Interim results

RNS Number : 1722I

Merit Group PLC

01 December 2022

 

1 December 2022

Merit Group plc

("Merit", the "Company" or "the Group")

UNAUDITED INTERIM RESULTS TO 30 SEPTEMBER 2022

Merit Group plc (AIM: MRIT), the data and intelligence business, announces its unaudited interim results for the half year ended 30 September 2022. The Company is also pleased to announce completion of the disposal of the Dods MET Operations.

Financial Highlights

· Strong year on year growth in Revenue from Continuing Operations to £9.2m (H1 2021/22: Revenue £8.7m);

· Adjusted EBITDA of £1.1m (H1 2021/22: Adjusted EBITDA £1.6m), reflecting increased costs primarily driven by wage inflation and a £0.3m negative impact from GBP/INR exchange rates;

· Net cash generated from continuing operating activities of £0.4m (H1 2021/22: £0.4m);

· Disposal of the MET Operations completed for a cash consideration of £4.5m¹;

· Cash balance of £1.8m and Net Debt ² of £3.2m as at 30 September 2022, with total debt facilities of £5.0m; and

· Net Cash² at 30 November 2022, after disposal proceeds ¹ , of £0.3m. Reduction in debt facility post disposal to £3.0m (£1.0m Term Loan and £2.0m RCF) retaining financial flexibility.

Continuing Operations
	H1 2022/23	H1 2021/22
	30 Sep 22	30 Sep 21	Change 6
Revenue	£9.2m	£8.7m	6.1%
Gross profit	£4.6m	£4.6m	(1.1%)
Gross margin3	50%	53%
Adjusted EBITDA4	£1.1m	£1.6m	(31.0%)
Net margin5	11.7%	18.0%
Loss after tax	(£0.4m)	(£0.1m)
Basic Earnings per share	(1.8p)	(0.4p)

Discontinued Operations
	H1 2022/23	H1 2021/22
	30 Sep 22	30 Sep 21	Change 6
Revenue	£4.8m	£3.6m	31.0%
Adjusted EBITDA4 loss	(£0.3m)	(£0.3m)	(14.3%)
Loss after tax	(£0.6m)	(£0.6m)	(1.0%)

1. £4.1m (90%) of net disposal proceeds received on completion, with the remaining 10% due on settlement of completion accounts, expected by 31 March 2023.

2. Net debt/net cash comprises the aggregate of gross debt, excluding IFRS16 lease liabilities, and cash and cash equivalents.

3. Gross margin is Gross profit as a percentage of Revenue.

4. Adjusted EBITDA is calculated as earnings before interest, tax, depreciation, amortisation of intangible assets, share based payments and non-recurring items.

5. Net margin is Adjusted EBITDA as a percentage of Revenue.

6. Year-on-year percentage change figures are calculated on unrounded numbers.

Operational Highlights

· New sales team for Merit Data & Technology brought on board;

· Further recovery in Merit Data & Technology as marketing events activity picked up following the pandemic; and

· New clients for Dods PI including Energy UK, Smart Energy, Council of Europe, IDF Europe.

David Beck, CEO of Merit Group plc, said;

"The restructuring of the Group, which is focused on improving the Group's prospects and shareholder value, continues at pace. In line with our strategy to focus on the data and technology segment of the business intelligence sector, we disposed of our media, events and training operations in the half year.

"The Group is not immune from the impacts of a global recession and remains cautious given the high inflation and interest rate environment in which it operates. However, the ongoing business benefits from high levels of subscription revenue in the Dods segment and long standing customer relationships in Merit D&T, contributing to around 85% of the Group's revenue now being recurring (derived from contracts of 12 or more months in duration). The sale of the MET Operations has significantly reduced the seasonality of the Group's EBITDA and strengthened the Company's financial position. "

For further information, please contact: 

Merit Group plc

David Beck - CEO  020 7593 5500

Philip Machray - CFO

www.meritgroupplc.com

Canaccord Genuity Limited (Nomad and Broker)

Bobbie Hilliam  020 7523 8150

This announcement is released by Merit Group plc and contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 ("MAR"), and is disclosed in accordance with the Group's obligations under Article 17 of MAR. With the publication of this announcement, this information is now considered to be in the public domain.

For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055, this announcement is being made on behalf of the Group by David Beck, Chief Executive Officer.

BUSINESS AND OPERATIONAL REVIEW

The interim results are in line with expectations, despite some residual impact from the COVID 19 Pandemic and challenging economic conditions arising from the war in Ukraine. Adjusted EBITDA from Continuing Operations of £1.1m in the first half compared to £1.6m in the prior year, with revenue improvements partially offset by increased cost pressures, the full year cost effect of management changes made in the prior year, and the deterioration in the GPB/INR exchange rate.

