’s 2010 LTIP Plan to certain senior managers and the performance
conditions attached to their vesting;
• the remuneration arrangements for J Schwan on his promotion to Chief Executive Officer; and
• the remuneration arrangements and treatment of outstanding incentives for Matt Armitage on his retirement from the Group.
Kin + Carta Annual Report and Accounts 2018 71
Summary of shareholder voting at the AGM in December 2017
The following table shows the results of the binding vote on the remuneration policy and the advisory vote on the 2016/2017
Remuneration Report at the AGM in November 2017:
Resolution
Remuneration Policy
Remuneration Report
Note 1: Includes ‘Discretionary’ votes.
Votes for
(note 1)
% for
(note 1)
Votes
against
% against
Total
votes cast
Votes
withheld
96,592,072
99.62%
371,760
0.38% 96,963,832
960,595
97,803,784
99.89%
109,743
0.11 % 97,913,527
10,900
Remuneration Payable to Directors for the Year Ended 3 August 2018
Directors’ single figure table (audited)
Set out below, in a single figure, is the total remuneration of all Directors for the financial year:
Basic
Basic
salary/fee salary/fee
2017
£’000
2018
£’000
Taxable
benefits
(note 1)
2018
£’000
Taxable
benefits
(note 1)
2017
£’000
Bonus
2018
£’000
Bonus
2017
£’000
Share
plans
vesting
(note 2)
2018
£’000
Share
plans
vesting
(note 2)
2017
£’000
Pension
benefits
(note 3)
2018
£’000
Pension
benefits
(note 3)
2017
£’000
Total
2018
£’000
Total
2017
£’000
Executive
Matt Armitage
Brad Gray
Non-Executive
Mike Butterworth
Ben Gordon (note 4)
Nigel Pocklington
Helen Stevenson
Richard Stillwell (note 5)
400.0 400.0
230.0 230.0
18.6
14.2
18.2 400.0
14.0 230.0
55.0
14.2
42.5
50.0
55.0
42.5
42.5
50.0
110.0 110.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
60.0
34.5
60.0 878.6 478.2
34.5 508.7 278.5
–
–
–
–
–
55.0
14.2
42.5
50.0
55.0
–
42.5
–
42.5
–
–
50.0
– 110.0 110.0
Notes:
1. Taxable benefits constitute additional payments in lieu of the provision of a company car and fuel benefit and medical expenses insurance cover.
2. Figures for ‘share plans vesting’ are based on the number of shares vesting for performance periods substantially completed as at year end. The 2015 LTIP award will lapse in full in November 2018.
See page 73 for details.
3. Pension benefits were in part paid into a Group Personal Pension Plan and part paid as a cash supplement for Matt Armitage and Brad Gray. Brad Gray participated in the Group’s Defined Benefits
Pension Scheme (the ‘Scheme’) until it was discontinued on 1 September 2008. Brad Gray’s entitlement to a deferred pension from the Scheme ceased on the payment out of the scheme on 20 December
2016 to a self-managed pension arrangement. The transferred sum of £1.2 million was calculated by the Scheme’s actuary after applying a reduction factor agreed by the Trustee and applying generally
such calculations to take account of the underfunded position of the Scheme.
4. Ben Gordon stepped down from the Board following the AGM on 30 November 2017.
5. Richard Stillwell has elected to forego £20,000 per annum of his fee of £130,000 per annum. Richard Stillwell’s fees are shown above after foregoing this proportion of his fees during 2017/2018.
The Company donates this sum so withheld, together with a matching sum from the Company, to registered charities.
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Kin + Carta Annual Report and Accounts 2018Corporate Governance
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DIRECTORS’ REMUNERATION REPORT continued
Incentive Outcomes for the Period Ended 3 August 2018 (Audited)
Annual bonus
Executive Directors’ bonuses for the year ended 3 August 2018 provided for a payment of up to 100% of salary based 75% on Adjusted
PBT performance over the financial year and 25% on personal/strategic objectives. Details of performance against the financial targets
set are provided below:
Financial measure
Adjusted PBT
Threshold
(0% of salary)
Target
Stretch
(37.5% of salary)
(75% of salary)
Actual
performance
% of
salary earned
£14.4m
£15.4m
£16.4m
£18.471m
100%
Note: The percentage of bonus earned between: the threshold and target; and the target and stretch, is on a straight-line basis.
The above targets have been adjusted from those set at the start of the period to reflect the disposals undertaken during 2017/2018.
In summary, the original targets have been:
• reduced to exclude the budgeted PBT from the Marketing Activation and Books segments when the targets were first set; and
• increased to reflect interest on net cash received from the disposals and from a reduction in outstanding term loans.
In making such adjustments, the Committee’s overarching principle was that the targets should be of equivalent difficulty to those
originally set in order to ensure fairness to participants and shareholders alike. The outcome – full vesting under the Adjusted PBT
measure – is considered appropriate by the Committee taking into account broader financial and operational performance over the year,
including a 79.4% increase in the Kin + Carta share price.
In addition to the above, each Executive Director may earn up to 25% of salary for the achievement of stretching strategic/personal
objectives, which for 2017/2018 related to strengthening of the Company’s balance sheet and the restructuring of the Strategic
Marketing businesses. Both Executive Directors were assessed as having achieved their objectives in full, with the Committee noting
in particular:
• Executive Directors achieved the successful sale of the Marketing Activation businesses in two tranches based on an enterprise value
of £17.0 million, and the successful sale of the legacy Books business, Clays, based on an enterprise value of £23.8 million. In both cases
the consideration achieved met the Board expectations. The sales completed the strategic transformation of the Group into a business
focused on higher growth, higher margin digital transformation businesses (previously referred to as strategic marketing); and
• Executive Directors successfully oversaw a number of strategic restructurings in the digital transformation businesses within the a
greed timeframe. These included bringing Amaze and Realise together to form AmazeRealise; the combination of Response One,
Amaze One, Branded3 and Occam to form a new business, Edit, in March 2018 and more recently the integration of Pragma and FSP.
These restructurings offer improved operational efficiency, a stronger brand proposition and facilitate cost savings.
Based on these achievements, the Committee has agreed to award the Executive Directors annual bonuses equivalent to 100% of salary
in respect of 2017/2018, of which amounts over 50% of salary will be deferred in Company shares in line with the remuneration policy.
2014 LTIP
As reported last year, 2016/2017 Adjusted EPS performance was below threshold against targets set for 2014 LTIP awards and
accordingly this element lapsed in November 2017. Relative TSR performance would have been assessed over a three-year period
to 28 July 2017; however since the EPS underpin applying to this element of the awards was also not met, the full award lapsed in
November 2017. Accordingly, the value of 2014 LTIP awards vesting included in the single figure table on page 71 for 2017 is £Nil.
Kin + Carta Annual Report and Accounts 2018
73
2015 LTIP
Vesting of the 2015 LTIP awards is dependent on performance against three metrics measured over a three-year period; Adjusted EPS,
TSR relative to the FTSE All-Share Media sector (excluding FTSE100 companies) and the proportion of Group operating profit from the
Strategic Marketing businesses. Further details, including vesting schedules and performance against each of the metrics are provided
in the table below:
Measure
Weighting
Targets*
Adjusted EPS in
2017/2018
TSR relative to
the All-Share Media
sector (excl. FTSE100
companies)
25%
50%
0% vesting below 22.23p
25% vesting for 22.23p
100% vesting for 25.23p or more
Straight-line vesting between these points
0% vesting below median performance
25% vesting for performance in line with median
100% vesting for upper quartile performance or greater
Straight-line vesting between these points
Operating profit from
Strategic Marketing as
compared to total Group
operating profit in 2017/2018
25%
0% vesting below 55%
25% vesting for 55%
100% vesting for 65% or greater
Straight-line vesting between these points
Outcome
Vesting %
10.10p
0%
EPS underpin not met
0%
EPS underpin not met
0%
Total vesting
0%
* The Committee assessed the impact of restating the EPS target and underpin for the TSR and operating profit targets to take into account the disposals during the year. However the EPS target
and underpin were still not met and accordingly the award will lapse in full in November 2018.
Summary of long-term incentives vesting in November 2018 (audited)
The total number of shares which vested in relation to the performance period substantially completed as at the period end,
and which are reflected in the single figure table on page 71, is as follows:
Date of grant
Total number
of shares
% shares vesting
for performance
(note 1)
Number of
awards vesting
Share price on
vesting (pence)
Total value
on vesting (£)
Transfer of
award/earliest
vesting date
Matt Armitage
Brad Gray
12 Nov 2015
12 Nov 2015
216,567
155,657
0%
0%
0
0
n/a
n/a
0 12 Nov 2018
0 12 Nov 2018
Note: EPS underpin in respect of 2015 awards was not met and accordingly all shares will lapse in November 2018.
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Kin + Carta Annual Report and Accounts 2018Corporate Governance
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DIRECTORS’ REMUNERATION REPORT continued
Scheme interests awarded during the 2017/2018 financial year (audited)
In December 2017, Matt Armitage and Brad Gray were granted awards, which are structured as options with a nil exercise price, under
the Company’s LTIP, as follows:
Matt Armitage
Brad Gray
* Face value is based on a share price of 79.2 pence (the market value at the time of grant).
Date of grant
Shares over which
awards granted
Value of shares
awarded (£)*
% of salary
awarded
7 Dec 2017
7 Dec 2017
454,832
261,528
£360,000
£207,000
90%
90%
As disclosed in last year’s report and consistent with the approach taken for 2016/2017 awards, LTIP grant sizes for 2017/2018 were
made at 90% of salary, rather than the normal 100% of salary level, to reflect Kin + Carta’s lower share price at the date of grant. Awards
granted vest on absolute TSR and the growth in Adjusted operating profit from the Strategic Marketing businesses, each measured over
three years and with overall vesting underpinned by Committee discretion. Vested shares will be subject to a two-year holding period.
A summary of the performance conditions is shown in the table below:
Measure
Weighting
Targets
Absolute TSR
(share price plus rolled
up dividends)
Growth in Adjusted
operating profit from
Strategic Marketing
70%
30%
0% vesting below 110p
25% vesting for 110p
100% vesting for 170p or more
Straight-line vesting between these points
0% vesting below 6%
25% vesting for 6%
100% vesting for 14% or greater
Straight-line vesting between these points
Performance measurement period
Three-month average to 31 July 2020
Adjusted operating profit from
Strategic Marketing in 2019/2020 as
compared to 2016/2017
Vesting of awards is subject to overall Committee discretion
All awards made since November 2013 are subject to a malus and clawback provision, which will enable the Committee to reclaim value
that should not have been received in the event that, if within the two-year period following the year of vesting, a material misstatement
of the Company’s financial results relating to the year of vesting is identified. In such circumstances a clawback would be based on the
extent to which the first vesting was overpaid based on new information.
Statement of change in remuneration of Chief Executive Officer compared with other employees
Salary
Benefits in kind
Annual bonus
Chief
Executive Officer
2018
£’000
Percentage
change
vs 2017
(note 1)
400
18.6
400
0%
2.2%
–
All employees
percentage
change
vs 2017
(note 2)
3.1%
2.8%
369%
Notes:
1. The annual bonus percentage change for the Chief Executive Officer is not meaningful since no bonus was paid in 2017.
2. Reflects the change in average pay for Group Head Office employees employed in both 2016/2017 and 2017/2018. This subset of employees is felt to be the most appropriate comparator to the Chief
Executive as they have a similar remuneration structure.
Kin + Carta Annual Report and Accounts 2018
75
Review of past performance
The chart below illustrates the Company’s Total Shareholder Return for the nine years ended 3 August 2018, relative to the performance
of the FTSE Small Cap Index and FTSE All Share Index. Both the FTSE Small Cap and the FTSE All Share represent broad equity indices
of which the Company has been a constituent member for the majority of the period shown and therefore have been selected as
comparators for this reason.
Source: DataStream
)
d
e
t
s
e
v
n
i
0
0
1
£
f
o
e
u
a
V
l
(
600
500
400
300
200
100
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
The table below details the Chief Executive Officer’s single figure of remuneration over the same nine-year period:
Kin and Carta plc
FTSE Small Cap
FTSE All Share
2010
Patrick
Martell
2011
Patrick
Martell
2012
Patrick
Martell
2013
Patrick
Martell
2018
2014
Matt
Patrick
Martell Armitage Armitage Armitage Armitage
2017
Matt
2015
Matt
2016
Matt
Total remuneration £’000
Annual bonus as a percentage of maximum
LTIP vesting as a percentage of maximum
725.3 802.0 1,246.6 1,335.0 1,648.4 1,133.5 477.8 478.2 878.6
100
100.0 100.0 100.0
Nil
Nil 100.0
69.7
98.5 100.0
96.3 100.0
93.9
Nil
Nil
Nil
Nil
Nil
Relative importance of spend on pay
This table shows overall expenditure on pay, excluding employer’s NICs, for all employees; shareholder distributions (payments of
dividends); and capital expenditure, with the percentage change in each.
Overall expenditure on pay on continuing operations
Dividends paid in the year
Cash capital expenditure
Note: the 2017 amount is restated to exclude discontinued operations.
2018
£’000
131,100
2,784
4,574
2017
£’000
110,085
(note)
8,705
3,465
Percentage
change
19.1%
-68.0%
32.0%
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DIRECTORS’ REMUNERATION REPORT continued
Leaver arrangements for Matt Armitage (audited)
Matt Armitage informed the Board of his intention to retire from the Group at the end of the 2017/2018 financial year and stepped
down as a Board Director effective 4 August 2018. He will remain in employment with the Group as a special adviser for 12 months,
until 31 July 2019, to assist with the leadership transition, provide support and advice, and assist with growth initiatives and matters
that may arise relating to the recently disposed printing businesses. During which time he will receive base salary, pension contributions
and benefits. His outstanding incentives will be treated in accordance with the remuneration policy as follows:
Annual bonus
• Having served in the role of Chief Executive Officer for the entire financial year, Matt will be paid an annual bonus in respect of
2017/2018 amounting to £400,000, with the amount in excess of 50% of salary deferred in Kin + Carta shares for two years.
• Matt will not be eligible to participate in the 2018/2019 annual bonus.
LTIP
• As he remains an employee at the vesting date later this year, Matt retains his 2015 LTIP awards. However since the performance
targets were not met, the award will lapse in full in November 2018.
• Other outstanding awards under the 2016 LTIP (280,920 performance-vesting shares) and 2017 LTIP (454,832 performance-vesting
shares) will lapse in full at the end of the 2018/2019 financial year.
Exit payments made in the year (audited)
No exit payments were made in the year.
Payments to past Directors (audited)
No payments to past Directors were made in the year.
Implementation of Executive Director Remuneration Policy for 2018/2019
Basic salary
In line with his predecessor, J Schwan was appointed as Chief Executive Officer on an annual salary of £400,000. He will next be eligible
for a salary review in August 2019.
In respect of the Chief Financial Officer, the Committee approved a 8.7% increase effective 4 August 2018, bringing his annual salary
to £250,000. In determining this increase the Committee was mindful of Brad’s exceptional contribution to the disposals made in
2017/2018 and of the need for a period of stability at Board level following the retirement of the Chief Executive Officer. The increase
equates to 2.7% per annum since Brad’s salary was last increased in August 2015 which is below the level of increases made to the
broader employee population over the same period.
Salary levels are as follows:
J Schwan
Matt Armitage
Brad Gray
Chief Executive Officer
Chief Executive Officer
Chief Financial Officer
From 4 August
2018
From 1 August
2017
£400,000
n/a
£250,000
n/a
£400,000
£230,000
% increase
n/a
n/a
8.7%
The average increase across the Company for 2018/2019 is 5.0%.
Pension and benefits
No changes in pension contribution rates or benefits provision to the Executive Directors are to be applied during the period.
Like his predecessor, J Schwan will receive pension contributions amounting to 15% of his base salary.
Kin + Carta Annual Report and Accounts 2018
77
Annual bonus
The annual bonus for the 2018/2019 financial year will operate on broadly the same basis as in 2017/2018. Bonus opportunities for
Executive Directors remain at 100% of salary, with any amount earned over 50% of salary deferred in shares for two years and subject
to malus provisions in the event of material misstatement. 75% of the bonus opportunity will be based on Adjusted PBT performance
(measured before strategic investments), with the remaining 25% based on the achievement of key strategic/personal objectives aligned
with the business’s strategy and priorities that have been communicated to shareholders.
A summary of performance measures and weightings is included in the table below:
Measure
Adjusted PBT
Strategic/personal objectives
Weighting
75%
25%
In the event of any material acquisition or divestment the Committee would adjust the PBT targets for the acquisition/divestment.
The Board considers the targets for the annual bonus measures to be commercially sensitive and therefore will not be disclosing these
objectives prospectively. However, it is intended that retrospective disclosure, including any such adjustment of targets, will be provided
in next year’s Directors’ Remuneration Report. In setting Adjusted PBT targets for the year, the Committee reviewed a range of internal
and external reference points to ensure that targets are appropriately stretching yet achievable.
Long-term incentives
LTIP awards to be made to Executive Directors in late 2018 will be 100% of salary. Awards will vest subject to performance over
a three-year period with vested shares subject to a two-year holding period. Vesting of these awards will be based 70% on Absolute
TSR, 15% on growth in Adjusted revenue and 15% on growth in Adjusted PBT, with vesting underpinned by Committee discretion.
For any shares to vest, the Committee must be satisfied with the underlying performance of the business. In making this assessment
the Committee will take into account factors such as the strength of the balance sheet, quality of earnings, etc.
A summary of performance targets for the forthcoming grant are included in the table below:
Measure
Weighting
Targets
Absolute TSR (share
price plus rolled up
dividends)
70%
Growth in Adjusted
revenue
15%
Growth in Adjusted
PBT
15%
0% vesting below 125p
25% vesting for 125p
100% vesting for 175p or more
Straight-line vesting between these points
0% vesting below 6%
25% vesting for 6%
100% vesting for 11% or more
Straight-line vesting between these points
0% vesting below 6%
25% vesting for 6%
100% vesting for 14% or more
Straight-line vesting between these points
Performance measurement period
Three-month average to 31 July 2021
Adjusted revenue in 2020/2021 as
compared to 2017/2018
Adjusted PBT in 2020/2021 as
compared to 2017/2018
In the event of any material acquisition or divestment the Committee would adjust the revenue and PBT targets to ensure only out-
performance of the acquisition/divestment is rewarded. Vesting of awards is subject to overall Committee discretion.
The Absolute TSR performance range for 2018/2019 LTIP awards of 125p to 175p corresponds to c.27% to 77% growth from the
trailing three-month average share price on 4 October 2018, the date of Committee approval of the performance range.
Implementation of Non-Executive Director remuneration policy for 2018/2019
Base fee levels for the Chairman and Non-Executive Directors are currently £130,000 p.a. and £42,500 p.a. respectively, with an
additional fee for the Audit and Remuneration Committee chairs of £7,500 p.a. and a fee for acting as the Senior Independent Director
of £5,000 p.a. There will be no changes to these fee levels for 2018/2019. The Chairman continues to forego £20,000 p.a. of his fee,
which the Company donates, together with a matching sum from the Company, to registered charities.
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DIRECTORS’ REMUNERATION REPORT continued
Share ownership guidelines and Directors’ interests in the share capital of the Company (audited)
Shareholding guidelines are in place that require Executive Directors to acquire a holding equivalent to 200% of basic salary for the Chief
Executive Officer and 150% of basic salary for the Chief Financial Officer. These levels are considered appropriate to ensure that there
is robust long-term alignment achieved between Executive Directors and shareholders. The net of tax number of deferred bonus shares
or vested shares under the Company’s LTIP will normally be required to be retained until the guideline is met. Directors’ share dealings
must be conducted in accordance with the Company’s Share Dealing Policy.
Interests of Directors and their connected persons in 10 pence ordinary shares (fully paid) of the Company at 3 August 2018 were
as follows:
Executive (note 2 and 3)
Matt Armitage
Brad Gray
Non-Executive (note 4 and 5)
Mike Butterworth
Helen Stevenson
Richard Stillwell
Nigel Pocklington
Unvested
share options
Unvested LTIP
awards (subject
to performance
conditions)
Unvested
deferred bonus
share awards
Beneficial
holding
3 August 2018
Beneficial
holding
28 July 2017
Expressed as a
percentage of
annual basic
salary (note 1)
–
–
–
–
–
–
952,319
578,714
–
–
–
–
–
–
–
–
–
–
524,371
70,998
504,717
59,767
132%
31%
26,000
22,000
90,000
10,000
26,000
22,000
90,000
10,000
–
–
–
–
Notes:
1. Calculated by reference to: the number of unvested deferred bonus share awards added to beneficial holdings; the mid-market closing price of the Company’s ordinary shares on 8 October 2018
(101.0 pence); and the Director’s annual rate of basic salary.
2. As at year end, J Schwan had a beneficial interest over 7,432,768 Kin + Carta shares, representing 1877% of his new Chief Executive Officer salary calculated by mid-market closing price of the Company’s
ordinary shares on 8 October 2018.
3. Matt Armitage’s 2016 and 2017 LTIP awards will lapse upon his leaving date on 31 July 2019.
4. Ben Gordon held 25,000 Kin + Carta shares at the time of his resignation from the Board on 30 November 2017.
5. As at the year end, David Bell, Non Executive Director, held 24,486 Kin + Carta shares which were purchased prior to his appointment to the Board on 4 August 2018.
On 7 August, Richard Stillwell bought 10,000 Kin and Carta plc ordinary shares. There have been no other changes to any of the
continuing Directors’ shareholdings between 3 August 2018 and 8 October 2018.
Directors’ outstanding share incentive awards (audited)
Details of the share options held by Directors who served during the year are shown below. All options were granted under the LTIP
for Nil consideration.
Matt Armitage
Brad Gray
Market price
per share
at date
of award
Date of award
12 Nov 2014
12 Nov 2015
16 Nov 2016
7 Dec 2017
192.00p
184.70p
128.15p
79.15p
12 Nov 2014
12 Nov 2015
16 Nov 2016
7 Dec 2017
192.00p
184.70p
128.15p
79.15p
Balance at
28 July
2017
179,718
216,567
280,920
–
677,205
102,696
155,657
161,529
-
419,882
Exercised
during year
Lapsed
during year
Awarded
during year
Balance at
3 August
2018
Vesting date
Expiry date
–
–
–
–
-
–
–
–
-
-
179,718
–
–
–
– 12 Nov 2017 12 Nov 2024
–
– 216,567 12 Nov 2018 12 Nov 2025
– 280,920 16 Nov 2019 16 Nov 2026
454,832 454,832 7 Dec 2020 7 Dec 2027
179,718
454,832 952,319
102,696
–
–
-
– 12 Nov 2017 12 Nov 2024
–
– 155,657 12 Nov 2018 12 Nov 2025
– 161,529 16 Nov 2019 16 Nov 2026
261,528 261,528 7 Dec 2020 7 Dec 2027
102,696
261,528 578,714
Note: Matt Armitage’s awards for 2016 and 2017 will lapse upon his leaving date on 31 July 2019.
Kin + Carta Annual Report and Accounts 2018
79
Details of the qualifying performance conditions in relation to outstanding share incentive awards are summarised below:
Absolute adjusted basic EPS
12 November 2015 Award
16 November 2016 Award
7 December 2017 Award
Performance measurement period EPS for 2017/2018
Weighing (% of award)
100% vesting
Between 25% and 100% vesting
financial year
25%
25.23p or more
From 22.23p to 25.23p
EPS for 2018/2019
financial year
25%
20.0p or more
From 18.5p to 20.0p
Not applicable
TSR
12 November 2015 Award
16 November 2016 Award
7 December 2017 Award
Performance measurement period 1 Aug 2015 to 3 August 2018
Comparator group
FTSE AllShare Media
(excl. FTSE100 companies)
29 Jul 2016 to 2 Aug 2019
FTSE AllShare Media
(excl. FTSE100 companies)
Weighing (% of award)
100% vesting
Between 25% and 100% vesting Between median and
50%
Upper quartile or above
50%
Upper quartile or above
Between median and
upper quartile
upper quartile
Adjusted basic EPS of 21.73p Committee discretion
in the 2017/2018 financial year
Underpin
Strategic Marketing profit
3-month average to 31 July 2020
None; based on absolute TSR
(share price plus rolled
up dividends)
70%
170p or above
Between 110p and 170p
Committee discretion
Performance measurement period Operating profit from Strategic Operating profit from Strategic Growth in Adjusted operating
12 November 2015 Award
16 November 2016 Award
7 December 2017 Award (Note)
Weighing (% of award)
100% vesting
Between 25% and 100% vesting Between 55% and 65%
Underpin
Marketing as compared to
total Group operating profit
in 2017/2018
25%
65% or more
Marketing as compared to
total Group operating profit
in 2018/2019
25%
85% or more
Between 75% and 85%
Adjusted basic EPS of 21.73p Committee discretion
in the 2017/2018 financial year
profit from Strategic Marketing
(2019/20 as compared to
2016/17)
30%
14% or more
Between 6% and 14%
Committee discretion
Note: In the event of any material acquisition or divestment the Committee would adjust the operating profit target to ensure only out-performance of the acquisition/divestment is rewarded.
