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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Kin And Carta Plc | LSE:KCT | London | Ordinary Share | GB0007689002 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 129.60 | 129.60 | 129.80 | 129.60 | 129.40 | 129.60 | 120,140 | 12:53:26 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Commercial Printing, Nec | 195.87M | -18.77M | -0.1055 | -12.28 | 230.6M |
From Apr 2019 to Apr 2024
TIDMKCT
RNS Number : 4274O
Kin and Carta PLC
02 October 2019
2 October 2019
Kin and Carta plc
('Kin + Carta', the 'Group', or the 'Company').
Full Year Results
Investing to Capture the High Growth DX Opportunity
Kin + Carta, the international digital transformation ("DX") Company, today announces preliminary results for the period from 4 August 2018 to 31 July 2019.
__________________________________________________________________________________________________________________________
Financial Highlights
-- Like-for-like(1) net revenue of GBP148.0 million(3) , up 2% compared to the prior year
-- Adjusted profit before tax of GBP17.6 million(3) ; down 2.5% compared to the prior year, which includes previously announced GBP3 million of growth investments
-- Adjusted operating margin 13% of net revenue (2018: 14%)(3) -- Statutory profit before tax of GBP1.8 million (2018: loss of GBP31.2 million)
-- Net debt GBP38.4 million (2018: GBP26.0 million), representing a net debt to Adjusted EBITDA ratio of 1.68x
-- Full year dividend maintained at 1.95 pence per share
Operational Highlights
-- A year of continued transformation and investment to capture the DX growth opportunity -- Improved performance in Strategy pillar (16% of net revenue) -- Ongoing double-digit growth in Innovation (56% of net revenue) -- Stabilisation of Communications (28% of net revenue)
-- Growth investments gaining traction: 40 Connective deals signed in the period including new clients Barclays, Blue Cross Blue Shield and Shell
-- Growth investments included geographic expansion, building central sales, marketing and partnerships functions and implementing global financial and delivery systems
-- Leadership team strengthened by the appointment of new Chairman with significant DX experience and CFO together with senior management appointments across the company
Hot Features
Premium
LIKE-FOR-LIKE
362 DAYS 371 DAYS LIKE-FOR-LIKE WORKING DAYS
TO 31 JULY TO 3 AUGUST (3) WORKING AND
2019 2018 (5) % CHANGE DAYS% CHANGE CURRENCY IMPACT
================================ =========== ============ ======== ============= ================
Revenue GBP172.9m GBP178.4m (3.1)% (0.4)% (2.1)%
Net revenue (2, 4) GBP148.0m GBP149.7m (1.1)% 1.6% unchanged
Adjusted profit before
tax (4) GBP17.6m GBP18.5m (5.0)% (2.4)% (7.5)%
Adjusted basic earnings
per share (4) 9.22p 10.10p (8.7)% (8.1)% -
Statutory profit/(loss)
before tax GBP1.8m GBP(31.2)m - -
Statutory basic earnings/(loss)
per share 0.73p (22.09)p - -
Full year dividend 1.95p 1.95p - -
================================ =========== ============ ======== ============= ================
Net debt GBP38.4m GBP26.0m GBP12.4m - -
================================ =========== ============ ======== ============= ================
(1) Like-for-like net revenue is defined as the revenue from continuing operations using the same number of working days when comparing the current period to the prior period.
(2) Net revenue is defined as gross revenue excluding all direct costs and third party expenses passed to clients (note 11)
(3) Further details are provided within Alternative Performance Measure section.
(4) Adjusted results exclude Adjusting Items to enhance understanding of the ongoing financial performance of the Group. Adjusting Items comprise redundancies, restructuring costs; gain or loss on disposal of properties; impairment or amortisation charges related to goodwill, tangible and intangible assets; contingent consideration required to be treated as remuneration; movements in deferred consideration and costs related to the Company's Defined Benefits Pension Scheme (note 3).
(5) Continuing operations excludes the results of the Books and Marketing Activation segments disposed in the prior year (note 12).
J Schwan, CEO, said:
"This year Kin + Carta has made significant headway executing on the strategic plan we outlined at the end of fiscal year 2018. We have reoriented our proposition and brand towards where we see the greatest opportunity, the DX market.
"We provide leading edge work for some of the world's best companies and our three pillars represent the services required to help customers along every step of their DX journey. The strength of our Innovation pillar demonstrates the power of this model. Our Strategy and Communication pillars are highly complementary, but we have had to reposition them to take advantage of higher value DX oriented opportunities. Although this repositioning has taken longer than we expected, due to the sheer scale of change required, I'm pleased to say we are seeing improved performance in Strategy, and a stabilisation of the Communication business.
"Digital transformation is a market which is growing globally at a high teens CAGR and impacting every sector. Kin + Carta is doing all the right things to position itself to take advantage of this market and I believe the benefits of our repositioning and investment will accelerate our growth during 2020.
_____________________
For further information, please contact:
Kin and Carta plc +44 (0)20 7928 8844 J Schwan, Chief Executive Officer Chris Kutsor, Chief Financial Officer Powerscourt +44 (0)20 3328 8386 Elly Williamson / Jessica Hodgson Numis Securities Limited +44 (0)207 260 1345 Nick Westlake / Matt Lewis
About Kin + Carta
Kin and Carta plc provides next-generation, digital transformation services that apply technology, data and creativity to help clients invent, market, and operate new digital products and services. Kin + Carta operates across the United Kingdom, Europe, the United States of America, South America, and Asia and fuses three specialisms - strategy, innovation, and communications - under its organisational model called "The Connective".
The business primarily serves the healthcare, financial services, transportation, industrial and agriculture, retail and distribution sectors.
Kin and Carta plc's global team consists of c1,500 technologists, strategists and creatives across four continents, connected by culture and shared ways of working. The Company is headquartered in London, United Kingdom.
Chief Executive's Review
Introduction
The pace of change at Kin + Carta has been persistent and invigorating as we focus our business on its areas of highest potential. In the past twelve months Kin + Carta has launched a new brand, refined its business model, overhauled its proposition, launched new financial and collaboration systems, appointed new sales and marketing teams and refreshed its Board and senior leadership team. We also launched four new offices, stretching our suite of capabilities into the US for the first time.
Technology's impact on our lives and the economy is accelerating. The global digital transformation (DX) market is projected to grow at an 18% CAGR from $290bn in 2018 to $665bn in 2023. We have been relentless in our action this year to create a platform for long-term value creation in this growing market. While this has had some impact on our near-term financial results, we believe we have made the right moves to support the long-term growth of the business and build a prosperous future. In parallel, we have honed our acquisition strategy to expand our platform into new regions when the right opportunities present themselves.
Financial Performance
2019 reflects mixed financial results. We invested for growth and are pleased to see early signs of success with significant new client wins across our key sectors such as Barclays, Blue Cross Blue Shield and Shell. We also drove structural changes in our Communication and Strategy pillars to re-focus on more strategic DX opportunities. Our Strategy pillar is already seeing an improved year ahead and our Communications pillar is stabilising. We are now much better positioned heading into FY2020.
Other positive developments during the year include improved geographic diversification and higher growth in DX-focused business, which both help provide a more solid and sustainable foundation for future growth. These changes continue to be driven by a focus on areas of greatest opportunity such as Innovation and the higher growth market in the US. Our Innovation pillar now accounts for 56% of the Group's net revenue compared to 48% a year ago, and our US business is now 46% of net revenue, compared to 40% in the prior year. Our new global sales and marketing function signed over 40 Connective deals, holding our target of a healthy 50% gross margin, and our pipeline and backlog has improved.
As explained in the pre-close Trading Update, these results include GBP3 million of investment in launching our new strategy which was second half weighted. We continue to invest at a similar level in 2020. This investment encompasses an ongoing realignment of our operations, our sales and marketing function, geographic expansion and launching new capabilities to the market.
Operational Update
Kin + Carta offers our clients three distinct sets of tightly integrated digital transformation capabilities:
-- Strategy - Our sector-focused management consultants help our clients better understand the shifts in their market and how their products and services need to evolve.
-- Innovation - Our 700+ software engineers and designers utilise emerging technologies to create new products and services for our clients to bring to market.
-- Communications - Our digital marketing experts help our clients amplify their digital investments by finding new audiences and converting them into lifelong customers.
These three capabilities combine to form our Connective proposition, a holistic combination offering customers the ability to drive meaningful change in their business. We've made significant progress over the past year evolving the Company around this core proposition.
Strategy
We started the year with a set of disparate businesses in our Strategy pillar, operating somewhat independently from the rest of the Group. After a significant amount of restructuring we now have a powerful go-to-market brand and a clear strategic front-end to our DX proposition.
The newly formed Kin + Carta Advisory ("KCA") is a management consultancy focused on helping our clients navigate the sometimes overwhelming digital opportunity, while enabling a clear bridge to implementation through our Innovation and Communication capabilities. KCA consultants are focused on our key sectors, are located in offices in both London and New York and are already delivering projects leading to meaningful implementation programs for our Innovation and Communication pillars.
KCA is supported by Kin + Carta Incite, our next-generation market research consultancy that provides strategic insights to KCA as well as our other pillars. In addition to our enterprise customers, we are also engaged by some of the largest technology companies in the world; including Amazon, Facebook, Apple and Google. The ability for Kin + Carta consultants to serve both the disruptors and the disrupted provides them with a unique perspective in the market.
