1. Basis of preparation (continued)

In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated interim financial statements for the year ended 31 July 2021, with the exception of changes in estimates that are required in determining the provision for income tax.

2. Segment reporting

The Group reports results through one segment, 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 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:

Results from continuing operations for the prior period ended 31 January 2021:

2. Segment reporting (continued)

Results from continuing operations for the year ended 31 July 2021:

No disclosure of assets and liabilities as no assets and liabilities are allocated to Corporate costs.

Geographical segments

Revenue from continuing operations by geographical segment is based on the location where goods and services have been provided.

Revenue by customer location

The Group derives 70% (6 months ended 31 January 2021: 66%) of its revenue from customers located in the United States of America, 26% (6 months ended 31 January 2021: 28%) from customers located in the United Kingdom and 4% (6 months ended 31 January 2021: 6%) from customers located in the rest of the world.

Net revenue by customer location

The Group derives 71% (6 months ended 31 January 2021: 66%) of its net revenue from customers located in the United States of America, 25% (6 months ended 31 January 2021: 29%) from customers located in the United Kingdom and 4% (6 months ended 31 January 2021: 5%) from customers located in the rest of the world.

3. Acquisitions

On 22 December 2021, the Group acquired 100% of the issued membership units of Datorium, LLC, a Californian company that owns Octain, a responsible AI data platform ("Octain"). Octain provides clients advanced insight, predictions and recommendations governed by socially responsible AI principles. The Group paid £0.2 million of initial consideration in December 2021, in cash, and there is deferred consideration of up to £0.7 million contingent on additional net revenue from the platform, up to 100% of which may be settled in Kin and Carta plc ordinary shares at the Group's discretion.  The deferred consideration is payable after three years. Given the proximity of the acquisition to 31 January 2022, the purchase price allocation has not been completed and the surplus of consideration over historical net assets of £0.2 million has provisionally been allocated to goodwill. The provisional accounting purchase price allocation will be completed by 31 July 2022.

After the balance sheet date, the Group completed the purchase of the remaining 50% shareholding in the joint venture, Loop and exchanged contracts to acquire Melon Group, a software development company based in the southern Balkans. Refer to note 12 for further details.

 Contractual commitments for consideration linked to acquisitions:

At the date of this report, the Group had contractual commitments related both to acquisitions which were completed prior to 31 January 2022 in respect of deferred consideration, and to acquisitions which were completed or signed after 31 January 2022 in respect of initial and deferred consideration. Maximum future contracted amounts payable for historical and committed future acquisitions are detailed below:

All amounts shown which are to be settled in the future will be determined initially in US dollars or Euros and are therefore subject to future currency fluctuation when measured in British pounds. Total amounts for each acquisition are subject to maximum caps. The level of deferred consideration is contingent upon future performance for all acquisitions, so actual amounts payable may be less than the amounts shown,  which correspond to the capped maximums.

Spire and Cascade Data Labs were acquired in prior periods. Completion amounts and deferred amounts in respect of those acquisitions which have already been settled in prior periods are not included in the table. Octain was acquired in the current period. Loop was acquired on 14 February 2022 and Melon Group was signed after the balance sheet date, and completion is subject to competition clearance which is expected in the second half of the current financial year. The amounts shown for Melon Group exclude customary adjustments for cash, debt and working capital that may arise on completion.

No assets or liabilities are recorded at the balance sheet date in respect of the acquisitions of Loop or Melon Group. Amounts related to future payments in respect of future deferred consideration for Spire, Cascade Data Labs and Octain have been recorded within current and non-current liabilities and equity at the balance sheet date, based on the likely method of settlement and the vesting periods associated with the deferred consideration amounts. In addition to the amounts shown above , the acquisition of Melon Group will trigger an option for Melon  Group to buy, and for the current minority owners to sell the 49 percent  minority share in Frakton, a subsidiary of the Melon Group for a fixed price of £0.8m.