Vesting of awards is subject to overall Committee discretion.
The market price of Kin and Carta plc ordinary shares of 10 pence each at 3 August 2018 was 98.65 pence and the range during the
financial year 2017/2018 was 54.0 pence to 108.0 pence.
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Kin + Carta Annual Report and Accounts 2018Corporate Governance
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DIRECTORS’ REMUNERATION REPORT continued
Share options – Sharesave Scheme (audited)
During the prior period, the Executive Directors’ options under the 2013 Sharesave Scheme lapsed and there were no further Sharesave
options granted to the Directors.
Dilution
Under the ESOS 2001, LTIP and the Sharesave Scheme, awards of options over no more than an aggregate 10% of the Company’s issued
share capital may be granted over new issue shares in any rolling ten-year period (with awards made under any other share plans also
being counted).
As at 3 August 2018, excluding lapsed options and options exercised and satisfied from utilising existing issued shares, options over
10,445,324 shares (6.8% of the Company’s issued share capital) have been exercised through new shares or remain outstanding under
all share plans and so count towards this limit.
Approved by the Board and signed on its behalf by
Helen Stevenson
Chair of the Remuneration Committee
8 October 2018
Kin + Carta Annual Report and Accounts 2018 DIRECTORS’ REPORT
81
The Directors present their Directors’ Report and the audited financial statements for the period ended 3 August 2018. The Corporate
Governance Report set out on pages 50 to 53 also forms part of this report.
Details of significant events since the balance sheet date are contained in note 40 to the financial statements. An indication of likely future
developments in the business of the Company and details of research and development activities are included in the Strategic Report.
Information about the use of financial instruments by the Company and its subsidiaries is given in note 30 to the financial statements.
Strategic Report, Future Development and Greenhouse Gas Emissions
The Strategic Report which the Company is required under law to prepare can be found on pages 4 to 47. The Strategic Report includes
disclosures regarding likely future developments in the business of the Group, carbon emissions and information on the Group’s
employment policies.
Certain sections of this Annual Report contain forward-looking statements with respect to the strategy, financial condition, results,
operations and businesses of the Group or markets in which the Group operates. These statements involve risk and uncertainty because
they depend on circumstances that occur in the future and relate to specific events, not all of which are within the Group’s control.
Although the Group believes that the expectations reflected in such forward-looking statements are reasonable, there are a number
of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking
statements. The Group undertakes no obligation to update any forward-looking statement. Nothing in the Annual Report should be
construed as a profit forecast or an invitation to deal in the ordinary shares of Kin and Carta plc.
Directors and their Share Interests
The present membership of the Board is set out on pages 54 and 55.
The Directors’ interests in ordinary shares of the Company are set out in the table on page 78 within the Directors’ Remuneration Report.
Results and Dividends
The Group’s statutory loss before taxation for the year for continuing operations amounted to £31,171,000 (2017 – statutory loss
of £19,167,000 for continuing operations). The Directors propose a final dividend of 1.30 pence for each ordinary share payable on
17 December 2018 to holders on the register as at 23 November 2018. If approved, the final dividend will make total dividends for the
year of 1.95 pence per ordinary share:
Ordinary dividends
Interim
Proposed final
£’000
927
1,993
Employment Policies, Equal Opportunities, Employee Communication and Diversity
The Group is committed to providing equal opportunities with regard to employment, free from discrimination and harassment and in a
healthy and safe working environment. Details of how we deliver on these commitments to our employees are provided in the Corporate
Social Responsibility Report on pages 42 to 47.
Human Rights
The Company does not have a specific human rights policy however ethical values and integrity are central to our businesses both in the
UK and abroad. As a socially responsible business, we believe that we must operate legally, ethically and to approved policies at all times
in order to deliver our customers the best service, consistent quality and confidence that the people who make and sell our products are
not being exploited or exposed. Our Ethical Trading Policy establishes the principles with which we expect our employees, contractors,
agents, suppliers, consultants and other connected third parties to comply.
The Company’s Modern Slavery Act Statement is published on its website at www.kinandcarta.com in accordance with section 54 of the
Modern Slavery Act 2015 (‘MSA’). The Company is completely opposed to any form of slavery and human trafficking and the Group will
not knowingly do business with any organisation or body involved in slavery and human trafficking. More information on the Group’s
approach to modern slavery can be found in the Corporate Social Responsibility section of the Strategic Report on pages 42 to 47.
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DIRECTORS’ REPORT continued
Going Concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out
in the Strategic Report.
The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review.
In addition, note 31 to the financial statements includes the Group’s objectives, policies and processes for managing its interest rate risk,
foreign exchange risk, credit risk, liquidity risk and capital risk. The Strategic Report is to be found on pages 4 to 47.
Subsequent to the period end, the Group successfully negotiated a new revolving credit facility of £85 million which will expire on
30 November 2022, on terms broadly in line with the previous agreement. The banking group consists of HSBC Bank plc, Bank of Ireland
and Fifth Third Bank.
As highlighted in note 25 to the financial statements, during the period the Group met its day-to-day working capital requirements
through an overdraft facility of £15 million that was part of an overall funding facility of £95 million which was due for renewal on
23 March 2019. Subsequent to the period end, the Group entered into a new overdraft facility of £7.5 million as part of the new
revolving credit facility.
The current economic conditions create uncertainty, particularly over the level of demand for the Group’s services, but the Group’s
forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able
to operate within the level of its facility entered into subsequent to the period end.
After making enquiries, the Directors consider that the Group has adequate resources and borrowing facilities to continue in
operational existence for the foreseeable future. Consequently, they have continued to adopt the going concern basis in preparing
the financial statements.
Viability Statement
In accordance with provision C.2.2 of the UK Corporate Governance Code, the Directors have assessed the Company’s viability over a
three-year period, having taken account of the Company’s current situation and principal risks. Given the fast changing nature of many
of the markets in which the Company operates, a three-year assessment period, which is in alignment with our medium-term planning
horizon, was selected as this gives management and the Board sufficient visibility of the future. As a result of the new bank facility
agreement entered into following the period end, which expires in November 2022, the Company has access to a committed credit
facility throughout the three-year forecast period. Visibility is very limited beyond this horizon because of the fast changing nature of
many of the markets in which the Company operates.
The analysis was performed by preparing a high level, integrated financial forecast over the three-year period and running a number of
potentially stressful, yet plausible, scenarios against this central scenario, starting from the end of the 2017/2018 financial year. The
related scenarios reflected the estimated financial impact of adverse events associated with the principal risks outlined in the Principal
Risks and Uncertainties Report from pages 36 to 41, and included mitigating actions where these would be under the Company’s control.
The event reflected in the stress scenarios with the greatest financial impact comprised a general reduction of up to 15% in sales volume
growth relative to the central scenario across all the businesses due to challenging or uncertain economic conditions, including those
arising because of the end of the negotiation period for the UK’s departure from the European Union. In addition to the stress scenario
outlined above, other scenarios were also modelled, including the loss of a significant client, and an increase of five days in the average
time taken by customers to settle trading balances due to the Company.
In addition to an assessment of the impact that the scenarios could have on the Company’s debt leverage ratio and absolute level of net
debt if they were to occur individually, the impact of a combination of the stress scenarios occurring simultaneously was also modelled to
test the results of a particularly high stress, combined case. To support the final conclusion on viability, the assessment also took account
of potential mitigations available to the business in the event of the combined scenario.
Based on this analysis, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its
liabilities as they fall due up to July 2021.
In making this statement, the Directors have also made key assumptions which they consider to be reasonable, for example on sales
volumes and pricing, bank interest rates and currency exchange rates.
Kin + Carta Annual Report and Accounts 2018
83
Acquisition of the Company’s Own Shares
At the 2017 Annual General Meeting, shareholders approved an authority for the Company to make market purchases of its own shares
up to a maximum of 14,275,403 shares. This authority ends on the date of the next Annual General Meeting. Since the year end, no
ordinary shares have been purchased by the Company therefore, at the date of this report, 90,637 ordinary shares are held in treasury.
Major Interests in Shares
The Company had been notified, in accordance with chapter 5 of the Disclosure and Transparency Rules, of the following voting rights as
shareholders of the Company:
FIL Limited
Lombard Odier Asset Management (Europe) Limited
Standard Life Aberdeen plc
* Percentage based on ordinary shares in issue, excluding treasury shares, as at 3 August 2018.
As at 3 August 2018
Number of
voting rights
7,432,590
2,583,577
6,975,742
Percentage of
issued share
capital carrying
voting rights*
4.84%
1.68%
4.55%
The Company had not been notified of any changes to voting rights in the period between 3 August 2018 and 8 October 2018.
Auditor
As Deloitte LLP’s tenure is approaching an end, Deloitte have not sought re-appointment in accordance with EU rules on auditor
rotation. Therefore, a new external auditor will be proposed at the forthcoming AGM to be held on 29 November 2018. Details about
this proposal are set out in the Notice of Meeting accompanying the Annual Report and Accounts. In proposing this resolution, the Board
has taken into account the view of the Audit Committee following the external auditor tender process. The tender process performed is
explained in the Audit Committee Report on page 58.
Each of the Directors of the Company as at 8 October 2018 has confirmed that:
• so far as the Director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and
• the Director has taken all the steps that he or she ought to have taken as a Director to make himself/herself aware of any relevant
audit information and to establish that the Company’s auditors are aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006.
Political Donations
The Company made no political donations during the period (2017 – £Nil) and the Board has no intention to seek shareholders’ approval
to permit the Board to make political donations.
Directors’ and Officers’ Liability Insurance and Directors’ Indemnities
The Company maintains Directors’ and Officers’ liability insurance which gives appropriate cover for legal action brought against its
Directors. The Company has also granted indemnities to each of its Directors (on identical terms) who served during the period, to the
extent permitted by law and the Company’s articles of association, in respect of liabilities incurred by virtue of their office. Qualifying
third party provisions for the benefit of its Directors (as defined by Section 234 of the Companies Act 2006) were in force during the
period ended 3 August 2018 and continue to be in force at the date of this report.
Directors’ Conflict of Interest
In accordance with the provisions of Section 175 of the Companies Act 2006, the Company has procedures in place to deal with the
situation where a Director has a conflict of interest and the Nomination Committee regularly reviews conflict authorisation. No conflicts
of interests were identified during the period. Directors do not take part in discussions on matters in which they are interested and they
may be requested to leave a meeting at which a matter in which they are interested is to be discussed.
Change of Control
Subsequent to the period end, the Group entered into a new revolving credit facility of £85 million which falls due for renewal on
30 November 2022. During the period, the Group had a £95 million revolving credit facility which was due to expire on 23 March 2019.
The terms of the revolving credit facilities stipulate that consent of the lenders to continue the overall facility is required, should there
be a change of control of the Company.
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DIRECTORS’ REPORT continued
Additional Information
The Company’s share capital consists of ordinary shares, as set out in note 32 to the financial statements on page 143. The shares carry
no rights to fixed income. All members who hold ordinary shares are entitled to attend and vote at the Annual General Meeting. On a
show of hands at a general meeting every member present in person and every duly appointed proxy shall have one vote and on a poll,
every member present in person or by proxy shall have one vote for every ordinary share held or represented. The Notice of Meeting
specifies deadlines for exercising voting rights and each share carries the right to one vote at general meetings. All shares are fully paid.
There are no specific restrictions on the size of a shareholding nor on the transfer of shares, which are both covered by the provisions
of the articles of association and prevailing. The Company is not aware of any agreements between shareholders that may result in
restrictions on the transfer of securities and voting rights.
Details of employee share schemes are set out in note 37. Shares held by the Employee Benefit Trust abstain from voting.
With regard to the appointment and replacement of Directors, the Company is governed by its articles of association, the UK Corporate
Governance Code, the Companies Act and related legislation. The Company’s articles of association may only be amended by a special
resolution of shareholders at a general meeting. Directors are elected or re-elected by ordinary resolution at a general meeting of
shareholders. The Board may appoint a Director but anyone so appointed must be elected by ordinary resolution at the next general
meeting. Under the articles of association, Directors retire and may offer themselves for re-election at a general meeting at least every
three years.
Annual General Meeting
The thirty-seventh Annual General Meeting of the Company will be held on Thursday, 29 November 2018. The Notice of Meeting is
included in a separate document sent to shareholders.
Corporate Governance
The corporate governance statement as required by the UK Financial Conduct Authority’s Disclosure and Transparency Rules (DTR 7.2)
comprises the Additional Information section of the Directors’ Report above and the Corporate Governance Report on pages 50 to 53 of
this Annual Report.
Directors’ Report
The following disclosures required by LR 9.8.4R are contained in the Annual Report as set out below and are incorporated into the
Directors’ Report:
Listing Rule requirement
Location in Annual Report
Details of any long-term incentive schemes as required by LR 9.4.3 R.
Directors’ Remuneration Report on pages 61 to 80
No such waivers
No such share allotments
Details of any arrangements under which a Director of the Company
has waived or agreed to waive any emoluments from the Company
or any subsidiary undertaking. Where a Director has agreed to waive
future emoluments, details of such waiver together with those relating
to emoluments which were waived during the period under review.
Details required in the case of any allotment for cash of equity securities
made during the period under review otherwise than to the holders
of the Company’s equity shares in proportion to their holdings of such
equity shares and which has not been specifically authorised by the
Company’s shareholders.
The information required under this paragraph (LR 9.8.4 paragraph 7) must
be given for any unlisted major subsidiary undertaking of the Company.
By order of the Board
Daniel Fattal
Company Secretary
8 October 2018
Kin + Carta Annual Report and Accounts 2018 STATEMENT OF DIRECTORS’ RESPONSIBILITIES
85
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required
to prepare the Group financial statements in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the
European Union and Article 4 of the IAS Regulation and have chosen to prepare the parent company financial statements in accordance
with, Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Accounting Standards and applicable law).
Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state
of affairs of the Company and of the profit or loss of the Company for that year.
In preparing the Group financial statements, International Accounting Standard 1 requires that Directors:
• properly select and apply accounting policies;
• present information including accounting policies, in a manner that provides relevant, reliable, comparable and understandable
information;
• provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand
the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and
• make an assessment of the Company’s ability to continue as a going concern.
In preparing the parent company financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained
in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue
in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the
financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Directors’ responsibility statement:
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
• the Strategic Report includes a fair review of the development, position and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and
uncertainties that they face; and
• the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for
shareholders to assess the Company’s position, performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 8 October 2018 and is signed on its behalf by
J Schwan
Chief Executive Officer
8 October 2018
Brad Gray
Chief Financial Officer
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Kin + Carta Annual Report and Accounts 2018Corporate Governance
86
Kin + Carta Annual Report and Accounts 2018
Kin + Carta Annual Report and Accounts 2018
87
8787
Our
Figures
88 Independent Auditors’ Report
to the Members of Kin and Carta plc
98 Consolidated Income Statement
99 Consolidated Statement
of Comprehensive Income
100 Consolidated Statement
of Changes in Equity
101 Consolidated Balance Sheet
102 Consolidated Statement of Cash Flows
103 Notes to the Consolidated Financial Statements
150 Company Balance Sheet
151 Statement of Changes in Equity
152 Notes to the Company Financial Statements
160 Shareholder Information and Financial Calendar
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Kin + Carta Annual Report and Accounts 2018Our Figures
88
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF KIN AND CARTA PLC
Report on the Audit of the Financial Statements
Opinion
In our opinion:
• the financial statements of Kin and Carta plc (the ‘parent company’) and its subsidiaries (the ‘Group’) give a true and fair view of the
state of the Group’s and of the parent company’s affairs as at 3 August 2018 and of the Group’s loss for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements which comprise:
• the Consolidated Income Statement;
• the Consolidated Statement of Comprehensive Income;
• the Consolidated Statement of Changes in Equity;
• the Consolidated Balance Sheet;
• the consolidated statement of cash flows;
• the related notes 1 to 41 to the Consolidated Financial Statements;
• the Company balance sheet;
• the Company statement of changes in equity; and
• the related notes 1 to 19 to the Company financial statements.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and IFRSs
as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company
financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework”
(United Kingdom Generally Accepted Accounting Practice).
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our
report.
We are independent of the Group and the parent company in accordance with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public
interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the
non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Kin + Carta Annual Report and Accounts 2018 89
Summary of our Audit Approach
Key audit matters
The key audit matters that we identified in the current year were:
• Accounting for disposals;
• Impairment of goodwill in respect of the Hive cash generating unit;
• Revenue recognition;
• Classification and disclosure of Adjusting Items; and
• Retirement benefit obligations.
Accounting for disposals is a new key audit matter in the current year due to the significant disposals
the Group has undertaken in the year.
In the prior year, our report also included a key audit matter in relation to acquisition accounting.
As there has been no significant acquisition activity in the year this is no longer considered a matter
which is of most significance in our audit of the financial statements and has therefore been removed.
The materiality that we used for the Group financial statements was £915,000 which was determined
on the basis of 5% of Adjusted profit before tax from continuing operations.
Our group audit scope consisted of a full audit for all significant continuing UK trading companies,
and Solstice in Chicago, representing 91% of the Group’s revenue and 83% of profit before tax from
continuing operations as well as an audit of specified account balances for discontinued operations,
representing 96% of revenue from discontinued operations.
Materiality
Scoping
Significant changes
in our approach
There have been no significant changes in our audit approach in the current year other than those as
set out above.
Conclusions Relating to Going Concern, Principal Risks and Viability Statement
Going concern
We have reviewed the directors’ statement in note 1 to the financial statements about
whether they considered it appropriate to adopt the going concern basis of accounting
in preparing them and their identification of any material uncertainties to the Group’s and
parent company’s ability to continue to do so over a period of at least twelve months from
the date of approval of the financial statements.
We are required to state whether we have anything material to add or draw attention
to in relation to that statement required by Listing Rule 9.8.6R(3) and report if the statement
is materially inconsistent with our knowledge obtained in the audit.
We confirm that we have nothing
material to report, add or draw
attention to in respect of these
matters.
Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were
consistent with the knowledge we obtained in the course of the audit, including the
knowledge obtained in the evaluation of the directors’ assessment of the Group’s and
the parent company’s ability to continue as a going concern, we are required to state
whether we have anything material to add or draw attention to in relation to:
We confirm that we have nothing
material to report, add or draw
attention to in respect of these
matters.
• the disclosures on pages 36 to 41 that describe the principal risks and explain how they are
being managed or mitigated;
• the directors’ confirmation on page 85 that they have carried out a robust assessment of
the principal risks facing the Group, including those that would threaten its business model,
future performance, solvency or liquidity; or
• the directors’ explanation on page 82 as to how they have assessed the prospects of
the Group, over what period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a reasonable expectation that
the Group will be able to continue in operation and meet its liabilities as they fall due over
the period of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
We are also required to report whether the directors’ statement relating to the prospects of
the Group required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit.
Kin + Carta Annual Report and Accounts 2018Our Figures 90
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF KIN AND CARTA PLC continued
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
ACCOUNTING FOR DISPOSALS
Key audit matter description
The Group completed the following disposals during the year:
How the scope of our
audit responded to the
key audit matter
• Clays, the Group’s legacy book production and distribution business, was sold resulting in a profit
on disposal of £5.6 million; and
• The Group disposed of its Marketing Activation segment, comprising SP Group Limited, Service
Graphics Limited, Tactical Solutions UK Limited, Flare Limited, and St Ives Management Services
Limited, in two transactions, resulting in a profit on disposal of £12.8 million.
Given the significance of these disposals and associated judgements in calculating the profits and
losses on disposal, including costs to be included and remaining liabilities, we consider the accounting
for these to represent a key audit matter. This gives rise to a possible fraud risk due to the potential for
bias in management judgement and manipulation of estimates.
Further information is included in note 8 to the accounts and the Audit Committee report.
We recomputed the respective profit and loss on disposals recognised with reference to the relevant
legal agreements and other third party information. We have assessed the judgements made by
management in calculating the profits and losses on disposal, including consideration of provisions,
warranties, and any relevant disposal adjustments, with reference to historical performance and
other available information and through meeting with Group management to discuss, understand
and challenge the positions taken.
As set out in the scoping section below, we completed an audit of specified Income Statement account
balances of the disposed entities for the period up to the date of their disposal.
We also assessed the classification of the disposed business as discontinued operations against the
relevant criteria in IFRS 5.
Key observations
We consider that the treatment adopted in relation to accounting for disposals and the disclosure of
these in the financial statements is appropriate.
Kin + Carta Annual Report and Accounts 2018 91
IMPAIRMENT OF GOODWILL OF THE HIVE CASH GENERATING UNIT
Key audit matter description
The assessment of the carrying value of goodwill involves considerable judgement due to the
challenges in accurately forecasting future cash flows in the changing market environment.
How the scope of our
audit responded to the
key audit matter
Key assumptions include short and long term growth rates and the discount rate applied to future
cash flows. Management disclose this as a key source of estimation uncertainty in note 2 to the
Consolidated Financial Statements with further detail in note 18, and it is considered within the
significant financial matters section of the Audit Committee report.
We have pinpointed our key audit matter to the recoverability of the goodwill of the Hive cash
generating unit (‘CGU’), given the level of headroom available. The Group held goodwill in relation
to Hive of £15.1 million at 3 August 2018 (pre-impairment of £9.6 million) and 28 July 2017.
We challenged management’s assumptions used in their impairment assessment of the Hive goodwill.
Our procedures included:
• assessing the short-term cash flow projections against recent performance, historical forecasting
accuracy and gaining an understanding and challenging the key assumptions involved in the forecasts
from management, including finance and those outside of finance along with agreeing the amounts
to contract where available;
• considering contradictory evidence in respect of the revenue and cost forecasts;
• comparing the long-term forecasts against long-term economic growth rates from external data;
• comparing the discount rate applied against a broad comparator group as well as involving our
internal valuation specialists to assess the key components of the discount rate calculation;
• considering the reasonableness of, and recalculating, the sensitivity assessment applied by
management, and reviewing the sensitivity disclosure included in the Annual Report and Accounts;
and
• performing further sensitivity analysis of our own on the impairment model.
Key observations
We consider that the impairment recorded in the period is appropriate. Following the impairment
the carrying value of the CGU is supportable but sensitive to short term forecasts which has been
appropriately disclosed in note 18.
We concur with management that a reasonably possible change in projected revenue growth such as
the loss of a key customer would indicate further impairment and we consider the additional disclosure
provided in note 18 to be appropriate.
REVENUE RECOGNITION
Key audit matter description We pinpointed the key audit matter relating to revenue as the revenue related to incomplete projects
at year end. This totalled £10.7 million (2017: £11.9 million).
How the scope of our
audit responded to the
key audit matter
As noted in the revenue recognition policy in note 2 to the Consolidated Financial Statements, there
are projects where revenue is recognised on a percentage of completion basis. There is a risk that
revenue may be misstated due to the degree of judgement exercised by management in estimating
future costs which gives rise to a possible fraud risk around the potential for manipulation of those
estimates.
We have considered management’s application of revenue recognition policies to assess compliance
with IAS 18 ‘Revenue’. In particular, this involved:
• reviewing the underlying contracts to assess whether revenue was correctly recognised in line with
the contract; and
• pinpointing the key audit matter to projects not complete at period-end and challenging
management on the percentage of revenue recognised for different projects and corroborating the
judgements made to supporting information.
Key observations
We consider the treatment adopted in relation to the valuation of revenue and the related
assumptions applied by management to be appropriate.
Kin + Carta Annual Report and Accounts 2018Our Figures 92
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF KIN AND CARTA PLC continued
CLASSIFICATION AND DISCLOSURE OF ADJUSTING ITEMS
Key audit matter description
The Group presents Adjusted Profit before tax from continuing operations within the Consolidated
Income Statement of £18.5 million, excluding Adjusting Items, which when added back give statutory
loss before tax from continuing operations of £31.2 million. The Group presents this measure as they
consider 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.
Adjusting Items from continuing operations recorded in the Consolidated Income Statement
total £49.6 million (pre-tax) (2017: £32.6 million). These transactions are made up of £3.1 million
restructuring costs, £0.2 million pension costs and £47.8 million of costs related to acquisitions
made in prior periods offset by £1.5 million income recognised from the sale of Property, Plant and
Equipment.
There is a risk that items relating to the ongoing business are being disclosed as adjusting and
that items are not being disclosed in line with the Group accounting policy, which could distort the
information presented to shareholders.
Adjusting Items are detailed in the significant accounting policies in note 2 and detailed in note 7,
and considered within the significant financial matters section of the Audit Committee report.
We challenged the appropriateness of the classification of Adjusting Items. Our procedures included:
• assessing whether there is sufficient justification for items to be classed as adjusting, particularly
in the context of management’s accounting policy, as described in note 2;
• considered the balance of any items within Adjusted results;
• challenging management on how they have complied with the guidelines issued by the European
Securities and Markets Authority (ESMA) on Alternative Performance Measures such as Adjusting
Items; and
• reviewing the Adjusting Items disclosure in note 7 of the accounts in line with IAS 1 ‘Presentation
of financial statements’.
How the scope of our
audit responded to the
key audit matter
Key observations
We are satisfied that the Adjusting Items have been classified in line with management’s accounting
policy and that appropriate disclosure has been provided around the nature and quantum of each
material item.
