Kin and Carta : Full Year Results and Strategy Update

This announcement contains inside information

9 October 2018

Kin and Carta plc

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

Full Year Results and Strategy Update

Significant transformation - new CEO, Group identity and growth strategy in place

Kin + Carta, the international digital transformation group, today announces preliminary results for the 53 weeks ended 3 August 2018.

Financial Highlights

	53 weeks to 3 August 2018	52 weeks to 28 July 2017	%age change
Continuing operations2: Revenue	£178.4m	£162.9m	+9%
Adjusted profit before tax1	£18.5m	£13.4m	+38%
Adjusted basic earnings per share1	10.10p	7.27p	+39%
Statutory loss before tax	£(31.2)m	£(19.2)m	-
Statutory basic loss per share	(22.09)p	(12.59)p	-
Full year dividend	1.95p	1.95p	-
Net debt	£26.0m	£54.6m	↓£27.6m
Continuing and discontinued operations:			-
Statutory loss after tax	£(29.2)m	£(43.4)m	-

¹ Adjusted results exclude Adjusting Items to enhance understanding of the ongoing financial performance of the Group. Adjusting Items comprise of redundancies, restructuring costs; gain or loss on disposal of properties; impairment or amortisation charges related to goodwill, tangible and intangible assets; contingent consideration required to be treated as remuneration; movements in deferred consideration and costs related to the St Ives Defined Benefits Pension Scheme (note 3).

²Continuing operations excludes the results of the Books and Marketing Activation segments disposed during the year (note 10).

Further details are provided within Alternative Performance Measure section.

· Revenue growth of 9% from continuing operations (11% at constant currency)

· Adjusted profit before tax up 38%

· Net debt reduced by 50% to £26.0 million, representing a net debt to Adjusted EBITDA ratio of 1.1x (2017: 1.6x).

· Pension scheme now in small surplus of £1.9 million (2017: deficit of £16.0 million)

Operational Highlights

· J Schwan appointed as CEO

· Strategic review complete and new strategy announced today

· Now positioned as a digital transformation business following disposal of Books and Marketing Activation

· Continuing businesses restructured and aligned to new strategic focus

J Schwan, Chief Executive Officer, said:

'It's been a transformational year as we've achieved our long-term ambition to move away from our print legacy to focus solely on strategic marketing and now more specifically, digital transformation. The digital transformation market is large, growing and we are well positioned to capitalise on this opportunity. We're a c.1,500-strong global team with the size and the reach to help the world's largest companies to invent, operate and market profitable new products and services.

Trading at the start of the new financial year has been in line with expectations, with a strong pipeline and a number of project wins from new and existing clients. With a recently strengthened balance sheet, we are confident we can both grow organically and by acquisition. I believe the future for Kin + Carta is very bright.'

For further information, please contact:

Kin and Carta plc	[phone]
J Schwan, Chief Executive Officer Brad Gray, Chief Financial Officer
MHP Communications	[phone]
Tim Rowntree, Giles Robinson, Luke Briggs
Numis	[phone]
Nick Westlake, Matt Lewis, Christopher Wilkinson

Chief Executive's Review

Introduction

This has been a transformational year for our business. During the period, we successfully completed the disposals of both our Marketing Activation and Books segments, achieving our long-term ambition of moving away from our print legacy to focus solely on digital transformation.

Our digital transformation businesses now make up the entirety of the Group, which relaunched to the market as Kin + Carta on 2 October 2018. Kin + Carta applies creativity, data and technology to help the world's largest companies invent, operate and market profitable new products and services.

Our digital transformation businesses continued to deliver significant growth, with revenue up 9% and a 38% increase in Adjusted profit before tax over the period.

Performance Highlights

The Group's revenue from continuing operations was £178.4 million (2017: £162.9 million) which delivered growth of 11% at a constant currency.

The statutory loss before tax from continuing operations was £31.2 million (2017: £19.2 million), which includes adjusting items of £49.6 million (2017: £32.6 million) of which £47.8 million relate to amortisation of acquired intangibles, impairment of goodwill and intangibles related to Hive and contingent consideration required to be treated as remuneration (from previous acquisitions).

The Group's Adjusted profit before tax from continuing operations was £18.5 million (2017: £13.4 million) up 38%.

I am encouraged by our growth in the past year, as well as the strengthening of our balance sheet. In addition to the disposals, we've also made several strategic moves to prepare us for the opportunity ahead.

We've merged Occam, Response One, Amaze One and Branded 3 into a new communications proposition, Edit. This move has allowed us to diversify away from GDPR impacted service offerings. I'm happy to say the new proposition is resonating in the market with some recent large global customer wins.

We've also merged our two digital design and build agencies, Amaze and Realise into one firm, AmazeRealise, now the largest agency of its kind in the UK. This move has allowed us to more easily position AmazeRealise for international expansion.

We've also merged our retail property consultancy FSP into strategy firm Pragma, bringing a more comprehensive strategic proposition to our retail client base.

Though our healthcare communications firm, Hive, has struggled this year, we are realigning its strategic positioning with our new digital focus. Although this represents a significant shift from its current proposition, we are optimistic that this will allow our healthcare experts to focus on larger, more strategic initiatives for Hive's blue chip client base.

Overall these moves required a lot of hard work by our teams and I'd like to congratulate and thank them all. With the majority of these costs being incurred in 2018 financial year, we can now focus on the market opportunities we see ahead of us.

Our New Strategic Focus

In January 2018, we began a strategic review of the Group's businesses, redefining our path forward. As a result, we have defined a new set of core values, a new strategy, a new organisational model and a new brand.

The Group, now known as Kin + Carta, is focused on becoming a global leader in digital transformation services. Digital transformation is increasingly vital for businesses, who, in today's increasingly digital world, require a reset of their company's market strategy, offerings, and ways of working, to ensure they are grounded in new technologies.

There are four primary drivers for our strategic focus on digital transformation:

1. The digital transformation services market is large and growing quickly. The global market is already $44 billion in size and growing at a CAGR of 18%. *

2. Over 80% of Kin + Carta's FY18 revenue from continuing operations was being driven from digital transformation services (strategy, innovation and communications): we have the critical mass and the reach to succeed in this market.

3. Our competitors, which include big consultancies and large agency groups, are finding it challenging to adapt to the right operating model to succeed in this space, leaving room for new entrants.