We are optimistic around the moves we've made in our Strategy pillar and look forward to unlocking further growth opportunities in the year ahead.
Innovation
Our digital Innovation pillar, comprising Kin + Carta Solstice and Kin + Carta TAB, is delivering double digit revenue growth in both the US and the UK. We continue to build meaningful products and platforms for some of the world's largest companies in the most exciting areas of emerging technology such as Cloud, Machine Visioning, Artificial Intelligence, Natural Language Interfaces, Blockchain and Mobile.
Our fastest growth area is in Cloud Transformation. This involves helping our clients re-engineer legacy software systems to run on top of our partners' (Google, Microsoft, Amazon, Pivotal) cloud platforms. These transformation projects allow us to form deep, long-term relationships with our customers while providing them the agility of a digitally native company.
We are growing existing relationships and winning new exciting Fortune 1000 clients in our strategic sectors. Our UK team leveraged the Connective's financial services sector expertise to win three of the largest banks in Europe as new customers. Our US team leveraged the healthcare strength in our UK Strategy pillar to win several significant multi-year projects with healthcare insurers.
Our 700+ strong global engineering team is collaborating across regions more closely than ever, developing new tools and skills and accelerating their distribution across our global client base. The future for our Innovation pillar is truly exciting.
Communications
Our communications pillar, comprising Kin + Carta AmazeRealise and Kin + Carta Edit, had a challenging year as it shifted its focus away from low value projects to higher value DX work and larger projects. This involved focusing on clients who are looking to implement new marketing technology (MarTech) platforms as opposed to focusing on clients commissioning one-off campaign work. Where we define and implement a MarTech platform in addition to the content that goes on the platform, the relationship with the client becomes deeper, the tenure longer and our ability to impact change more meaningful.
Changes we have implemented in this pillar include some significant new hires and appointments, including a new Managing Director, new Chief Growth Officer, new Director of Employee Experience, and new Financial Director. We also appointed our Chief Connective Officer, Charlie Wrench, as the interim Head of Communications as we work further through its evolution.
Historically, our digital marketing capabilities were solely focused in the UK which experienced delays to some client investment decisions due to Brexit uncertainty. Our focus this year was to diversify our geographic presence and bring our capabilities to the US market. We opened our first office in Chicago and began offering our communications service offerings into our existing innovation-focused Fortune 1000 client base. This involved making more strategic hires, as well as laying the groundwork for a joint business development effort between our Innovation and Communications sales teams which is building a base for growth in FY2020.
We have also won some significant new clients in the UK within the pillar, while also winning 11 different marketing technology-related awards during the year. Our Communication pillar also referred over GBP5 million in revenue around the Group, a sign of the Connective strategy beginning to pay dividends.
While we still have more work to do to shape our Communications pillar for our DX-focused future, we are optimistic that the moves we have made will set us up for long term success starting in the second half FY2020.
Strategic Priorities
At the time that we unveiled our new transformation strategy and identity, we pinpointed six strategic priorities. A year into this journey, we have made significant progress against all of these, which we outline below. We have also simplified this list into the following five ongoing priorities, which we believe will underpin the next stage of our growth.
1) GROWTH - We will accelerate organic growth through the continuous optimisation of a highly measurable, integrated and scalable demand generation machine: in FY19 we built new central sales, marketing, partnerships and lead generation teams and signed over 40 cross-specialisms deals valued at over GBP11 million in new net revenue through these channels. Our goal in the next financial year is to optimise these teams around our key sectors and scale our new partnership function in the US and the UK.
2) PROPOSITION - We will build a market defining set of sector-focused technology-led business transformation offerings: in FY19 we hired our first Chief Connective Officer, Charlie Wrench, launched our new brand, defined our first go-to-market DX proposition and created Kin + Carta Advisory as the strategic "front-end" to our DX proposition. We evolved our capabilities in Cloud Modernisation, Artificial Intelligence, MarTech Modernisation and in Digital Advisory. Our sector focused approach allowed for our Innovation pillar to meaningfully break into the Healthcare sector for the first time with two seven-figure multi-year wins whilst also expanding our Financial Services expertise in the UK winning three of Europe's largest banks as new clients. In the next financial year we will continue to invest in the evolution of our Connective proposition and begin a process of further rationalising our brands to make it easier for our clients to engage multiple parts of our proposition.
3) PEOPLE - We will create an industry leading employee experience with a focus on the growth potential of our talent and a shared commitment to a triple bottom-line (profits, people and planet): in FY19, through a number of new employee experience initiatives we won seven Best Place To Work awards and raised our global employee NPS (eNPS) score by more than 50%. We also launched our first coordinated Corporate Social Responsibility (CSR) plan, which pledges to certify all of our specialisms as B Corps (www.bcorporation.net) by 2022, with a plan to certify our first four specialisms in the next financial year. To learn more about B Corp you can read about our plans in the CSR section of our forthcoming Annual Report and Accounts.
4) PLATFORM - We will build an operational platform made up of best-in-class operational systems and seamless shared services: In FY19 we rolled out new collaboration, financial and project delivery systems. In the next financial year we will roll out standard CRM and HR systems and begin expanding our shared services platform. This will ensure we are taking advantage of operational gearing as we scale, while allowing for our specialisms to focus on what makes them unique.
5) EXPANSION - We will execute a purposeful and intelligent geographic expansion into new regions domestically and internationally: In FY19 we launched a new Innovation office in Edinburgh, a new Communications office in Chicago and new Kin + Carta Advisory offices in New York and London. We now have all three of our core capabilities in the US. In the next financial year we will turn our attention to acquisition opportunities, with a focus on unlocking growth in the western and southern regions of the US.
By continuing to focus on these five key areas we believe we will be poised to accelerate growth within the exciting DX market.
Outlook
Trading at the start of the new financial year has been in line with expectations. Our Strategy pillar is seeing improved performance, our Innovation pillar continues to power ahead and our Communications pillar is stabilising.
For FY2020 we expect double-digit net revenue growth of 10-12%, accelerating primarily in the second half, with double-digit Adjusted operating margins of 12-13% for the year. Whilst investment will have some impact on H1 2020 profitability, it will deliver higher growth and improved profitability in H2 2020. The investments we are making in realigning our business and the functions and systems that power its growth have positioned us well for the long-term.
Over the medium term we expect both net revenue growth and operating margins to improve into the low teens, whilst we manage operating margin to fund continuing investment in the growth of the business. We will look to manage Adjusted net debt to EBITDA between one and two times depending on the opportunities available to us.
The realignment of our operations combined with ongoing investment in them positions us at the heart of the DX market opportunity. Core to our growth is our Connective collaborative model, harnessing the best combination of our skills for each of our clients. The power of the Connective is gaining traction evidenced by significant referrals and revenue growth across the business. I am excited about the potential for Kin + Carta as our growth accelerates into 2020 and beyond.
J Schwan
Chief Executive Officer
1 October 2019
Financial Review
Overview
I am pleased to serve as the new Kin + Carta CFO and excited about the opportunity in front of us. We have the people, the client base and the appropriate strategy to capture significantly more growth from the DX market in the near term and coming years. We continue to make the necessary changes to position the Company for more reliable, and profitable future growth.
The results that follow are discussed in terms of continuing operations. The results are for 362 days compared to the prior period of 371 days.
The Group's statutory results for continuing operations are set out in the table below:
362 DAYS TO 31 371 DAYS TO
JULY 2019 3 AUGUST 2018
-------------------------------------------- -------------- --------------
Revenue GBP172.9m GBP178.4m
-------------------------------------------- -------------- --------------
Net revenue GBP148.3m GBP149.7m
Statutory profit/(loss) before interest and
tax GBP4.3m GBP(28.2)m
Statutory profit/(loss) before tax GBP1.8m GBP(31.2)m
Basic profit/(loss) per share 0.73p (22.09)p
============================================ ============== ==============
The Group's statutory profit before tax of GBP1.8 million (2018: loss of GBP31.2 million) includes Adjusting Items of GBP15.8 million (2018: GBP49.6 million), of which GBP13.2 million relates to non-cash items in the current period. Adjusting non-cash items include past service costs of GBP4.1 million related to the St Ives Defined Benefits Scheme (the "Scheme"), contingent consideration treated as remuneration of GBP2.4 million, and the amortisation of acquired intangibles of GBP6.7 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 the Scheme charges. Further details are provided in the Alternative Performance Measures section below.
Net Revenue and Adjusted Operating Profit
Net revenue growth on a like for like basis of working days was 2% (GBP2.7 million), including a favourable currency impact of approximately 2%. Net revenue from clients outside of the UK increased from GBP72.6 million to GBP78.5 million, and now represents 54% of Group net revenues compared to 48% in the prior year.
Adjusted operating profit was GBP19.9 million, or 13% of net revenue compared to GBP21.2 million and 14% in the prior year, reflecting higher investments in growth, restructuring in the Communication and Strategy businesses, as well as macro economic weakness in the UK market.
Central costs were GBP5.8 million (2018: GBP5.3 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 3.9% of Group net revenue, and comprise the costs of running a plc and certain functions retained in the centre.