RETIREMENT BENEFIT OBLIGATIONS
Key audit matter description
Gross pension assets in 2018 are £353.4 million (2017: £354.5 million) and gross pension liabilities
are £351.6 million (2017: £370.5 million) resulting in a net surplus of £1.9 million (2017: deficit of
£16.0 million).
There is significant judgement involved in the valuation of the retirement benefit obligations,
in particular the inflation rate and the discount rate used to measure the liability.
Management has acknowledged this as a key source of estimation uncertainty in the accounting policy
in note 2 and detailed in note 29, and considered within the significant financial matters section of the
Audit Committee report.
How the scope of our
audit responded to the
key audit matter
The audit procedures we performed in respect of this risk included:
• holding discussions with the Group’s pension advisors and meeting with management to discuss
and understand the valuation approach applied and the assumptions used in the valuation;
• Using internal specialists to consider and challenge the actuarial assumptions adopted by the
Group for the valuation of its retirement benefit obligations. This includes benchmarking the
assumptions against a relevant comparator group.
Key observations
We are satisfied that the methodology and assumptions applied in relation to determining the
pension valuation, when taken in aggregate, fall within an acceptable range.
Kin + Carta Annual Report and Accounts 2018 93
Our Application of Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions
of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work
and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
£915,000 (2017: £1,197,000)
£870,000
GROUP FINANCIAL STATEMENTS
PARENT COMPANY FINANCIAL STATEMENTS
Basis for determining
materiality
Rationale for the
benchmark applied
5% of Adjusted profit before tax from continuing
operations. In using Adjusted profit before tax
we have followed the Group’s definition of this
in note 2.
We have determined materiality on a consistent
basis with the previous year.
We have assessed the use of Adjusted profit
before tax to be appropriate as this continues
to be a key driver of business value, is a critical
component of the financial statements, and the
main measure which management uses to
monitor the performance of the business and
communicate this to shareholders.
Parent company materiality equates to
3% of net assets, which is capped at 95%
of Group materiality.
Net assets was selected as an appropriate
benchmark for determining materiality, as the
parent company does not trade, and only acts
as a holding company.
Adjusted profit
before tax
£18,471,000
Group materiality
£915,000
Component
materiality range
£870,000 to £120,000
Audit Committee reporting
threshold £45,000
Adjusted profit before tax from continuing operations
Group materiality
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £45,000 (2017: £59,000),
as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit
Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
Kin + Carta Annual Report and Accounts 2018Our Figures 94
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF KIN AND CARTA PLC continued
An Overview of the Scope of Our Audit
Our group audit was scoped by obtaining and understanding of the Group and its environment, including Group-wide controls,
and assessing the risk of material misstatement at the Group level. Based on that assessment, we set our scoping as illustrated
in the below table.
1: Full scope audit procedures; 2: audit of specified account balances; 3: analytical review procedures
Continuing operations
AmazeRealise
Edit (formerly Occam, Response One, and Branded3)
Hive
Incite
Pragma (formerly Pragma and FSP)
Solstice
The App Business
Discontinued operations
Books
SP Group
Service Graphics Limited
St Ives Management Services
Tactical Solutions
2018
2017
1
1i
1 3
1
3 3
1
1
2
2
2
2
3 3
1
1i
1
1
1
1
1
1
1
i) Full scope audit procedures performed on Occam and Edit (formerly known as Response One). Analytical Review procedures performed on Branded3.
Those entities where we performed full scope audit procedures represent the principal business units and account for 91% of the
Group’s revenue from continuing operations, 83% of the Group’s operating profit from continuing operations, and 94% of the Group’s
net assets. Our audit work at these locations was executed at levels of materiality applicable to each individual entity which were lower
than Group materiality and ranged from £120,000 to £870,000 (2017: £178,000 to £1,014,000).
We completed an audit of specified Income Statement account balances at the entities which have been disposed of in the year, being
revenue, cost of sales and operating expenses, representing 96% of revenue from discontinued operations and 98% of operating profit
from discontinued operations.
At the parent entity level, we tested the consolidation process and carried out analytical procedures to confirm our conclusion that there
were no key audit matters of material misstatement of the aggregated financial information of the remaining components not subject
to audit or audit of specified account balances.
The group audit team have ensured that they have maintained oversight of the work performed at the components by involving key
component team members in our planning briefing, including a discussion of risk assessment, to ensure an integrated approach was
followed. We have maintained regular communications with each component throughout the audit, attended closing meetings for each
component, and reviewed documentation of the findings from their work. During the course of the audit, senior members of the Group
audit team visited Edit, Hive, Incite and Solstice.
Kin + Carta Annual Report and Accounts 2018
95
OTHER INFORMATION
The directors are responsible for the other information. The other information comprises the
information included in the annual report, other than the financial statements and our auditor’s
report thereon.
We have nothing to report in
respect of these matters.
Our opinion on the financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required
to determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material
misstatements of the other information include where we conclude that:
• Fair, balanced and understandable – the statement given by the directors that they consider the
annual report and financial statements taken as a whole is fair, balanced and understandable
and provides the information necessary for shareholders to assess the Group’s position and
performance, business model and strategy, is materially inconsistent with our knowledge obtained
in the audit; or
• Audit committee reporting – the section describing the work of the audit committee does not
appropriately address matters communicated by us to the audit committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the
directors’ statement required under the Listing Rules relating to the parent company’s compliance
with the UK Corporate Governance Code containing provisions specified for review by the auditor
in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant
provision of the UK Corporate Governance Code.
Responsibilities of Directors
As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent company’s ability to continue
as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Kin + Carta Annual Report and Accounts 2018Our Figures 96
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF KIN AND CARTA PLC continued
Extent to Which the Audit Was Considered Capable of Detecting Irregularities, Including Fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design
and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide
a basis for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws
and regulations, our procedures included the following:
• enquiring of management, internal audit, and the audit committee, including obtaining and reviewing supporting documentation,
concerning the Group’s policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations;
• discussing among the engagement team including significant component audit teams and involving relevant internal specialists, including
tax and pensions, regarding how and where fraud might occur in the financial statements and any potential indicators of fraud. As part of
this discussion, we identified potential for fraud in the following areas: revenue recognition; disposals in the year; deferred consideration
in relation to previous acquisitions; the Group restructuring; and
• obtaining an understanding of the legal and regulatory framework that the Group operates in, focusing on those laws and regulations
that had a direct effect on the financial statements or that had a fundamental effect on the operations of the Group. The key laws and
regulations we considered in this context included the UK Companies Act, Listing Rules, pensions legislation, and tax legislation.
Audit response to risks identified
As a result of performing the above, we identified revenue recognition and accounting for disposals as a key audit matter. The key audit
matters section of our report explains the matter in more detail and also describes the specific procedures we performed in response
to that key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant laws
and regulations discussed above;
• enquiring of management, the audit committee and external legal counsel concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement
due to fraud;
• reading minutes of meetings of those charged with governance and reviewing internal audit reports; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating
the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including
internal specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws
and regulations throughout the audit.
Kin + Carta Annual Report and Accounts 2018 97
Report On Other Legal And Regulatory Requirements
Opinions On Other Matters Prescribed By The Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies
Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and of the parent company and their environment obtained
in the course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate
for our audit have not been received from branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and
returns.
We have nothing to report in
respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures
of directors’ remuneration have not been made or the part of the directors’ remuneration report
to be audited is not in agreement with the accounting records and returns.
We have nothing to report in
respect of these matters.
OTHER MATTERS
Auditor tenure
Following the recommendation of the audit committee, we were appointed by the parent company at the AGM on 30 November 2017
to audit the financial statements for the year ending 3 August 2018. The period of total uninterrupted engagement including previous
renewals and reappointments of the firm is in excess of 30 years. As set out in the Audit Committee’s report, following a tender process,
this will be the last year of our appointment.
Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).
USE OF OUR REPORT
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Sukhbinder Kooner (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
8 October 2018
Kin + Carta Annual Report and Accounts 2018Our Figures 98
CONSOLIDATED INCOME STATEMENT
Continuing operations:
Revenue
Cost of sales
Gross profit/(loss)
Selling costs
Administrative expenses
Share of results of joint arrangement
Other operating (expense)/income
Operating profit/(loss)
Net pension finance expense
Other finance expense
Profit/(loss) before tax
Income tax (charge)/credit
Net profit/(loss) for the period from
continuing operations
Discontinued operations:
Net profit/(loss) from discontinued operations
Net profit/(loss) for the period from
continuing and discontinued operations
Attributable to:
Shareholders of the parent company
53 weeks to 3 August 2018
52 weeks to 28 July 2017*
Adjusted Adjusting Items
(note 7)
£’000
Results
£’000
Statutory
Results
£’000
Adjusted Adjusting Items
(note 7)
£’000
Results
£’000
Statutory
Results
£’000
Note
3
178,292
(105,110)
63
(247)
178,355
(105,357)
162,948
(101,709)
–
–
162,948
(101,709)
73,182
(10,749)
(41,817)
569
(20)
21,165
–
(2,694)
18,471
(3,659)
(184)
–
(50,676)
–
1,542
(49,318)
(324)
–
(49,642)
2,436
72,998
(10,749)
(92,493)
569
1,522
(28,153)
(324)
(2,694)
(31,171)
(1,223)
61,239
(10,699)
(34,547)
355
58
16,406
–
(3,017)
13,389
(3,020)
–
–
(34,678)
–
2,760
(31,918)
(638)
–
(32,556)
4,228
61,239
(10,699)
(69,225)
355
2,818
(15,512)
(638)
(3,017)
(19,167)
1,208
4
14,812
(47,206)
(32,394)
10,369
(28,328)
(17,959)
8
3,511
(326)
3,185
8,735
(34,134)
(25,399)
18,323
(47,532)
(29,209)
19,104
(62,462)
(43,358)
18,323
(47,532)
(29,209)
19,104
(62,462)
(43,358)
Basic and diluted earnings/(loss) per share (p)
From continuing operations
From continuing and discontinued operations
14
14
10.10
12.49
(32.19)
(32.41)
(22.09)
(19.92)
7.27
13.39
(19.86)
(43.79)
(12.59)
(30.40)
* The results for the 52 weeks to 28 July 2017 have been re-presented to reflect the results of the Books and Marketing Activation segments as discontinued operations following their disposals
during the period (note 8).
Kin + Carta Annual Report and Accounts 2018
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Loss for the period
Items that will not be reclassified subsequently to profit or loss:
Actuarial gains on defined benefits pension scheme
Tax charge on items taken through other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Transfers of losses on cash flow hedges
Gains/(losses) on cash flow hedges
Foreign exchange (loss)/gain
99
Note
29
11
53 weeks to
3 August
2018
£’000
52 weeks to
28 July
2017
£’000
(29,209)
(43,358)
10,958
(1,731)
9,227
76
265
(852)
(511)
8,958
(1,584)
7,374
302
(138)
369
533
Other comprehensive income for the period
8,716
7,907
Total comprehensive expense for the period attributable to shareholders of the parent company
(20,493)
(35,451)
Kin + Carta Annual Report and Accounts 2018Our Figures
100
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Balance at 29 July 2016
Loss for the period
Other comprehensive income
Comprehensive income/(expense)
Dividends
Recognition of share-based contingent
consideration deemed as remuneration
Transfer of share-based contingent
consideration deemed as remuneration
Recognition of share-based payments
Settlement of share-based payments
Tax on share-based payments
Share
capital
£’000
14,244
–
–
Additional
paid-in
capital*
£’000
69,795
–
–
–
–
–
–
–
40
–
–
–
–
225
–
398
–
Treasury
shares
£’000
Share Hedging and
translation
option
reserve
reserve
£’000
£’000
(163)
–
–
6,723
–
–
–
–
–
–
–
–
–
–
–
6,969
(5,676)
70
(123)
(63)
661
–
533
533
–
–
–
–
–
–
Other
reserves
£’000
Retained
earnings
£’000
Total
£’000
77,016
–
533
42,368 133,628
(43,358)
(43,358)
7,907
7,374
533
–
(35,984)
(8,705)
(35,451)
(8,705)
6,969
–
6,969
(5,451)
70
275
(63)
5,754
–
123
16
303
70
438
(47)
Balance at 28 July 2017
14,284
70,418
(163)
7,900
1,194
79,349
3,572
97,205
Loss for the period
Other comprehensive (expense)/income
Comprehensive expense
Dividends
Recognition of share-based contingent
consideration deemed as remuneration
Transfer of share-based contingent
consideration deemed as remuneration
Recognition of share-based payments
Settlement of share-based contingent
consideration deemed as remuneration
Tax on share-based payments
–
–
–
–
–
–
–
1,059
–
–
–
–
–
–
119
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(511)
(511)
–
–
(511)
(29,209)
9,227
(29,209)
8,716
(511)
–
(19,982)
(2,784)
(20,493)
(2,784)
6,016
(6,865)
1,274
(1,101)
(74)
–
–
–
–
–
6,016
–
6,016
(6,746)
1,274
6,965
–
219
1,274
(1,101)
(74)
42
–
–
(74)
Balance at 3 August 2018
15,343
70,537
(163)
7,150
683
78,207
(12,187) 81,363
* Additional paid-in capital includes share premium, merger reserve and capital redemption reserve (note 33).
Kin + Carta Annual Report and Accounts 2018
CONSOLIDATED BALANCE SHEET
Assets
Non-current assets
Property, plant and equipment
Investment property
Goodwill
Other intangible assets
Available for sale asset
Investment in joint arrangement
Deferred tax assets
Retirement benefits surplus
Other non-current assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Income tax receivable
Assets held for sale
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Loans
Trade and other payables
Derivative financial instruments
Income tax payable
Deferred consideration payable
Deferred income
Provisions
Non-current liabilities
Loans
Retirement benefits obligations
Other non-current liabilities
Provisions
Deferred tax liabilities
Total liabilities
Net assets
Capital and reserves
Share capital
Other reserves
Retained earnings
Total equity
101
3 August
2018
£’000
28 July
2017
£’000
Note
15
16
18
18
19
20
28
29
22
21
22
23
17
22
25
24
23
12
26
27
25
29
27
28
6,301
4,470 –
84,742
31,493
3 3
223
1,264
1,858 –
13
26,235
108,676
42,792
517
375
13
130,367
178,611
–
40,451
291
904
5,282
14,398
6,253
91,063
45
124
11
25,651
61,326
123,147
191,693
301,758
40,363 –
35,851
62
61
21,170
4,915
919
79,539
17
1,461
15,920
7,141
388
103,341
104,466
–
–
822
1,849
4,318
6,989
80,245
16,041
682
1,823
1,296
100,087
110,330
204,553
81,363
97,205
15,343
78,207
(12,187)
81,363
14,284
79,349
3,572
97,205
These financial statements were approved by the Board of Directors on 8 October 2018 and signed on its behalf by
J Schwan
Chief Executive Officer
Brad Gray
Chief Financial Officer
Kin + Carta Annual Report and Accounts 2018Our Figures
102
CONSOLIDATED STATEMENT OF CASH FLOWS
Operating activities
Cash generated from operations
Interest paid
Income taxes paid
Net cash generated from operating activities
Investing activities
Purchase of property, plant and equipment
Purchase of other intangibles
Proceeds on disposal of property, plant and equipment
Proceeds on disposal of subsidiaries
Deferred consideration paid for acquisitions made in prior periods
Net cash generated from investing activities
Financing activities
Proceeds on issue of shares
Dividends paid
Decrease in bank loans
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Effect of foreign exchange rate changes
Cash and cash equivalents at end of the period
Note
35
8
12
53 weeks to
3 August
2018
£’000
52 weeks to
29 July
2017
£’000
25,848
(2,694)
(5,430)
17,724
(4,425)
(149)
3,166
32,442 –
(16,518)
14,516
30,686
(3,017)
(587)
27,082
(3,154)
(311)
11,770
(663)
7,642
–
(2,784)
(40,000)
438
(8,705)
(15,000)
(42,784)
(23,267)
(10,544)
25,651
(709)
14,398
11,457
11,835
2,359
25,651
Kin + Carta Annual Report and Accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
103
1. General Information
Kin and Carta plc is a company incorporated in England and Wales under the Companies Act 2006. The address of the registered
office is One Tudor Street, London EC4Y 0AH. The nature of the Group’s operations and its principal activities are set out in the
Chief Executive’s Performance Review, pages 6 to 8.
These Consolidated Financial Statements (‘the financial statements’) are presented in Sterling because this is the currency
of the primary economic environment in which the Group operates.
The financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) adopted by the
European Union and IFRSs as issued by the International Accounting Standards Board (‘IASB’) and Article 4 of the EU IAS Regulation.
In the current period, the following revised Standards and Interpretations have been adopted:
IAS 7 (amendments)
Disclosure initiative; this standard is mandatory for accounting periods beginning on or after 1 January 2017
IAS 12 (amendments)
Deferred Tax; this standard is mandatory for accounting periods beginning on or after 1 January 2017
At the date of authorisation of these financial statements, the following Standards, Amendments and Interpretations which have not
been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU).
The Group has not applied these standards in the preparation of the Consolidated Financial Statements:
IFRS 9
IFRS 15
Financial Instruments; this standard is mandatory for accounting periods beginning on or after 1 January 2018
Revenue from Contracts with Customers; this standard is mandatory for accounting periods beginning
on or after 1 January 2018
IFRS 2 (amendments)
Share-based Payment Transactions; this amendment is mandatory for accounting periods beginning
on or after 1 January 2018
IFRS 4 (amendments)
Applying IFRS 9 Financial Instruments; this amendment is mandatory for accounting periods beginning
on or after 1 January 2018
IFRIC 22
IFRS 16
Foreign Currency Transactions and Advance Consideration; this amendment is mandatory for accounting
periods beginning on or after 1 January 2018
Leases; this standard was issued in January 2016 to replace IAS 17; this standard is mandatory for
accounting periods beginning on or after 1 January 2019.
In addition, ‘Annual Improvements 2014-2016 Cycle’ includes amendments to a number of Standards and Interpretations including
IFRS 1 and IAS 28. The effective date of the IFRS 1 and IAS 28 amendments is for annual periods beginning on or after 1 January 2018.
IFRS 9
This standard is applicable to financial assets and financial liabilities and covers the classification, measurement, impairment and
de-recognition of financial assets and liabilities together with a new hedge accounting model. IFRS 9 operates on an expected credit
loss basis rather than on an incurred credit loss basis. The Group is in process of assessing the impact of accounting changes that will
arise from the assessment of hedging instruments and the provision for future expected credit loss.
IFRS 15
The standard replaces IAS 18 ‘Revenue’ and specifies how and when an entity shall recognise revenue as well as providing users of financial
statements with more informative and relevant disclosures. The Group is in advance stages in assessing the impact of the accounting
changes that will arise under IFRS 15. The Group is in process of evaluating the impact of the treatment of incentive-based revenues,
revenue recognised in respect of license fees and support services which will impact the timing of the revenue recognition for a small
number of the Group’s transactions.
Kin + Carta Annual Report and Accounts 2018Our Figures 104
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
1. General Information continued
IFRS 16
The standard will primarily change lease accounting for lessees; lease agreements will give rise to the recognition of an asset representing
the right to use the leased item and a loan obligation for future lease payables. Lease costs will be recognised in the form of depreciation
of the right to use the asset and interest on the lease liability. Lessee accounting under IFRS 16 will be similar in many respects to existing
IAS 17 accounting for finance leases, but will be substantively different to existing accounting for operating leases where rental charges
are currently recognised on a straight-line basis and no lease asset or lease loan obligation is recognised.
Lessor accounting under IFRS 16 is similar to existing IAS 17 accounting and is not expected to have a material impact for the Group.
The Group is assessing the impact of the accounting changes that will arise under IFRS 16. The following changes to lessee accounting
will have a material impact:
Right-of-use assets will be recorded for assets that are leased by the Group. Currently no leased assets are included on the Group’s
Consolidated Balance Sheet in respect of operating leases.
Liabilities will be recorded for future lease payments in the Group’s Consolidated Balance Sheet for the “reasonably certain” period of the
lease, which may include future lease periods for which the Group has extension options. Currently, liabilities are generally not recorded
for future operating lease payments, which are disclosed as commitments.
Lease expenses will comprise depreciation of right-of-use of the assets and interest on the lease liabilities. Interest will typically be higher
in the early stages of a lease and reduce over the term. Currently operating lease rentals are expensed on a straight-line basis over the
lease term within operating expenses.
Operating lease cash flows are currently included within operating activities in the Consolidated Statement of Cash Flows. Under
IFRS 16 these will be recorded as cash flows from financing activities reflecting the repayment of lease liabilities (borrowings) and
related interest.
A number of transactions will be impacted by IFRS 16 and material judgements are required in identifying and accounting for leases.
Therefore, the Group is continuing to assess the impact of these and other accounting changes that will arise under IFRS 16 and cannot
reasonably estimate the impact. However, the changes highlighted above will have a material impact on the Consolidated Income
Statement, Consolidated Balance Sheet and Consolidated Statement of Cash Flows after the Group’s adoption on 1 August 2019.
Going Concern
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis
of accounting in preparing the financial statements. Subsequent to the year end, the Group successfully negotiated a new revolving credit
facility of £85.0 million that will expire on 30 November 2022, on terms broadly in line with the previous agreement. Further detail is
contained in the Directors’ Report on pages 81 to 84.
2. Significant Accounting Policies
(a) Basis of consolidation
The Consolidated Financial Statements incorporate the financial statements of the Company and entities controlled by the Company (its
subsidiary undertakings) for each period. Control is achieved where the Company has the power to govern the financial and operating
policies of an investee entity so as to obtain benefits from its activities.
The results of subsidiaries acquired during the period are included in the Consolidated Income Statement from the effective date
of acquisition.
Where necessary, adjustments are made to the results of subsidiaries to bring their accounting policies into line with those of the
Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation.
(b) Adjusting Items
Statutory results (‘Statutory Results’) presented in the Consolidated Income Statement include Adjusting Items.
Income statement items are presented in the middle column under the heading ‘Adjusting Items’ where they are significant in size
and either they do not form part of the underlying trading activities of the Group or, in the opinion of the Directors, their separate
presentation enhances understanding of the financial performance of the Group and its businesses.
The results, excluding Adjusting Items, are presented in the Consolidated Income Statement under the heading ‘Adjusted Results’,
in order to provide a consistent and comparable view of the performance of the Group’s ongoing business.
Kin + Carta Annual Report and Accounts 2018 105
Furthermore, the Adjusted Results, are aligned to the Group’s strategy and are used to measure the financial performance
of the Group’s businesses and are the basis for remuneration. Further details can be found in the Adjusted Performance
Measures section on pages 29 to 32.
Items included as Adjusting Items are as follows:
• Redundancies, restructuring costs and empty property costs
Redundancies and restructuring costs that occur as one-off costs in the individual businesses, that in aggregation can be significant in
size, are recorded as Adjusting Items. Careful consideration is applied by management in assessing whether these costs relate to the
restructure of a business within the Group or redundancies in the normal course of business which are not treated as Adjusting Items.
Redundancies and restructuring costs related to the closure or disposal of a site are recorded within this caption. Empty property costs
comprise expenses relating to the maintenance and security of leasehold property or property owned by the Group from which no
ongoing activity takes place. The costs do not relate to the continuing operations of the Group and are therefore recorded as
Adjusting Items.
• Operating results of a site arising after a formal decision on its closure
Operating losses from non-continuing sites, where that site does not meet the definition of a discontinued operation under
IFRS 5 – Non Current Assets Held for Sale and Discontinued Operations include revenue, operational and overhead expenses
incurred after a formal decision on a site’s closure has been taken. These items also include settlement of onerous leases, costs
related to the transfer of assets and professional fees related to closure of the site. The above items are recorded as Adjusting Items
on the basis that they do not form part of the ongoing trading activities of the Group.
• St Ives Defined Benefits Pension Scheme income/expense
The Scheme was closed to new entrants in April 2002 and to the accrual of future benefits in August 2008. Given the substantial
change in the composition of the Group over the last eight years, with a significant number of site closures and disposal of businesses
which employed Scheme members, the number of scheme members still employed by the Group has declined substantially and stood
at five as at 3 August 2018, representing less than 1% of the total Scheme membership. After the closure of the Scheme, all the in-
service members at that time were transferred to a defined contribution scheme. Payments to the defined contribution scheme are
expensed to the Consolidated Income Statement and are treated as part of Adjusted Results and not as an Adjusting Item. Therefore
the Group classifies the income/(expense) relating to the Scheme as an Adjusting Item.
• Non-cash impairment charges related to goodwill and other assets
Impairment charges related to non-current and current assets are non-cash items, do not occur in the normal course of business
and tend to be significant in size and irregular in nature. The presentation of this item as an Adjusting Item further enhances the
understanding of the ongoing trading performance of the Group.
• Costs related to acquisitions made in prior periods
The Group has grown both organically with the development of new operating subsidiaries and through acquisition. However,
there is significant inconsistency between the accounting treatment of the goodwill and intangibles associated with the acquisition
of businesses and those generated internally. On an unadjusted basis, a business acquired under IFRS 3 would report substantially
lower operating profits and a lower return on capital than the businesses which have been developed by the Group, thus making
comparison of performance of the businesses and segments difficult.