4. By combining our 1,500 specialists across the globe into a joined up proposition, we are competing successfully in this rapidly growing market.

New Connective Operating Model

Over the past few months, we have reorganised ourselves to integrate our services into a single, well-rounded operating model to match the evolving needs of our clients and the ambitions of our employees. We call this 'The Connective'.

The Connective is grouped into four key service pillars:

· Strategy(where to play) - Our strategists help our clients better understand the shifts in their market and the potential digital brings.

· Innovation(what to build) - We utilise emerging technologies to create new products and services for our clients to bring to market.

· Communications(who to tell) - We help our clients find new audiences online and convert those audiences into customers.

· Transformation(how to work) - We integrate next-generation software and teach our clients agile ways of working to adapt to a rapidly changing world.

Although there is still much work to do, we are encouraged by the collaboration of the nearly 200 employees across the businesses who were involved in creating The Connective operating model. In our early market tests, The Connective is being positively received with both new Connective customer wins and the expansion of some existing client relationships. New global clients such as Rockwell Automation, Kwik Fit and Gallagher are already leveraging multiple Connective services.

Our new Brand, Kin + Carta

We felt it was important to create a new identity for our new business. Although St Ives will forever be a proud part of our history, our new strategic focus was a prime opportunity to pick a name reflecting our position in an increasingly digital world. The name Kin + Carta embodies what The Connective stands for: connection, collaboration and courage.

Growth Catalysts

There is a significant growth opportunity in front of us for which we have identified five key areas of focus for our management team:

Scaling our Sales Functions- The Connective proposition will significantly aid the cross-selling of our services. We will be adding central sales capabilities to support larger Connective business opportunities. We will also draw on the best practices of our fastest growing businesses and ensure each business' sales function is set up to adopt what's best in class.

Deepen Sector Focus- Instead of trying to be everything to everybody, we will use the sector strengths of our strategic consultancies to focus on the sectors where our businesses possess differentiating experience. These include Financial Services, Transportation, Retail and Distribution, Healthcare, Industrials and Agriculture.

Geographic Expansion- We will bring the Communications portion of The Connective proposition to the Americas, leveraging our already strong presence in Chicago, New York, San Francisco and Buenos Aires.

New Capabilities and Ventures-We will continue to invest in new capabilities, for example, expanding our new and fast-growing Artificial Intelligence (AI) practice. We have also created a new venture model to encourage the Connective's 'intrapreneurs' to develop new business ideas that strengthen The Connective proposition.

Financial targets

To accelerate our organic growth rate, over the new financial year we intend to make an investment of £2.0 million in our central marketing and sales capability. Although this investment could be rolled out gradually over the next few years, we've made the decision to fast track this initiative to take advantage of the market opportunity in front of us. This is a real cost to the business that may impair our earnings for 2019 financial year, but we believe the payback thereafter will outstrip the short term drag on profitability.

The regrouping of the business into The Connective also affords us opportunities to create synergies and cost savings to further boost our organic growth.

As a result we expect for 2019 financial year to see mid-single digit revenue growth at constant currency and Adjusted operating margin of greater than 10% as we make the investment for future growth. In 2020 financial year and beyond, we expect double digit revenue CAGR and a minimum 12% margin.

We also expect to manage net debt to EBITDA down to below one times by the end of 2020 financial year.

Acquisitions

Acquisitions will be an important component of our growth strategy in the medium term. We will focus on acquiring digital capabilities with significant scale that can be fully integrated into our existing Connective proposition. Our strategy will be driven by acquiring complementary skill sets and/or geographic reach: growing our existing business in the US is an example of this.

We do not delude ourselves: we will be competing for these businesses or teams with the very best companies in the world. However, we believe that as a nimble and young Group, driven by the entrepreneurial culture imbedded in the non-hierarchical Connective structure that we can offer something different and appealing to the opportunities we identify. We have already started the process.

Outlook

Trading at the start of the new financial year has been in line with expectations, with a strong pipeline and a number of exciting project wins from existing and new clients. With our recently strengthened balance sheet, clarity on our priorities and the people and structure in place, I believe the future for Kin + Carta is very bright indeed.

J Schwan

Chief Executive Officer

8 October 2018

Financial Review

Overview

After a transformational year, the Group which is now entirely focused on higher growth, higher margin digital transformation businesses (previously referred to as Strategic Marketing). The disposals of our legacy Marketing Activation and Books segments have been treated as discontinued operations for both the current and comparative periods within the Consolidated Income Statement. The results that follow are discussed in terms of continuing operations. The results are for a 53 week period compared to the prior period of 52 weeks.

The Group's statutory results are set out in the table below:

	53 weeks to 3 August 2018	52 weeks to 28 July 2017
Revenue	£178.4m	£162.9m
Statutory loss before interest and tax	£(28.2)m	£(15.5)m
Statutory loss before tax	£(31.2)m	£(19.2)m
Basic loss per share	(22.09)p	(12.59)p

The Group's statutory loss before tax of £31.2 million (2017: £19.2 million) includes Adjusting Items of £49.6 million (2017: £32.6 million), of which £47.9 million relates to non-cash items in the current period. Adjusting non-cash items include contingent consideration treated as remuneration of £24.0 million, an increase of deferred consideration of £3.1 million, the impairment of goodwill and acquired intangibles of £12.1 million and the amortisation of intangibles of £8.7 million.

The Group prepares Adjusted results, which, in management's view reflect how the business is managed and show the performance in a manner consistent with the previous year. Adjusted results exclude items such as costs related to restructuring activities, acquisitions made in current and prior periods, disposal of sites, impairment charges and St Ives Defined Benefits Pension Scheme charges. Further details are provided in the Alternative Performance Measures section.

The Group delivered revenue growth of 9% and a 29% increase in Adjusted operating profit from £16.4 million to £21.2 million.

Revenue and Adjusted Operating Profit

Revenue growth at constant currency was 11% (£18.7 million) offset by a 2% adverse currency impact. Revenue at constant currency grew by 23% in the first half and 1% in the second half reflecting a softer comparative in the first half of the prior year. There was a 2% negative contribution from currency translation in each half.

Revenue generated from clients located outside of the UK increased from £63.6 million to £79.6 million over the financial year, and now represent 45% of Group revenues (2017: 37%).

