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Risk
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Risk description
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Mitigating activities
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Change in risk level in 2020
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1. COVID-19 AND PANDEMIC SHOCKS
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COVID-19 has dramatically impacted the global economy, our clients and the ways people live and work around the world. In addition to the immediate economic shocks, we expect these changes to lead to long-term shifts in consumer and employee expectations, and ultimately impact industries across
society. Kin + Carta was able to quickly adapt and has been operating remotely during the pandemic, including pitching, winning and delivering solutions for our clients.
Nonetheless, the pandemic has introduced risk in the form of: (i) clients deferring, scaling back or cancelling projects (see risk 6); (ii) a changed working environment for our people which increases the risk of individuals feeling more isolated whilst working
remotely and potentially heightens data security risk as processes are adapted (see risk 11); (iii) a substantial economic decline (see risk 2); and (iv) needing to adapt appropriately to behavioural changes and evolving consumer demand (see risk 6).
As well as posing risks, there are longer-term opportunities for a business like Kin + Carta since businesses are, in the longer term, likely to invest more in digital capability.
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Our agile, digital ways of working enable Kin + Carta to adapt quickly to change.
Cost management programmes in place across the Connective.
Utilising government schemes such as the UK Coronavirus Job Retention Scheme and US Paycheck Protection Program.
Maintain regular dialogue with employees and wellbeing initiatives.
New business targets in industries that have not been negatively impacted by COVID-19.
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New risk.
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2. ECONOMY AND VOLATILITY
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Challenging economic and political conditions may inhibit growth and create uncertainty. This could lead
to volatility in earnings.
Uncertainty in the economy, largely associated with COVID-19 and Brexit, could result in client projects being cancelled or deferred at short notice and new business opportunities contracting. While the Connective has long-term contracts with clients, the level of spend is predominantly at the client's discretion rather than being derived from guaranteed sales volumes.
To a lesser extent, a worsening of the economic and political situation in Argentina could, in the short term, impact our cost base since Kin + Carta's
nearshore resources that support the Connective are based there.
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Diversification into markets that are capable of delivering profit growth with
an increasing number of diverse companies.
Diversification of client geography, including through growth in new US
markets and other overseas locations.
Investment in a wider range of services offered to clients, collaborating with
strategic partners where appropriate.
An ongoing review of the Connective's cost base and options to provide additional nearshore capability within Europe.
Secure more long-term client relationships and contracts with a greater emphasis on recurring revenue.
A regular review of performance of all businesses against their budgets, monthly forecasting and implementing remedial action, where needed.
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Higher.
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3. GROWTH
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Growth is core to the Kin + Carta long-term strategy. This includes organic growth driven by strategic initiatives and inorganic growth driven by strategic acquisitions. Growth initiatives may be underinvested or not pursued in the right sectors or territories and
may therefore fail to deliver growth.
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Further investment in new business functions, including Partnerships.
Establishing and embedding our market proposition, which launched the
Advise, Create and Connect brands.
Detailed budgets and three-year plans submitted to the Board for review.
Stringent selection criteria for pursuing acquisitions that fit within the Connective's strategy and culture.
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No change.
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4. SCALABILITY
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Achieving scalability is important in order to pursue a high growth strategy in a profitable way. While included as a risk, achieving greater scalability is also an opportunity for the Connective.
Digital Transformation businesses may not have sufficient scale within their sectors to secure substantial customer contracts. Without sufficient scale, our businesses may find it more challenging to secure larger client contracts.
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Collaboration across the business operationally such as working on joint
pitches and delivering work efficiently across the Group.
Organic growth of businesses through investment.
Consolidating business units and centralising specific functions (such
as Connective Digital Services, Finance and Legal) to provide an efficient operating platform and thus a scalable offering.
Investment in high growth Digital Transformation businesses and greater
focus on securing longer-term contracts with emphasis on recurring revenue.
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No change.
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5. ASSIMILATION
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We recently launched a new regional operating model uniting Advise, Create and Connect under a singular management team in the Americas and Europe regions. This, coupled with our acquisition of Spire Digital, requires greater collaboration across our Pillars and operations. The Connective continues to identify areas for assimilation and integration to create a solid platform for growth.
Short-term impacts from transitioning to this model could manifest in the form of temporary operating challenges as business cultures and ways of working are merged.
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Appointment of a Chief Executive of Americas, Chief Executive of Europe,
Global Chief Technology Officer and Global Chief Strategy Officer.
Our responsible business initiatives encourage greater collaboration across
our Pillars with a common goal, while our employee experience programmes
foster an aligned culture with shared values across the Connective.
A defined and structured plan for the integration of new acquisitions.
Identifying and facilitating resource requirements to manage the changes.
Office consolidation to accommodate and support our Pillars in the same
location while enhancing the working environment.
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No change.
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6. CLIENTS
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The Connective has a number of key clients in each of its specialisms.
Competitive pressure may result in
the loss of a key client.