Acquisitions
No acquisitions were made in the current period. However, the total current year cash outflow for businesses acquired in prior periods was GBP19.9 million. This includes a final payment of GBP3.4 million related to Solstice, and GBP16.5 million to settle the third deferred consideration payment for the TAB business. There remains at 31 July 2019 a liability of GBP2.0 million in relation to the final tranche of TAB's deferred consideration. Subsequent to the period end in August 2019, the Group settled the remaining liability of GBP1.2 million in cash and issued a loan note for GBP0.8 million.
Balance Sheet
The net assets of the Group have increased from GBP81.4 million to GBP88.0 million primarily due to net profit after tax of GBP1.1 million and a net actuarial gain of GBP5.2 million related to the Scheme. Total assets have increased from GBP191.7 million to GBP194.5 million and total liabilities have decreased from GBP110.3 million to GBP106.9 million. Non-current assets consist largely of goodwill and intangible assets of GBP111.2 million (2018: GBP116.2 million).
Tax
The total tax charge for continuing operations was GBP0.7 million (2018: GBP1.2 million). A number of Adjusting Items are not deductible for taxation purposes. Further details are provided in the Alternative Performance Measures section below.
The Group's effective tax rate on the Adjusted profit before tax was 19.5% (2018: 19.8%) compared to the standard rate of corporation tax of 19% (2018: 19%) and federal US tax of 21% (2018: 21%) for the Group. The Adjusted tax charge was GBP3.4 million (2018: GBP3.7 million). The Group's effective tax rate on Adjusted profit is lower than the prior period due to a decrease in UK and US statutory corporate income tax rates.
Net income tax of GBP0.3 million (2018: GBP5.4 million) was paid in the period.
Dividend
The Board is recommending a final dividend of 1.30 pence per ordinary share (2018: 1.30 pence) giving a total dividend of 1.95 pence (2018: 1.95 pence) in respect of the 2019 financial period. The dividend is covered 4.7 times by 2019 Adjusted earnings. Subject to shareholder approval at the Annual General Meeting, the final dividend will be paid on 17 December 2019 to shareholders on the register at 22 November 2019, with an ex-dividend date of 21 November 2019.
Pensions
The Group closed the Scheme to new members in 2002 and ceased future accruals 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 31 July 2019 based on the market value of the assets at that date and the valuation of liabilities using a discount rate based on AA non-gilt bond yields.
On an IAS 19 basis, the net surplus on the Scheme was GBP6.7 million (2018: surplus of GBP1.9 million) before the related deferred tax liability. The value of the plan assets increased to GBP385.9 million (2018: GBP353.5 million) due to the strength of investment returns. Approximately 65% of the plan assets are invested in return seeking assets providing a higher level of return over the longer period. Plan liabilities increased to GBP379.2 million (2018: GBP351.6 million) due primarily to the decrease in the discount rate used, partially offset by the impact of a reduction in assumed rates of future improvement in life expectancy. The increase in the accounting surplus is primarily attributable to the reduction in the assumed rate of future improvement in life expectancy of scheme members.
The Scheme's actuarial valuations determine the cash deficit recovery payments by the Group and the Scheme's triennial valuation as of April 2019 is currently in progress. The Group currently makes deficit funding contributions of GBP2.6 million per annum and a contribution of GBP0.4 million per annum towards the costs of administration of the Scheme. On the disposal of the Books segment in April 2018, the Group made an additional contribution of GBP2.5 million to the Scheme.
The charge for the Group's defined contribution schemes was GBP2.3 million (2018: GBP2.1 million) in the period.
Cash Flow
Cash generated from operations was GBP9.0 million (2018: GBP25.8 million). The decline was due to the disposal of the Books and Marketing Activation segments in the prior period and an increase in working capital investment in the current period. Total dividends paid were GBP3.0 million (2018: GBP2.8 million). This consisted of a final dividend for 2018 financial period of 1.30 pence per share and an interim dividend of 0.65 pence per share.
The capital expenditure incurred within the continuing business primarily related to the fit out of new office space and the refurbishment of offices.
During the period, the Group sold a property in Redditch for a consideration of GBP7.2 million. This property was previously occupied by SP Group Limited, which was disposed in the prior period.
Net Debt
During the period, the Group successfully negotiated a new revolving credit facility of GBP85.0 million, expiring 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.
Net debt increased during the year from GBP26.0 million to GBP38.4 million primarily due to payments of earnout-related consideration of GBP19.9 million for the Solstice and TAB acquisitions, partially offset by the sale proceeds from the Redditch property. At 31 July 2019, Kin + Carta had drawn GBP60.4 million on its revolving credit facility, leaving an unutilised commitment of GBP24.6 million. The Group had cash and cash equivalents of GBP22.0 million.
At 31 July 2019, the ratio of net debt to EBITDA before Adjusting Items was 1.7 times (2018: 1.1 times) as shown in the Alternative Performance Measures section below.
Chris Kutsor
Chief Financial Officer
1 October 2019
Alternative Performance Measures
The Annual report includes both statutory and Adjusted Results. In the management's view, the Adjusted results reflect the on-going 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 on-going trading performance of the business. The amortisation of computer software is included within the Adjusted results as it is part of the on-going 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 IFRS3 this is treated as an expense and therefore part of the statutory result. Where the purchase price has been determined and there is a subsequent increase or decrease arising from the payment of deferred consideration under IFRS3 this is required to be expensed. We do not consider this to be 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 5 employees who are members of the Scheme and still 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 including administration costs, past service costs related to Guaranteed Minimum pension 'GMP' and pension finance charge/(credit) are not considered to be part of the on-going performance of the Group and they are excluded from the performance measures. As such they are treated as Adjusting items. The analysis of Adjusting Items from continuing operations is set out below:
371 DAYS TO
362 DAYS TO 31 JULY 3 AUGUST
ADJUSTING ITEMS DESCRIPTION 2019 GBP'000 2018 GBP,000
================================================== ==================== =============
Profit on disposal of property, plant and
equipment (1,771) (1,542)
Amortisation of acquired intangibles 6,674 8,659
Expenses related to restructuring items 2,635 3,062
Impairment of goodwill and other assets - 12,082
Contingent consideration required to be treated
as remuneration 2,375 23,994
Increase in deferred consideration - 3,094
Administrative expenses/(income) related
to St Ives Defined Benefits Pension Scheme 5,707 (31)
-------------------------------------------------- -------------------- -------------
Total Adjusting Items added back to the statutory
operating profit 15,620 49,318
-------------------------------------------------- -------------------- -------------
Bank amortisation fees 189 -
Pension finance charge (30) 324
Total Adjusting Items added back to the statutory
profit before tax 15,779 49,642
-------------------------------------------------- -------------------- -------------
Tax related to Adjusting Items (2,772) (2,436)
-------------------------------------------------- -------------------- -------------
Total Adjusting Items added back to the statutory
profit after tax 13,007 47,206
-------------------------------------------------- -------------------- -------------
The key APMs frequently used by the Group for continuing operations are:
Like-for-like revenue: The measure is defined as the revenue from continuing operations using the same number of working days when comparing the current period to the prior period. The Company moved to calendar billable month reporting from August 2018; the previous reporting cycle comprised of 52/53 week years. The number of working days in the current period was 258 against a comparator of 265 days. The comparator revenue has been adjusted to reflect an equal number of working days.
362 DAYS TO 31 371 DAYS TO 3
JULY 2019 GBP'000 AUGUST 2018 GBP,000
Statutory revenue 172,874 178,355
Number of working days in the period 258 265
Number of working days in the current period 258 258
Like-for-like revenue 172,874 173,643
============================================= ================== ====================
Like-for-like revenue % (0.4)%
============================================= ================== ====================
362 DAYS TO 371 DAYS TO 3
31 JULY 2019 AUGUST 2018
GBP'000 GBP,000
======================= ============= =============
Statutory revenue 172,874 178,355
-------------
Less Adjusting revenue (763) (63)
======================= =============
Adjusted revenue 172,111 178,292
======================= ============= =============
Adjusting revenue includes revenue recorded after the decision to cease the operations of a subsidiary.
Adjusted net revenue: The measure is defined as revenue less project-related costs as shown on the consolidated income statement. Project-related costs comprise primarily of third party pass-through expenses and direct costs attributable to a project.
362 DAYS TO 31 371 DAYS TO AUGUST
JULY 2019 GBP'000 2018 GBP,000
====================== ================== ==================
Adjusted revenue 172,111 178,355
Project-related costs (24,090) (28,614)
====================== ==================
Adjusted net revenue 148,021 149,678
====================== ================== ==================
Like-for-like Adjusted net revenue: The measure is defined as the Adjusted net revenue from continuing operations using the same number of working days when comparing the current period to the prior period. The Company moved to calendar month reporting from August 2018; the previous reporting cycle comprised of 52/53 week years. The number of working days in the current period was 258 against a comparator of 265 days. The comparator revenue has been adjusted to reflect an equal number of working days.