The Adjusted operating profit increased from £16.4 million (Adjusted operating profit margin of 10.1%) to £21.2 million (Adjusted operating profit margin of 11.8%).

A significant amount of restructuring has taken place during the year to improve the offering to clients and also operational efficiencies within the business units. This has reduced the cost base and improved the Adjusted operating margin from 10% to 12%.

The General Data Protection Regulations ('GDPR') that came into force in May 2018 affected our data brands. Clients have withdrawn from certain marketing activity and our data brands have repositioned their market offering to accommodate the new regulations. During the current period, we have focussed on ensuring that our brands meet the requirements of GDPR. Our new proposition is finding resonance with clients as they redirect marketing spend into new areas.

Our healthcare brand has seen some weakness in revenue primarily due to a number of clients seeking a network solution to their communication strategy. As a result an impairment charge of £11.8 million was recorded as an Adjusting Item relating to Hive's goodwill and intangibles. Recent new client projects have improved revenue visibility in this sector.

Central costs were £5.3 million (2017: £4.4 million). The Group has separately identified these central costs that cannot be directly attributed to the individual trading entities of the Group. Central administration costs represent 3% of Group revenue.

Central costs comprise the costs of running a plc and certain functions retained in the centre. We do not believe that additional value or understanding of the results is created by charging these costs to individual brands.

Acquisitions

No acquisitions were made in the current period. However, the total cash outflow for businesses acquired in prior periods was £16.5 million and 10.6 million shares were also issued.

Solstice: during the year 4.9 million shares were issued and a payment of £12.4 million in cash was made to the previous owners of Solstice. Subsequent to the year end a final payment of £3.1 million was made in August. There are no further payments to be made in relation to the Solstice acquisition.

TAB: TAB's third deferred consideration for the year ended 30 April 2018 has been agreed. This was based on incremental EBITDA. The Group has issued 5.7 million shares during the current year and, subsequent to the year end, also made a cash payment of £9.7 million and issued a loan note of £6.8 million to settle the deferred consideration. The loan note is exercisable six months after issue. There remains a liability of £2.0 million that the Group expects to settle in the financial year 2020. This item is treated as an Adjusting Item and is recorded as contingent consideration required to be treated as remuneration.

Balance Sheet

The net assets of the Group have reduced from £97.2 million to £81.4 million primarily due to the statutory loss incurred of £29.2 million offset by a net actuarial gain of £9.2 million. As a result of the disposals of the Group's legacy manufacturing segments, the composition of the balance sheet has changed significantly.

Total assets have reduced from £301.8 million to £191.7 million and total liabilities from £204.6 million to £110.3 million. Non-current assets consist largely of goodwill and intangible assets of £116.2 million (2017: £151.5 million). The Group retained the property that its legacy Books segment, Clays, operates from, which is classified as an investment property within non-current assets at £4.5 million. There has been a significant reduction in inventories and trade and other receivables of £56.9 million and a corresponding fall in trade and other payables and deferred income of £45.9 million.

On the disposal of SP Group Limited ('SP'), a Marketing Activation company, the Group entered into a lease to rent out a warehouse in Redditch to the acquirer, who subsequently exercised a break clause. As a consequence, this building is now being marketed for sale and is disclosed as an 'asset held for sale' at £5.3 million.

Disposals

During the period, the Group undertook a strategic review of its legacy segments Marketing Activation and Books. The review concluded that it was in the best interests of all stakeholders of the Group to actively seek buyers for the segments. As a result, the Group ran an extensive process to dispose of the segments, which concluded in June 2018.

On 5 March 2018 the Group announced the disposal of a significant part of its Marketing Activation segment. This comprised of the point of sale business, SP Group Limited, the large format printer Service Graphics Limited and the field marketing businesses Tactical Solutions UK Limited and Flare Limited. The consideration was based on an enterprise value of £6.0 million and resulted in a net cash inflow of £2.5 million after costs and working capital adjustments.

On 1 May 2018 the Group announced the disposal of its Books segment. The enterprise value was £23.8 million. The net cash inflow after costs, working capital adjustment and a contribution of £2.5 million to the St Ives Defined Benefits Pension Scheme (the 'Scheme') was £16.5 million.

The disposal of St Ives Management Services Limited, the remaining part of the Marketing Activation segment, was announced on 25 June 2018. The enterprise value was £11.0 million resulting in a net cash inflow of £10.9 million after costs and working capital adjustments.

The total net cash inflow from disposals in the period after costs and working capital adjustments was £32.4 million.

The impact of the disposals on the Consolidated Income Statement until the date of disposal and for the 52 week comparator period is shown as a single line within the Income Statement. Further details are shown in note 10. The net profit included in the Income Statement from discontinued operations was £3.2 million (2017: loss £25.4 million).

Tax

The total tax charge for continuing operations was £1.2 million (2017 - credit of £1.2 million). A number of Adjusting Items are not deductible for taxation purposes. Further details are provided in the Alternative Performance Measures section.

The Group's effective tax rate on the Adjusted profit before tax was 19.8% (2017: 22.6%) compared to the standard rate of tax of 19.0% (2017: 19.63%) for the Group. The Adjusted tax charge was £3.7 million (2017: £3.0 million). The Group's effective tax rate on Adjusted profit is lower than the prior year due to the lower UK and US corporate income tax rates.

A net income tax of £2.8 million (2017: £0.3 million) was paid in the UK in respect of the 2017 and 2018 financial years.

Dividend

The Board is recommending a final dividend of 1.30 pence per ordinary share (2017: 1.30 pence) giving a total dividend of 1.95 pence (2017: 1.95 pence). The dividend is covered 5.2 times by Adjusted earnings and will be paid on 17 December 2018 to shareholders on the register at 23 November 2018, with an ex-dividend date of 22 November 2018.

Pensions

The Group closed the Scheme to new members in 2002 and ceased future accrual within the Scheme in 2008. The Group accounts for post-retirement benefits in accordance with IAS 19 Employee Benefits. The Consolidated Balance Sheet reflects the net surplus on the Scheme at 3 August 2018 based on the market value of the assets at that date and the valuation of liabilities using AA non-gilt bond yields.