Therefore the following items are recorded as Adjusting Items to provide a more realistic and comparable view of the businesses
and enhance the clarity of the performance of the Group and its businesses to readers of the accounts:
(i) Amortisation charges related to intangible assets identified through acquisition accounting;
(ii) Expenses related to contingent consideration required to be treated as remuneration for acquired businesses;
(iii) Charges and credits arising from the re-estimation of deferred consideration payable in respect of acquisitions; and
(iv) Charges related to the acquisition of businesses or the setting up of new subsidiaries.
• Gain or loss associated with disposal of trade, subsidiaries or assets
The gain or loss on disposal of trade, subsidiaries or assets tends to be significant in size and irregular in nature. The disposal of
property, plant and equipment is primarily associated with closed sites or businesses that have been disposed of by the Group.
Therefore the gain or loss on the disposal of these assets is treated as an Adjusting Item.
When reviewing these items, the Directors considered the guidelines issued by the Financial Reporting Council (‘FRC’) and the
European Securities and Markets Authority (‘ESMA’).
A reconciliation of Statutory Results to Adjusted Results can be found in the Consolidated Income Statement. Further details relating
to the Adjusting Items are available in note 7.
Kin + Carta Annual Report and Accounts 2018Our Figures 106
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
2. Significant Accounting Policies continued
(c) Revenue recognition
Revenue for service is recognised as services are delivered or in proportion to the level of services performed. Revenue for
the level of services performed is recognised using the stage of completion method when the outcome can be measured reliably.
The stage of completion is determined using relevant criteria including:
• Services performed as a percentage of total services.
• Costs incurred to date as a proportion to the estimated total cost of the transaction such as market research fees.
• Services performed, on time basis, i.e. where the terms of contract have provision for licensing the product on a subscription basis,
revenue is recognised over the subscription period on a straight-line basis.
• Services that are linked to delivering goods to fulfil the contract, the revenue is recognised when the goods are delivered to the
customer. The goods can be delivered in full or in-part quantities.
The Group uses two main inputs in the measurement of the services performed and the total services:
(i) Time spent by staff: The stage of completion is determined by the time incurred by operational staff to date compared to the total
estimated on an individual project basis.
(ii) Progress against contracted outputs: Where applicable, the value of time spent by staff is further validated against the relevant output
measures such as project milestones achieved as contracted, number of reports delivered to the customer compared to the total
reports contracted.
Income from advance billings is deferred and released to revenue when conditions for its recognition have been fulfilled.
Revenue from supply of goods and services is measured at the fair value of consideration received or receivable and comprises
amounts receivable for goods and services, net of trade discounts, up-front payments, VAT and other sales-related taxes.
Revenue for goods is recognised in the Consolidated Income Statement when all the following conditions are satisfied:
• the significant risks and rewards of ownership are transferred to the customer, normally on shipment of the product;
• the amount of revenue can be measured reliably;
• it is probable that the economic benefits associated with the transaction will flow to the entity; and
• the costs incurred or to be incurred in respect of the transaction can be measured reliably.
(d) Investment properties
Investment properties are properties which are held to earn rental income and are stated at cost less accumulated depreciation.
Depreciation is charged between 2% to 4% per annum so as to write off the cost or valuation of assets over their estimated useful
lives, using the straight-line method.
An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no
future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the property (calculated as the
difference between the net disposal proceeds and the carrying amount of the asset) is included in the Consolidated Income Statement
in the period in which the property is derecognised.
(e) Intangible assets
Goodwill
Goodwill arising on the acquisition of a subsidiary represents the excess of the cost of the acquisition over the net fair value of the
identifiable assets, liabilities and contingent liabilities of the subsidiary at the date of the acquisition. Fair value is finalised within 12
months of the date of the acquisition. Goodwill is not amortised but reviewed for impairment annually in accordance with the impairment
of goodwill policy set out in note 2 (g) below.
Other intangible assets – computer software
Computer software that is not integral to an item of property, plant or equipment is classified as an intangible asset and is held on the
Consolidated Balance Sheet at cost less amortisation and impairments. These assets are amortised over their estimated useful lives,
which is generally two to five years.
Kin + Carta Annual Report and Accounts 2018 107
Other intangible assets – customer relationships
Customer relationships identified as separable intangible assets in the context of business combinations are capitalised at their fair value
at the date of acquisition. They are amortised over their estimated useful lives, which is generally two to ten years.
Other intangible assets – proprietary techniques
Proprietary techniques identified as separable intangible assets in the context of business combinations are capitalised at their fair value
at the date of acquisition. They are amortised over their estimated useful life which is generally three to ten years.
Other intangible assets – trademarks
Trademarks identified as separable intangible assets in the context of business combinations are capitalised at their fair value at the date
of acquisition. They are amortised over their estimated useful lives, which is generally ten years.
All intangible assets with finite lives are amortised on a straight-line basis.
(f) Property, plant and equipment
Property, plant and equipment held for use in the production or supply of goods, or for administration purposes is stated in the
Consolidated and Company Balance Sheets at cost less any accumulated depreciation and impairment losses.
Costs are recognised as an asset only when it is probable that future economic benefits associated with the item will flow to the
Group and the cost of the item can be measured reliably. All repairs and maintenance are charged to the Consolidated Income
Statement during the period in which they are incurred.
Assets in the course of construction are carried at cost less any recognised impairment loss. Cost includes professional fees.
Depreciation of these assets commences when the assets are ready for their intended use.
Freehold land is not depreciated.
Depreciation is charged, other than on freehold land and assets under the course of construction, so as to write off the cost or
valuation of assets over their estimated useful lives, using the straight-line method, on the following basis:
Freehold buildings
Long leases
Plant and machinery
Fixtures, fittings and equipment
Motor vehicles
2% – 4%
Period of lease
10% – 33¹/3%
10% – 33¹/3%
20% – 25%
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise
from the continued use of the asset. The gain or loss arising on the disposal or scrappage of an asset is determined as the difference
between the sales proceeds and the carrying amount of the asset and is recognised in income.
(g) Impairment of property, plant, equipment and intangible assets excluding goodwill
At each balance sheet date the Group reviews the carrying amounts of its property, plant and equipment and intangible assets to
determine whether there is any indication that those assets have suffered any impairment loss.
If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss
(if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable
amount of the cash-generating unit to which the asset belongs.
The recoverable amount is the higher of fair value less costs to sell and value-in-use. In assessing value-in-use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time
value of money and the risks specific to the assets for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of
the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately as an expense in
the Consolidated Income Statement.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised
estimate of its recoverable amount, but only in so far as the increased carrying amount does not exceed the carrying amount that would
have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior periods.
Kin + Carta Annual Report and Accounts 2018Our Figures 108
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
2. Significant Accounting Policies continued
(h) Impairment of goodwill
Goodwill arising on acquisition is allocated to the group of cash-generating units that are expected to benefit from the synergies
of the combination. A cash-generating unit represents the lowest level at which goodwill is monitored by the Group’s Board of Directors
for internal management purposes. The recoverable amount of the group of cash-generating units to which goodwill has been allocated
is tested for impairment annually on a consistent date during each financial period, or more frequently when such events or changes in
circumstances indicate that it may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of
the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other
assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.
Any impairment is recognised immediately in the Consolidated Income Statement. Impairments of goodwill are not subsequently
reversed.
On disposal of a cash-generating unit, the attributable amount of goodwill is included in the determination of the gain or loss
on disposal.
(i) Inventories
Inventories are stated at the lower of cost and net realisable value.
Cost comprises direct materials and, where applicable, direct labour costs and those production overheads that have been incurred in
bringing the inventories to their present location and condition. Cost is valued on a first in, first out (‘FIFO’) basis. Net realisable value
is the estimated selling price less the estimated costs of completion and costs to be incurred in selling and distribution.
(j) Tax
The tax expense in the Consolidated Income Statement comprises tax currently payable and deferred tax.
The tax currently payable is based on the taxable profit for the period. Taxable profit differs from net profit as reported in the
Consolidated Income Statement because it excludes items of income and expense that are taxable or deductible in other periods and
it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have
been enacted or substantively enacted at the balance sheet date.
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the accounts and the corresponding
tax bases used in the computation of taxable profit; and is accounted for using the balance sheet liability method. Deferred tax
liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities
are not recognised if the temporary differences arise on non-deductible goodwill or from the initial recognition (other than business
combinations) of other assets or liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the
Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse
in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and is reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised.
Deferred tax is charged or credited in the Consolidated Income Statement, except when it relates to items charged or credited in other
comprehensive income, in which case the deferred tax is also dealt with in the Consolidated Statement of Comprehensive Income
or when it relates to items that are charged or credited to the Consolidated Statement of Comprehensive Income or directly to the
Consolidated Statement of Changes in Equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current assets against current liabilities
and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and
liabilities on a net basis.
Kin + Carta Annual Report and Accounts 2018 109
Current tax and deferred tax for the year
Current tax and deferred tax are recognised in the Consolidated Income Statement, except when they relate to items that are recognised
in the Consolidated Statement of Comprehensive Income or directly to the Consolidated Statement of Changes in Equity. Where current
tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the
business combination.
(k) Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be
required to settle the obligation, and its value can be reliably estimated. When a provision needs to be released, the provision is taken
back to the Consolidated Income Statement within the line where it was initially booked.
Provisions for repairs
Provisions for repairs are made where the Group is committed under the terms of the lease to make repairs to leasehold property.
The provision is made for the estimated cost over the period of the lease.
Provisions for reorganisation
Provisions for restructuring costs and onerous lease costs are recognised when the Group has a detailed formal plan for the
restructuring that has been communicated to affected parties.
(l) Foreign currencies
The individual statements of each Group company are presented in the currency of the primary economic environment in which it
operates (its functional currency). For the purpose of the Consolidated Financial Statements, the results and financial position of each
Group company are expressed in Sterling, which is the functional currency of the Company, and the presentation currency for the
Consolidated Financial Statements.
Transactions in foreign currencies other than Sterling are translated at the exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Sterling at the exchange
rate ruling at that date.
Exchange differences are recognised in the Consolidated Income Statement in the period in which they arise except for:
• exchange differences on transactions entered into to hedge certain foreign currency risks; and
• exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither
planned nor likely to occur in the foreseeable future (therefore forming part of the net investment in the foreign operation), which
are recognised initially in the Consolidated Statement of Comprehensive Income and reclassified to the Consolidated Income Statement
on disposal or partial disposal of the net investment.
Foreign currency differences arising on translation or settlement of monetary items are recognised in the Consolidated Income
Statement.
The results of overseas subsidiaries with functional currencies other than Sterling are translated into Sterling at the average rate
of exchange ruling in the period. The average exchange rate for each functional currency is calculated as an average of the Sterling
exchange rate ruling at the end of each monthly period.
Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange
rate at the date of the transaction and not retranslated at each period end. Non-monetary assets and liabilities denominated in foreign
currencies that are stated at fair value are translated to Sterling at exchange rates ruling at the date the fair value was determined.
Exchange gains and losses arising on the retranslation of non-monetary assets and liabilities are recognised directly
in a separate component of the Consolidated Statement of Comprehensive Income.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign
operation and translated at the period end closing rate.
Kin + Carta Annual Report and Accounts 2018Our Figures 110
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
2. Significant Accounting Policies continued
(m) Financial instruments
Financial assets and financial liabilities are recognised in the Consolidated Balance Sheet when the Group becomes a party to the
contractual provisions of the instrument.
The Group classifies its investments in the following categories:
Financial instrument category
Available for sale asset
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Derivative financial instruments
Deferred consideration payable
Bank borrowings
Note
19
22
22
24
23
12
25
Classification
Measurement
Available-for-sale financial assets
Loans and receivables
Loans and receivables
Other financial liabilities
Derivative instrument
Other financial liabilities
Other financial liabilities
Fair value through profit and loss
Amortised cost
Amortised cost
Amortised cost
Fair value through profit and loss
Fair value through profit and loss
Amortised cost
* The fair value measurement hierarchy is only applicable for financial instruments measured at fair value.
Fair value
measurement
hierarchy*
3
3
N/A
3
2
3
N/A
Fair value measurements, where applicable, are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the
fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are
described as follows:
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the
measurement date;
• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly
or indirectly; and
• Level 3 inputs are unobservable inputs for the asset or liability.
The Group’s primary categories of financial instruments are listed below:
Trade and other receivables
Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated
irrecoverable amounts. Allowances are recognised in the Consolidated Income Statement when there is objective evidence that their
asset is impaired.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and demand deposits.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded as the proceeds receivable, net of direct issue costs. Finance charges are
accounted for on an accruals basis in the Consolidated Income Statement using the effective interest rate method and are included
in creditors to the extent that they are not settled in the period in which they arise.
Available for sale investments
Unlisted shares held by the Group are classified as being available-for-sale and are stated at fair value. Fair values of unlisted shares are
calculated with reference to the exit price. All available-for-sale investments carried at fair value have been fair valued using a level 3
measurement as per the fair value hierarchy defined in IFRS 13. Gains or losses arising from changes in fair value are recognised directly
in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised
in equity is included in the Consolidated Income Statement for the period.
Trade and other payables
Trade payables are not interest bearing and are stated at their nominal value.
Kin + Carta Annual Report and Accounts 2018
111
Derivative financial instruments and hedge accounting
The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.
The Group uses derivative financial instruments to hedge its exposure to foreign exchange for the purchase of subsidiaries, goods
and services denominated in foreign currencies and the sale of goods and services similarly denominated.
The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors, which provide written principles
on the use of financial derivatives consistent with the Group’s risk management strategy. The Group does not hold or issue derivative
financial instruments for speculative purposes.
Changes in the fair value of derivative financial instruments that are designated and effective as cash flow hedges of forecast
transactions are recognised directly in equity and the ineffective portion is recognised immediately in the Consolidated
Income Statement.
If the cash flow hedge of a firm commitment or forecast transaction results in the recognition of an asset or liability, then, at the
time the asset or liability is recognised, the associated gains and losses on the derivative that had previously been recognised in
equity are included in the initial measurements of the asset or liability. For the hedges that do not result in the recognition of an
asset or liability, amounts deferred in equity are recognised in the Consolidated Income Statement in the same period as gains
or losses are recognised on the hedged item.
The gain or loss on hedging instruments relating to the effective portion of a net investment hedge is recognised in equity and the
ineffective portion is recognised immediately in the Consolidated Income Statement. Gains or losses accumulated in equity are
included in the Consolidated Income Statement when the foreign operations are disposed of.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies
for hedge accounting.
At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecast
transaction occurs. If a hedge transaction is no longer expected to occur, the net cumulative gain or loss previously recognised in
equity is included in the Consolidated Income Statement for the period. Derivatives embedded in other financial instruments or other
host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of their host
contracts and the host contracts are not carried at fair value with unrealised gains or losses reported in the Consolidated Income
Statement.
Those derivatives which are not designated as hedges are classified as held for trading and gains and losses on those instruments
are recognised immediately in the Consolidated Income Statement.
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised
as a financial liability.
Deferred/contingent consideration payable
Deferred/contingent consideration payable and consideration required to be treated as remuneration are typically determined based on
a multiple of future incremental EBITDA, and the related amounts are based on forecasts that have been derived from the most recent
budgets and forecasts. Any change in the fair value of the outcome is recognised in the Consolidated Income Statement as an Adjusting
Item. The deferred consideration payable and accrued contingent consideration required to be treated as remuneration are recognised
as financial liabilities, where amounts are expected or required to be cash settled. Where amounts are settled by the future issuance of
Kin and Carta plc shares, amounts required to settle the liability are recorded in equity.
The Directors consider that the carrying value of all financial assets and liabilities is approximately equal to their fair value,
except for investment properties, which are recorded at amortised cost. The fair value of these assets is disclosed in note 30.
Kin + Carta Annual Report and Accounts 2018Our Figures 112
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
2. Significant Accounting Policies continued
(n) Retirement benefits
The Group operates both defined benefits and defined contribution schemes for its employees. Payments to the defined contribution
schemes are expensed to the Consolidated Income Statement as they fall due.
For the St Ives Defined Benefits Pension Scheme (‘the Scheme’) full actuarial calculations are carried out every three years using the
projected unit credit method and updates are performed for each financial period end. Actuarial gains and losses are recognised in full
in the period in which they occur. They are recognised outside the Consolidated Income Statement and presented in the Consolidated
Statement of Comprehensive Income.
The retirement benefits obligation recognised in the Consolidated Balance Sheet represents the present value of the defined benefits
obligations and as reduced by the fair value of the Scheme’s assets.
Any asset resulting from this calculation is recognised in the Consolidated Balance Sheet, as the Group has an unconditional right
to a refund of any surplus in the Defined Benefits Pension Scheme at the end of the Scheme’s duration.
Past service cost is recognised at the earlier of when the planned amendment or curtailment occurs and when the entity recognises
related restructuring costs or termination benefits.
Given the closure of the Scheme and the change in the composition of the Group, the Board has concluded that the Scheme’s
income and expenses do not relate to the underlying trading activities of the Group. Furthermore the underlying assumptions used
in the Scheme’s valuation are determined by reference to external market data (notably discount and inflation rates) that are outside
the Group’s control and can vary significantly between periods. The Group’s accounting policy is to record the income and expenses
related to the Scheme as an Adjusting Item.
Defined benefit income and expenses are split into three categories:
• gains and losses on curtailments and settlements and costs incurred in the running of the Scheme;
• net pension finance charge; and
• remeasurement of gains and losses.
The Group presents the first two components of the Scheme’s costs within Adjusting Items in its Consolidated Income Statement
and the re-measurement costs within the Consolidated Statement of Comprehensive Income. Past service costs are recognised
as an Adjusting Item in the Consolidated Income Statement
(o) Share-based payments
The Group makes equity-settled share-based payments to certain employees, which are measured at fair value at the date of the grant.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the
vesting period, based on the Group’s estimate of shares that will eventually vest. At each balance sheet date, the Group revises its
estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The
impact of the revision of the original estimates, if any, is recognised in the Consolidated Income Statement such that the cumulative
expense reflects the revised estimate, with a corresponding adjustment to equity reserves. The fair value of share options issued is
measured using a binomial model, for the effects of non-transferability, exercise restrictions and behavioural considerations.
SAYE share options granted to employees are treated as cancelled when employees cease to contribute to the scheme. This results
in accelerated recognition of the expenses that would have arisen over the remainder of the original vesting period.
The cumulative expense is reversed when an employee in receipt of the share options terminates service prior to the completion of
vesting period. Where the terms of an equity-settled award are modified on termination of the employment, the total fair value of the
share-based payments is recorded in the Consolidated Income Statement.
(p) Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership
to the lessee. All other leases are classified as operating leases.
Rental costs under operating leases are charged to the Consolidated Income Statement in equal amounts over the terms of the lease.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability.
The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis over the lease term.
Kin + Carta Annual Report and Accounts 2018 113
(q) Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition
is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed by the Group
together with the equity instruments equivalent to the mid-market share price on the date of completion, in exchange for control of the
acquiree. Acquisition-related costs are recognised in the Consolidated Income Statement as incurred.
Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration
arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of
acquisition where they qualify as measurement period adjustments (see below). All other subsequent changes in the fair value of
contingent consideration classified as an asset, liability or equity are accounted for in accordance with relevant IFRSs.
Contingent consideration payable to selling shareholders who continue to be employed by the Group, but which is automatically
forfeited upon termination of employment, is classified as remuneration for post-combination services and is recorded in the
Consolidated Income Statement. The contingent consideration is satisfied in cash and equity instruments equivalent to the mid-market
share price on the date of the consideration payable.
The cash-settled contingent consideration treated as remuneration for post-combination services is recognised in accordance
with IAS 19 (revised) Employee Benefits and has been recorded as deferred consideration payable in the Consolidated Balance Sheet.
At each balance sheet date, the Group revises its estimate for the contingent consideration payable which is to be settled in cash.
The impact of the revision, if any, is recognised in the Consolidated Income Statement such that the cumulative expense reflects
the revised estimate, with a corresponding adjustment to the Consolidated Balance Sheet.
The equity-settled contingent consideration treated as remuneration for post-combination services is recognised in accordance with
IFRS 2 Share-Based Payments and is recorded in equity reserves. Further details can be found in the share-based payments accounting
policy. At each balance sheet date, the Group revises its estimate of the consideration payable which is to be settled in shares. The impact
of the revision, if any, is recognised in the Consolidated Income Statement such that the cumulative expense reflects the revised estimate,
with a corresponding adjustment to equity reserves.
The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (2008) are
recognised at their fair value at the acquisition date, except that:
• deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in
accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;
• liabilities or equity instruments related to the replacement by the Group of an acquiree’s share-based payment awards are measured in
accordance with IFRS 2 Share-based Payment; and
• assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations are measured in accordance with that Standard.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination
occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are
adjusted during the measurement period (see below), or additional assets or liabilities are recognised, to reflect new information
obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts
recognised as of that date.
The measurement period is the period from the date of acquisition to the date that the Group obtains complete information about
facts and circumstances that existed as of the acquisition date, and is subject to a maximum of one year.
The value of non-controlling interests in subsidiaries is calculated initially as their share of identifiable net assets, and is subsequently
adjusted by their share of comprehensive income.
(r) Joint arrangements
Joint arrangements are entities where no one party is able to exercise overall control in which the Group has an interest. The Group’s
share of the post-tax results of its joint arrangements is included in the Consolidated Income Statement using the equity method of
accounting. Where the Group transacts with a joint arrangement, profits and losses are eliminated to the extent of the Group’s interest in
the joint arrangement.
Investments in joint arrangements are carried in the Consolidated Balance Sheet at cost plus post-acquisition changes in the Group’s
share of net assets of the entity, less any provision for impairment.
Kin + Carta Annual Report and Accounts 2018Our Figures 114
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
2. Significant Accounting Policies continued
(s) Non-current assets held for sale
Non-current assets classified as held for sale are measured at the lower of amortised cost and fair value less costs of disposal.
Non-current assets are classified as held for sale if their carrying value will be recovered through a sale transaction rather than through
continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in
its present condition. The sale should be completed within one year from the date of classification as an asset held for sale.
(t) Discontinued operations
A discontinued operation is a segment, subsidiary, or a component of a subsidiary that has been disposed of, and represents a separate
line of business. The trading results of a discontinued operation together with any gains or loss from the disposal of the operation is
reported separately as discontinued operations in the Consolidated Income Statement. Further information can be found in note 8.
(u) Critical accounting judgements and key sources of estimation uncertainty
In the course of applying the Group’s accounting policies the following estimations and accounting judgements have been made which
could have a significant effect on the results of the Group were they subsequently found to be inappropriate.
Critical accounting judgements
Adjusting Items
In the opinion of the Directors, separate presentation of Adjusting Items and Alternative Performance Measures (‘APMs‘) provides
useful information in understanding the financial performance of the Group and its businesses. The classification of Adjusting Items
requires management judgement after considering the nature and intentions of a transaction. The Group’s definitions of Adjusting Items
are outlined within the Group accounting policies on pages 104 to 105. These definitions have been applied consistently year-on-year.
Further details are provided in note 7.
Key sources of estimation uncertainty
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value-in-use of the cash-generating units for which goodwill
has been identified. In arriving at the value-in-use the forecast of future cash flows of cash-generating units and selection of appropriate
discount rates is required to calculate present values, a process which involves estimation. The recoverability analysis indicates that,
other than as indicated in note 18, the carrying amount of goodwill will be recovered in full. The situation will be monitored closely
should future developments indicate that adjustments are appropriate. The carrying value of goodwill at the balance sheet date was
£84.7 million (2017 – £108.7 million). A sensitivity analysis can be found in note 18.
Impairment of acquired intangibles
The Group considers the recoverability of acquired intangibles which are included within the Consolidated Balance Sheet at
£31.1 million. The key areas of consideration when assessing the recoverability of these assets are in relation to the discount rates,
terminal growth rates, budgets and forecasts to be applied to forecast cash flows. A sensitivity analysis can be found in note 18.
Retirement benefits obligations
The calculation of retirement benefits obligations requires estimates to be made of discount rates, inflation rates, future salary
and pension increases and mortality. The net surplus in the Consolidated Balance Sheet for the Defined Benefits Pension Scheme
was £1.9 million (2017 – deficit of £16.0 million). A sensitivity analysis can be found in note 29.
Deferred/contingent consideration payable
Estimated deferred or contingent consideration for TAB of £1.3 million – recorded at the balance sheet date – is dependent upon the
level of EBITDA to be achieved by the business, which is based on the forecasts approved by the Board. Further details and a sensitivity
analysis can be found in note 12. The recognition of deferred tax assets in respect of contingent consideration for Solstice is based on
future profitability of an entity over the period stated in the viability statement.
Kin + Carta Annual Report and Accounts 2018 3. Revenue
An analysis of the Group’s revenue as defined by IAS 18 − ‘Revenue’ is as follows:
Continuing operations:
Rendering of services
Discontinued operations:
Sale of goods
Continuing and discontinued operations:
Sale of goods
Rendering of services
Revenue from the sale of goods and rendering of services
115
2018
£’000
2017
£’000
178,355
162,948
140,738
230,206
140,738
178,355
230,206
162,948
319,093
393,154
4. Segment Reporting
The Group reports its results through one segment and with corporate costs shown as a separate segment. 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 to the segments and the assessment of
performance of the segments.