362 DAYS TO 31 371 DAYS TO 3
JULY 2019 GBP'000 AUGUST 2018 GBP,000
================================================ ================== ====================
Adjusted net revenue 148,021 149,678
Number of working days in the period 258 265
Number of working days in the current period 258 258
================================================ ================== ====================
Like-for-like working days Adjusted net revenue 148,021 145,724
================================================ ================== ====================
Like-for-like working days Adjusted net revenue
growth % 1.6%
================================================ ================== ====================
Like-for-like Adjusted net revenue at constant currency: The measure is defined as the Adjusted net revenue from continuing operations using the same number of working days when comparing the current period to the prior period at constant currency. The Company moved to calendar month reporting from August 2018; the previous reporting cycle comprised of 52/53 week years. The number of working days in the current period was 258 against a comparator of 265 days. The comparator revenue has been adjusted to reflect an equal number of working days.
362 DAYS TO 31 371 DAYS TO
JULY 2019 3 AUGUST 2018
GBP'000 GBP,000
================================================ ============== ==============
Like-for-like working days Adjusted net revenue 148,021 145,724
Effect of constant currency - 2,711
------------------------------------------------ -------------- --------------
Like-for-like working days Adjusted net revenue
at constant currency 148,021 148,435
================================================ ============== ==============
Like-for-like working days Adjusted net revenue
decline % at constant currency (0.3)%
================================================ ============== ==============
Adjusted operating profit: This measure is defined as the operating profit or loss less Adjusting Items.
362 DAYS TO 31 371 DAYS TO
JULY 2019 3 AUGUST 2018
GBP'000 GBP,000
================================================= ============== ==============
Statutory operating profit/(loss) 4,265 (28,153)
Add back total Adjusting Items excluding pension
finance charge and tax 15,620 49,318
------------------------------------------------- -------------- --------------
Adjusted operating profit 19,885 21,165
------------------------------------------------- -------------- --------------
Adjusted profit before tax: This measure is defined as the Group net profit or loss before tax less Adjusting Items.
362 DAYS TO 31 371 DAYS TO 3
JULY 2019 GBP'000 AUGUST 2018 GBP,000
============================================= ================== ====================
Statutory profit/(loss) before tax 1,777 (31,171)
Add back total Adjusting Items excluding tax 15,779 49,642
--------------------------------------------- ------------------ --------------------
Adjusted profit before tax 17,556 18,471
--------------------------------------------- ------------------ --------------------
Like-for-like Adjusted profit before tax: The measure is defined as the adjusted profit before tax from continuing operations using the same number of working days when comparing the current period to the prior period. The Company moved to calendar month reporting from August 2018; the previous reporting cycle comprised of 52/53 week years. The number of working days in the current period was 258 against a comparator of 265 days. The comparator revenue has been adjusted to reflect an equal number of working days.
371 DAYS TO 3
362 DAYS TO 31 AUGUST 2018
JULY 2019 GBP'000 GBP,000
============================================= ================== =============
Adjusted profit before tax 17,556 18,471
Number of working days in the period 258 265
Number of working days in the current period 258 258
============================================= ================== =============
Like-for-like Adjusted profit before tax 17,556 17,983
============================================= ================== =============
Like-for-like Adjusted profit before tax
% (2.4)%
============================================= ================== =============
Adjusted profit after tax: This measure is defined as the Group profit or loss after tax before Adjusting Items:
362 DAYS TO
31 JULY 2019 371 DAYS TO 3 AUGUST
GBP'000 2018 GBP,000
================================== ============= ====================
Statutory profit/(loss) after tax 1,121 (32,394)
Add back total Adjusting Items 13,007 47,206
---------------------------------- ------------- --------------------
Adjusted profit after tax 14,128 14,812
---------------------------------- ------------- --------------------
Adjusted basic earnings per share: This measure is defined as basic earnings per share after Adjusting Items.
362 DAYS TO
31 JULY2019 371 DAYS TO 3 AUGUST
GBP'000 2018 GBP,000
========================================== ============ ====================
Adjusted profit after tax 14,128 14,812
------------------------------------------ ------------ --------------------
Weighted number of shares ('000) 153,307 146,654
------------------------------------------ ------------ --------------------
Adjusted basic earnings per share (pence) 9.22 10.10
------------------------------------------ ------------ --------------------
Adjusted operating margin: This measure is defined as the percentage of Adjusted operating profit over net revenue.
362 DAYS TO 31 371 DAYS TO 3
JULY 2019 GBP'000 AUGUST 2018 GBP,000
========================== ================== ====================
Adjusted net revenue 148,021 149,678
Adjusted operating profit 19,885 21,165
Adjusted operating margin 13.4% 14.1%
-------------------------- ------------------ --------------------
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 2018 has been determined on the basis of the continuing operations only for the purpose of calculating the ratio of net: EBITDA.
362 DAYS TO 31 371 DAYS TO 3
JULY 2019 GBP'000 AUGUST 2018 GBP,000
============================================= ================== ====================
Adjusted operating profit 19,885 21,165
Add:
Depreciation and amortisation - continuing
operations for the current year 9,471 11,025
Less: Amortisation of intangibles classified
as Adjusting Items (6,674) (8,659)
Adjusted EBITDA 22,682 23,531
--------------------------------------------- ------------------ --------------------
Net debt: This measure is calculated as the total of loans and other borrowings (both current and non-current), less cash and cash equivalents.
2019 GBP'000 2018 GBP'000
================================ ============ ============
Loans - current liabilities - 40,363
Loans - non-current liabilities 60,416 -
Cash and cash equivalents (22,017) (14,398)
-------------------------------- ------------ ------------
Net Debt 38,399 25,965
-------------------------------- ------------ ------------
For the measurement of the bank covenants, cash and cash equivalents denominated in currencies other than GBP Sterling are translated at an average rate rather than at the period end spot rate used in the Consolidated Balance Sheet. The reconciliation is as follows:
2019 2018 GBP'000
GBP'000
========================================================== ======== ============
Net Debt 38,399 25,965
Foreign exchange difference between spot rate and average
rate (272) -
---------------------------------------------------------- -------- ------------
Net Debt for covenant purposes 38,127 25,965
---------------------------------------------------------- -------- ------------
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.
362 DAYS TO
31 JULY 2019 371 DAYS TO 3
GBP'000 AUGUST 2018 GBP,000
=============================== ============= ====================
Adjusted EBITDA 22,682 23,531
Net Debt for covenant purposes 38,127 25,965
------------------------------- ------------- --------------------
Net debt to Adjusted EBITDA 1.68 1.10
------------------------------- ------------- --------------------
Consolidated Income Statement
371 DAYS TO 3 AUGUST
2018
362 DAYS TO 31 JULY
2019 (RESTATED*)
====================================== ==== ============================== ==============================
Adjusting
Adjusted Items Statutory Adjusted Adjusting Statutory
Results (note Results Results Items Results
3)
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
====================================== ==== ======== ========= ========= ======== ========= =========
Continuing operations:
Revenue 2 172,111 763 172,874 178,292 63 178,355
Project-related costs (24,090) (525) (24,615) (28,614) - (28,614)
====================================== ==== ======== ========= ========= ======== ========= =========
Net revenue 148,021 238 148,259 149,678 63 149,741
Cost of service (74,805) (303) (75,108) (74,075) (247) (74,322)
====================================== ==== ======== ========= ========= ======== ========= =========
Gross profit 73,216 (65) 73,151 75,603 (184) 75,419
Selling costs (14,732) (34) (14,766) (13,170) - (13,170)
Administrative expenses (38,763) (17,292) (56,055) (41,817) (50,676) (92,493)
Share of results of joint arrangement 169 - 169 569 - 569
Other operating (expense)/income (5) 1,771 1,766 (20) 1,542 1,522
====================================== ==== ======== ========= ========= ======== ========= =========
Operating profit/(loss) 19,885 (15,620) 4,265 21,165 (49,318) (28,153)
Net pension finance income/(expense) - 30 30 - (324) (324)
Other finance expense (2,329) (189) (2,518) (2,694) - (2,694)
====================================== ==== ======== ========= ========= ======== ========= =========
Profit/(loss) before tax 2 17,556 (15,779) 1,777 18,471 (49,642) (31,171)
Income tax (charge)/credit (3,428) 2,772 (656) (3,659) 2,436 (1,223)
====================================== ==== ======== ========= ========= ======== ========= =========
Net profit/(loss) for the period
from continuing operations 14,128 (13,007) 1,121 14,812 (47,206) (32,394)
Net profit from discontinued
operations - - - 3,511 (326) 3,185
====================================== ==== ======== ========= ========= ======== ========= =========
Net profit/(loss) for the period 14,128 (13,007) 1,121 18,323 (47,532) (29,209)
====================================== ==== ======== ========= ========= ======== ========= =========
Attributable to:
Shareholders of the parent
company 14,128 (13,007) 1,121 18,323 (47,532) (29,209)
Basic earnings/(loss) per
share (p)
From continuing operations 9.22 (8.49) 0.73 10.10 (32.19) (22.09)
From continuing and discontinued
operations 7 9.22 (8.49) 0.73 12.49 (32.41) (19.92)
====================================== ==== ======== ========= ========= ======== ========= =========
Diluted earnings/(loss) per
share (p)
From continuing operations 9.17 (8.44) 0.73 10.10 (32.19) (22.09)
From continuing and discontinued
operations 7 9.17 (8.44) 0.73 12.49 (32.41) (19.92)
====================================== ==== ======== ========= ========= ======== ========= =========
* The results for the 371 days to 3 August 2018 have been restated for certain types of cost reclassifications (note 10) and to present net revenue (note 11).