On an IAS 19 basis, the net surplus on the Scheme was £1.9 million (2017: deficit of £16.0 million) before the related deferred tax liability. The value of the plan assets decreased to £353.4 million (2017: £354.5 million). Approximately 65% of the plan assets are invested in return seeking assets providing a higher level of return over the longer period. Plan liabilities decreased to £351.6 million (2017: £370.5 million). The decrease in the plan liabilities is primarily attributable to an increase in the discount rate, a number of experience adjustments and a fall in the rate of increase in life expectancy.

The Scheme's actuarial valuation reviews determine any cash deficit payments by the Group. The Scheme's triennial valuation was as at April 2016 with the next review at April 2019. The Group makes deficit funding contributions of £2.6 million per annum and a contribution of £0.4 million per annum (2016: £0.4 million) towards the costs of administration. On the disposal of the Books segment the Group made a contribution of £2.5 million to the Scheme.

The charge for the year for the Group's defined contribution schemes was £2.1 million (2017: £2.2 million).

Cash Flow

Cash generated from operations was £25.8 million (2017: £30.7 million) of which £20.5 million was generated from continuing operations and £5.3 million from discontinued operations.

Total dividends paid were £2.8 million. This consisted of a final dividend for financial year 2017 of 1.30 pence per share and an interim dividend of 0.65p per share.

Total capital expenditure was £4.6 million (2017: £3.5 million) and included capital expenditure incurred within the Marketing Activation and Books segments until their disposal as follows:

	2018 £'m	2017 £'m
Continuing operations	4.1	2.1
Discontinued operations	0.5	1.4
	4.6	3.5

The capital expenditure incurred within the continuing business primarily related to the fit out of new office space or the refurbishment of offices.

Solstice moved into a new office in Chicago allowing them to house all employees in one building and have capacity for future growth.

The merger of the data businesses allowed Occam and Response One to occupy one building in Bath. The freehold building that Response One had previously occupied was sold for a cash consideration of £3.2 million.

The sale of the legacy businesses created extra capacity at the Group's Head Office in London which allowed us to house the employees of AmazeRealise who previously operated from two locations. Pragma combined with FSP and relocated to Amaze's previous London premises with MyBench locating to Realises' previous London office, thereby limiting the amount of underutilised office space across the Group.

The total inflow of funds from the disposal of the legacy businesses was £32.4 million.

Debt

At the balance sheet date the Group's revolving credit facility was £95.0 million with an expiry date of March 2019.

Subsequent to the 2018 financial yearend, the Group has successfully negotiated a new revolving credit facility of £85.0 million that will expire on 30 November 2022 on terms broadly in line with the previous agreement. The banking group will consist of HSBC Bank plc, Bank of Ireland and Fifth Third Bank.

Net debt decreased during the year from £54.6 million to £26.0 million, partly reflecting the disposal of the legacy businesses. At 3 August 2018, Kin + Carta had drawn £40.4 million on its revolving credit facility, leaving an unutilised commitment of £54.6 million. The Group had cash and cash equivalents of £14.4 million.

At 3 August 2018, the ratio of net debt to EBITDA before Adjusting Items was 1.1 times (2017: 1.6 times) as shown in the Alternative Performance Measures section.

In future, the Group will report on a calendar month basis. As such the Group's financial year end will be on 31 July from 2019 onwards.

Brad Gray

Chief Financial Officer

8 October 2018

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 consider this and not part of the underlying trading performance.

4. Administrative expenses related to St Ives Defined Benefits Pension Scheme - the Scheme was closed to new members in 2002 and ceased future accrual in 2008. There are now less than 10 employees who are members of the Scheme and employed by the Group. On the disposal of the Books segment Kin and Carta plc is the last remaining employer. The costs of the Scheme are not considered to be part of the 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:

Adjusting Items description	53 weeks to 3 August 2018 £'000	52 weeks to 28 July 2017 £'000
Profit on disposal of property, plant and equipment	(1,542)	(2,760)
Amortisation of acquired intangibles	8,659	9,889
Expenses related to restructuring items	3,062	283
Impairment of goodwill and other assets	12,082	242
Contingent consideration required to be treated as remuneration	23,994	15,550
Increase in deferred consideration	3,094	7,362
Costs associated with prior period acquisitions and setup of subsidiaries	-	99
Administrative (income)/expenses related to St Ives Defined Benefits Pension Scheme	(31)	1,253
Total Adjusting Items added back to the statutory operating profit	49,318	31,918
Pension finance charge	324	638
Total Adjusting Items added back to the statutory profit before tax	49,642	32,556
Tax related to Adjusting Items	(2,436)	(4,228)
Total Adjusting Items added back to the statutory profit after tax	47,206	28,328

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

Revenue growth at constant currency:The measure is defined as the percentage increase in revenue when comparing the current period to the prior period from continuing operations at constant currency. This is calculated by converting revenue of the prior year at the average exchange rate determined during the current year.

	53 weeks to 3 August 2018 £'000	52 weeks to 28 July 2017 £'000
Revenue	178,355	162,948
Retranslation at current year rate	-	(3,318)
Revenue at constant currency	178,355	159,630
Revenue growth at constant currency	11%

The average exchange rate for each functional currency is calculated as an average of the twelve monthly Sterling exchange rate ruling at the end of each period.

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

	53 weeks to 3 August 2018 £'000	52 weeks to 28 July 2017 £'000
Statutory operating loss	(28,153)	(15,512)
Add back total Adjusting Items excluding pension finance charge and tax	49,318	31,918
Adjusted operating profit	21,165	16,406

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

	53 weeks to 3 August 2018 £'000	52 weeks to 28 July 2017 £'000
Statutory loss before tax	(31,171)	(19,167)
Add back total Adjusting Items excluding tax	49,642	32,556
Adjusted profit before tax	18,471	13,389

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

	53 weeks to 3 August 2018 £'000	52 weeks to 28 July 2017 £'000
Statutory loss after tax	(32,394)	(17,959)
Add back total Adjusting Items	47,206	28,328
Adjusted profit after tax	14,812	10,369

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

	53 weeks to 3 August 2018 £'000	52 weeks to 28 July 2017 £'000
Adjusted profit after tax	14,812	10,369
Weighted number of shares ('000)	146,654	142,642
Adjusted basic earnings per share (pence)	10.10	7.27

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

	53 weeks to 3 August 2018 £'000	52 weeks to 28 July 2017 £'000
Revenue	178,355	162,948
Adjusted operating profit	21,165	16,406
Adjusted operating margin	12%	10%

Adjusted EBITDA:This measure is defined as the Adjusted operating profit or loss before depreciation, amortisation, finance expense and taxation. The amortisation charge is adjusted to remove the effect of the amortisation of acquired intangibles, which is included as an Adjusting Item.