The amounts shown as 'to be settled in shares' correspond to the maximum proportion that may be settled in shares of Kin and Carta plc, assuming the maximum contracted consideration amount is payable. The Company may alternatively, at its sole discretion, settle any portion of the 'to be settled in shares' amounts in cash, other than the amounts related to the initial consideration for Melon Group and the remaining Spire deferred consideration, which must be settled in shares. The shares in respect of the share amount shown for Spire were allotted in February 2021 , but are subject to a reverse vesting mechanism and will be fully vested in February 2023. No shares have been allotted in respect of the other 'to be settled in shares' amounts.

4. Other Income

In May 2020, the Group received £6.7 million in unsecured loans under the Paycheck Protection Program ("PPP") provided by the US Government, provided as part of the US CARES Act. £0.8 million of the PPP loan was forgiven by the US Government in H1 FY21 and £3.7m in H2 FY21. The forgiveness was recorded within adjusted other income in the prior year in the income statement in accordance with IAS20 Government Grants. There was no corresponding loan forgiveness-related income in the 6-month period ended 31 January 2022.

The remaining balance of £0.8 million at 31 January 2022 will be repaid in full by 31 May 2022.

5. Discontinued Operations

In the current period, discontinued operations comprise the results of three businesses divested in HI FY22: Incite, Edit and Relish.

In the restated prior periods, discontinued operations comprise the results of the five businesses divested since 1 August 2020: Pragma, Hive, Incite, Edit and Relish.

Current Period Divestments

Discontinued operations in the current period include the results of three businesses which were divested in the period:

Incite - on 28 September 2021, the Group completed the sale of Incite, a strategic marketing and planning consultancy for a consideration of £15.1 million before adjustments for cash, debt and working capital items.  After adjustments for cash, debt and working capital, and costs, net cash proceeds arose on the sale of Incite of £14.6 million at completion, with a further £1.0 million receivable on 31 July 2022, which is not contingent on business performance. The net gain on divestment of Incite is £15.3 million and this has been recorded in adjusting items.

Relish - on 4 November 2021, the Group completed the sale of Relish, a product sampling agency specialising in the beauty and fast-moving consumer goods sectors, for a consideration of £5.6 million before costs and customary adjustments for cash, debt and working capital. The net gain recorded in adjusting items relating to the sale is £3.8 million.

Edit - on 12 November 2021, the Group completed the sale of Edit, a marketing services company, for a consideration of £12.5 million before costs and customary adjustments for cash, debt and working capital. The net gain recorded in adjusting items relating to the sale is £5.5 million.

Prior Period Divestments

In addition to the results of the three businesses noted above which were divested in the current period, prior period discontinued operations include the results of Pragma, a commercial retail space consulting business and Hive, a healthcare communications consultancy, both of which were divested in the prior period.

Pragma - on 31 August 2020, Pragma was divested for a consideration of £0.25 million, before adjustments for cash, debt and working capital items, received in cash at completion. The loss on disposal of Pragma of £0.2 million is recorded within adjusting items.

Hive - on 16 December 2020, Hive was divested for a consideration of £13.8 million before adjustments for cash, debt and working capital items received in cash at completion. After adjustments for cash, debt and working capital, net proceeds from Hive of £12.35 million were received in the prior year. The gain on disposal of Hive of £5.4 million is recorded within adjusting items.

The results of the discontinued operations were as follows:

6a. Adjusting items

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

Costs related to acquisitions made in the current and prior periods

Acquisition costs of £0.7 million were incurred as part of acquisitions that were agreed and/or completed after the end of the current period including Melon Group and the full acquisition of the joint venture, Loop (note 12). Charges relating to the amortisation of acquired customer relationships and proprietary techniques amounted to £2.9 million (H1 FY21: 4.4 million). During the period, charges relating to contingent consideration deemed as remuneration of £3.9 million (H1 FY21: £1.7 million) were recorded in the Consolidated Income Statement as adjusting items. The charges in the period are in respect of the acquisition of Kin and Carta Denver (SpireMedia, Inc "Spire") (£0.9 million) and Cascade Data Labs (£3.0 million), which took place in prior periods.