During the period, the Group disposed of its Books and Marketing Activation segments. Therefore the single operating segment
consists of the digital transformation businesses; AmazeRealise, The App Business, Solstice, Edit, Pragma, Incite and Hive. The
results of our joint venture, Loop, are also reported within this segment. This segment was formerly referred to as the Strategic
Marketing segment.
Corporate costs are reported separately to the single operating segment as this presentation better reflects the segment’s profitability.
Business segment
Results from continuing operations for the current period:
Revenue
Operating profit/(loss) before Adjusting Items
Adjusting Items
Statutory loss from operations
Net pension finance expense
Other finance expense
Statutory loss before tax
Income tax charge
Statutory net loss for the period from continuing operations
53 weeks to 3 August 2018
Businesses
£’000
178,355
Corporate
costs
£’000
Total
£’000
–
178,355
26,483
(49,287)
(5,318)
(31)
21,165
(49,318)
(22,804)
(5,349)
(28,153)
(324)
(2,694)
(31,171)
(1,223)
(32,394)
Kin + Carta Annual Report and Accounts 2018Our Figures
116
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
4. Segment Reporting continued
Business segment continued
Results from continuing operations for the prior period:
Revenue
Operating profit/(loss) before Adjusting Items
Adjusting Items
Statutory loss from operations
Net pension finance expense
Other finance expense
Statutory loss before tax
Income tax credit
Statutory net loss for the period from continuing operations
Other information
Capital additions
Depreciation and amortisation charges
Impairment charges
Capital additions
Depreciation and amortisation charges
Impairment charges
52 weeks to 28 July 2017
Corporate
costs
£’000
Total
£’000
–
162,948
Businesses
£’000
162,948
20,808
(30,665)
(4,402)
(1,253)
16,406
(31,918)
(9,857)
(5,655)
(15,512)
(638)
(3,017)
(19,167)
1,208
(17,959)
53 weeks to 3 August 2018
Continuing
Operations
£’000
Discontinued
Operations
£’000
4,050
11,025
12,082
509
1,563
18,833
Total
£’000
4,559
12,588
30,915
52 weeks to 28 July 2017
Continuing
Operations
£’000
Discontinued
Operations
£’000
2,131
12,434
241
1,245
4,339
32,817
Total
£’000
3,376
16,773
33,058
Geographical segments
Revenue by geographical segment is based on the location where the provision of goods and services has been provided.
United Kingdom
United States of America
Rest of the world
Total
2018
£’000
119,753
57,066
1,536
2017
£’000
120,074
40,896
1,978
178,355
162,948
The Group derives 55% (2017 – 61%) of the total revenue from clients located in the UK, 36% (2017 – 30%) of the total revenue from
clients located in the US and 9% (2017 – 9%) from clients located in the rest of the world.
Kin + Carta Annual Report and Accounts 2018
5. Profit/(Loss) from Operations
Profit/(loss) from operations has been arrived at after charging/(crediting):
Auditor’s remuneration
Audit fees:
– Audit of the Company accounts
– Audit of the accounts of the Company’s subsidiaries
Other assurance
Non-audit fees:
– Transaction related services
Total fees paid to the auditors
Staff costs (note 6)
Depreciation of property, plant and equipment (note 15)
Depreciation of investment property (note 16)
Amortisation of intangible assets (note 18)
Impairment of goodwill and intangible assets – continuing operations (note 4)
Impairment of non-current and current assets – discontinuing operations (note 4)
Operating lease rentals:
– land and buildings1
– plant and equipment1
– other1
Loss/(profit) on disposal of property, plant and equipment included in Adjusted Results
Profit on disposal of property, plant and equipment included in Adjusting Items
1 The expenses in the current period represent continuing operations only.
6. Staff Costs
The average monthly number of employees (including Executive Directors) was:
Continuing Operations
Operations
Sales
Administration
Continuing Operations
Discontinued Operations
Continuing and Discontinued Operations
The employment costs during the period were:
Continuing Operations
Wages and salaries
Social security costs
Other pension costs
Share-based contingent consideration deemed as remuneration
Share-based payment charge
Continuing Operations
Discontinued Operations
Continuing and Discontinued Operations
117
2017
£’000
143
331
474
37
140
651
2018
£’000
185
318
503
40
230
773
164,848
3,669
236
8,683
12,082
18,833
4,457
23
59
20
(1,542)
183,668
5,959
190
10,624
241
32,817
4,628
1,119
1,056
(58)
(2,760)
2018
£’000
2017
£’000
1,162
73
208
1,443
1,909
3,352
1,103
62
228
1,393
2,115
3,508
2018
£’000
2017
£’000
99,211
5,694
2,201
107,106
16,704
7,290
131,100
33,748
85,095
7,132
2,514
94,741
8,511
7,039
110,291
73,377
164,848
183,668
Kin + Carta Annual Report and Accounts 2018Our Figures
118
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
7. Adjusting Items
Continuing operations
Adjusting Items disclosed on the face of the Consolidated Income Statement included in respect of continuing operations are as follows:
Expense/(income)
Restructuring items
Redundancies and other charges
Costs associated with empty properties
St Ives Defined Benefits Pension Scheme expense/(credits)
Scheme administrative costs
Curtailment credit
Other related costs
Costs related to acquisitions made in prior periods
Amortisation of acquired intangibles
Impairment of goodwill and intangible assets
Costs associated with prior period acquisitions and setup of subsidiaries
Contingent consideration required to be treated as remuneration
Increase in deferred consideration
Adjusting Items
Profit on disposal of property, plant and equipment
Adjusting Items before interest and tax
Net pension finance expense in respect of defined benefits pension scheme
Adjusting Items before tax
Income tax credit
Adjusting Items after tax
2018
£’000
2018
£’000
3,062
2,737
325
617
(1,261)
613
8,659
12,082
–
23,994
3,094
2017
£’000
283
2017
£’000
283
–
756
–
497
(31)
1,253
9,889
242
99
15,550
7,362
47,829
50,860
(1,542)
49,318
324
49,642
(2,436)
47,206
33,142
34,678
(2,760)
31,918
638
32,556
(4,228)
28,328
Restructuring items
Current period
The restructuring items in the current period include redundancy and restructuring costs of £2.5 million relating to AmazeRealise,
Hive and Incite and redundancies of £0.2 million in Kin and Carta plc following the disposal of the Group’s Books and Marketing
Activation segments.
As a result of the amalgamation of Occam and Response One into the new Edit office located in Bath, there is an empty property
cost of £0.3 million.
Prior period
The restructuring items comprise redundancy costs of £0.3 million relating to the restructuring of the digital businesses.
Disposal of properties
Current period
The profit on disposal of property, plant and equipment of £1.5 million relates to the sale of properties in Bungay and Bath.
Prior period
The profit on disposal of property, plant and equipment of £2.8 million relates to the sale of the Group’s properties in Burnley,
Peterborough and Roche.
Kin + Carta Annual Report and Accounts 2018
119
St Ives Defined Benefit Pension Scheme expense
Current period
The Scheme charges include service costs of £0.6 million, a net pension finance charge of £0.3 million and costs in relation to running
the Scheme of £0.6 million offset by a one off curtailment credit of £1.3 million.
Prior period
The Scheme charges include service costs of £0.8 million, a net pension finance charge of £0.6 million, and costs in relation to running
the Scheme of £0.5 million.
Costs related to acquisitions made in current and prior periods
Current period
Due to a decline in revenue generated from our healthcare business, Hive’s goodwill was impaired by £9.6 million and an impairment
charge of £2.1 million was recorded against Hive’s proprietary techniques. An additional impairment charge of £0.4 million was
recorded in respect of Fripp, Sandeman and Partners intangible assets due to obsolescence of techniques.
Charges relating to the amortisation of acquired customer relationships, proprietary techniques and software intangibles were
£8.7 million in the current period (note 18).
During the period, charges relating to contingent consideration deemed as remuneration of £24.0 million were recorded in the
Consolidated Income Statement as Adjusting Items. The charges were primarily in respect of the acquisitions of Solstice and
The App Business.
An additional deferred consideration charge of £3.1 million was recorded in the current period in respect of Solstice.
Prior period
Charges relating to the amortisation of acquired customer relationships, proprietary techniques and software intangibles of
£9.9 million were recorded in the prior period.
An impairment charge of £0.2 million was recorded against Occam’s software due to obsolescence.
Charges relating to contingent consideration deemed as remuneration of £15.6 million and charges related to an increase in deferred
consideration payable of £7.4 million were recorded in the Consolidated Income Statement as Adjusting Items. The charge was mainly
in respect of the acquisitions of Realise, Solstice and The App Business.
Tax
In the current period, the tax credit of £2.4 million (2017 – £4.2 million) relates to the items discussed above.
Discontinued operations
Following the disposal of the Books and Marketing Activation segments, the related Adjusting Items in respect of these segments
have been reclassified as discontinued operations. Details can be found in note 8.
Continuing and discontinued operations
Total Adjusting Items from continuing and discontinued operations are as follows:
Continuing operations
Discontinued operations
Continuing and discontinued operations
2018
£’000
47,206
326
47,532
2017
£’000
28,328
34,134
62,462
Kin + Carta Annual Report and Accounts 2018Our Figures
120
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
8. Discontinued Operations
The Group disposed of its Books and Marketing Activation segments in the period. As a result these segments have been classified
as discontinued operations for both the current and prior period.
The results of the discontinued operations are summarised as follows:
Profit/(loss) after tax from discontinued operations:
Books segment
Marketing Activation segment
Total
The net cash inflow from the disposal of the Books and Marketing Activation segments is as follows:
Books
Marketing Activation
Total
The discontinued operations had the following impact on trading cash flows in the current and prior period:
Cash flows generated from operating activities
Cash flows used in investing activities
Cash flows from financing activities
Net cash flows generated from discontinued operations
From
29 July 2017
to the date
of disposal
£’000
52 Weeks to
28 July 2017
£’000
8,613
(5,428)
(130)
(25,269)
3,185
(25,399)
2018
£’000
19,005
13,437
32,442
2017
£’000
6,628
(767)
5,861
2018
£’000
3,950
(520)
– –
3,430
Kin + Carta Annual Report and Accounts 2018
121
Books segment
The Group disposed of its Books segment on 30 April 2018 for total cash consideration of £26.0 million. The trading results of the Books
segment are summarised as follows:
Revenue
Operating costs
Operating profit before Adjusting Items
Income tax charge
Profit after tax before Adjusting Items
Adjusting Items:
Fixed asset impairment
Stock impairment
Restructure of the business
Adjusting Items before tax
Income tax credit on Adjusting Items
Adjusting Items after tax
Gain on sale of the Books segment
Total Adjusting Items
Profit/(loss) from discontinued operations of the Books segment:
Profit after tax before Adjusting Items
Adjusting Items
Gain on sale of the Books segment
Statutory profit/(loss) after tax
The net assets of the Books segment as at 30 April 2018 are summarised as follows:
Property, plant and equipment
Intangible assets
Deferred tax assets
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Corporation tax payable
Net assets
Selling costs
Profit on disposal before tax
Total consideration received
The fair value of the consideration receivable for the disposal of the Books segment is comprised as follows:
Cash consideration paid on 30 April 2018
From
29 July 2017
to 30 April 2018
£’000
52 Weeks to
28 July 2017
£’000
52,198
(48,526)
76,465
(72,387)
3,672
(621)
3,051
–
–
–
–
–
–
4,078
(571)
3,507
(2,232)
(646)
(1,505)
(4,383)
746
(3,637)
5,562 –
5,562
(3,637)
3,051
–
5,562 –
8,613
3,507
(3,637)
(130)
£’000
Assets/(liabilities)
7,350
1
214
3,662
15,519
5,598
(12,966)
(337)
19,041
1,397
5,562
26,000
£’000
26,000
Kin + Carta Annual Report and Accounts 2018Our Figures
122
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
8. Discontinued Operations continued
Books segment continued
The disposal of the Books segment had the following impact on investing cash flows in the current period:
Consideration received in cash and cash equivalents
Less:
Cash and cash equivalents at the date of disposal
Selling costs
Net cash inflow
£’000
26,000
(5,598)
(1,397)
19,005
Marketing Activation segment
The Group disposed of its Marketing Activation segment during the period, with the SP Group, Service Graphics and Tactical Solutions
being disposed of on 2 March 2018 for a total cash consideration of £9.8 million, and St Ives Management Services Limited being
disposed of on 22 June 2018 for a total cash consideration of £14.2 million. The trading results of the Marketing Activation segment are
summarised as follows:
Revenue
Operating costs
Operating profit before Adjusting Items
Income tax charge
Profit after tax before Adjusting Items
Adjusting Items:
Goodwill impairment
Impairment of non-current and current assets
Restructuring costs
Amortisation of acquired intangibles
Adjusting Items before tax
Income tax credit on Adjusting Items
Adjusting Items after tax
Gain on sale of the Marketing Activation segment
Total Adjusting Items
Loss from discontinued operations of the Marketing Activation segment:
Profit after tax before Adjusting Items
Adjusting Items
Gain on sale of the Marketing Activation segment
Statutory loss after tax
From
29 July 2017
to the date
of disposal
£’000
52 Weeks to
28 July 2017
£’000
88,540
(88,036)
153,741
(147,120)
504
(44)
460
6,621
(1,393)
5,228
(14,482)
(4,351)
–
173
(18,660)
–
(18,660)
12,772 –
(27,130)
(2,808)
(1,215)
(64)
(31,217)
720
(30,497)
(5,888)
(30,497)
£’000
£’000
460
(18,660)
12,772
5,228
(30,497)
–
(5,428)
(25,269)
Kin + Carta Annual Report and Accounts 2018
The net assets of the Marketing Activation segment as at the date of disposal are summarised as follows:
Property, plant and equipment
Goodwill
Other intangible assets
Other non-current assets
Deferred tax assets
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Provisions
Corporation tax
Net assets
Selling costs
Profit on disposal before tax
Total consideration received
Assets/
(liabilities)
£’000
1,740
14,482
255
127
1,049
1,929
26,535
9,700
(25,415)
(844)
(360)
Impairment
£’000
(1,558)
(14,482)
(244)
(127)
–
(1,929)
(493)
–
–
–
–
29,198
(18,833)
The fair value of the consideration receivable for the disposal of the Marketing Activation segment is comprised as follows:
Cash consideration paid on 2 March 2018
Cash consideration paid on 22 June 2018
Total consideration received
The disposal had the following impact on investing cash flows in the current period:
Consideration received in cash and cash equivalents
Less:
Cash and cash equivalents disposed of
Selling costs
Net cash inflow
9. Pension Finance Charge
Investment income on defined benefit pension scheme assets (note 29)
Interest expense on defined benefit pension scheme obligations (note 29)
2018
£’000
(9,035)
9,359
324
123
Total
£’000
182
–
11
–
1,049
–
26,042
9,700
(25,415)
(844)
(360)
10,365
820
12,772
23,957
£’000
9,765
14,192
23,957
£’000
23,957
(9,700)
(820)
13,437
2017
£’000
(8,436)
9,074
638
10. Other Finance Costs
Interest on bank overdrafts and loans
2018
£’000
2017
£’000
(2,694)
(3,017)
Kin + Carta Annual Report and Accounts 2018Our Figures
124
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
11. Tax
Income tax on the (loss)/profit as shown in the Consolidated Income Statement is as follows:
Continuing operations:
Total current tax charge:
Current period
Adjustments in respect of prior periods
Total current tax charge
Deferred tax on origination and reversal of temporary differences:
Deferred tax credit
Adjustments in respect of prior periods
Total deferred tax credit
Total income tax (charge)/credit
Discontinued operations:
Total current tax charge:
Current period
Adjustments in respect of prior periods
Total current tax charge
Deferred tax on origination and reversal of temporary differences:
Deferred tax credit
Adjustments in respect of prior periods
Total deferred tax credit
Total income tax charge
Continuing and discontinued operations:
Total current tax charge:
Current period
Adjustments in respect of prior periods
Total current tax charge
Deferred tax on origination and reversal of temporary differences:
Deferred tax credit
Adjustments in respect of prior periods
Total deferred tax credit (note 28)
Total income tax (charge)/credit
Income tax on the (loss)/profit from continuing operations before and after Adjusting Items is as follows:
Tax charge on Adjusted profit before tax
Tax credit on Adjusting Items
Total income tax (charge)/credit
2018
£’000
2017
£’000
(3,588)
58
(3,530)
2,249
58
2,307
(1,223)
2018
£’000
(894)
35
(859)
175
19
194
(665)
(3,155)
483
(2,672)
3,933
(53)
3,880
1,208
2017
£’000
(1,357)
199
(1,158)
828
(168)
660
(498)
2018
£’000
2017
£’000
(4,482)
93
(4,389)
2,424
77
2,501
(1,888)
2018
£’000
(3,659)
2,436
(1,223)
(4,512)
682
(3,830)
4,761
(221)
4,540
710
2017
£’000
(3,020)
4,228
1,208
The blended tax rate used above of 19.04% is based predominantly upon UK corporation tax (19%), US federal tax (35%) and relevant US
state tax rates. Taxation for other jurisdictions is calculated at the statutory rates prevailing in the respective jurisdictions.
Kin + Carta Annual Report and Accounts 2018
The tax (charge)/ credit for continuing operations can be reconciled to the loss before tax shown in the Consolidated Income
Statement as follows:
Loss before tax from continuing operations
Tax calculated at a rate of 19.04% (2017 – 29.67%)
Non-deductible charges on impairment of tangible and intangible assets
Expenses not deductible for tax purposes
Effect of tax deductible goodwill
Effect of change in United Kingdom corporate tax rate
Credit on research and development activities
Movement in deferred tax on industrial buildings
Re-assessment of tax losses
Adjustments in respect of prior periods
Total income tax (charge)/credit
Income tax as shown in the Consolidated Statement of Comprehensive Income is as follows:
United Kingdom corporation tax credit at 19.00% (2017 – 19.67%)
Deferred tax on origination and reversal of temporary differences (note 28)
Total income tax charge
Income tax as shown in the Consolidated Statement of Changes in Equity is as follows:
United Kingdom corporation tax credit at 19.00% (2017 – 19.67%)
Deferred tax on origination and reversal of temporary differences (note 28)
Total income tax credit
2018
£’000
(31,171)
5,935
(1,817) –
(6,546)
626
(46)
244
290
(25) 9
116
(1,223)
2018
£’000
1,258
(2,989)
(1,731)
2018
£’000
–
74
74
125
2017
£’000
(19,167)
5,687
(7,541)
634
(143)
307
1,824
431
1,208
2017
£’000
548
(2,132)
(1,584)
2017
£’000
(16)
63
47
UK tax rates
The Finance Act 2015, which provides for reductions in the main rate of corporation tax from 20% to 19% effective from 1 April 2017
and to 18% effective from 1 April 2020, was substantively enacted on 26 October 2015. In the Finance Act 2016, the Government
announced further reductions in the main tax rate down to 17% effective from 1 April 2020, which was substantively enacted on
6 October 2016. These rate reductions have been reflected in the calculation of deferred tax at the balance sheet date.
US tax rates
The tax charges related to US subsidiaries has been calculated using a rate of 33.83% (2017 – 40.19%), following a reduction
in the US Federal tax rate applicable from 35% to 21%. This was effective from 1 January 2018.
Kin + Carta Annual Report and Accounts 2018Our Figures
126
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
12. Acquisitions
Solstice Consulting LLC
In March 2015, the Group acquired 100% of the equity stock of Solstice Consulting LLC (‘Solstice’). Deferred consideration was payable
in a number of tranches dependent upon the level of EBITDA achieved by Solstice for the calendar years ending 2015, 2016 and 2017.
As at 3 August 2018 the deferred consideration payable for the remainder of the third tranche was £3.4 million, which was subsequently
settled in cash in August 2018.
The App Business Limited
In January 2016, the Group acquired 100% of the share capital in The App Business Limited (‘TAB’).Deferred consideration is
payable in four tranches dependent upon the level of EBITDA achieved by TAB for the years ending 30 April 2016, 30 April 2017,
30 April 2018 and 30 April 2019. The deferred consideration for the third tranche was £22.0 million with a further £2.0 million
to be paid in cash if the EBITDA for the year ended 30 April 2019 is equal to or greater than the EBITDA for the year to 30 April
2018. The Group issued 5.7 million shares in the period and subsequent to the year-end made a cash payment of £9.7 million and
issued a loan note of £6.8 million to settle the third tranche of deferred consideration. The loan note is exercisable six months after
issue. The Group expects to settle an estimated liability for the fourth tranche of deferred consideration, of £2.0 million in the financial
year 2020.
The deferred consideration is treated as follows:
Solstice
TAB – Third Tranche
TAB – Fourth Tranche
Deferred
consideration
payable as at
3 August
2018
£’000
Deferred
consideration
accrued as
share-based
payments
£’000
Deferred
consideration
to be expensed
in future
periods
£’000
3,352
16,523
1,295
21,170
−
4,379
−
4,379
−
1,129
705
1,834
As at 3 August 2018, deferred/contingent consideration payable of £21.2 million has been recorded as a liability in the Group’s
Consolidated Balance Sheet.
The movement in deferred consideration is as follows:
Deferred consideration payable as at 28 July 2017
Amounts paid in current period
Deferred consideration charged in current period
Deferred consideration payable as at 3 August 2018
Total
£’000
3,352
22,031
2,000
27,383
£’000
15,920
(16,518)
21,768
21,170
Sensitivity Analysis
The significant unobservable input used in the fair value measurement of the deferred/contingent consideration payable is future
incremental EBITDA of TAB. A significant decrease in EBITDA in TAB would result in a decrease in deferred consideration payable.
As at the balance sheet date the Group has recorded the maximum possible level of deferred consideration payable in respect
of Solstice and TAB.
Cash outflow related to acquisitions made in prior periods
The total impact on investing cash outflows in the current period related to acquisitions made in prior periods is as follows:
TAB – working capital
TAB – deferred consideration
Solstice – deferred consideration
Net cash outflow
2018
£’000
381
3,767
12,370
16,518
Kin + Carta Annual Report and Accounts 2018
127
13. Dividends
Final dividend paid for the 52 weeks ended 29 July 2016
Interim dividend paid for the 26 weeks ended 27 January 2017
Final dividend paid for the 52 weeks ended 28 July 2017
Interim dividend paid for the 27 weeks ended 2 February 2018
Dividends paid during the period
Proposed final dividend at the period end of 1.30p per share (2017 – 1.30p per share)
Per
share
5.45p
0.65p
1.30p
0.65p
–
1.30p
2018
£’000
−
−
1,857 −
927 −
2,784
1,993 –
2017
£’000
7,777
928
8,705
The proposed final dividend is subject to approval by shareholders at the 2018 Annual General Meeting and has not been included as a
liability in these financial statements.
14. Earnings Per Share
The calculation of the basic and diluted earnings per share is based on the following data:
Number of shares
Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share
146,654
142,642
2018
‘000
2017
‘000
Earnings per share
Continuing operations:
Earnings/(loss) and basic and diluted earnings/(loss) per share
Adjusted earnings and Adjusted basic earnings per share
Adjusting Items
Loss and basic and diluted loss per share
Discontinued operations:
Earnings/(loss) and basic and diluted earnings/(loss) per share
Adjusted earnings and Adjusted basic earnings per share
Adjusting Items
Earnings/(loss) and basic and diluted earnings/(loss) per share
Continuing and discontinued operations:
Earnings/(loss) and basic and diluted earnings/(loss) per share
Adjusted earnings and Adjusted basic earnings per share
Adjusting Items
Loss and basic and diluted loss per share
2018
2017
Earnings/(loss)
£’000
Earnings/(loss)
per share
pence
Earnings/(loss)
£’000
Earnings/(loss)
per share
pence
14,812
(47,206)
10.10
(32.19)
10,369
(28,328)
(32,394)
(22.09)
(17,959)
7.27
(19.86)
(12.59)
3,511
(326)
3,185
2.39
(0.22)
2.17
8,735
(34,134)
(25,399)
6.12
(23.93)
(17.81)
18,323
(47,532)
12.49
(32.41)
19,104
(62,462)
(29,209)
(19.92)
(43,358)
13.39
(43.79)
(30.40)
Kin + Carta Annual Report and Accounts 2018Our Figures
128
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
15. Property, Plant and Equipment
Cost:
At 29 July 2016
Additions
Disposals
Reclassification – investment property
Reclassification – freehold property
Foreign exchange
At 28 July 2017
Additions
Disposals – continuing operations
Disposals – discontinued operations (note 8)
Reclassification – investment property
Reclassification – asset under construction
Foreign exchange
At 3 August 2018
Accumulated depreciation and impairment:
At 29 July 2016
Charge for the period
Impairment
Disposals
Reclassification – freehold property
Reclassification – investment property
Foreign exchange
At 28 July 2017
Charge for the period
Disposals – continuing operations
Disposals – discontinued operations (note 8)
Impairment – discontinued operations (note 8)
Reclassification – investment property
Foreign exchange
At 3 August 2018
Net book value:
At 3 August 2018
At 28 July 2017
Land and
buildings
Freehold
£’000
Land and
buildings
Long leases
£’000
Plant and
machinery
£’000
Fixtures, fittings,
equipment and
motor vehicles
£’000
17,244
–
(6)
(1,733)
179
–
15,684
–
(1,600)
–
(13,821)
–
–
263
3,981
297
–
(2)
180
(321)
–
4,135
36
(148)
–
–
(3,834)
–
189
5,671
256
(150)
–
(179)
3
5,601
586
(262)
(3,143)
–
306
13
3,101
2,766
572
217
(137)
(180)
–
(2)
3,236
433
(195)
(3,144)
577
–
3
89,339
2,283
(1,939)
–
(14)
(5)
89,664
3,452
(2,069)
(85,214)
–
(1,122)
27
8,767
526
(154)
–
14
3
9,156
372
(426)
(7,316)
–
816
30
Total
£’000
121,021
3,065
(2,249)
(1,733)
–
1
120,105
4,410
(4,357)
(95,673)
(13,821)
–
70
4,738
2,632
10,734
72,531
4,053
4,350
(1,913)
–
–
(8)
79,013
2,404
(2,014)
(78,050)
929
–
16
6,184
1,037
407
(142)
–
–
–
7,486
796
(361)
(6,947)
52
–
10
1,036
1,596
1,670
85,462
5,959
4,974
(2,194)
–
(321)
(10)
93,870
3,669
(2,718)
(88,141)
1,558
(3,834)
29
4,433
6,301
26,235
910
2,298
74
11,549
2,191
2,365
2,440
10,651
The amount of fully depreciated property, plant and equipment as at period end was £3.1 million (2017 – £62.0 million).