The Adjusted EBITDA for 2017 has been determined on the basis of the Adjusted metric for continuing and discontinued operations for the purpose of calculating the ratio of net: EBITDA.

	53 weeks to 3 August 2018 £'000	52 weeks to 28 July 2017 £'000
Adjusted operating profit	21,165	27,105
Add: Depreciation and amortisation - continuing operations for the current year	11,025	16,773
Less: Amortisation of intangibles classified as Adjusting Items	(8,659)	(9,889)
Adjusted EBITDA	23,531	33,989

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

	2018 £'000	2017 £'000
Loans - current liabilities	40,363	-
Loans - non-current liabilities	-	80,245
Cash and cash equivalents	(14,398)	(25,651)
Net Debt	25,965	54,594

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

	53 weeks to 3 August 2018 £'000	52 weeks to 28 July 2017 £'000
Adjusted EBITDA	23,531	33,989
Net Debt	25,965	54,594
Net debt to Adjusted EBITDA	1.10	1.61

Notes to the Consolidated Financial Statements

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 2018 and 2017. 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 3 August 2018 and 28 July 2017.

The financial information for the period ended 3 August 2018 has been extracted from the Group's 2018 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 available-for-sale investments, 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.

The 2018 statutory accounts will be delivered to the Registrar of Companies following the Company's 2018 Annual General Meeting. The financial information for the period ended 28 July 2017 has been extracted from the Group's statutory accounts for that period, which have been delivered to the Registrar of Companies. The prior period information has been restated to classify the trading results of the Books and Marketing Activation segments as discontinued operations. Further details are provided in note 10. The Auditor's report on both the Group's 2018 and 2017 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 2018 and 2017 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 condensed consolidated financial statements and that, therefore, it is appropriate to adopt the going concern basis in preparing the combined financial information for the fifty three weeks ended 3 August 2018.

2. Segment reporting

The Group reports its results through one segment and with corporate costs shown separately. This is based on the Group's internal reporting to the Chief Operating Decision Maker ('CODM'). The CODM has been determined to be the Chief Executive Officer and Chief Financial Officer as they are primarily responsible for the allocation of resources and the assessment of performance of the segments.

During the period, the Group disposed of its Books and Marketing Activation segments. Therefore the operating segment includes all of the digital transformation businesses; AmazeRealise, The App Business, Solstice, Edit, Pragma, Incite and Hive. The result of our joint venture, Loop, is also reported within this segment. This segment was formerly referred to as the Strategic Marketing segment.

Results from continuing operations for the current period:

53 weeks to 3 August 2018

	Businesses £'000	Corporate costs £'000	Total £'000
Revenue	178,355	-	178,355
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)

Results from continuing operations for the prior period:

	Businesses £'000	Corporate costs £'000	Total £'000
Revenue	162,948	-	162,948
Operating profit/(loss) before Adjusting Items	20,808	(4,402)	16,406
Adjusting Items	(30,665)	(1,253)	(31,918)
Statutory loss from operations	(9,857)	(5,655)	(15,512)
Net pension finance expense			(638)
Other finance expense			(3,017)
Statutory loss before tax			(19,167)
Incometax credit			1,208
Statutory net loss for the period from continuing operations			(17,959)

Geographical segments

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

	3 August 2018 £'000	28 July 2017 £'000
United Kingdom	119,753	120,074
United States of America	57,066	40,896
Rest of the world	1,536	1,978
Total	178,355	162,948

2. Segment reporting (continued)

The Group derives 55% (2017: 61%) of the total revenue from customers located in the UK, 36% (2017: 30%) of the total revenue from customers located in the US and 9% (2017: 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:

Expense/(income)	2018 £'000	2018 £'000	2017 £'000	2017 £'000
Restructuring items
Redundancies and other charges	2,737		283
Costs associated with empty properties	325		-
		3,062		283
St Ives Defined Benefits Pension Scheme costs/(credits)
Scheme administrative costs	617		756
Curtailment credit	(1,261)		-
Other related costs	613		497
		(31)		1,253
Costs related to acquisitions made in prior periods
Amortisation of acquired intangibles	8,659		9,889
Impairment of goodwill and intangible assets	12,082		242
Costs associated with prior period acquisitions and setup of subsidiaries	-		99
Contingent consideration required to be treated as remuneration	23,994		15,550
Increase in deferred consideration	3,094		7,362
		47,829		33,142
Adjusting Items		50,860		34,678
Profit on disposal of property, plant and equipment		(1,542)		(2,760)
Adjusting Items before interest and tax		49,318		31,918
Net pension finance expense in respect of defined benefits pension scheme		324		638
Adjusting Items before tax		49,642		32,556
Income tax credit		(2,436)		(4,228)
Adjusting Items aftertax		47,206		28,328

Restructuring items

The restructuring items in the current period include redundancy and restructuring costs of £2.5 million incurred by AmazeRealise, Hive and Incite and redundancies of £0.2 million in head office following the disposal of the Group's Books and Marketing Activation segments.

As a result of the amalgamation of Occam and Response One into the new Edit office located in Bath, there is an empty property cost of £0.3 million.

3. Adjusting items (continued)

Disposal of properties

The profit on disposal of property, plant and equipment of £1.5 million relates to the sale of properties in Bath and Bungay.

St Ives Defined Benefits Pension Scheme costs

The Scheme charges include service costs of £0.6 million, a net pension finance charge of £0.3 million and costs in relation to running the scheme of £0.6 million offset by a one off curtailment credit of £1.3 million. 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 £8.7 million in the current period.

Due to a decline in revenue generated from our healthcare business, Hive's goodwill was impaired by £9.6 million and an impairment charge of £2.1 million was recorded against Hive's proprietary techniques. In addition, £0.4 million of impairment charge was recorded against the proprietary techniques related to Fripp, Sandeman and Partners ('FSP') due to obsolescence of techniques.

In the current period, the tax credit of £2.4 million (2017 - £4.2 million) relates to the items discussed above.