Defined Benefit Pension Scheme costs

The Scheme charges include service costs of £0.3 million (H1 FY21: £0.5 million) and costs in relation to running the scheme of £0.6 million (H1 FY21: £1.1 million). These items are recorded in corporate costs.

Restructuring items and other charges                                                                         

Restructuring and other charges incurred in prior periods relate to site closure and empty property costs.

Tax                                                                                     

In the current period, the tax credit of £0.8 million (HY FY21: £1.8 million) relates to the items noted above.

6b. Impact of adjusting items on Group results

The table below shows an analysis and impact of adjusting items on continuing and discontinued operations on certain of the Group's headline results:

7. Other finance costs

8. Earnings per share

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

8. Earnings per share (continued)

Basic and diluted earnings per share

Adjusted earnings is calculated by adding back adjusting items (note 6), as adjusted for tax, to the profit or loss for the period.

9. Retirement benefits

As at 31 January 2022 the Group reported a net IAS19 surplus in respect of the Defined Benefit Pension Scheme (the 'Scheme') of £25.5 million compared to a surplus of £19.3 million reported as at 31 July 2021. The increase in the surplus is due to the strong performance of growth assets.

10. Notes to the consolidated cash flow statement

Reconciliation of cash generated from operations

10. Notes to the consolidated cash flow statement (continued)

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

Analysis of loan financing liabilities

11. 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 interim financial statements.

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

The Group held a 50% interest in Loop Integration LLC ("Loop"), incorporated in Delaware, USA. On 14 February 2022 the Group purchased the remaining 50% interest, details are provided in note 12 below.

Loop is an e-commerce consultancy specialising in Hybris software integration. Loop earned revenue of £2.1 million (HY FY21: £1.7 million) from the Group. The Group provided services to Loop for £142,000 in the period (HY FY21: £100,900). On 31 January 2022 the following balances were outstanding for services rendered between Loop and the Group. The Group owed Loop £1.4 million at the period end (HY FY21: payable to Loop of £0.9 million). In the current period the Group received a distribution from Loop of £147,000.

12. Post-balance sheet events

After the balance sheet date, the Group completed the purchase of the remaining 50% shareholding in the  joint venture, Loop and exchanged contracts to acquire 100% of Melon Group, a software development company based in the southern Balkans.

Loop                                                                            

On 14 February 2022, the Group acquired the remaining 50% interest, which it did not already own, in the Chicago-based e-commerce consultancy Loop. The initial consideration comprised £2.2 million in cash at completion before customary adjustments for cash, debt and working capital, with deferred consideration contingent upon service and revenue growth for the two years ended 31 December 2023, capped at £3.8 million for a total cap of £6 million before customary adjustments for cash, debt and working capital. Up to 75% of the deferred contingent consideration amounts may be settled in ordinary shares of Kin and Carta plc at the Group's discretion.

The provisional accounting purchase price allocation will be completed by 31 July 2022.

Melon Group

On 21 February 2022, the Group signed an agreement to acquire the software development company Melon Group, which is headquartered in Sofia, Bulgaria with offices in Skopje, North Macedonia and Pristina, Kosovo. The acquisition is conditional on the Group receiving clearances from the North Macedonian and Kosovan competition authorities and will complete following the receipt of these clearances, which are expected to be in the second calendar quarter of 2022 ("Completion").

The consideration payable comprises an estimated initial amount of £17.7 million plus customary adjustments for cash, debt and working capital, of which 40 percent is payable in Kin and Carta plc ordinary shares, and the balance payable in cash, with both amounts to be settled at Completion. In addition, an earnout is potentially payable over three years, linked to growth in adjusted EBITDA from 1 January 2022 to 31 December 2023. Up to 60 percent of the earn out may be payable in Kin and Carta plc ordinary shares at the Company's discretion. Following the Completion of the acquisition, the Company will have an option to purchase and the minority owners will have an option to sell the 49 percent minority stake in Melon's Kosovo subsidiary, Frakton SH.P.K, for £0.8 million within a 3 month period (the "Frakton option"). The total consideration for Melon including potential earnout amounts is capped at £23.5 million, with a further £0.8 million payable in cash if the Frakton option is exercised by either party.