Consolidated Other Comprehensive Income
362 DAYS 371 DAYS
TO 31 JULY TO 3 AUGUST
2019 GBP'000 2018 GBP'000
------------------------------------------------------ ------------- -------------
Profit/(loss) for the period 1,121 (29,209)
============= =============
Items that will not be reclassified subsequently to
profit or loss:
============= =============
Actuarial profit on defined benefits pension scheme 6,206 10,958
Tax charge on items taken through other comprehensive
income (991) (1,731)
====================================================== ============= =============
5,215 9,227
============= =============
Items that may be reclassified subsequently to profit
or loss:
============= =============
Transfers of (losses)/gains on cash flow hedges (265) 76
============= =============
(Losses)/gains on cash flow hedges (201) 265
Foreign exchange gains/(losses) 2,068 (852)
====================================================== ============= =============
1,602 (511)
====================================================== ============= =============
Other comprehensive income for the period 6,817 8,716
====================================================== ============= =============
Total comprehensive income/(expense) for the period
attributable to shareholders of the parent company 7,938 (20,493)
====================================================== ============= =============
Consolidated Statement of Changes in Equity
HEDGING RETAINED
ADDITIONAL SHARE AND EARNINGS/
SHARE PAID-IN ESOP TREASURY OPTION TRANSLATION OTHER (ACCUMULATED
CAPITAL CAPITAL** RESERVE SHARES RESERVE RESERVE RESERVES DEFICIT) TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 29
July
2017 14,284 70,418 - (163) 7,900 1,194 79,349 3,572 97,205
Loss for the
period - - - - - - - (29,209) (29,209)
Other
comprehensive
(expense)/income - - - - - (511) (511) 9,227 8,716
================= ======== ========== ======== ======== ======== ============ ========= ============ ========
Total
comprehensive
expense - - - - - (511) (511) (19,982) (20,493)
======== ========== ======== ======== ======== ============ ========= ============ ========
Dividends - - - - - - - (2,784) (2,784)
======== ========== ======== ======== ======== ============ ========= ============ ========
Recognition of
share-based
contingent
consideration
deemed as
remuneration - - - - 6,016 - 6,016 - 6,016
======== ========== ======== ======== ======== ============ ========= ============ ========
Transfer of
share-based
contingent
consideration
deemed as
remuneration - 119 - - (6,865) - (6,746) 6,965 219
======== ========== ======== ======== ======== ============ ========= ============ ========
Recognition of
share-based
payments - - - - 1,274 - 1,274 - 1,274
======== ========== ======== ======== ======== ============ ========= ============ ========
Settlement of
share-based
contingent
consideration
deemed as
remuneration 1,059 - - - (1,101) - (1,101) 42 -
======== ========== ======== ======== ======== ============ ========= ============ ========
Tax on
share-based
payments - - - - (74) - (74) - (74)
================= ======== ========== ======== ======== ======== ============ ========= ============ ========
Balance at
3 August 2018 15,343 70,537 - (163) 7,150 683 78,207 (12,187) 81,363
======== ========== ======== ======== ======== ============ ========= ============ ========
Profit for the
period - - - - - - - 1,121 1,121
======== ========== ======== ======== ======== ============ ========= ============ ========
Other
comprehensive
income - - - - - 1,602 1,602 5,215 6,817
================= ======== ========== ======== ======== ======== ============ ========= ============ ========
Total
comprehensive
income - - - - - 1,602 1,602 6,336 7,938
======== ========== ======== ======== ======== ============ ========= ============ ========
Dividends - - - - - - - (2,990) (2,990)
======== ========== ======== ======== ======== ============ ========= ============ ========
Recognition of
share-based
contingent
consideration
deemed as
remuneration - - - - 1,669 - 1,669 - 1,669
======== ========== ======== ======== ======== ============ ========= ============ ========
Transfer of
share-based
contingent
consideration
deemed as
remuneration - 128 - - (7,440) - (7,312) 7,909 597
======== ========== ======== ======== ======== ============ ========= ============ ========
Purchase of own
shares - - (185) - - - (185) - (185)
======== ========== ======== ======== ======== ============ ========= ============ ========
Recognition of
share-based
payments - - - - (650) - (650) - (650)
======== ========== ======== ======== ======== ============ ========= ============ ========
Settlement of
share-based
payment - - 164 - - - 164 8 172
======== ========== ======== ======== ======== ============ ========= ============ ========
Tax on
share-based
payments - - - - 75 - 75 - 75
================= ======== ========== ======== ======== ======== ============ ========= ============ ========
Balance at 31
July
2019 15,343 70,665 (21) (163) 804 2,285 73,570 (924) 87,989
================= ======== ========== ======== ======== ======== ============ ========= ============ ========
** Additional paid-in capital includes share premium, merger reserve and capital redemption reserve.
Consolidated Balance Sheet
31 JULY 2019 3 AUGUST
NOTE GBP'000 2018 GBP'000
================================= ==== ============ =============
Assets
Non-current assets
Property, plant and equipment 5,499 6,301
Investment property 4,957 4,470
Goodwill 85,662 84,742
Other intangible assets 25,573 31,493
Other long-term financial asset - 3
Investment in joint arrangement 547 223
Deferred tax assets 2,528 1,264
Retirement benefits surplus 8 6,665 1,858
Other non-current assets 18 13
================================= ==== ============ =============
131,449 130,367
================================= ==== ============ =============
Current assets
Trade and other receivables 40,911 40,451
Derivative financial instruments - 291
Income tax receivable 136 904
Assets held for sale - 5,282
Cash and cash equivalents 22,017 14,398
================================= ==== ============ =============
63,064 61,326
================================= ==== ============ =============
Total assets 194,513 191,693
================================= ==== ============ =============
Liabilities
Current liabilities
Loans - 40,363
Trade and other payables 27,479 35,851
Derivative financial instruments 158 62
Income tax payable 1,946 61
Deferred consideration payable 2,000 21,170
Deferred income 5,195 4,915
Provisions 1,383 919
================================= ==== ============ =============
38,161 103,341
================================= ==== ============ =============
Non-current liabilities
Loans 60,416 -
Other non-current liabilities 2,228 822
Provisions 1,874 1,849
Deferred tax liabilities 3,845 4,318
================================= ==== ============ =============
68,363 6,989
================================= ==== ============ =============
Total liabilities 106,524 110,330
================================= ==== ============ =============
Net assets 87,989 81,363
================================= ==== ============ =============
Capital and reserves
Share capital 15,343 15,343
Other reserves 73,570 78,207
Accumulated deficit (924) (12,187)
================================= ==== ============ =============
Total equity 87,989 81,363
================================= ==== ============ =============
These financial statements were approved by the Board of Directors on 1 October 2019.
Consolidated Cashflow Statement
362 DAYS 371 DAYS
TO 31 JULY TO 3 AUGUST
NOTE 2019 GBP000 2018 GBP000
================================================== ==== ============ ============
Operating activities
Cash generated from operations 8,989 25,848
Interest paid (2,329) (2,694)
Income taxes paid (306) (5,430)
================================================== ==== ============ ============
Net cash generated from operating activities 6,354 17,724
================================================== ==== ============ ============
Investing activities
Purchase of property, plant and equipment (2,756) (4,425)
Purchase of other intangibles (279) (149)
Proceeds on disposal of property, plant and
equipment 7,230 3,166
Proceeds on disposal of subsidiaries - 32,442
Deferred consideration paid for acquisitions
made in prior periods (19,875) (16,518)
================================================== ==== ============ ============
Net cash (used)/generated from investing
activities (15,680) 14,516
================================================== ==== ============ ============
Financing activities
Purchase of own shares (185) -
Dividends paid 6 (2,990) (2,784)
Additional investment in joint venture (118) -
Increase/(decrease) in bank loans 19,083 (40,000)
================================================== ==== ============ ============
Net cash generated/(used) in financing activities 15,790 (42,784)
================================================== ==== ============ ============
Net increase/(decrease) in cash and cash
equivalents 6,464 (10,544)
Cash and cash equivalents at beginning of
the period 14,398 25,651
Effect of foreign exchange rate changes 1,155 (709)
================================================== ==== ============ ============
Cash and cash equivalents at end of the period 9 22,017 14,398
================================================== ==== ============ ============
1. Basis of preparation
The preliminary results have been prepared on the basis of the accounting policies as set out in the Group's Annual Report and Accounts 2019 and 2018. The financial information set out in the preliminary results does not comprise statutory accounts for the purpose of section 434 of the Companies Act 2006 in respect of the periods ended 31 July 2019 and 3 August 2018.
The financial information for the period ended 31 July 2019 has been extracted from the Group's 2019 statutory accounts for that period which have been prepared on a going concern basis and in accordance with the recognition and measurement principles of International Financial Reporting Standards as adopted by the European Union ('IFRS') and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The preliminary results have been prepared under the historical cost convention, except for the recognition of derivative financial instruments, and using the accounting policies set out in the Group's 2018 statutory accounts. The accounting policies adopted are consistent with those of the previous financial year, and there have been no changes in accounting standards during the year that have had a material effect on the Group, apart from the restatement explained in note 10 and the presentation of net revenue in note 11.