4. Income tax credit/(charge)

Income tax (charge)/credit as shown in the Consolidated Income Statement is as follows:

Continuing operations:

	2018 £'000	2017 £'000
Total current tax charge:
Current period	(3,588)	(3,155)
Adjustments in respect of prior periods	58	483
Total current tax charge	(3,530)	(2,672)
Deferred tax on origination and reversal of temporary differences:
Deferred tax credit	2,249	3,933
Adjustments in respect of prior periods	58	(53)
Total deferred tax credit	2,307	3,880
Total income tax (charge)/credit	(1,223)	1,208

Discontinued operations:

	2018 £'000	2017 £'000
Total current tax charge:
Current period	(894)	(1,357)
Adjustments in respect of prior periods	35	199
Total current tax charge	(859)	(1,158)
Deferred tax on origination and reversal of temporary differences:
Deferred tax credit	175	828
Adjustments in respect of prior periods	19	(168)
Total deferred tax credit	194	660
Total income tax charge	(665)	(498)

4. Income tax credit/(charge) (continued)

Continuing and discontinued operations:

	2018 £'000	2017 £'000
Total current tax charge:
Current period	(4,482)	(4,512)
Adjustments in respect of prior periods	93	682
Total current tax charge	(4,389)	(3,830)
Deferred tax on origination and reversal of temporary differences:
Deferred tax credit	2,424	4,761
Adjustments in respect of prior periods	77	(221)
Total deferred tax credit	2,501	4,540
Total income tax (charge)/credit	(1,888)	710

The income tax (charge)/credit on the loss before and after adjusting items are as follows:

Continuing Operations	2018 £'000	2017 £'000
Tax charge on Adjusted profit before tax	(3,659)	(3,020)
Tax credit on Adjusting items	2,436	4,228
Total income tax (charge)/credit	(1,223)	1,208
Discontinued Operations
Tax charge on Adjusted profit before tax	(665)	(1,964)
Tax credit on Adjusting items	-	1,466
Total income tax (charge)/credit	(665)	(498)
Continuing and discontinued Operations
Tax charge on Adjusted profit before tax	(4,324)	(4,984)
Tax credit on Adjusting items	2,436	5,694
Total income tax (charge)/credit	(1,888)	710

The income tax (charge)/credit for continuing operations can be reconciled to the loss before tax per the Consolidated Income Statement as follows:

	2018 £'000	2017 £'000
Loss before tax from continuing operations	(31,171)	(19,167)
Tax calculated at a rate of 19.04% (2017: 29.67%)	5,935	5,687
Non-deductible charges on impairment of tangible and intangible assets	(1,817)	-
Expenses not deductible for tax purposes	(6,546)	(7,541)
Effect of tax deductible goodwill	626	634
Effect of change in United Kingdom corporate tax rate	(46)	(143)
Credit on research and development activities	244	307
Movement in deferred tax on industrial buildings	290	1,824
Re-assessment of tax losses	(25)	9
Adjustments in respect of prior periods	116	431
Total income tax (charge)/credit	(1,223)	1,208

4. Income tax credit/(charge) (continued)

Income tax charge as shown in the Consolidated Statement of Comprehensive Income is as follows:

	2018 £'000	2017 £'000
United Kingdom corporation tax credit at 19.00% (2017: 19.67%)	1,258	548
Deferred tax on origination and reversal of temporary differences	(2,989)	(2,132)
Total income tax charge	(1,731)	(1,584)

Income tax credit as shown in the Consolidated Statement of Changes in Equity is as follows:

	2018 £'000	2017 £'000
United Kingdom corporation tax credit at 19.00% (2017: 19.67%)	-	(16)
Deferred tax on origination and reversal of temporary differences	74	63
Total income tax credit	74	47

5. Acquisitions

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

	£'000
TAB - working capital	381
TAB - deferred consideration	3,767
Solstice - deferred consideration	12,370
Net cash outflow	16,518

6. Dividends

	per share	2018 £'000	2017 £'000
Final dividend paid for the 52 weeks ended 29 July 2016	5.45p	−	7,777
Interim dividend paid for the 26 weeks ended 27 January 2017	0.65p	−	928
Final dividend paid for the 52 weeks ended 28 July 2017	1.30p	1,857	−
Interim dividend paid for the 27 weeks ended 2 February 2018	0.65p	927	−
Dividends paid during the period		2,784	8,705
Proposed final dividend at the period end of 1.30p per share (2017: 1.30p per share)	1.30p	1,993

7. Earnings per share

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

Number of shares

	2018 '000	2017 '000
Weightedaverage number of ordinary shares for the purposes of basic and diluted earnings per share	146,654	142,642
Effect of dilutive potential ordinary shares:
Share options	−	−
Weighted average number of ordinary shares for the purposes of diluted earnings per share	146,654	142,642

7. Earnings per share (continued)

Basic and diluted earnings per share

Continuing Operations:

	2018		2017
	Earnings/(loss) £'000	Earnings/(loss) per share pence	Earnings/(loss) £'000	Earnings/(loss) per share pence
Continuing operations:
Earnings/(loss) and basic and diluted earnings/(loss) per share
Adjusted earnings and Adjusted basic earnings per share	14,812	10.10	10,369	7.27
Adjusting items	(47,206)	(32.19)	(28,328)	(19.86)
Loss and basic and diluted loss per share	(32,394)	(22.09)	(17,959)	(12.59)
Discontinued operations:
Earnings/(loss) and basic and diluted earnings/(loss) per share
Adjusted earnings and Adjusted basic earnings per share	3,511	2.39	8,735	6.12
Adjusting items	(326)	(0.22)	(34,134)	(23.93)
Earnings/(loss) and basic and diluted earnings/(loss) per share	3,185	2.17	(25,399)	(17.81)
Continuing and discontinued operations:
Earnings/(loss) and basic and diluted earnings/(loss) per share
Adjustedearnings and Adjusted basic earnings per share	18,323	12.49	19,104	13.39
Adjusting items	(47,532)	(32.41)	(62,462)	(43.79)
Loss and basic and dilutedloss per share	(29,209)	(19.92)	(43,358)	(30.40)

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

8. Retirement benefits

As at 3 August 2018, the Group reported a net surplus in respect of the St Ives Defined Benefits Pension Scheme of £1.9 million compared to a deficit of £16.0 million reported as at 28 July 2017. This is primarily due to a decrease in plan liabilities. The decrease in the plan liabilities is primarily attributable to an increase in the discount rate, a number of experience adjustments and a fall in the rate of increase in life expectancy.