13. Principal risks and uncertainties

The Board considers that the categories of principal risks and uncertainties which could have a material impact on the Group's performance in the remaining six months of the financial year remain the same as those stated on pages 102 to 110 of the 2021 Annual Report and Accounts, which is available on our website https://investors.kinandcarta.com.

14. Statement of Directors' Responsibility

The Directors' confirm that these Condensed Consolidated Interim Financial Statements have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority, namely:

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

●     material related-party transactions in the first six months and any material changes in the related-party transactions described in the Kin and Carta plc 2021 Annual Report and Accounts.

Neither the Company nor Directors accept any liability to any person in relation to the half year financial report except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with section 90A and schedule 10A of the Financial Services and Markets Act 2000.

At the date of this statement, the Directors are those listed in the Kin and Carta plc 2021 Annual Report and Accounts with the exception of:

●     Maria Gordian who was appointed Non-Executive Director on 1 November 2021, and

●     Helen Stevenson who resigned as Non-Executive Director on 14 December 2021.
 

J Schwan

Chief Executive Officer

24 March 2022

Cautionary statement regarding forward-looking statements

This Announcement may contain "forward-looking statements" with respect to certain of the Company's plans and its current goals and expectations relating to its future financial condition, performance, strategic initiatives, objectives and results. Forward-looking statements sometimes use words such as "aim", "anticipate", "target", "expect", "estimate", "intend", "plan", "goal", "believe", "seek", "may", "could", "outlook" or other words of similar meaning.  By their nature, all forward-looking statements involve risk and uncertainty because they are based on numerous assumptions regarding the Company's present and future business strategies, relate to future events and depend on circumstances which are or may be beyond the control of the Company which could cause actual results or trends to differ materially from those made in or suggested by the forward-looking statements in this Announcement, including, but not limited to, domestic and global economic business conditions; market-related risks such as fluctuations in interest rates; the policies and actions of governmental and regulatory authorities; the effect of competition, inflation and deflation; the effect of legislative, fiscal, tax and regulatory developments in the jurisdictions in which the Company and its respective affiliates operate; the effect of volatility in the equity, capital and credit markets on profitability and ability to access capital and credit; a decline in credit ratings of the Company; the effect of operational and integration risks; an unexpected decline in sales for the Company; inability to realise anticipated synergies; any limitations of internal financial reporting controls; and the loss of key personnel.  Any forward-looking statements made in this Announcement by or on behalf of the Company speak only as of the date they are made.  Save as required by the Market Abuse Regulation, the Disclosure Guidance and Transparency Rules, the Listing Rules or by law, the Company undertakes no obligation to update these forward-looking statements and will not publicly release any revisions it may make to these forward-looking statements that may occur due to any change in its expectations or to reflect events or circumstances after the date of this Announcement.

Independent review report to Kin and Carta plc

Report on the condensed consolidated interim financial statements

Our conclusion

We have reviewed Kin and Carta plc's condensed consolidated interim financial statements (the "interim financial statements") in the Half Year Results of Kin and Carta plc for the 6-month period ended 31 January 2022 (the "period").

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

What we have reviewed

The interim financial statements comprise:

●     the Condensed Consolidated Balance Sheet as at 31 January 2022;

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

●     the Condensed Consolidated Statement of Cash Flows for the period then ended;

●     the Condensed Consolidated Statement of Changes in Equity for the period then ended; and

●     the explanatory notes to the interim financial statements.

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

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Half Year Results, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the Half Year Results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Half Year Results based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Half Year Results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

24 March 2022