Details on the impairment and disposal of items related to discontinued operations can be found in note 8.
Kin + Carta Annual Report and Accounts 2018
129
Investment
Property
£’000
–
13,821
(6,427)
7,394
–
3,834
236
(1,146)
2,924
4,470
–
16. Investment Property
Cost:
At 28 July 2017
Reclassification – freehold property
Reclassification – asset held for sale
At 3 August 2018
Accumulated depreciation:
At 28 July 2017
Reclassification – freehold property
Charge
Reclassification – asset held for sale
At 3 August 2018
Net book value:
At 3 August 2018
At 28 July 2017
As at 3 August 2018, the fair value of investment properties is not materially different from its net book value of £4.5 million.
This was arrived at on the basis of a valuation carried out by Matthews & Goodman, independent valuers not connected with
the Group. The valuation conforms to International Valuation Standards.
An amount in relation to rental income from investment properties of £0.3 million (2017 – £0.9 million) has been recognised
in the Consolidated Income Statement.
The Group has freehold land with a net book value of £2.2 million (2017 – £2.2 million), of which £0.2 million is classified as
investment property and £2.0 is classified as asset held for sale (note 17). These assets have not been depreciated.
17. Asset Held for Sale
Following the disposal of SP Group and the acquirer giving notice on a lease on a property owned by the Group, the property
is being marketed for sale and is classified as an asset held for sale, with a carrying value of £5.3 million.
Kin + Carta Annual Report and Accounts 2018Our Figures
130
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
18. Goodwill and Other Intangible Assets
Cost and carrying amount of goodwill:
At 29 July 2016
Impairment
Foreign exchange
At 28 July 2017
Impairment
Impairment – discontinued operations
Foreign exchange
At 3 August 2018
£’000
135,633
(27,130)
173
108,676
(9,564)
(14,482)
112
84,742
The goodwill impairment charge in the current period relates to Hive as detailed in note 7. The exchange rate movement of
£0.1 million (2017 – £0.2 million) relates to Solstice’s goodwill, which is denominated in US Dollars.
The impairment charge of £27.1 million in the prior year comprises £21.1 million in respect of SP Group Ltd, £2.5 million in respect
of Service Graphics Ltd and £3.5 million in respect of Tactical Solutions UK Ltd all part of the Marketing Activation segment that was
divested during the period.
Details of the impairment relating to the discontinued operations can be found in note 8.
Goodwill is allocated amongst the following cash-generating units (‘CGUs’):
Continuing operations:
Amaze
Realise
AmazeRealise
Branded3
Data Marketing
Edit Agency
Hive
Incite
Pragma
Fripp, Sandeman and Partners
Solstice
The App Business
Discontinued operations:
Service Graphics
Tactical Solutions
2018
£’000
2017
£’000
–
–
31,294
–
–
23,522
5,500
601
886
–
14,561
8,378
84,742
–
–
11,551
19,743
–
7,774
15,748
–
15,062
601
218
668
14,449
8,378
94,192
12,452
2,032
84,742
108,676
During the period the Data Marketing businesses and Branded3 were merged to create a new agency, Edit, that is now able to offer
a single data offering to its clients. The goodwill of these CGUs has been combined to better reflect this new proposition. In the prior
period the Data Marketing CGU represented Occam and Response One.
Amaze and Realise continue to work closely under a single brand, AmazeRealise, and a common management structure. The goodwill
of these CGUs has been combined under AmazeRealise.
At the period end Pragma acquired the trading assets and liabilities held by Fripp, Sandeman and Partners to enhance its retail offering
and to benefit from the synergies generated by the merger. The goodwill related to Fripp, Sandeman and Partners of £0.7 million is
now included within Pragma’s goodwill.
The Group assessed these CGUs prior to the amalgamation of goodwill as defined above and no impairments were identified.
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.
Kin + Carta Annual Report and Accounts 2018
131
Current period
The recoverable amounts of the CGUs are determined using a value-in-use calculation. The key assumptions for the value-in-use
calculations are those regarding discount rates, terminal growth rates and cash flow forecasts in the medium term. Management
estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks
specific to the CGUs. The Group prepares cash flow forecasts derived from five-year forecasts. These include Board approved
two year forecasts for the financial periods 2019 and 2020 and forecasts based on a nominal revenue growth rate of 2.6% for the
financial periods 2021, 2022 and 2023. The rate is calculated using a real growth rate of 0.6% and a long-term inflation rate of 2.0%
(in line with the Bank of England’s target for this measure), giving a nominal growth rate of 2.6%. A terminal nominal growth rate of
2.0% (2017 – 2.6%) has been used in the value-in-use calculation to derive the terminal value for each CGU.
The pre-tax discount rate used for all the CGUs, other than Solstice, was 10.7% (2017 – 10.7%). The pre-tax discount rate used for
Solstice, a US based subsidiary, was 12.6% (2017 –11.8%).
The key assumptions used in the value-in-use calculations and the sensitivities to short-term revenue growth and pre-tax discount
rate assumptions are detailed below.
AmazeRealise
Edit
Hive
Incite
Pragma
Solstice
The App Business
Value-in-use assumptions:
Pre-tax discount rate
Excess of value-in-use
over carrying value
(£’000)
Sensitivity of value-in-use to changes
in key growth assumption:
Cumulative revenue
decline in five-year
forecast calculation
resulting in potential
impairment
Increase to pre-tax
discount rate
resulting in potential
impairment
10.7%
10.7%
10.7%
10.7%
10.7%
12.6%
10.7%
79,451
4,402
Nil
26,628
17,161
92,053
79,152
27.3%
4.2%
–
99.4%
84.4%
50.3%
39.0%
18.9%
1.4%
–
102.9%
80.4%
51.9%
43.4%
Reasonably possible changes in key assumptions:
During the period the Data Marketing businesses and Branded3 were consolidated under the Edit brand in order to best support the
expanding digital and data requirements of clients. The current priority within Edit is to ensure that our offerings are fully compliant with,
and so able to benefit from, the new General Data Protection Rules (GDPR) which were implemented in May 2018. As at the reporting
date, the long-term impact of the introduction of GDPR continues to be uncertain. The impact could have the potential to negatively
impact the sector and so affect our five-year forecasts and projected revenue growth rates.
An impairment of £9.6 million was recorded against Hive’s goodwill in the period due to a decline in revenue. Since the period end Hive
has experienced an increase in new business wins. However due to the evolving technologies in the Health sector and given that the
projected revenue growth for Hive is dependent on a number of key clients, the loss of a key client, could potentially result in a further
goodwill impairment of up to £5.5 million.
Kin + Carta Annual Report and Accounts 2018Our Figures
132
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
18. Goodwill and Other Intangible Assets continued
Other intangible assets
Cost:
At 29 July 2016
Additions
Disposals
Foreign exchange
At 28 July 2017
Additions
Disposals – discontinued operations (note 8)
Disposals – continuing operations
Foreign exchange
At 3 August 2018
Accumulated amortisation:
At 29 July 2016
Charge for the period
Impairment
Disposals
Foreign exchange
At 28 July 2017
Charge for the period
Impairment (note 7)
Disposals – discontinued operations (note 8)
Disposals – continuing operations
Impairment – discontinued operations (note 8)
Foreign exchange
At 3 August 2018
Net book value:
At 3 August 2018
At 28 July 2017
Computer
software
£’000
Customer
relationships
£’000
Proprietary
techniques
£’000
Trademarks
£’000
Total
£’000
11,046
311
(207)
–
11,150
149
(4,055)
(302)
3
36,466
–
–
23
36,489
–
(6,840)
–
14
6,945
29,663
9,767
675
308
(207)
–
10,543
271
–
(4,043)
(289)
23
–
22,125
3,769
–
–
(7)
25,887
3,291
–
(6,840)
–
221
25
6,505
22,584
45,915
–
–
121
46,036
–
–
–
79
46,115
11,090
5,834
–
–
(14)
16,910
4,799
2,518
–
–
–
53
24,280
3,231
–
–
13
3,244
–
–
–
7
3,251
442
346
–
–
(1)
787
322
–
–
–
–
3
96,658
311
(207)
157
96,919
149
(10,895)
(302)
103
85,974
43,424
10,624
308
(207)
(22)
54,127
8,683
2,518
(10,883)
(289)
244
81
1,112
54,481
440
607
7,079
10,602
21,835
29,126
2,139
2,457
31,493
42,792
Impairments to other intangibles relating to the proprietary techniques in Hive and Fripp, Sandeman and Partners are detailed in note 7.
The research and development costs incurred during the period were estimated at £1.1 million.
Customer relationship assets include customer contracts, order backlogs and non-contractual customer relationships. Proprietary
techniques include models, algorithms and processes that are used to generate revenue from customers. These assets are recorded at
fair value at the date of acquisition and are amortised over their estimated useful lives. Material customer relationships and proprietary
techniques are disclosed below.
Customer relationships:
AmazeRealise
Edit
Incite
Solstice
TAB
Other customer relationships
Remaining
Amortisation
Period
(Months)
44
37
19
7
–
–
2018
£’000
2017
£’000
1,767
3,467
1,565
280
–
–
7,079
2,249
4,398
2,553
755
298
349
10,602
Kin + Carta Annual Report and Accounts 2018
133
Remaining
Amortisation
Period
(Months)
67
–
50
79
90
–
2018
£’000
2017
£’000
4,892
–
1,004
6,718
9,221
–
21,835
5,768
3,026
1,244
7,679
10,450
959
29,126
2018
£’000
2017
£’000
3 3
3 3
Proprietary techniques:
AmazeRealise
Hive
Pragma
Solstice
TAB
Other proprietary techniques
19. Available For Sale Asset
Carried at fair value:
Unlisted ordinary shares
Total non-current financial asset
As at 3 August 2018, the Group held a non-controlling interest of 9.0% in Ebeltoft Corporation Limited. These shares are not held
for trading and accordingly are classified as available for sale.
20. Investment in Joint Arrangement
Balance at 28 July 2017
Dividend
Loan repayment
Share of results of joint arrangement
Foreign exchange
Balance at 3 August 2018
Share of net assets
of joint arrangement
£’000
517
(382)
(494)
569
13
223
The Group holds a 50% interest in Loop Integration LLC, incorporated in Chicago, USA. The principal operation of the company is an
ecommerce consultancy specialising in Hybris software integration. During the period, Loop repaid £0.5 million of loans to the Group and
paid a dividend of £0.4 million.
21. Inventories
Raw materials
Work-in-progress
Finished products
2018
£’000
–
–
–
–
2017
£’000
3,762
1,927
564
6,253
Kin + Carta Annual Report and Accounts 2018Our Figures
134
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
22. Other Financial Assets
Trade and other receivables
Amounts receivable for the sale of goods and services
Allowance for doubtful debts
Trade receivables
Accrued income
Other receivables
Prepayments and other assets
2018
£’000
25,859
(1,456)
24,403
10,687
251
5,110
40,451
The Directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.
Non-current assets
Other receivables
Cash and cash equivalents
Cash and cash equivalents
2017
£’000
72,501
(1,991)
70,510
11,905
2,396
6,252
91,063
2017
£’000
13
2017
£’000
2018
£’000
13
2018
£’000
14,398
25,651
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of six months
or less. The carrying amounts of these assets approximate to their fair value.
23. Derivative Financial Instruments
Derivative financial assets
Forward foreign currency contracts
Derivative financial liabilities
Forward foreign currency contracts
All forward foreign currency contracts are designated and effective as hedging instruments.
24. Trade and Other Payables
Trade payables
Accruals for goods and services
Other taxes, social security and employee related liabilities
Other payables
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
2018
£’000
291
2018
£’000
62
2017
£’000
45
2017
£’000
17
2018
£’000
8,920
9,366
12,772
4,793
35,851
2017
£’000
41,733
14,860
16,981
5,965
79,539
Kin + Carta Annual Report and Accounts 2018
25. Loans
Bank loans (all repayable within six months):
Current liabilities
Non-current liabilities
135
2018
£’000
2017
£’000
40,363
–
–
80,245
Bank loans
During the current period the Group reduced its revolving credit facility from £125 million to £95 million. Up to £15 million could be
drawn as an overdraft facility. Interest on loan drawdowns was charged at LIBOR plus a margin which varies between 1.65% and 2.60%,
depending on the ratio of the Group’s net debt to EBITDA excluding Adjusting Items. Interest on overdraft drawdowns was charged at
1.65% over UK base rate.
As at 3 August 2018, the Group’s outstanding loans within this facility were £40.4 million (2017 – £80.2 million). The undrawn
portion of this facility at 3 August 2018 was £54.6 million (2017 – £44.8 million).
Subsequent to the period end, the Group entered into a new revolving loan credit facility of £85.0 million, replacing the previous
loan facility, which is due to expire on 30 November 2022.
The Directors consider that the carrying amount of the loans approximates to their fair value.
26. Deferred Income
Advance billings and other deferred income
27. Provisions
Balance at 29 July 2016
Charged to the Consolidated Income Statement
Utilised during the period
Balance at 28 July 2017
Charged to the Consolidated Income Statement
Discontinued operations – disposal
Balance at 3 August 2018
Current
Non-current
2018
£’000
4,915
2017
£’000
7,141
Provision for
repairs
£’000
Provision for
reorganisation
£’000
2,185
106
(80)
2,211
111
(844)
1,478
96
1,382
1,478
31
850
(881)
–
1,290
–
1,290
823
467
1,290
Total
£’000
2,216
956
(961)
2,211
1,401
(844)
2,768
919
1,849
2,768
Provision for repairs
Where the Group is committed under the terms of a lease to make repairs to leasehold premises, a provision for repairs is made for these
estimated costs over the period of the lease. It is anticipated that these liabilities will crystallise between 2019 and 2025.
Provision for reorganisation
The provision for reorganisation comprises redundancy payments, onerous property and other costs of which £0.8 million is payable
within 12 months and £0.5 million is payable between 2020 and 2021.
Kin + Carta Annual Report and Accounts 2018Our Figures
136
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
28. Deferred Tax
Deferred income taxes are calculated in full on temporary differences under the liability method using a principal tax rate of 17%
for UK operations (2017 – 17%) and 33.83% for US operations (2017 – 40.13%).
The net movement in the deferred tax assets and deferred tax liabilities is as follows:
At the beginning of the period
Disposal – discontinued operations
Credit to the Consolidated Income Statement (note 11)
Items taken to Other Comprehensive Income (note 11)
Items taken directly to equity (note 11)
Foreign exchange
At the end of the period
The individual movements in deferred tax liabilities/(assets) are as follows:
Balance at 29 July 2016
(Credit)/charge to the Consolidated
Income Statement
Items taken directly to
Other Comprehensive Income
Items taken directly to equity
Foreign exchange
Balance at 28 July 2017
Disposal – discontinued operations
(Credit)/charge to the Consolidated
Income Statement
Items taken directly to
Other Comprehensive Income
Items taken directly to equity
Foreign exchange
Balance at 3 August 2018
Accelerated
tax
depreciation
£’000
Retirement
benefits
obligations
£’000
1,875
(4,751)
(2,078)
(108)
–
–
2
(201)
1,129
2,132
–
(2,727)
–
(153)
54
–
–
(8)
767
2,989
–
–
316
Rolled over
capital gains
£’000
81
(12)
–
–
–
69
–
–
–
–
–
2018
£’000
921
1,208 –
(2,501)
2,989
74
363 7
3,054
Share
options
£’000
Acquired
intangible
assets
£’000
(107)
6,979
2017
£’000
3,259
(4,540)
2,132
63
921
Total
£’000
3,259
14
–
63
–
(30)
–
(2,114)
(4,540)
–
–
5
4,870
(37)
2,132
63
7
921
1,208
Short-term
timing
differences
£’000
(818)
(242)
–
–
–
(1,060)
116
(202)
(223)
(1,977)
(2,501)
–
–
–
74
–
–
–
371
69
(1,146)
(179)
3,227
Deferred tax assets and liabilities are classified in the balance sheet as follows:
Deferred tax assets
Deferred tax liabilities
2018
£’000
(1,264)
4,318
3,054
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax
liabilities and when the deferred income taxes relate to the same fiscal authority.
Unrecognised gross tax losses, all of which have an unlimited life, are as follows:
Unrecognised trading losses
Unrecognised capital losses
2018
£’000
895
15,113
16,008
2017
£’000
2,359
10,782
13,141
At the period end, the amount of future tax deductible charges in relation to goodwill amortisation in respect of which no deferred tax
assets have been recognised is £21.5 million.
2,989
74
363
3,054
2017
£’000
(375)
1,296
921
Kin + Carta Annual Report and Accounts 2018
137
29. Retirement Benefits
Defined contribution schemes
The Group operates defined contribution schemes for all qualifying employees. The assets of the schemes are held separately
from those of the Group in funds under control of the trustees. Payments to the schemes are expensed to the Consolidated
Income Statement as they fall due. The total expense recognised in the Consolidated Income Statement for continuing operations
of £2.0 million (2017 – £2.0 million) represents contributions payable to these schemes by the Group at rates specified in the rules
of the schemes. At 3 August 2018, contributions of £0.3 million (2017 – £0.6 million) due in respect of the 2018 reporting period
had not been paid over to the schemes. The amounts were paid over subsequent to the balance sheet date, within the requisite
time limits.
St Ives Defined Benefits Pension Scheme
The Group operates the St Ives Defined Benefits Pension Scheme (‘the Scheme’) with assets held in separate trustee administered funds.
Pension benefits are linked to a member’s final salary at retirement and their length of service. The Scheme was closed to new entrants
from 6 April 2002, and closed to future benefit accruals with effect from 31 August 2008.
The Scheme is a registered scheme under UK legislation and is contracted out of State Second Pension. Following the disposal
of Clays Limited during the period, the Scheme has one current participating employer, Kin and Carta plc.
The Scheme was established from 30 September 1988 under trust and is governed by the Scheme’s trust deed and rules dated
23 April 1991 and subsequent amendments. The directors of St Ives Pension Scheme Trustees Limited (‘the Trustees’) are responsible
for the operation and the governance of the Scheme, including making decisions regarding the defined benefits pension scheme’s
funding and investment strategy in conjunction with the Company.
The most recent full actuarial valuations of the Scheme assets and the present value of the defined benefits obligations were carried
out as at April 2016 by Jonathan Punter, Fellow of the Institute of Actuaries, of XPS Pension Group, who is independent of the Group.
The valuation was updated as at 3 August 2018, and has been calculated on the method and principles agreed for the 6 April 2016
valuation but allowing for the market prices and yields at 3 August 2018 and updated membership data as at 3 August 2018.
The present value of the defined benefits obligation, and the related current service cost and past service cost, were measured using
the projected unit credit method.
The principal assumptions used for the purpose of the actuarial valuations are as follows:
Discount rate
Expected rate of inflation
Expected rate of salary increases
Future pension increases
Assumed life expectancies for retirement at age of 65 are as follows:
Members retiring immediately
Members retiring in 20 years' time
2018
Per annum
2017
Per annum
2.70%
3.05%
nil
2.90%
2.60%
3.05%
nil
2.90%
2018
2017
Male
21.4
22.8
Female
23.3
24.9
Male
21.5
22.9
Female
23.4
24.9
The amount recognised in the Consolidated Balance Sheet in respect of the Group’s Scheme is as follows:
Present value of funded obligations
Fair value of the Scheme assets
Retirement benefits (surplus)/obligation
2018
£’000
2017
£’000
351,591
(353,449)
370,535
(354,494)
(1,858)
16,041
Kin + Carta Annual Report and Accounts 2018Our Figures
138
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
29. Retirement Benefits continued
St Ives Defined Benefits Pension Scheme continued
Amounts recognised in the Consolidated Income Statement in respect of the Scheme as Adjusting Items are as follows:
Scheme administrative costs (note 7)
Curtailment credit (note 7)
Interest expense on Scheme obligations (note 9)
Investment income on Scheme assets (note 9)
2018
£’000
617
(1,261) –
9,359
(9,035)
(320)
2017
£’000
756
9,074
(8,436)
1,394
Amounts recognised in the Consolidated Statement of Comprehensive Income in respect of the Scheme are as follows:
Net measurement – (gain)/losses – financial
Net measurement – losses/(gains) – experience
Net measurement – gains – demographic
Return on assets, in excess of interest income recorded in the Consolidated Income Statement
Changes in the present value of the Scheme obligations are as follows:
Opening defined benefits obligation
Interest cost
Net measurement – (gain)/losses – financial
Net measurement – gains – demographic
Net measurement – losses/(gains) – experience
Curtailment credit
Benefits paid
Closing defined benefits obligation
2018
£’000
(6,242)
1,603
(2,370)
(3,949)
2017
£’000
14,225
(2,440)
(5,687)
(15,056)
(10,958)
(8,958)
2018
£’000
370,535
9,359
(6,242)
(2,370)
1,603
(1,261) –
(20,033)
2017
£’000
370,472
9,074
14,225
(5,687)
(2,440)
(15,109)
351,591
370,535
The Group disposed of its Books segment during the period. As a result of this sale, in-service members who were employed by the Books
segment at 30 April 2018 became standard deferred members and lost their entitlement to the enhanced revaluation (an extra 0.5%
p.a.) in future years up until their retirement date. We have therefore calculated the liabilities of these members as at 3 August 2018 as
standard deferred members. The resulting reduction in liabilities has been shown as a curtailment credit in Adjusting Items in note 7.
The Group has an unconditional right to a refund of any surplus at the end of the Scheme’s duration.
Changes in the fair value of the Scheme assets are as follows:
Opening fair value of Scheme assets
Interest income on Scheme assets
Return on assets, in excess of interest income recorded in the Consolidated Income Statement
Contributions by employer
Benefits paid
Scheme administrative cost
Closing fair value of the Scheme assets
2018
£’000
354,494
9,035
3,949
6,621
(20,033)
(617)
2017
£’000
344,078
8,436
15,056
2,789
(15,109)
(756)
353,449
354,494
Kin + Carta Annual Report and Accounts 2018
The fair value of the Scheme assets at the balance sheet date is analysed as follows:
Equity instruments
Bonds
Other
139
Value at
3 August
2018
£’000
188,686
146,602
18,161
Value at
28 July
2017
£’000
196,081
151,381
7,032
353,449
354,494
The Scheme’s assets do not include any of the Group’s own financial instruments, nor any property occupied by, or other assets used
by, the Group.
The Scheme exposes the Group to actuarial risks such as market (investment) risk, interest rate risk, inflation risk and longevity risk.
The defined benefits pension scheme does not expose the Group to any unusual scheme-specific or company-specific risk.
Investment risk: the Scheme holds some of its investments in asset classes, such as equities, which have volatile market values
and, while these assets are expected to provide the best returns over the long-term, any short-term volatility could cause
additional funding to be required. Derivative contracts are used from time to time which would limit losses in the event of
a fall in equity markets.
Interest rate risk: the Scheme’s liabilities are assessed using market rates of interest to discount the liabilities and are therefore subject
to any volatility in the movement of the market rate of interest. The net interest income or expense recognised as an Adjusting Item in
the Consolidated Income Statement is also calculated using the market rate of interest. The Scheme’s swap investments are expected
to provide a degree of protection from any movement in the market rate of interest.
Inflation risk: a significant proportion of the benefits under the Scheme are linked to inflation. Although the Scheme’s assets are
expected to provide a hedge against inflation over the long term, rising inflation over the short-term could lead to an increase in the
deficit. The Scheme’s swap investments are expected to provide a degree of protection from any short-term inflationary movements.