9. Notes to the consolidated cash flow statement

Reconciliation of cash generated from operations

	2018 £'000	2017 £'000
Operating loss from continuing operations	(28,153)	(15,512)
Operating profit/(loss) from discontinued operations	3,850	(24,901)
Adjustments for:
Depreciation of property, plant and equipment	3,905	6,149
Share of profit from joint arrangement	(569)	(355)
Disbursements from joint arrangement	876	-
Impairment losses related to continuing operations	12,082	33,058
Impairment losses related to discontinued operations	18,833	-
Amortisation of intangible assets	8,683	10,624
Gain on disposal of subsidiaries	(18,334)	-
Profit on disposal of property, plant and equipment	(1,501)	(2,818)
Share-based payment charge	1,274	70
Decrease in defined benefits pension scheme obligations	(7,882)	(2,789)
Re-measurement of deferred consideration	3,094	7,362
Charge for contingent consideration required to be treated as remuneration	23,994	15,550
Increase/(decrease) in provisions	1,402	(5)
Operating cash inflows before movements in working capital	21,554	26,433
Decrease/(increase) in receivables	9,620	(130)
Decrease in inventory	662	583
Increase/(decrease) in payables	(4,587)	2,852
(Decrease)/increase in deferred income	(1,401)	948
Cash generated from operations	25,848	30,686

Analysis of net debt

	2018 £'000	2017 £'000
Cash and cash equivalents	14,398	25,651
Loan - current assets	(40,363)	-
Loan - noncurrent assets	-	(80,245)
	(25,965)	(54,594)

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

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

Analysis of financing liabilities

	28 July 2017 £'000	Financing Cash flow £'000	Transfer £'000	Foreign exchange losses £'000	3 August 2018 £'000
Bank loans - non current	(80,245)	-	80,245	-	-
Bank loans - current	-	40,000	(80,245)	(118)	(40,363)
	(80,245)	40,000	-	(118)	(40,363)

10. Disposals

Books segment

The Group disposed of its Books segment on 30 April 2018 for total cash consideration of £26.0 million. The trading results of the Books segment up to the date of disposal are summarised as follows;

	From 29 July 2017 to 30 April 2018 £'000	52 Weeks to 28 July 2017 £'000
Profit from the Books segment before Adjusting Items:
Revenue	52,198	76,465
Operating costs	(48,526)	(72,387)
Operating profit before Adjusting Items	3,672	4,078
Income tax charge	(621)	(571)
Profit after tax before Adjusting Items	3,051	3,507
Adjusting Items:
Fixed asset impairment	-	(2,232)
Stock impairment	-	(646)
Restructure of the business	-	(1,505)
Adjusting Items before tax	-	(4,383)
Income tax credit on Adjusting Items	-	746
Adjusting Items after tax	-	(3,637)
Gain on sale of Books segment	5,562	-
Total Adjusting Items	5,562	(3,637)
Profit/(loss) from discontinued operations:
Profit after tax before Adjusting Items	3,051	3,507
Adjusting Items	-	(3,637)
Gain on sale of Books segment	5,562	-
Statutory profit/(loss) after tax	8,613	(130)

The net assets of the Books segment as at 30 April 2018 are summarised as follows;

	30 April 2018 £'000 Assets/(liabilities)
Property, plant and equipment	7,350
Intangible assets	1
Deferred tax assets	214
Inventories	3,662
Trade and other receivables	15,519
Cash and cash equivalents	5,598
Trade and other payables	(12,966)
Corporation tax payable	(337)
Net assets	19,041
Selling costs	1,397
Profit on disposal before tax	5,562
Total consideration received	26,000

The fair value of the consideration received for the disposal of the Books segment as at 30 April 2018 was £26.0 million.

10. Disposals (continued)

Books segment (continued)

The disposal of Books segment had the following impact on investing cashflows in the current period:

	£'000
Consideration received in cash and cash equivalents	26,000
Less:
Cash and cash equivalents disposed of	(5,598)
Selling costs	(1,397)
Net cash inflow	19,005

Marketing Activation segment

The Group disposed of its Marketing Activation segment during the period, with SP Group, Service Graphics and Tactical Solutions being disposed of on 2 March 2018 for a total cash consideration of £9.8 million, and St Ives Management Services Limited being disposed of on 22 June 2018 for a total consideration of £14.2 million. The trading results of the Marketing Activation segment are summarised as follows;

	From 29 July 2017 to the date of disposal £'000	52 Weeks to 28 July 2017 £'000
Profit from the Marketing Activation segment before Adjusting Items:
Revenue	88,540	153,741
Operating costs	(88,036)	(147,120)
Operating profit before Adjusting Items	504	6,621
Income tax charge	(44)	(1,393)
Profit after tax before Adjusting Items	460	5,228
Adjusting Items:
Goodwill impairment	(14,482)	(27,130)
Impairment of non-current and current assets	(4,351)	(2,808)
Restructuring costs	-	(1,215)
Amortisation of intangibles	173	(64)
Adjusting Items before tax	(18,660)	(31,217)
Income tax credit on Adjusting Items	-	720
Adjusting Items after tax	(18,660)	(30,497)
Gain on sale of Marketing Activation segment	12,772	-
Total Adjusting Items	(5,888)	(30,497)

Loss from discontinued operations:

	28 July 2017 to the date of disposal £'000	52 Weeks to 28 July 2017 £'000
Profit after tax before adjusting items	460	5,228
Adjusting Items	(18,660)	(30,497)
Gain on sale of Marketing Activation segment	12,772	-
Statutory loss after tax	(5,428)	(25,269)

10. Disposals (continued)

Marketing Activation segment

The net assets of the Marketing Activation segment as at the date of disposal are summarised as follows;

	Assets/ (liabilities) £'000	Impairment £'000	Total £'000
Property, plant and equipment	1,740	(1,558)	182
Goodwill	14,482	(14,482)	-
Other intangible assets	255	(244)	11
Other non-current assets	127	(127)	-
Deferred tax assets	1,049	-	1,049
Inventories	1,929	(1,929)	-
Trade and other receivables	26,535	(493)	26,042
Cash and cash equivalents	9,700	-	9,700
Trade and other payables	(25,415)	-	(25,415)
Provisions	(844)	-	(844)
Corporation tax	(360)	-	(360)
Net assets	29,198	(18,833)	10,365
Selling costs			820
Profit on disposal before tax			12,772
Total consideration received			23,957