The 2019 statutory accounts will be delivered to the Registrar of Companies following the Company's 2019 Annual General Meeting. The financial information for the period ended 3 August 2018 has been extracted from the Group's statutory accounts for that period, which have been delivered to the Registrar of Companies. The Auditor's reports on both the Group's 2019 and 2018 statutory accounts were unqualified and did not contain statements under sections 498(2) or 498(3) of the Companies Act 2006 in respect of the 2019 and 2018 statutory accounts.
Going concern
The Directors, having made appropriate enquiries, consider that adequate resources exist for the Group to continue in operational existence for a period of at least twelve months from the date of approval of the consolidated financial statements and that, therefore, it is appropriate to adopt the going concern basis in preparing the combined financial information for the period ended 31 July 2019.
Accounting policies
New accounting standards, amendments to standards, and IFRIC interpretations which became applicable during the period were either not relevant or had no impact on the Group's net results or net assets except as described below.
IFRS 9 Financial Instruments.
The Group adopted IFRS 9 Financial Instruments ('IFRS 9') for the financial period beginning on 4 August 2018.
Under the standard, trade receivables and cash will continue to be accounted for at amortised cost. IFRS 9 introduces an expected credit losses model, rather than the current incurred loss model, when assessing the impairment of financial assets. Given the historic rate of revenue loss and aging of the trade receivables, the expected loss model does not have a material impact on Group's opening retained earnings on application as at 4 August 2018 and the current period. Therefore in line with the transition guidelines in IFRS 9, the Group has not restated its financial statements for the current and prior period.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers ('IFRS 15') was adopted by the Group for the financial period beginning on 4 August 2018. In accordance with the transition provisions, the new rules have been adopted using the simplified retrospective transition method. The transition to IFRS 15 did not have a material impact on the Group's opening retained earnings. As a result a reconciliation of retained earnings is not required. Following the adoption of IFRS 15, certain liabilities which were previously presented as deferred income are now presented as contract liabilities.
IFRS 16 Leases
The Group has adopted IFRS 16 on 1 August 2019 using the Standard's modified retrospective approach. Under this approach the cumulative effect of initially applying IFRS 16 was recognised as an adjustment to equity at the date of initial application. Comparative information is not restated. The Group has adopted the transition exemptions for leases with a remaining term of 12 months or less and for low-value assets. This has been applied on a lease-by-lease basis.
The Group has assessed the impact on the majority of leases, including all material leases. On assessing the impact on the Group's consolidated financial statements, there will be a reduction in profit of approximately GBP0.1 million for the year ending 31 July 2020 when comparing to the current accounting for operating leases. The assessment indicates that the Group will recognise a right-of-use asset of GBP20.9 million and a corresponding lease liability of GBP24.2 million.
2. Segment reporting
The Group delivers transformative growth for the world's largest companies and fuses three specialisms - Strategy, Innovation, and Communications under its organisational model - The Connective. It is a network which spans all of the Group's digital transformation businesses.
The Group reports its results through one segment - The Connective - and with corporate costs shown as a separate segment based on the Group's internal reporting to the Chief Operating Decision Maker ("CODM"). The CODM has been determined to be the Chief Executive Officer and Chief Financial Officer who are primarily responsible for the assessment of the performance of the businesses/brands which currently operate under The Connective.
The corporate costs are reported separately to the single operating segment as this presentation better reflects the segment's underlying profitability.
Results from continuing operations for the current period:
362 DAYS TO 31 JULY 2019
========================
Corporate
The Connective costs Total
=========================================
GBP'000 GBP'000 GBP'000
========================================= ============== ========= ========
Revenue 172,874 - 172,874
========================================= ============== ========= ========
Net revenue 148,259 - 148,259
Adjusting items (238) - (238)
========================================= ============== ========= ========
Adjusted net revenue 148,021 - 148,021
Operating profit/(loss) before Adjusting
Items 25,631 (5,746) 19,885
Adjusting Items (9,913) (5,707) (15,620)
========================================= ============== ========= ======== Statutory profit/(loss) from operations 15,718 (11,453) 4,265 ========================================= ============== ========= ======== Net pension finance income 30 Other finance expense (2,518) ========================================= ============== ========= ======== Statutory profit before tax 1,777 Income tax charge (656) ========================================= ============== ========= ======== Statutory net profit for the period from continuing operations 1,121 ========================================= ============== ========= ========
Results from continuing operations for the prior period:
371 DAYS TO 3 AUGUST 2018 (RESTATED
NOTE 11)
===================================
Corporate
The Connective costs Total
=========================================
GBP'000 GBP'000 GBP'000
========================================= ============== ========= ========
Revenue 178,355 - 178,355
========================================= ============== ========= ========
Net revenue 149,741 - 149,741
Adjusting items (63) - (63)
========================================= ============== ========= ========
Adjusted net revenue 149,678 - 149,678
========================================= ============== ========= ========
Operating profit/(loss) before Adjusting
Items 26,483 (5,318) 21,165
Adjusting Items (49,287) (31) (49,318)
----------------------------------------- -------------- --------- --------
Statutory loss from operations (22,804) (5,349) (28,153)
----------------------------------------- -------------- --------- --------
Net pension finance expense (324)
Other finance expense (2,694)
----------------------------------------- -------------- --------- --------
Statutory loss before tax (31,171)
Income tax charge (1,223)
========================================= ============== ========= ========
Statutory net loss for the period from
continuing operations (32,394)
========================================= ============== ========= ========
Geographical segments
Operations
Revenue by geographical area is based on the location where the provision of goods and services have been provided.
362 DAYS TO 31 JULY 371 DAYS TO3 AUGUST
2019 GBP'000 2018 GBP'000
========================= =================== ===================
United Kingdom 105,738 119,753
United States of America 65,166 57,066
Rest of the world 1,970 1,536
========================= =================== ===================
Total 172,874 178,355
========================= =================== ===================
Customer location
The Group derives 51% (2018: 55%) of the total revenue from customers located in the UK, 41% (2018: 36%) of the total revenue from customers located in the US and 8% (2018: 9%) from customers located in the rest of the world.
3. Adjusting items
Adjusting items disclosed on the face of the Consolidated Income Statement are as follows:
2019 2019 2018 2018
Expense/(income) GBP000 GBP000 GBP'000 GBP'000
==================================================== ======= ======= ======== ========
Restructuring items
Redundancies and other charges 1,946 2,737
Losses related to closure of subsidiary 251 -
Costs associated with empty properties 279 325
Impairment of tangible assets 159 -
==================================================== ======= ======= ======== ========
2,635 3,062
St Ives Defined Benefits Pension Scheme costs
Scheme administrative costs 502 617
Curtailment credit - (1,261)
Past service cost (GMP equalisation uplift) 4,126 -
Other related costs 1,079 613
5,707 (31)
==================================================== ======= ======= ======== ========
Costs related to acquisitions made in prior periods
Amortisation of acquired intangibles 6,674 8,659
Impairment of goodwill and intangible assets - 12,082
Contingent consideration required to be treated
as remuneration 2,375 23,994
Increase in deferred consideration - 3,094
==================================================== ======= ======= ======== ========
9,049 47,829
==================================================== ======= ======= ======== ========
Adjusting Items 17,391 50,860
Profit on disposal of property, plant and equipment (1,771) (1,542)
==================================================== ======= ======= ======== ========
Adjusting Items before interest and tax 15,620 49,318
Bank arrangement fees 189 -
Net pension finance (credit)/charge in respect
of defined benefits pension scheme (30) 324
==================================================== ======= ======= ======== ========
Adjusting Items before tax 15,779 49,642
Income tax credit (2,772) (2,436)
==================================================== ======= ======= ======== ========
Adjusting Items after tax 13,007 47,206
==================================================== ======= ======= ======== ========
Restructuring items and other charges
Redundancy and restructuring costs of GBP1.9 million were incurred in the course of changing the Group's proposition across Innovation, Communication and Strategy capabilities.
During the period, a decision was made to cease the operations of My Bench Limited, a 100% subsidiary of the Kin and Carta plc, and therefore a charge of GBP0.3 million was recorded as an Adjusting Item.
Empty property costs of GBP0.3 million and impairment of GBP0.2 million are recorded in the Consolidated Income Statement, following the restructuring activities in Pragma. These items are shown as Adjusting Items.
Disposal of properties
The profit on disposal of property, plant and equipment is comprised of GBP1.9 million relating to the sale of property in Redditch offset by a loss of GBP0.1 million relating to obsolete software.
St Ives Defined Benefits Pension Scheme costs
The Scheme charges include service costs of GBP0.5 million, costs related to Guaranteed Minimum Pension (GMP) equalisation uplift of GBP4.1 million and costs in relation to running the scheme of GBP1.0 million, offset by a Pension finance credit of GBP30,000. These items are recorded in corporate costs.
Costs related to acquisitions made in prior periods
Charges relating to the amortisation of acquired customer relationships, proprietary techniques and software amounted to GBP6.7 million in the current period.
Contingent consideration required to be treated as remuneration charge of GBP2.4 million relates to a prior period acquisition of The App Business Limited ('TAB').
Tax
In the current period, the tax credit of GBP2.8 million (2018: GBP2.4 million) relates to the items discussed above.
Discontinued Operations
In the prior period, GBP0.3 million was recorded as Adjusting Items in respect of the disposal of the Books and Marketing Activation segments.