Longevity risk: in the event that members live longer than assumed the liabilities may be understated, and thus increasing any deficit.
A sensitivity analysis of the principal assumptions used to measure the defined benefits pension obligation as at 3 August 2018
is analysed as follows:
Discount rate
Rate of Inflation (RPI)
Assumed life expectancy at age 65
Change in
assumption
Impact on the defined
benefits pension obligation
Increase by 0.5%
Increase by 0.5%
Increase by 1 year
Decrease by 8%
Increase by 6%
Increase by 4%
The Scheme’s investment strategy is to invest broadly 65% in return-seeking assets and 35% in matching assets (mainly government
bonds). The strategy reflects the Scheme’s liability profile and the Trustees’ and Group’s attitude to risk.
As at 3 August 2018, 56% of the plan assets are quoted in active markets and 44% are unquoted.
The last funding valuation of the Scheme was as at 6 April 2016 and revealed a funding deficit of £42.8 million The Company agreed to
pay £3.4 million over the year to 31 March 2018 and then £2.6 million per year with a view to eliminating the shortfall by August 2026.
The Company has also agreed to pay £0.4 million per year towards the cost of running the Scheme.
The liabilities of the Scheme are based on the current value of expected benefit payment cash flows to members of the Scheme over the
next 75 years. The average duration of the liabilities is approximately 20 years.
Following the disposal of the Books segment in the period, the Scheme has one current participating employer; Kin and Carta plc. Kin
and Carta plc is responsible for paying all contributions to the Scheme. Kin and Carta plc is also liable for all the liabilities on wind-up or
withdrawal from the Scheme in accordance with the Scheme’s trust deed and rules.
Kin + Carta Annual Report and Accounts 2018Our Figures
140
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
30. Financial Instruments
The financial instruments by category are as follows:
Financial instrument category
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Derivative financial instruments – Assets
Derivative financial instruments – Liabilities
Deferred consideration payable
Bank borrowings
Note
22
22
24
23
23
12
25
Classification
Loans and receivables
Loans and receivables
Other financial liabilities
Derivative instrument
Derivative instrument
Other financial liabilities
Other financial liabilities
Amortised
cost
£’000
40,451
14,398
35,851
–
–
–
40,363
Fair value
through
profit and loss
£’000
–
–
–
291
62
21,170
–
31. Financial Risk Management
The Group’s Treasury function is responsible for managing the Group’s exposure to financial risk and operates within a defined set of
policies and procedures reviewed and approved by the Board.
These risks include market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash
flow interest rate risk. The Group does not enter into or trade financial instruments, including derivative financial instruments, for
speculative purposes.
As at 3 August 2018, the Group’s borrowings consisted of various loan drawdowns under the Group’s revolving multicurrency loan
facility and all of the Group’s borrowings were set to mature within one to six months. The loan drawdowns are interest bearing and are
recorded on an undiscounted basis. Under the terms of the new and previous facility the Group has the right to renew these borrowings
until the expiration of the facility.
Interest rate risk
The Group carries a cash flow risk where there are changes in the interest rate levied on the Group’s borrowings as currently interest
on the Group’s borrowings is at floating rates. The Group finances its operations through a mixture of retained earnings and bank
borrowings. Group policy is to constantly review the exposure risk to interest rate fluctuations in relation to the risk as a proportion of
Group earnings and wherever possible with matching short-term deposits of surplus funds. The Group is not subject to fair value interest
rate risk as the majority of debt is at floating rates.
Interest rate management
An analysis of financial assets and liabilities exposed to interest rate risk by currency is set out below:
Financial assets subject to interest rate risk
Sterling
US Dollar
Euro
Singapore Dollar
Argentine Peso
Chinese Yuan
2018
£’000
1,499
11,865
799
95
115
25
14,398
2017
£’000
18,341
5,563
1,477
68
106
96
25,651
The Group’s financial assets comprise cash and cash equivalents, all of which attract interest at the relevant base rate.
Kin + Carta Annual Report and Accounts 2018
Financial liabilities subject to interest rate risk
Sterling bank loans
US Dollar bank loans
141
2018
£’000
25,000
15,363
40,363
2017
£’000
65,000
15,245
80,245
The Group’s financial liabilities comprise loan borrowings which bear interest at floating rates based upon Sterling and US Dollar
LIBOR, and overdraft borrowings which bear interest at floating rates based upon UK bank base rate.
Interest rate sensitivity analysis
The analysis shows the additional charge to the Consolidated Income Statement assuming that the amount of the liability outstanding at
the balance sheet date was outstanding for the entire period.
100% movement in Sterling LIBOR
2018
£’000
324
2017
£’000
230
The changes would not have impacted other equity reserves as all interest bearing financial assets and liabilities are subject to floating
interest rates and their fair values do not fluctuate with changes in interest rates.
Foreign exchange risk
From time to time the Group enters into contracts to supply services to customers trading in the following regions:
• Europe at prices denominated in Euros
• USA at prices denominated in US Dollars
• Singapore at prices denominated in Singapore Dollars
• China at prices denominated in Chinese Yuan
Forward foreign exchange contracts
The Group enters into forward foreign exchange contracts to cover specific foreign currency payments and receipts and to manage
the risk associated with anticipated sale and purchase transactions.
Forward foreign exchange contracts have been used to hedge the exchange rate risk arising from these commitments which are
designated as cash flow hedges. As at 3 August 2018, the aggregate amount of unrealised profits under forward foreign exchange
contracts deferred in the hedging reserve relating to the exposure on trade receivables and anticipated sale transactions amounted
to £0.3 million. It is anticipated that the sales receipts will occur in the 12 months following the balance sheet date.
The following table details the forward currency contracts outstanding at the period end:
Buy US Dollars (up to 12 months)
Sell Euros (up to 12 months)
Average
exchange rate
Sterling : foreign
currency
1.47
1.13
Foreign
currency
‘000
2,814
1,849
Contract
value
£’000
1,921
1,634
Notional
value
£’000
2,161
1,646
Exchange rate sensitivity analysis
As at 3 August 2018, $20 million dollars were drawn in US dollars on the revolving credit facility.
Subsequent to the period end, the Group exercised a forward contract in order to settle the final tranche of the deferred/contingent
consideration relating to the acquisition of Solstice Consulting LLC of US$4.4 million with a sterling equivalent of £3.1 million.
Both of these liabilities are subject to exchange rate risk.
Kin + Carta Annual Report and Accounts 2018Our Figures
142
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
31. Financial Risk Management continued
Credit risk
The Group’s principal financial assets are bank balances and cash, trade and other receivables, which represent the Group’s
maximum exposure to credit risk in relation to financial assets. The Group’s credit risk is primarily attributable to its trade receivables.
The amounts presented in the Consolidated Balance Sheet are net of allowances for doubtful receivables, estimated by the Group’s
management based on prior experience and their assessment of the current economic environment. The Group’s credit risk
is relatively low as the Group maintains credit insurance for all of its UK and US operations up to a maximum aggregate claim
in any one year of £8.5 million. In addition, its UK subsidiaries’ sales are principally with a large number of counterparties and
customers in the UK, and are denominated in Sterling.
Before accepting any new customer, the Group uses an external credit scoring system to assess the potential customer’s credit
quality and defines credit limits by customer. Limits and scoring attributed to customers are reviewed regularly.
Included in the Group’s trade receivables balance are debtors with a carrying amount of £5.7 million (2017 – £6.0 million) which are
past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and
the amounts are still considered recoverable. The Group does not hold any collateral over these balances.
Ageing of impaired receivables
Between 0 and 59 days
Between 60 and 89 days
Between 90 and 119 days
120 days and above
Movement in the allowance for doubtful debts
Balance at the beginning of the period
Impairment losses recognised
Amounts written off as uncollectible
Impairment losses reversed
Balance at the end of the period
2018
£’000
343
430 3
346
337
1,456
2018
£’000
1,991
166
–
(701)
1,456
2017
£’000
318
332
1,338
1,991
2017
£’000
1,326
1,126
(319)
(142)
1,991
In determining the recoverability of a trade receivable the Group considers any change in the quality of the trade receivable from the
date the credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being
large and unrelated, and being covered by credit insurance arrangements. Accordingly, the Directors believe that there is no further
credit provision required in excess of the allowance for doubtful debts.
Ageing of past due but not impaired receivables
Ageing of past due but not impaired:
Between 0 and 59 days
Between 60 and 89 days
Between 90 and 119 days
2018
£’000
5,199
484
–
5,683
2017
£’000
4,826
1,108
100
6,034
Liquidity risk
The Group’s policy is to maintain flexibility with respect to its liquidity position, by utilising short-term cash deposits and, where
necessary, short-term bank borrowings for working capital and longer-term borrowings for capital expenditure requirements.
During the current period the Group reduced its revolving credit facility from £125.0 million to £95.0 million. Up to £15.0 million
of this facility could be drawn as an overdraft facility. Subsequent to the year end, the Group has successfully negotiated a new
revolving credit facility of £85.0 million, in replacement of the previous facility. The new facility agreement will expire on 30 November
2022. The new facility agreement includes an overdraft facility of £15.0 million to fund short-term working capital requirements.
The contractual maturities of drawn down borrowings, as well as undrawn facilities, are detailed in note 25.
Kin + Carta Annual Report and Accounts 2018
143
Capital risk management
The Group manages its capital to ensure that entities in the Group will each be able to continue as a going concern while maximising
the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt,
which includes the borrowings disclosed in note 25, cash and cash equivalents, and equity attributable to equity holders of the parent,
comprising issued capital, reserves and retained earnings as disclosed in the Consolidated Statement of Changes in Equity. The Board
has reviewed and discussed the Group’s funding requirements and concluded that the Group is well served by its current funding
arrangements and does not see any need to adjust the Group’s capital in order to meet its objectives.
During the current period the Group reduced its revolving credit facility from £125m to £95 million. Interest on loan drawdowns was
charged at LIBOR plus a margin which varied between 1.65% and 2.60%, depending on the ratio of the Group’s net debt to EBITDA
excluding Adjusting Items. Interest on overdraft drawdowns was charged at 1.65% over UK base rate. Subsequent to the year end,
the Group has successfully negotiated a new revolving credit facility of £85.0 million that will expire on 30 November 2022 on terms
broadly in line with the previous agreement, which it replaced.
The Group is subject to covenants on its borrowings (further discussed in the Financial Review on pages 26 to 28) which could be
considered an externally imposed capital requirement. The Board continually monitors the Group’s performance against its banking
covenants and undertakes monthly reviews of working capital, cash forecast, deferred/contingent consideration and headroom on
banking covenants. At the period end the Group’s leverage ratio was 1.1 times (2017 – 1.6 times) and interest cover was 8 times
(2017 – 9 times). The Group has fully complied with the requirements of these covenants during the period under review and expects
to continue to do so.
32. Share Capital
Issued and fully paid:
At 28 July 2017
Issued in the period
At 3 August 2018
Number
of shares
Ordinary shares
of 10p each
£’000
142,844,676
10,581,800
153,426,476
14,284
1,058
15,343
All authorised and issued share capital is represented by equity shareholdings. The number of authorised and issued Kin and Carta plc
ordinary shares as at 8 October 2018 was 153,426,476.
10,581,800 shares were issued during the period in respect of the deferred consideration payable in relation to the acquisition of
Solstice and TAB, as detailed in note 12.
33. Additional Paid-in Capital
Balance at 29 July 2016
Transfer of contingent consideration deemed as remuneration
Settlement of share-based contingent consideration deemed as remuneration
Balance at 28 July 2017
Transfer of contingent consideration deemed as remuneration
Balance at 3 August 2018
Share
premium
£’000
59,839
–
398
60,237
–
60,237
Merger
reserve
£’000
8,718
225
–
8,943
119
9,062
Capital
redemption
reserve
£’000
1,238
–
–
1,238
–
1,238
Total
£’000
69,795
225
398
70,418
119
70,537
The additional paid-in capital includes share premium, the capital redemption reserve and the merger reserve. The capital redemption
reserve represents the buyback of the Kin and Carta plc ordinary shares in prior periods. The merger reserve was derived from
acquisitions made in prior periods.
Kin + Carta Annual Report and Accounts 2018Our Figures
144
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
34. Other Reserves
Other reserves in the Consolidated Statement of Changes in Equity is made up of additional paid in capital as detailed in note 33
above along with the following:
ESOP reserve representing Kin and Carta plc ordinary shares held in the Group’s Employee Benefit Trust.
A portfolio of treasury shares consisting of 90,636 Kin and Carta plc ordinary shares held by the Company as at 3 August 2018
(2017 – 90,636 Kin and Carta plc ordinary shares).
Share option reserve representing the cumulative charge related to the options granted to Group’s employees on Kin and Carta plc
ordinary shares.
Hedging and translation reserve which includes amounts relating to foreign translation differences arising on the retranslation
of reserves due to the Group’s presentation in Sterling.
35. Notes to the Consolidated Cash Flow Statement
Reconciliation of cash generated from operations
Operating loss from continuing operations
Operating profit/(loss) from discontinued operations
Adjustments for:
Depreciation of property, plant and equipment
Share of profit from joint arrangement
Disbursements from joint arrangement
Impairment losses related to continuing operations
Impairment losses related to discontinued operations (note 8)
Amortisation of intangible assets
Gain on disposal of subsidiaries (note 8)
Profit on disposal of property, plant and equipment
Share-based payment charge
Decrease in defined benefits pension scheme obligations
Re-measurement of deferred consideration
Charge for contingent consideration required to be treated as remuneration
Increase/(decrease) in provisions
Operating cash inflows before movements in working capital
Decrease/(increase) in receivables
Decrease in inventory
(Decrease)/increase in payables
(Decrease)/increase in deferred income
Cash generated from operations
Analysis of financing liabilities
Bank loans – non current
Bank loans – current
28 July
2017
£’000
(80,245)
–
(80,245)
Financing
cash flow
£’000
–
40,000
40,000
Non-cash changes
Transfer
£’000
80,245
(80,245)
–
Foreign
exchange
gains/(losses)
£’000
–
(118)
(118)
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.
2018
£’000
2017
£’000
(28,153)
3,850
(15,512)
(24,901)
3,905
(569)
876 –
12,082
18,833 –
8,683
(18,334) –
(1,501)
1,274
(7,882)
3,094
23,994
1,402
21,554
9,620
662
(4,587)
(1,401)
25,848
6,149
(355)
33,058
10,624
(2,818)
70
(2,789)
7,362
15,550
(5)
26,433
(130)
583
2,852
948
30,686
3 August
2018
£’000
–
(40,363)
(40,363)
Kin + Carta Annual Report and Accounts 2018
145
36. Capital and Other Commitments
At 3 August 2018, the Group had outstanding commitments for the future minimum lease payments under non-cancellable operating
leases as follows:
Continuing Operations
Within one year
Between one and five years
After five years
Discontinued Operations
Within one year
Between one and five years
After five years
Continuing and Discontinued Operations
Within one year
Between one and five years
After five years
2018
Land and
buildings
£’000
7,378
16,924
10,052
34,354
–
–
–
–
7,378
16,924
10,052
34,354
2018
Other
£’000
51
58
–
109
–
–
–
–
51
58
–
109
2017
Land and
buildings
£’000
6,715
15,842
2,277
24,834
1,205
2,591
–
3,796
7,920
18,433
2,277
28,630
2017
Other
£’000
54
65
–
119
1,848
4,603
179
6,630
1,902
4,668
179
6,749
37. Share-based Payments
The Company operates a number of share-based payment schemes for certain employees of the Group.
Long-Term Incentive Plan 2010 (‘LTIP’)
Executive Directors and certain members of senior management have been granted nil-cost share options under the Company’s
Long-Term Incentive Plan. Details of the LTIP are included on page 66 of the Directors’ Remuneration Report.
Number of options
Outstanding at the beginning of the period
Granted during the period
Lapsed during the period
Outstanding at the end of the period
Exercisable at the end of the period
Estimated % of options vesting over next three years
2018
‘000
2017
‘000
3,230
2,964
(1,830)
4,364
– –
66%
2,643
1,536
(949)
3,230
0%
The fair value of the options granted in the current period under the LTIP scheme were measured using a Black-Scholes options
pricing model. The inputs to the model are:
Weighted average mid-market share price
Weighted average exercise price
Expected life
Expected volatility
Risk free rate
Dividend yield
Weighted average fair value of the options
LTIP
£1.03
£nil
3 years
28.31%
2.00%
5.00%
£1.03
Kin + Carta Annual Report and Accounts 2018Our Figures
146
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
37. Share-based Payments continued
Save As You Earn Share Option Plan (‘Sharesave Plan’)
The Company has granted share options to eligible employees under an HMRC-approved all-employee Sharesave Plan.
Details of the plan are included on page 67 of the Directors’ Remuneration Report.
A reconciliation of the movement in the share options is shown below:
Outstanding at the beginning of the period
Granted during the period
Lapsed during the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
Estimated % of options vesting in future years
Number of options
Weighted average
exercise price
2018
‘000
1,329
–
(410)
–
919
919
100%
2017
‘000
680
1,335
(282)
(404)
1,329
680
100%
2018
£ £
1.18
–
1.18
–
1.18
1.18
2017
1.09
1.18
1.09
1.09
1.18
1.09
In addition, the Group recognised a charge of £1.3 million (2017 – credit of £0.1 million) relating to equity-settled share-based
payments other than in the context of acquisitions. The exercise price of options outstanding at 3 August 2018 ranges between
£nil and £1.18.
Share-based contingent consideration required to be treated as remuneration
The Group recognised a share-based charge of £6.0 million (2017 – £7.0 million) relating to contingent consideration for acquisitions
made in prior periods, which is recorded as part of deemed remuneration in Adjusting Items (note 7).
The Group acquired several entities in prior periods for which consideration was paid partly in the form of Kin and Carta plc ordinary
shares. The shares were contingent on continuous employment of certain former shareholders and are treated as share-based payments,
in accordance with IFRS 2. These are described as follows:
Realise Limited
Number of options
Outstanding at the beginning of the period
Vested during the period
Outstanding at the end of the period
Exercisable at the end of the period
Estimated % of options vesting over next three years
The Health Hive Group Limited
Number of options
Outstanding at the beginning of the period
Lapsed during the period
Vested during the period
Outstanding at the end of the period
Exercisable at the end of the period
Estimated % of options vesting over next three years
2018
‘000
273
(273)
–
– –
–
2018
‘000
384
–
(384)
–
–
–
2017
‘000
1,042
(769)
273
100%
2017
‘000
1,358
(6)
(968)
384
–
100%
Kin + Carta Annual Report and Accounts 2018
Solstice Consulting LLC
Number of options
Outstanding at the beginning of the period
Lapsed during the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
Estimated % of options vesting over in future years
Fripp, Sandeman and Partners Limited
Number of options
Outstanding at the beginning of the period
Granted during the period
Vested during the period
Outstanding at the end of the period
Exercisable at the end of the period
Estimated % of options vesting over in future years
The App Business Limited
Number of options
Outstanding at the beginning of the period
Lapsed during the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
Estimated % of options vesting over next three years
147
2018
‘000
2017
‘000
7,058
(2,161) –
(4,897)
–
–
–
2018
‘000
206
– –
(206)
–
–
–
7,873
(815)
7,058
–
100%
2017
‘000
274
(68)
206
–
100%
2018
‘000
2017
‘000
6,984
(1,299) –
(1,607)
4,078
– –
7,587
(603)
6,984
100%
100%
The fair value of the options granted were measured using a Black-Scholes option pricing model. The inputs to the model were:
Weighted average mid-market share price
Weighted average exercise price
Expected life
Expected volatility
Risk free rate
Dividend yield
Weighted average fair value of the options
2018
£1.39
£nil
24-48 months
28.31%
2%
0%
£1.39
Kin + Carta Annual Report and Accounts 2018Our Figures
148
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
38. Hedging and Translation Reserves
Hedging reserve and translation reserve
The reserve represents the cumulative amount of gains and losses on hedging instruments deemed effective in cash flow hedges and the
translation of the net assets of the Group’s foreign operations, which relate to subsidiaries only, from their functional currency into the
parent’s functional currency, being Sterling.
Gains and losses transferred from the hedging and translation reserves into the Consolidated Income Statement during the period
are included in the following line items in the Consolidated Income Statement:
Revenue
2018
£’000
265
2017
£’000
(138)
39. Related Party Transactions
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 current period, which might
reasonably affect the decisions made by the users of these financial statements.
No other executive officers of the Company or their associates had material transactions with the Group during the period.
The Group earned revenue of £0.2 million (2017 – £ 0.8 million) from Loop Integration LLC and the Group incurred £19,000 charges
(2017 – £Nil) for services received. The Group also received a dividend of £0.4 million (2017 – £nil). At the reporting date, Loop
Integration LLC owed the Group £8,000 (2017 – £27,000) for services rendered.
Aggregate Directors’ remuneration
The Group considers the Directors of Kin and Carta plc to be the key management personnel. The total amounts for Directors’
remuneration were as follows:
Short-term employee benefits
Post-employment benefits
2018
£’000
1,564
95
1,659
2017
£’000
962
95
1,057
40. Post Balance Sheet Event
Subsequent to the year end, the Group has successfully negotiated a new revolving credit facility of £85.0 million that will expire on
30 November 2022 on terms broadly in line with the previous agreement.
Kin + Carta Annual Report and Accounts 2018
149
41. List of Undertakings
As at 3 August 2018, the principal trading subsidiaries which are 100% owned directly or indirectly by the Company, are shown below:
Nature of business
Location
Place of incorporation
Amaze Limited
Amaze Europe Limited
Amaze Communication Services Limited
Branded3 Search Limited
eBee Limited
Fripp, Sandeman and Partners Limited
Incite Marketing Planning Limited
Incite Marketing Planning Singapore PTE. LTD
Incite New York LLC
My Bench Limited
Occam DM Limited
Pollen Health Limited
Pragma Consulting Limited
Realise Limited
Edit Agency Limited
Solstice Consulting LLC
Solstice Mobile Argentina Srl
The App Business Limited
The Health Hive Limited
a Digital Transformation Manchester & other UK sites
England and Wales
a Digital Transformation Manchester & other UK sites
England and Wales
a Digital Transformation Manchester & other UK sites
England and Wales
Leeds
a Digital Transformation
England and Wales
a Digital Transformation
London
England and Wales
High Wycombe
a Digital Transformation
England and Wales
London
a Digital Transformation
England and Wales
Singapore
Singapore
c Digital Transformation
New York United States of America
d Digital Transformation
England and Wales
a Digital Transformation
England and Wales
a Digital Transformation
England and Wales
a Digital Transformation
England and Wales
a Digital Transformation
e Digital Transformation
Scotland
a Digital Transformation
England and Wales
Illinois United States of America
f Digital Transformation
Argentina
g Digital Transformation
England and Wales
a Digital Transformation
England and Wales
a Digital Transformation
Bath & other UK sites
Bath
London
London
Edinburgh
Bath
Buenos Aires
London
London
In addition, the Company held, directly or indirectly, a number of 100% owned non-trading companies as at 3 August 2018:
Amaze (Holdings) Limited
Amaze Communication Services
(Holdings) Limited
Amaze Technology Limited
Kin + Carta Limited
Okana Systems Limited
Pragma Holdings Limited
Pragma Consulting US LLC
Realise Holdings Limited
Relish Agency Limited
Response One Holdings Limited
Solstice Consulting Argentina LLC
Solstice Consulting Latin America LLC
SouthWest Mailing Limited
St Ives Blackburn Limited
a
a
a
a
a
a
d
e
a
a
f
f
a
a
St Ives Direct Limited
St Ives Direct Edenbridge Limited
St Ives Direct Leeds Limited
St Ives Financial Limited
St Ives Holdings Limited
St Ives Illinois LLC
St Ives Marketing Services (Delaware) LLC
St Ives Marketing Services Limited
St Ives Pension Scheme Trustees Limited
St Ives Shelf Limited
St Ives Westerham Press Limited
The Health Hive (US) LLC
The Health Hive Group Limited
Incite Marketing Planning (Shanghai) Co. Ltd
a
a
a
a
a
a
d
a
a
a
a
a
a
b
a – Registered office; One Tudor Street, London EC4Y 0AH, United Kingdom
b – Registered office; Room 2207B, 22/F, Tower III, No. 1228 Middle Yan An Road, Jing An District, Shanghai, People’s Republic of China
c – Registered office; 36 Armenian Street #04-02 Singapore 179934
d – Registered office; 125 Park Avenue, New York, NY10017, United States of America
e – Registered office; Quay House, 142 Commercial Street, Edinburgh EH6 6LB, United Kingdom
f – Registered office; 111 N Canal St, Suite 500, Chicago, IL 60606, United States of America
g – Registered office; Solstice Argentina, Aguirre 1169, Ciudad Autonoma de Buenos Aires, Argentina
Kin + Carta Annual Report and Accounts 2018Our Figures
150
COMPANY BALANCE SHEET
Registered in England & Wales; No. 155213
Fixed assets
Tangible assets
Intangible assets
Investment property
Investments
Retirement benefit surplus
Current assets
Debtors
Due within one year
Due after more than one year
Derivative financial instruments
Assets held for sale
Creditors: Amounts falling due within one year
Bank loans and overdrafts
Trade and other creditors
Derivative financial instruments
Net current liabilities
Total assets less current liabilities
Creditors: Amounts falling due after more than one year
Bank loans and overdrafts
Deferred tax
Provisions
Retirement benefit obligation
Net assets
Capital and reserves
Share capital
Share premium account
Other reserves
Profit and loss account
Total equity
Note
5
6
7
9
14
10
10
11
8
13
12
11
13
12
14
14
15
15
16
3 August
2018
£’000
28 July
2017
£’000
1,159
198
4,618
227,821
1,858
506
305
11,617
277,595
–
235,654
290,023
7,915
–
291
5,281
13,487
(66,370)
(34,097)
(8)
6,495
1,762
–
147
8,404
(25,843)
(16,567)
(17)
(86,988)
(34,023)
148,666
256,000
–
(1,103)
(1,187)
–
(80,245)
–
(60)
(16,041)
146,376
159,654
15,343
60,237
17,287
53,509
14,284
60,237
17,918
67,215
146,376
159,654
The loss for the financial period for the Company was £27.2 million (2017 – £0.6 million).