The fair value of the consideration receivable on the disposal of the Marketing Activation segment is comprised as follows:

			£'000
Cash consideration paid on 2 March 2018			9,765
Cash consideration paid on 22 June 2018			14,192
Total consideration received			23,957

The disposal had the following impact on investing cashflows in the current period:

			£'000
Consideration received in cash and cash equivalents			23,957
Less:
Cash and cash equivalents disposed of			(9,700)
Selling costs			(820)
Net cash inflow			13,437

Cashflows

The net cash inflow from the disposals of the Books and Marketing Activation segments are as follows:

	£'000
Books	19,005
Marketing Activation	13,437
	32,442

The discontinued operations had the following impact on operating and investing cashflows in the current and prior period:

	2018 £'000	2017 £'000
Cash generated from operating activities	3,950	6,628
Cash used in investing activities	(520)	(767)
Increase in cash and cash equivalents from discontinued operations	3,430	5,861

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 financial statements.

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

The Group earned revenue of £0.2 million (2017:£ 0.8 million) from Loop Integration LLC and the Group incurred £19,000 charges (2017:£nil) for services received. The Group also received a dividend of £0.4 million (2017: £nil). At the reporting date, Loop Integration LLC owed the Group £8,000 (2017: £27,000) for services rendered.

12. Post balance sheet event

Subsequent to the year end, the Group has successfully negotiated a new revolving credit facility of £85.0 million that will expire on 30 November 2022 on terms broadly in line with the previous agreement.

13. Principal Risks

The Group's principal risks and key mitigating activities in place to address them, as at 29 July 2017, are set out in pages 24 to 27 of the Group's Annual Report and Accounts 2017, a copy of which is available on the Group's website: www.kinandcarta.com.

The principal risks have been considered by the Board and changes to the risk ratings have been made, since the period ended 28 July 2017 as follows;

(i) Growth

This risk relates to growth initiatives that may be under invested or not pursued in the right sectors or territories and may therefore fail to deliver growth. Whilst our digital transformation businesses have strong client servicing organisations, some have under invested in new business and partnership channels, compromising potential growth rates.

The risk rating associated with this risk has been increased from medium to high, compared to the prior year due to the smaller size of the Group following the disposal of the legacy businesses. As such, it is the impact rather than the likelihood that has resulted in the increase.

Mitigating activities to address this risk include: further investment in new business functions; developing the Group's proposition (The Connective) to encourage collaborative behaviour and growth opportunities; detailed budgets and three year plans submitted to the Board for review; and stringent selection criteria followed for pursuing acquisitions that fit within the Group's strategy and culture.

(ii) Assimilation

This risk has been added as a key risk this year following the recent merging of businesses. There could be short term challenges, as cultures are merged and logistic considerations are managed. The group has merged six of its businesses into two digital platforms - AmazeRealise and Edit. Whilst this is the right move in order to create a solid platform for growth, there is a risk of short-term impacts as the businesses assimilate.

The board considers this risk to be a short-term risk during the integration phase. It will continue to be monitored by the Board.

Mitigations in place include: new office moves to house new businesses in the same location and to create a more positive working environment; people focused initiatives and bonding to encourage a uniform culture; and developing processes and procedures to improve efficiency.

(iii) Clients

This risk covers the loss of clients due to competitive pressures. The Group has a variety of key clients within each business across a number of sectors. Long-term relationships have been fostered with many of these clients over a number of years.

Following the disposal of the print legacy businesses this risk, whilst significant, has been revised from high to medium compared to the prior year. The print segments had experienced over capacity with price pressure largely prevalent. No single client, of the continuing operations makes up more than 10% of the Group's revenue.

Mitigating activities include: encouraging collaborative behaviour across the Group's businesses and creating a commitment to cross-selling that will distinguish the Group's marketing offering from its competitors'; achieving or exceeding service level agreements with clients; broadening our capabilities and providing marketing solutions in support of our clients' marketing strategies; avoiding over reliance on any single client; implementing bespoke propositions for securing the renewal of key client contracts; providing Group support where appropriate; and conducting client satisfaction surveys.

(iv) Brand and Culture

The Group has undergone a rebranding and whilst considerable thought has gone into the rebrand, there is a risk that it might not resonate with the Group's stakeholders and not facilitate the culture being promoted.

This is a new risk following the launch of the new brand, Kin + Carta and the inherent risk is set as high as it is vital that the brand architecture is cohesive and easily understood by clients and top talent globally. The Group has consulted extensively internally to ensure that there is alignment with the core values of the rebrand. The board consider the residual risk to be medium.

Mitigations in place include: involving the operating businesses with the rebranding and its launch through undertaking a thorough consultation process; and strong leadership alignment at the top of the organisation to demonstrate that the Group's purpose is to serve its employees and not the other way around.

(v) Pension Scheme

This risk covers the volatility of the St Ives Defined Benefits Pension Scheme ('the Scheme') deficit, which may be impacted by the inflation rate, changes in the discount rate derived from gilt yields and changes in actuarial assumptions, such as mortality.

This risk rating associated with the Scheme has reduced on prior year as the deficit has been eliminated in the current year. As at 3 August 2018, the Scheme has a surplus of £1.9 million compared to a deficit of £16.0 million in the prior year.

Mitigating activities include: the agreement of a deficit recovery plan with the Pension Scheme Trustee; regular engagement with the Trustee directors with discussions on the Group's performance; managing possible Section 75 debts arising from business disposals and closures; and contributing to discussions on the Scheme's investment strategy.

14. Responsibilities

The 2018 Annual Report and Accounts which will be issued in November 2018 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 8 October 2018, 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 2017 Annual Report and Accounts with the exception of the following appointments and resignations:

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

David Bell - Non Executive Director - 4 August 2018

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

Ben Gordon - Non Executive Director - 30 November 2017

The foregoing contains forward looking statements made by the directors in good faith based on information available to them up to 8 October 2018. Such statements need to be read with caution due to inherent uncertainties, including economic and business risk factors underlying such statement.