4. Income tax credit/(charge)
Continuing Operations: 2019 GBP000 2018 GBP000
======================================================= ============ ============
Total current tax charge:
Current period (2,970) (3,588)
Adjustments in respect of prior periods (575) 58
======================================================= ============ ============
Total current tax charge (3,545) (3,530)
======================================================= ============ ============
Deferred tax on origination and reversal of temporary
differences:
Deferred tax credit 2,641 2,249
Adjustments in respect of prior periods 248 58
======================================================= ============ ============
Total deferred tax credit 2,889 2,307
======================================================= ============ ============
Total income tax charge (656) (1,223)
======================================================= ============ ============
Discontinued Operations: 2019 GBP000 2018 GBP000
======================================================= ============ ============
Total current tax charge:
Current period - (894)
Adjustments in respect of prior periods - 35
======================================================= ============ ============
Total current tax charge - (859)
======================================================= ============ ============
Deferred tax on origination and reversal of temporary
differences:
Deferred tax credit - 175
Adjustments in respect of prior periods - 19
======================================================= ============ ============
Total deferred tax credit - 194
======================================================= ============ ============
Total income tax charge - (665)
======================================================= ============ ============
Continuing and Discontinued Operations: 2019 GBP000 2018 GBP000
======================================================= ============ ============
Total current tax charge:
------------ ------------
Current period (2,970) (4,482)
------------ ------------
Adjustments in respect of prior periods (575) 93
======================================================= ============ ============
Total current tax charge (3,545) (4,389)
======================================================= ============ ============
Deferred tax on origination and reversal of temporary
differences:
------------ ------------
Deferred tax credit 2,641 2,424
------------ ------------
Adjustments in respect of prior periods 248 77
======================================================= ============ ============
Total deferred tax credit 2,889 2,501
======================================================= ============ ============
Total income tax charge (656) (1,888)
======================================================= ============ ============
Income tax on the profit/(loss) from continuing operations before and after Adjusting Items is as follows:
2019 GBP000 2018 GBP000
========================================== ============ ============
Tax charge on Adjusted profit before tax (3,428) (3,659)
Tax credit on Adjusting items 2,772 2,436
========================================== ============ ============
Total income tax charge (656) (1,223)
========================================== ============ ============
The tax charge for continuing operations can be reconciled to the profit/(loss) before tax shown in the Consolidated Income Statement as follows:
2019 GBP000 2018 GBP000
====================================================== ============ ============
Profit/(loss) before tax from continuing operations 1,777 (31,171)
Tax calculated at a rate of 46.9% (2018: 19.04%) (835) 5,935
Non-deductible charges on impairment of tangible and
intangible assets - (1,817)
Expenses not deductible for tax purposes (789) (6,546)
Effect of tax deductible goodwill 588 626
Effect of change in United Kingdom corporate tax rate 66 (46)
Credit on research and development activities 255 244
Movement in deferred tax on industrial buildings 368 290
Re-assessment of tax losses 18 (25)
Adjustments in respect of prior periods (327) 116
====================================================== ============ ============
Total income tax charge (656) (1,223)
====================================================== ============ ============
Income tax as shown in the Consolidated Statement of Comprehensive Income is as follows:
2019 GBP000 2018 GBP000
======================================================= ============ ============
United Kingdom corporation tax credit 608 1,258
Deferred tax on origination and reversal of temporary
differences (1,599) (2,989)
======================================================= ============ ============
Total income tax charge (991) (1,731)
======================================================= ============ ============
Income tax as shown in the Consolidated Statement of Changes in Equity is as follows:
2019 GBP000 2018 GBP000
======================================================= ============ ============
Deferred tax on origination and reversal of temporary
differences 75 (74)
======================================================= ============ ============
5. Acquisitions
The total impact on investing cash outflow in the current period relating to acquisitions made in prior periods is as follows:
GBP'000
================================== =========
TAB - deferred consideration 16,523
Solstice - deferred consideration 3,352
---------------------------------- ---------
Net cash outflow 19,875
---------------------------------- ---------
6. Dividends
2018
per share 2019 GBP'000 GBP'000
====================================================== ========= ============ ========
Final dividend paid for the period ended 28 July
2017 1.30p - 1,857
Interim dividend paid for the period ended 2 February
2018 0.65p - 927
Final dividend paid for the period ended 3 August
2018 1.30p 1,993 -
Interim dividend paid for the period ended 31
January 2019 0.65p 997 -
====================================================== ========= ============ ========
Dividends paid during the period 2,990 2,784
====================================================== ========= ============ ========
Proposed final dividend at the period end of 1.30p
per share
(2018:1.30p per share) 1.30p 1,993 1,993
7. Earnings/(loss) per share
The calculation of the basic and diluted earnings/(loss) per share are based on the following:
Number of shares
2018
2019 GBP000 GBP000
============================================================ =========== =======
Weighted average number of ordinary shares for the purposes
of basic earnings/(loss) per share 153,307 146,654
Effect of dilutive potential ordinary shares:
Share options 842 -
============================================================ =========== =======
Weighted average number of ordinary shares for the purposes
of diluted earnings/(loss) per share 154,149 146,654
============================================================ =========== =======
2019 2018
================================================ ==================== ====================
Continuing Operations Earnings Earnings
Earnings /(loss) Earnings /(loss)
/(loss) per share /(loss) per share
GBP'000 pence GBP'000 pence
================================================ ======== ========== ======== ==========
Earnings/(loss) and basic earnings/(loss)
per share
Adjusted earnings and Adjusted basic earnings
per share 14,128 9.22 14,812 10.10
Adjusting items (13,007) (8.49) (47,206) (32.19)
================================================ ======== ========== ======== ==========
Earnings/(loss) and basic earnings/(loss)
per share 1,121 0.73 (32,394) (22.09)
================================================ ======== ========== ======== ==========
Earnings/(loss) and diluted earnings/(loss)
per share
Adjusted earnings and Adjusted diluted earnings
per share 14,128 9.17 14,812 10.10
Adjusting items (13,007) (8.44) (47,206) (32.19)
================================================ ======== ========== ======== ==========
Earnings/(loss) and diluted earnings/(loss)
per share 1,121 0.73 (32,394) (22.09)
================================================ ======== ========== ======== ==========
Discontinued Operations
Earnings and basic earnings per share
Adjusted earnings and Adjusted basic earnings
per share - - 3,511 2.39
Adjusting items - - (326) (0.22)
================================================ ======== ========== ======== ==========
Earnings and basic earnings per share - - 3,185 2.17
================================================ ======== ========== ======== ==========
Earnings and diluted earnings per share
Adjusted earnings and Adjusted diluted earnings
per share - - 3,511 2.39
Adjusting Items - - (326) (0.22)
================================================ ======== ========== ======== ==========
Earnings and diluted earnings per share - - 3,185 2.17
================================================ ======== ========== ======== ==========
Continuing and Discontinued Operations
Earnings/(loss) and basic earnings/(loss)
per share
Adjusted earnings and Adjusted basic earnings
per share 14,128 9.22 18,323 12.49
Adjusting items (13,007) (8.49) (47,532) (32.41)
================================================ ======== ========== ======== ==========
Earnings/(loss) and basic earnings/(loss)
per share 1,121 0.73 (29,209) (19.92)
================================================ ======== ========== ======== ==========
Earnings/(loss) and diluted earnings/(loss)
per share
Adjusted earnings and Adjusted diluted earnings
per share 14,128 9.17 18,323 12.49
Adjusting Items (13,007) (8.44) (47,532) (32.41)
================================================ ======== ========== ======== ==========
Earnings/(loss) and diluted earnings/(loss)
per share 1,121 0.73 (29,209) (19.92)
================================================ ======== ========== ======== ==========
Adjusted earnings/(loss) is calculated by adding back Adjusting Items, as adjusted for tax, to the profit/(loss) for the period.
8. Retirement benefits
As at 31 July 2019, the Group reported a net surplus in respect of the St Ives Defined Benefits Pension Scheme of GBP6.7 million compared to a surplus of GBP1.9 million reported as at 3 August 2018. The value of the plan assets increased to GBP385.9 million (2018: GBP353.5 million) due to the strength of investment returns. Approximately 65% of the plan assets are invested in return seeking assets providing a higher level of return over the longer period. Plan liabilities increased to GBP379.2 million (2018: GBP351.6 million) due primarily to the decrease in the discount rate used, partially offset by the impact of a reduction in assumed rates of future improvement in life expectancy. The increase in the accounting surplus is primarily attributable to the reduction in the assumed rate of future improvement in life expectancy of scheme members.