Should the Connective lose a number of its key customers, this could have a material impact on its finances. For the year ended 31 July 2020, no single customer accounted for more than 9% of revenue.
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Our regional operating model and platform approach is already helping drive client wins where we are delivering a wider range of solutions that supports longer-term engagements.
We encourage our clients to think strategically about their future direction
and differentiation and how, together, we can make the world work better for
their customers. This approach also distinguishes the Connective's offering
from its competitors.
Achieve or exceed service level agreements with clients.
Broaden our capabilities, providing new innovating solutions in support of our clients' evolving technology needs.
Avoid over reliance on any single client.
Implement bespoke propositions for securing the renewal of key client
contracts, providing Connective support where appropriate.
Further investment in new business functions, including Partnerships.
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No change.
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7. OUR PEOPLE
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The risk of not being able to attract and retain people is heightened due to the highly competitive environment for talent. Attracting and retaining talent
is a key priority for the Connective as it continues to invest in new and innovative service orientated
offerings.
A misalignment between our current and prospective employees' values and our business model may result in difficulties to attract, develop and retain people with the necessary talent. This would impact the ability of the specialisms, and Connective as a whole,
to deliver the services sought by our clients and support the growth of the business.
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Emphasis on becoming a B Corp certified business, which is part of our corporate strategic initiative to become a globally recognised best place to work. This initiative is at the heart of our business.
Support our people with training and development needs along with career
development opportunities.
Develop a collaborative culture across the Connective's Pillars.
Provide competitive, equitable compensation including share-based
incentive schemes, and other targeted benefits.
Succession planning for senior management.
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Higher.
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8. BRAND AND CULTURE PERCEPTION
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In February 2020, the Advise, Create and Connect brands were launched in line with our market proposition. It is vital that the brand architecture is cohesive and easily understood by current and prospective clients.
Likewise, our culture must attract and retain our employees whilst fostering an environment for people to do their best work.
If the brand and culture do not resonate with the Connective's stakeholders, business opportunities may be missed.
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Developed a new purpose supported by the Connective's values and strategy.
Strong leadership alignment throughout the Connective to demonstrate that
Kin + Carta's purpose is to make the world work better for its stakeholders,
including its people. Kin + Carta has a strong culture of servant leadership.
Culture and Responsibility Platform that spans across the Connective covering employee experience, B Corp and IDEA initiatives, which are embedded into Kin + Carta's culture through grass roots participation across the Connective.
Involving the operating businesses with the rebranding and its launch through undertaking a thorough consultation process.
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No change.
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9. FINANCE
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The Company's ability to trade may be compromised by a lack of cash funds. Being able to finance working capital and carry out operations is fundamental to the Connective.
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Conduct half-yearly 'going concern' reviews and longer-term viability assessments.
Ongoing monitoring of Kin + Carta's performance against its banking covenants, which this year, in response to COVID-19, resulted in increasing the ceiling on the Company's quarterly leverage covenant to up to 5.0 times EBITDA (previously 2.5 times) for four quarters commencing with the quarter ended 31 July 2020.
Undertake monthly reviews of working capital, cash forecasts and headroom
on banking covenants.
Periodically review the Connective's financial KPIs with its bankers.
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No change.
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10. PENSION SCHEME
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The Company has a Defined Benefits Pension Scheme (the 'Scheme'), which is currently in a funding deficit. The volatility of the Scheme's deficit is impacted by the inflation rate, changes in the discount rate derived from gilt yields and changes in actuarial assumptions, such as mortality.
An increase in the deficit could lead to higher contributions being made by the Company.
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A new deficit recovery plan was agreed with the Scheme Trustee, which commenced in September 2020 and aligns the cash contributions with the Company's cash generation.
Regularly engage the Trustee directors in discussions on the Connective's
performance.
Work with an external advisor and follow regulatory compliance.
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No change.
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11. DATA SECURITY AND GDPR
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Failure to adequately protect, prevent or respond to a data breach or cyber attack would expose the Connective to non-compliance with the GDPR or other applicable global data protection laws, reputational damage, fines, compensation or damages, 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 to reduce the likelihood of attack or breach in a fast-changing environment with regularly evolving external threats such as changes resulting from the COVID-19 pandemic.
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Our Connective Digital Services function has responsibility to protect data (e.g. encryption, firewalls, restricted access, SaaS tool management).
Employee awareness drives and training regarding data protection and education on external threats and the changing environment of our workplace as a result of COVID-19.
Periodic reviews by Internal Audit, utilising in-house Connective Digital
Services expertise as well as specialist external consultants. Cyber security
and Connective Digital Services questionnaire completed periodically by our specialisms to highlight areas of potential risk, together with any mitigating actions performed in order to address this risk.
A Data Protection Officer assists the Connective with GDPR compliance and
other applicable global data protection laws. The Data Protection Officer provides assistance and guidance to the Board with regular reporting covering GDPR audits and the rolling out of new policies, processes and procedures.
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Higher.
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