These financial statements were approved by the Board of Directors on 8 October 2018 and signed on its behalf by
J Schwan
Chief Executive Officer
Brad Gray
Chief Financial Officer
Kin + Carta Annual Report and Accounts 2018
STATEMENT OF CHANGES IN EQUITY
151
Balance at 29 July 2016
Loss for the period
Other comprehensive income
Actuarial gain on defined
benefits pension scheme
Tax charge on items taken directly to equity
Total comprehensive income
Dividends
Recognition of share-based contingent
consideration deemed as remuneration
Transfer of share-based contingent
consideration deemed as remuneration
Recognition of share-based payments
Settlement of share-based payments
Tax on share-based payments
Balance at 28 July 2017
Loss for the period
Other comprehensive expense
Items that will not be reclassified
subsequently to profit or loss
Actuarial gain on defined
benefits pension scheme
Tax charge on items taken directly to equity
Total comprehensive expense
Dividends
Recognition of share-based contingent
consideration deemed as remuneration
Transfer of share-based contingent
consideration deemed as remuneration
Recognition of share-based payments
Settlement of share-based payments
Tax on share-based payments
Share
capital
£’000
Share
premium
account
£’000
14,244
–
59,839
–
Merger
reserve
£’000
8,718
–
Capital
redemption
reserve
£’000
Treasury
shares
£’000
Share
option
reserve
£’000
Profit
and loss
account
£’000
Total
£’000
1,238
–
(163)
–
6,723
–
63,300 153,899
(648)
(648)
–
–
–
–
–
–
–
40
–
–
–
–
–
–
–
–
–
–
–
–
–
398
–
225
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8,958
(1,568)
6,742
(8,705)
8,958
(1,568)
6,742
(8,705)
6,969
–
6,969
(5,676)
70
(123)
(63)
5,754
–
124
–
303
70
439
(63)
14,284
–
60,237
–
8,943
–
1,238
–
(163)
–
7,900
–
67,215 159,654
(27,156)
(27,156)
–
–
–
–
–
–
–
1,059
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
119
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10,958
(1,731)
10,958
(1,731)
(17,929)
(2,784)
(17,929)
(2,784)
6,016
–
6,016
(6,865)
1,274
(1,101)
(74)
6,965
–
42
–
219
1,274
–
(74)
Balance at 3 August 2018
15,343
60,237
9,062
1,238
(163)
7,150 53,509 146,376
Kin + Carta Annual Report and Accounts 2018Our Figures
152
NOTES TO THE COMPANY FINANCIAL STATEMENTS
1. Accounting Policies
The separate financial statements of the Company are presented as required by the Companies Act 2006. The financial statements have
been prepared in accordance with FRS 101 ‘Reduced Disclosure Framework’ as issued by the Financial Reporting Council.
Financial Reporting Standard 1 – reduced disclosure exemptions
The Company is taking advantage of the applicable disclosure exemptions permitted by FRS 101 in its financial statements, which are
summarised below:
Standard
Disclosure exemption
IFRS 2, ‘Share-based Payment’
• Para 45(b) – number and weighted average exercise prices of share options
• Para 46-52 – fair value disclosures for share options
IFRS 7, ‘Financial Instruments:
Disclosures’
• Full exemption
IFRS 13, ‘Fair Value Measurement’ • Para 91-99 – disclosure of valuation techniques and inputs used for fair value measurement
of assets and liabilities
IAS 1, ‘Presentation of the
Financial Statements’
• Para 10(d) – statement of cash flows
• Para 10(f) – a statement of financial position as at the beginning of the preceding period when
an entity applies an accounting policy retrospectively or makes a retrospective statement of
items in its financial statements, or when it reclassifies items in its financial statements
• Para 16 – statement of compliance with all IFRS
• Para 38 – present comparative information in respect of paragraph 79(a)(iv) of IAS 1
• Para 38A – requirement for minimum of two primary statements, including cash flow statements
• Para 38B-D – additional comparative information
• Para 40A-D – requirements for a third statement of financial position
• Para 111 – cash flow statement information
• Para 134-136 – capital management disclosures
IAS 7, ‘Statement of Cash Flows’
• Full exemption
IAS 8, ‘Accounting Policies,
Changes in Accounting Estimates
and Errors’
IAS 24, ‘Related Party Disclosures’
• Para 30 & 31 – requirement for the disclosure of information when an entity has not applied a
new IFRS that has been issued but is not yet effective
• Para 17 and 18A – key management compensation
• The requirements to disclose related party transactions entered into between two or more
members of a group, provided that any subsidiary which is a party to the transaction is wholly
owned by such a member
As permitted by section 408(3) of the Companies Act 2006, the profit and loss account of the Company is not presented in this
Annual Report. These separate financial statements are not intended to give a true and fair view of the profit or loss or cash flows of
the Company. The Company has not published its individual cash flow statement as its liquidity, solvency and financial adaptability are
dependent on the Group rather than its own cash flows.
The disclosures are given in the Consolidated Financial Statements on pages 103 to 149 and notes 1 to 41.
The principal accounting policies adopted are the same as those set out in note 2 to the Consolidated Financial Statements except as
noted below.
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis
of accounting in preparing the financial statements under the historical cost convention. Further detail is contained in the Directors’
Report on pages 81 to 84.
(a) Investments
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
2. Profit from Operations
As permitted by Section 408 of the Companies Act 2006, no profit and loss account of the Company is included in these financial
statements. The loss for the financial period for the Company was £27.2 million (2017 – £0.6 million).
Kin + Carta Annual Report and Accounts 2018 3. Auditor’s Remuneration
Fees paid to the auditors in respect of their audit of the Company were £185,000 (2017 – £143,000).
4. Employee Information
The average monthly number of employees (including Executive Directors) was:
Sales
Administration
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs
Share-based payment
153
2018
Number
2017
Number
–
65
65
2018
£’000
5,151
392
88
1,274
6,905
2
67
69
2017
£’000
4,079
380
75
70
4,604
The 2017 Wages and Salaries figure has been correctly presented to exclude the pension recovery credit which was recorded as
relating to Wages and Salaries in the 2017 Financial Statements. This change does not affect the 2017 Profit and Loss account.
Disclosure of individual Directors’ remuneration, share options, long-term incentive schemes, pension contributions and pension
entitlements required by the Companies Act 2006 and those elements specified for audit by the Financial Conduct Authority are shown
in the tables in the Directors’ Remuneration Report on pages 63 to 80 and form part of these parent company financial statements.
Further details of share-based payments are contained in note 37 in the notes to the Consolidated Financial Statements.
5. Tangible Fixed Assets
Cost:
At 29 July 2016
Additions
Disposals
At 28 July 2017
Additions
Disposals
At 3 August 2018
Accumulated depreciation:
At 29 July 2016
Charge
Disposals
At 28 July 2017
Charge
Disposals
At 3 August 2018
Net book value:
At 3 August 2018
At 28 July 2017
Land and
buildings
Short leases
£’000
Plant and
machinery
£’000
Fixtures, fittings,
equipment and
motor vehicles
£’000
659
–
–
659
41
–
700
329
66
–
395
66
–
461
239
264
2,357
49
(450)
1,956
54
(46)
1,964
2,135
93
(435)
1,793
56
(42)
1,807
157
163
319
–
–
319
716
–
1,035
199
41
240
32
–
272
763
79
Total
£’000
3,335
49
(450)
2,934
811
(46)
3,699
2,663
200
(435)
2,428
154
(42)
2,540
1,159
506
Kin + Carta Annual Report and Accounts 2018Our Figures
154
NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
6. Intangible Assets
Cost:
At 29 July 2016
Additions
Disposals
At 28 July 2017
Additions
Disposals
At 3 August 2018
Accumulated depreciation:
At 29 July 2016
Charge
Disposals
At 28 July 2017
Charge
Disposals
At 3 August 2018
Net book value:
At 3 August 2018
At 28 July 2017
7. Investment Property
Cost:
At 29 July 2016
Disposals
Reclassification to assets held for sale
Transfers from subsidiaries
At 28 July 2017
Disposals
Reclassification to assets held for sale
At 3 August 2018
Accumulated depreciation:
At 29 July 2016
Charge
Disposals
Reclassification to assets held for sale
At 28 July 2017
Charge
Disposals
Reclassification to assets held for sale
At 3 August 2018
Net book value:
At 3 August 2018
At 28 July 2017
Software
£’000
2,468
50
(201)
2,317
18
(1)
2,334
2,043
170
(201)
2,012
125
(1)
2,136
198
305
Investment
property
£’000
28,029
(13,059)
(148)
397
15,219
(1,599)
(6,427)
7,193
8,764
483
(5,644)
(1)
3,602
267
(148)
(1,146)
2,575
4,618
11,617
Kin + Carta Annual Report and Accounts 2018
155
As at 3 August 2018, the fair value of investment properties is not materially different from its net book value of £4.6 million.
This was arrived at on the basis of a valuation carried out by Matthews & Goodman, independent valuers not connected with the
Group. The valuation conforms to International Valuation Standards.
The Company has freehold land with a net book value of £2.2 million (2017 – £2.2 million), of which £0.2 million is classified as
investment property and £2.0 million is classified as asset held for sale (note 8). These assets have not been depreciated.
The investment property is leased to Clays Limited. This company was disposed of by the Group during the period.
Rental income of £1.2 million (2017 – £2.2 million) in relation to the investment properties has been recorded in the profit and loss
account in the current period.
8. Asset Held for Sale
Following the disposal of SP Group and the acquirer giving notice on a lease on a property owned by the Group, the property is
being marketed for sale and is classified as an asset held for sale, with a carrying value of £5.3 million. This is set out in note 17 of the
Consolidated Financial Statements.
9. Investments Held as Fixed Assets
At 29 July 2017
Additions
Impairment
Loan advances
Loan repayments
Foreign exchange revaluation
At 3 August 2018
Shares in
subsidiaries
at cost
£’000
96,751
602
(18,513)
–
–
–
Loans to
subsidiaries
£’000
180,844
–
–
39,308
(71,554)
383
Total
£’000
277,595
602
(18,513)
39,308
(71,554)
383
78,840
148,981
227,821
All of the above are unlisted investments. The principal trading subsidiaries are listed in note 41 of the Consolidated
Financial Statements.
The impairment relates to the Company’s investment in The Health Hive Group which suffered a fall in revenue during the period.
Further details are set out in note 7 to the Consolidated Financial Statements.
10. Debtors
Within one year
Amounts owed by Group undertakings
Other debtors
Corporation tax recoverable
Prepayments and accrued income
After more than one year
Deferred tax
2018
£’000
5,395
361
1,413
746
7,915
2017
£’000
4,088
680
720
1,007
6,495
–
1,762
Kin + Carta Annual Report and Accounts 2018Our Figures
156
NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
11. Derivative Financial Instruments
Derivative financial assets
Forward foreign currency contracts
Derivative financial liabilities
Forward foreign currency contracts
12. Creditors
Amounts falling due within one year:
Bank loans and overdrafts (note 13)
Trade and other creditors
Amounts owing to Group undertakings
Consideration payable on purchase of subsidiaries
Trade creditors
Tax and social security
Other creditors
Accruals and deferred income
Amounts falling due after more than one year:
Bank loans and overdrafts (note 13)
Deferred tax
The net deferred tax (liabilities)/assets provided in the Financial Statements are as follows:
Capital allowances in excess of depreciation
Temporary differences on share options
Other timing differences
Retirement benefits obligations
2018
£’000
291
2018
£’000
8
2018
£’000
2017
£’000
–
2017
£’000
17
2017
£’000
66,370
25,843
5,933
17,818
1,031
888
6,490
1,937
34,097
5,105
6,249
757
581
2,467
1,408
16,567
2018
£’000
2017
£’000
–
1,103
1,103
80,245
–
80,245
2018
£’000
(458)
178
(507)
(316)
2017
£’000
(438)
30
(557)
2,727
(1,103)
1,762
The Finance Act 2015, which provides for reductions in the main rate of corporation tax from 20% to 19% effective from 1 April 2017
and to 18% effective from 1 April 2020. In the Finance Act 2016, the Government announced further reductions in the main tax rate
down to 17% effective from 1 April 2020.
Kin + Carta Annual Report and Accounts 2018
13. Borrowings and Finance Obligations
Amounts falling due within one year
Bank overdrafts
Bank loans
Amounts falling due after more than one year
Bank loans
157
2018
£’000
2017
£’000
26,007
40,363
66,370
25,843
–
25,843
–
80,245
Bank overdrafts and loans
During the current period the Group reduced its revolving credit facility from £125 million to £95 million. Up to £15 million could be
drawn as an overdraft facility. Interest on loan drawdowns was charged at LIBOR plus a margin which varies between 1.65% and 2.60%,
depending on the ratio of the Group’s net debt to EBITDA excluding Adjusting Items. Interest on overdraft drawdowns was charged at
1.65% over UK bank base rate.
As at 3 August 2018, the Group’s outstanding loans within this facility were £40.4 million (2017 – £80.2 million). The undrawn
portion of this facility at 3 August 2018 was £54.6 million (2017 – £44.8 million).
Subsequent to the period end, the Group entered into a new revolving loan credit facility of £85.0 million which replaced the previous
facility. The new facility is due to expire on 30 November 2022. Up to £15 million may be drawn as an overdraft facility.
The Company’s overdraft is guaranteed by certain UK subsidiary undertakings and the Company guarantees the loans and overdrafts
of those UK subsidiary undertakings. At 3 August 2018, the aggregate liability for the Company under this guarantee amounted to
£66.8 million (2017 – £108.0 million). The aggregate value of overdraft liabilities belonging to these subsidiaries which are guaranteed
by the Company amounted to £nil (2017 – £0.5 million).
As at 3 August 2018, there was no loan or overdraft secured against the assets of the Company (2017 – £Nil). The Directors consider
that the carrying amount of the loans and overdrafts approximates their fair value.
The Company has guaranteed amounts payable to certain property landlords, and specific suppliers and customers of its trading
subsidiaries. The maximum aggregate liability under these financial guarantees is £31.1 million (2017 – £22.3 million).
Kin + Carta Annual Report and Accounts 2018Our Figures
158
NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
14. Provisions for Liabilities
Provision for repairs
Provision for reorganisation
Retirement benefit (surplus)/obligation
At 29 July 2017
Credit to profit and loss account
At 3 August 2018
2018
£’000
420
767
1,187
2017
£’000
60
–
60
(1,858)
16,041
Provision
for repairs
£’000
Provision for
reorganisation
£’000
60
360
420
–
767
767
Total
£’000
60
1,127
1,187
The provision for repairs at 3 August 2018 relates to the dilapidation of properties, for which the Company is responsible. Provisions
held as at 3 August 2018 are estimated to be utilised between financial periods ending 2019 and 2021.
The provision for reorganisation provision comprises of onerous leases on properties.
The Company participates in both the defined benefits and defined contribution schemes operated by Kin and Carta plc. The assets
and liabilities of the defined benefit scheme are held in separate trustee-administered funds. The pension costs are based on pension
costs across the Group as a whole. For the defined contribution scheme, the profit and loss charge represents contributions payable.
The Group is required to account for the defined benefits scheme under International Accounting Standard 19 − Employee Benefits
(‘IAS 19’). The IAS 19 disclosures are included in note 29 of the notes to the Consolidated Financial Statements.
15. Called Up Share Capital and Share Premium Account
Allotted and fully paid:
At 28 July 2017
Issue of share capital
At 28 July 2017
Number of
shares
Ordinary shares
of 10p each
£’000
Share premium
account
£’000
142,844,676
10,581,800
14,284
1,058
153,426,476
15,343
60,237
–
60,237
10,581,000 shares issued during the period were in respect of the deferred consideration payable in relation to the acquisition
of Solstice and The App Business, as detailed in note 12 of the Consolidated Financial Statements.
All authorised and issued share capital is represented by equity shareholdings. Further information on equity can be found in note 32
of the Consolidated Financial Statements.
16. Other Reserves
The movements in reserves are disclosed in the Company’s Statement of Changes in Equity.
As at 3 August 2018, the Company held a portfolio of treasury shares consisting of 90,636 ordinary shares.
Details of dividends can be found in note 13 to the Consolidated Financial Statements.
Kin + Carta Annual Report and Accounts 2018
159
17. Operating Lease Commitments
At 3 August 2018, the Company had outstanding commitments for the future minimum lease payments under non-cancellable
operating leases as follows:
Within one year
Between one and five years
2018
Land and
buildings
£’000
414
517
931
2018
Other
£’000
10
8
18
2017
Land and
buildings
£’000
414
930
1,344
2017
Other
£’000
8
8
16
18. Related Party Transactions
Details on related party transactions can be found in note 39 to the Consolidated Financial Statements.
19. Statement of Guarantee
The Company has signed a statement of guarantee in respect of a number of subsidiary companies under section 479C of the
Companies Act 2006. As a result, the following subsidiaries are exempt from the requirements of the UK Companies Act 2006 in
relation to the audit of individual accounts by virtue of s479A of that Act:
Company
Amaze (Holdings) Limited
Amaze Communication Services (Holdings) Limited
Amaze Communication Services Limited
Amaze (Europe) Limited
Branded3 Search Limited
eBee Limited
Fripp, Sandeman and Partners Limited
The Health Hive Limited
Kin + Carta Limited
My Bench Limited
Okana Systems Limited
Pollen Health Limited
Pragma Consulting Limited
Realise Holdings Limited
Relish Agency Limited
Response One Holdings Limited
St Ives Blackburn Limited
St Ives Burnley Limited
St Ives Direct Leeds Limited
St Ives Holdings Limited
St Ives Marketing Services Limited
St Ives Shelf Limited
St Ives Westerham Press Limited
Company registration number
06417738
02670935
02051287
06418202
06479012
06844490
01284879
06423579
11403627
09569438
03877530
07839170
02184185
SC306420
11456907
06724581
01396772
05464477
03067683
00190460
08417677
11442056
00483880
Kin + Carta Annual Report and Accounts 2018Our Figures
160
SHAREHOLDER INFORMATION
Corporate information
Further information about the Group can be found on our website: www.kinandcarta.com
This year’s Annual Report and Accounts, as well as copies of past years’ Annual Reports and Accounts, Half year Statements and
Shareholder circulars, are available to view and download from our investor website. Regulatory announcements and press releases
made during the year, and in past years, are also available to view in the Regulatory News section of the Shareholder Information area
of the investor website at: www.investors.kinandcarta.com.
Should you wish to receive further copies of the Annual Report and Accounts, please contact the Company Secretary, Kin and Carta plc,
One Tudor Street, London EC4Y 0AH.
Shares
Kin and Carta plc ordinary shares of 10 pence each are listed on the London Stock Exchange and trade under the symbol: KCT.
Our International Securities Identification Number (‘ISIN’) is GB0007689002 and our Stock Exchange Daily Official List (‘SEDOL’)
number is 768900.
Share price information and our latest regulatory announcements can be obtained from the Stock Exchange website,
www.londonstockexchange. com.
Shareholding enquiries
Kin and Carta plc’s register is maintained by Link Asset Services, who are able to deal with shareholders’ queries, including
in respect of any of the following matters:
• transfer of shares;
• change of name or address;
• registering the death of a shareholder;
• lost share certificates;
• lost or out of date dividend warrants; and
• the payment of dividends directly into a bank or building society accounts.
Their contact details are: Kin and Carta plc Shareholder Services, Link Asset Services, The Registry, 34 Beckenham Road, Beckenham,
Kent BR3 4TU.
Link’s shareholder helpline telephone number is 0871 664 0300 (calls cost 12 pence per minute plus network extras).
If calling from overseas, please telephone +44 (0) 371 664 0300. Lines are open from 9.00 a.m. to 5.30 p.m., Monday to Friday.
Alternatively, you can email your query to our registrars at shareholderenquiries@linkgroup.co.uk although, for legal reasons,
they may subsequently require you to confirm any instruction in writing.
Our principal advisers
Stockbrokers
Numis Securities Limited, The London Stock Exchange Building, 10 Paternoster Square, London EC4M 7LT
Financial advisers
N.M. Rothschild & Sons Limited, New Court, St. Swithin’s Lane, London EC4N 8AL
Bankers
HSBC Bank plc, 60 Queen Victoria Street, London EC4N 4TR
Fifth Third Bank 68 King William Street London, United Kingdom EC4N 7DZ
The Governor and Company of the Bank of Ireland, Bow Bells House, 1 Bread Street, London, EC4M 9BE
Solicitors
Herbert Smith Freehills LLP, Exchange House, Primrose Street, London EC2A 2EG
Kin + Carta Annual Report and Accounts 2018 Financial period ended 28 July 2017
Annual General Meeting 2017
Record date for final dividend
Payment date for final dividend of 1.30p per ordinary share
Financial period ended 3 August 2018
Half year end
Announcement of Half year results
Record date for interim dividend
Payment date for interim dividend of 0.65p per ordinary share
Financial year end
Announcement of Full year results
Annual General Meeting 2018
Ex-dividend date
Record date for proposed final dividend
Payment date for proposed final dividend of 1.30p per ordinary share
Financial period ending 31 July 2019
Half year end
Announcement of Half year results
Financial year end
161
30 November 2017
24 November 2017
18 December 2017
2 February 2018
7 March 2018
6 April 2018
4 May 2018
3 August 2018
9 October 2018
29 November 2018
22 November 2018
23 November 2018
17 December 2018*
31 January 2019
March 2019
31 July 2019
* If approved by shareholders at the 2018 Annual General Meeting the proposed final dividend will be paid on 17 December 2018.
Dividend Reinvestment Plan
The Dividend Reinvestment plan can be a convenient and easy way to build up your shareholding by using your cash dividends to buy more
shares in the Company. The Plan is provided by Link Asset Services (‘Link’), a trading name of Link Market Services Trustees Limited, which
is authorised and regulated by the Financial Conduct Authority (‘FCA’).
Should you require any further information, please do not hesitate to contact Link Asset Services on 0871 664 0300. Calls are charged at
the standard geographic rate and will vary by provider. Calls outside the United Kingdom are charged at the applicable international rate.
Lines are open between 9.00 a.m. to 5.30 p.m. Monday to Friday excluding, public holidays in England and Wales. Alternatively please email
shares@linkgroup.co.uk or log on to www.kinandcarta-shares.co.uk.
Unauthorised brokers (‘Boiler Room Scams’)
It is very unlikely that a reputable authorised firm that a shareholder has had no relationship with would make contact out of the blue
offering to buy Kin and Carta plc’s shares or offer other investment opportunities.
Therefore, shareholders are advised to be wary of anyone offering to give unsolicited advice, buy shares at a discount or give free company
reports. These calls are typically from overseas-based ‘brokers’ who target UK shareholders, offering to sell them what are often worthless
or high risk shares in US or UK investments. This sharp practice is commonly known as a ‘boiler room scam’. If you receive any unsolicited
investment advice:
• make sure you get the correct name of the person or organisation;
• check that they are properly authorised by the FCA before taking any action by visiting: www.fsa.gov.uk/register/home.do;
• report the matter to the FCA either by calling their Consumer Helpline (0800 111 6768) or by completing an online form at:
www.fca.org.uk/scams; and
• if calls persist, hang up.
Kin + Carta Annual Report and Accounts 2018Our Figures 162
NOTES
Kin + Carta Annual Report and Accounts 2018 Kin and Carta plc
Registered in England & Wales No.
1552113
Registered office
One Tudor Street
London EC4Y 0AH
100% of the inks used are vegetable oil based, 95%
of press chemicals are recycled for further use and,
on average 99% of any waste associated with this
production will be recycled.
This document is printed on Heaven 42, a paper
containing 100% virgin fibre sourced from well-
managed, responsible, FSC® certified forests.
Some pulp used in this product is bleached using an
elemental chlorine free (ECF) process and some using
a totally chlorine free (TCF) process.
Design & Production
www.carrkamasa.co.uk
Kin + Carta Annual Report and Accounts 2018 164
Kin and Carta plc
One Tudor Street
London
EC4Y 0AH
Telephone 020 7928 8844
Email
hello@kinandcarta.com
Website www.kinandcarta.com
Kin + Carta Annual Report and Accounts 2018