9. Notes to the consolidated cash flow statement
Reconciliation of cash generated from operations
2019 GBP'000 2018 GBP'000
======================================================= ============ ============
Profit/(loss) from continuing operations 4,265 (28,153)
Profit from discontinued operations - 3,850
Adjustments for:
Depreciation of property, plant and equipment 2,648 3,905
Share of profit from joint arrangement (169) (569)
Disbursement from joint arrangement - 876
Impairment losses related to continuing operations 159 12,082
Impairment losses related to discontinued operations - 18,833
Amortisation of intangible assets 6,823 8,683
Profit on disposal of subsidiaries - (18,334)
Profit on disposal of property, plant and equipment (1,766) (1,501)
Share-based payment (credit)/charge (650) 1,274
Settlement of share-based payment 172 -
Increase/(decrease) in defined benefits pension scheme
obligations 1,429 (7,882)
Re-measurement of deferred consideration - 3,094
Charge for contingent consideration required to be
treated as remuneration 2,375 23,994
Increase in provisions 491 1,402
======================================================= ============ ============
Operating cash inflows before movements in working
capital 15,777 21,554
(Increase)/decrease in receivables (181) 9,620
Decrease in inventory - 662
Decrease in payables (6,856) (4,587)
Increase in contract liabilities 5,164 -
Decrease in deferred income (4,915) (1,401)
======================================================= ============ ============
Cash generated from operations 8,989 25,848
======================================================= ============ ============
Analysis of' financing liabilities Non-cash changes
=================================== ======== ========== ==================== ========
Foreign
4 August Financing exchange 31 July
2018 Cash flow Repayment gains 2019
GBP000 GBP'000 GBP'000 GBP'000 GBP'000
Bank loans - current 40,363 - (40,363) - -
Bank loans - non-current - 59,446 - 970 60,416
=================================== ======== ========== ========= ========= ========
40,363 59,446 (40,363) 970 60,416
=================================== ======== ========== ========= ========= ========
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.
10. Restatement
Previously the Group reported certain employee costs of the various businesses under cost of sales. The Group's accounting policy is to include these types of costs within selling costs and, accordingly, the comparatives have been restated to ensure consistency. Additionally the Group are reporting net revenue and therefore cost of sales are split between Project related costs and Cost of service. This is detailed within note 11.
371 DAYS TO 3 AUGUST 2018
====================== =========================================
Before restatement Adjustments Restated
------------------ ----------- --------
GBP'000 GBP'000 GBP'000
====================== ================== =========== ========
Adjusted results:
Cost of sales (105,110) 105,110 -
Project related costs - (28,614) (28,614)
Cost of service - (74,075) (74,075)
Selling costs (10,749) (2,421) (13,170)
====================== ================== =========== ========
Statutory results:
Cost of sales (105,357) 105,357 -
Project related costs - (28,614) (28,614)
Cost of service - (74,322) (74,322)
Selling costs (10,749) (2,421) (13,170)
====================== ================== =========== ========
11. Net revenue
The Group reports net revenue as the Board believes it to be a more relevant growth metric for the business and more closely aligns with technology consulting peers. It is more relevant because the Group is moving away from project related media buying and other pass-through costs which skews gross revenue metrics, and is focusing on more DX related business opportunities that are more indicative of its core business and underlying margin generation.
Net revenue is calculated as revenue less project-related costs as shown on the Consolidated Income Statement.
11. Net revenue (continued)
Project-related costs are comprised primarily of third party pass-through expenses as well as direct third party services attributable to a project. These costs typically include amounts payable to external suppliers where they are engaged, at the Group's discretion, to perform a specific part of the performance obligation under a contract with the client, other than the costs of certain freelance contractors and agency staff.
Cost of service includes the costs of direct employed staff, freelance contractors and agency staff who are engaged in the delivery of performance obligations under client contracts.
The results for the 371 days ended 3 August 2018 have been restated as follows:
371 DAYS TO 3 AUGUST 2018
======================================= =========================================
Before restatement Adjustments Restated
------------------ ----------- --------
GBP'000 GBP'000 GBP'000
======================================= ================== =========== ========
Adjusted results:
Revenue 178,292 - 178,292
Project related costs N/A (28,614) (28,614)
Cost of sales (105,110) 105,110 -
======================================= ================== =========== ========
Net Revenue N/A 76,496 149,678
Cost of services N/A (74,075) (74,075)
======================================= ================== =========== ========
Gross profit 73,182 2,421 75,603
Selling costs (10,749) (2,421) (13,170)
Administrative expenses (41,817) - (41,817)
Share of results of joint arrangements 569 - 569
Other operating expense (20) - (20)
======================================= ================== =========== ========
Operating profit 21,165 - 21,165
======================================= ================== =========== ========
The above adjustments are also reflected in the Statutory Results for 371 days ended 3 August 2018.
12. Discontinued operations
The Group disposed of its Books and Marketing Activation segments in the prior period. As a result, these segments have been classified as discontinued operations for the prior period.
The results of the discontinued operations are summarised as follows;
371 DAYS TO 3 AUGUST
2018 GBP'000
========================================= ====================
Revenue 140,738
Operating costs (136,562)
Profit before tax before Adjusting Items 4,176
Income tax charge (665)
========================================== ====================
Profit after tax before Adjusting Items 3,511
========================================== ====================
Adjusting Items from discontinued operations are analysed below:
371 DAYS TO 3 AUGUST
2018 GBP'000
=============================================== ====================
Impairment of goodwill (14,482)
Impairment of non-current and current assets (4,351)
Amortisation of acquired intangibles and other
Adjusting Items 173
================================================ ====================
Total Adjusting Items before tax (18,660)
Gain on sale of discontinued operations 18,334
================================================ ====================
Total Adjusting Items after tax (326)
================================================ ====================
371 DAYS TO3 AUGUST
2018 GBP'000
======================================== ===================
Profit after tax before Adjusting Items 3,511
Total Adjusting Items after tax (326)
========================================= ===================
Statutory profit after tax 3,185
========================================= ===================
13. Related parties
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. No material related party transactions have been entered into during the period, which might reasonably affect the decisions made by the users of these financial statements.
No executive officers of the Company or their associates had transactions with the Group during the period.
The Group earned revenue of GBP0.5 million (2018: GBP0.2 million) from Loop Integration LLC and the Group incurred GBP6,000 charges (2018: GBP19,000) for services received. The Group also received a dividend of GBPnil (2018: GBP0.4 million). At the reporting date, Loop Integration LLC owed the Group GBP93,000 (2018: GBP8,000) for services rendered and GBP123,000 (2018: GBPnil) for a loan balance outstanding.
14. Principal Risks
The Group's principal risks and key mitigating activities in place to address them, as at 3 August 2018, are set out in pages 38 to 41 of the Group's Annual Report and Accounts 2018, a copy of which is available on the Group's website: www.kinandcarta.com.
The principal risks have been considered by the Board. While no new key risks have been added to the register during the period, the following changes to the risk ratings have been made, since the period ended 3 August 2018.
(i) Economy and volatility
This risk relates to changing economic conditions that may inhibit growth and create uncertainty. This could lead to volatility in earnings.
Uncertainty in the economy largely associated with Brexit, could result in marketing campaigns or projects being cancelled or deferred at short notice. Whilst the Connective 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. The board considers this risk to have increased due to the global economic environment.
Mitigations in place include: diversification into markets that are capable of delivering profit growth with an increasing range of marketing companies; diversification through growth in the US and other overseas locations, where client demand warrants it; investment in a wider range of services offered to clients; a continual review of the Connective's cost base; secure more long-term client relationships and contracts with a greater emphasis on recurring revenue; 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.
(ii) Data security and GDPR
Failure to adequately protect, prevent or respond to a data breach or cyber-attack would expose the Connective to non-compliance with the General Data Protection Regulation ("GDPR"), reputational damage, fines, disruption to the business and / or the loss of information for our clients, employees or business. It is vital that we continue to educate our people, maintain vigilance across the Connective and scrutinise our existing capabilities. The board considers this risk to have increased due to a fast-changing environment with evolving external threats.
Mitigations in place include: IT functions in place around the Connective with responsibility to protect data (e.g. encryption, firewalls, restricted access); employee awareness drives and training regarding data protection and education on external threats; periodic reviews by Internal Audit, utilising in-house IT as well as specialist external consultants; cyber security and IT questionnaire completed periodically by subsidiaries to highlight areas of potential risk, together with any mitigating actions performed in order to address this risk; A Data Protection Officer in place for the Connective to assist with its 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.
15. Responsibilities
The 2019 Annual Report and Accounts which will be issued in November 2019 contains a responsibility statement in compliance with DTR 4.1.12 of the Listing Rules which sets out that as at the date of approval of the Annual Report and Accounts on 1 October 2019, the directors confirm to the best of their knowledge:
-- the Group and Company financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Group and Company, respectively; and
-- the performance review contained in the Annual Report and Accounts includes a fair review of the development and performance of the business and the position of the Group together with a description of the principal risks and uncertainties that they face.
At the date of this statement, the directors are those listed in the Group's 2018 Annual Report and Accounts with the exception of the following appointments and resignations:
Appointments: J Schwan - Chief Executive Officer - 4 August 2018
David Bell - Non Executive Director - 4 August 2018
Michele Maher - Non Executive Director - 15 May 2019
Chris Kutsor - Chief Financial Officer - 17 June 2019
John Kerr - Non Executive Chairman Designate - 22 July 2019
Resignations: Matt Armitage - Chief Executive Officer - 4 August 2018
Brad Gray - Chief Financial Officer - 17 June 2019
Mike Butterworth - Non Executive Director - 1 October 2019
The foregoing contains forward looking statements made by the directors in good faith based on information available to them up to 1 October 2019. Such statements need to be read with caution due to inherent uncertainties, including economic and business risk factors underlying such statement.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR LFFLIIDLLIIA
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October 02, 2019 02:00 ET (06:00 GMT)
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