Merit Data & Technology

The Merit Data & Technology ('Merit D&T') business has long-standing customers that provide the business with high levels of recurring revenue. We provide a range of data and intelligence products and services to largely UK based customers, using our proprietary technology to enhance industry intelligence and marketing data.

Merit Data & Technology reported Adjusted EBITDA of £0.7m in the first half against £1.0m in the same period in the previous year. The significant weakening of Sterling against the Indian Rupee impacted margins in the first half; the exchange rate movement alone had an adverse impact of £323k, more than accounting for the year-on-year reduction of £287k in Adjusted EBITDA. The Sterling exchange rate's recent recovery and a close focus on costs, should allow for margin improvement in the second half.

Joanna Edwards joined the business in June 2022 as the new CRO of Merit D&T. Joanna comes with extensive sales management experience at Incisive Media and Infopro Digital and will drive a new and expanded sales team at Merit D&T.

Whilst onboarding the new sales team Merit D&T grew its revenue by 10% year-on-year. Both our core sectors are doing well in terms of revenue growth. Within the data segment, Marketing Data put in a particularly strong performance as it benefited from increased marketing events activity post the pandemic.

The business secured new clients in System1, Partnerize, Axco, EDI, Lowry Systems and Wired (Conde Nast), and has also secured additional work from existing clients Relx, CRU, PrisymID, BIP amongst others.

The Merit D&T business has faced increasing cost challenges post pandemic, high levels of wage inflation in India, especially in the technology teams, together with an increasing general inflation rate both in the UK and India.  Other costs related to home working that were saved during the pandemic have returned.

Our new sales team will drive additional revenue and secure new clients in 2023 and the upgraded and expanded team also gives us an opportunity to push further into eCommerce data services, where our investment in the DataWorks Technology Platform will help us to secure new clients at much higher levels of annual revenue.

Dods

The Dods business now comprises a leading political intelligence offering that has over 800 subscribers and where we are the UK's industry leader with an enviable reputation for the comprehensiveness of our service and the quality of analysis that we provide customers. In the half year we continued the roll out of our new platform to UK customers, which helped reduce churn and improve the quality of customers' experience.

In the first half the Continuing Operations of Dods made Adjusted EBITDA of £0.9m against £1.0m in the same period last year. New customers in the period include Energy UK, Smart Energy, The Council of Europe and IDF Europe.

With the increased focus on this key service following the disposal of the MET Operations, we are targeting growth through the addition of new sector specialisms and a greater focus on European markets where we see opportunities to grow our market share.

Board Change

Following the disposal of the Dods MET Operations, Munira Ibrahim, the MD of the Dods business, has resigned and will be leaving the Board with immediate effect. Munira has been with the Company for three and a half years and helped to guide the business through a most difficult period. She oversaw many significant improvements, most notably in our media titles and events portfolio. The Board recorded its thanks to her for her contribution and dedication, especially through the pandemic, a uniquely challenging time.

Outlook

The Group is not immune from the impacts of a global recession and remains cautious given the high inflation and interest rate environment in which it operates. However, the ongoing business benefits from high levels of subscription revenue in the Dods segment and long standing customer relationships in Merit D&T, contributing to around 85% of the Group's revenue being recurring (derived from contracts of 12 or more months in duration). The sale of the MET Operations has also significantly reduced the seasonality of the Group's EBITDA and strengthened the Company's financial position.

David Beck

CEO

Merit Group plc  

FINANCIAL REVIEW 

On 27 October 2022, the Group announced that it had agreed to sell the Media, Events and Training operations of its Dods segment (together, the "MET Operations") for a cash consideration of £4.5 million. The Disposal completed on 30 November 2022.

As a consequence of the disposal, the assets of the MET Operations have been reclassified as assets held for resale within current assets; the transferring liabilities of the MET Operations have been reclassified as liabilities directly associated with assets classified as held for resale within current liabilities; and the activities of the MET Operations have been classified as Discontinued Operations within the Condensed Consolidated Income Statement.

Income Statement - Continuing Operations

The Group's revenue from Continuing Operations increased by 6.1% to £9.2m (H1 2021/22: £8.7m).

Revenues from Merit Data and Technology (MD&T) were £0.5m higher than the equivalent prior half year (H1 2022/23: £5.6m; H1 2021/22: £5.1m), representing an increase of 10%. Dods revenues for the period remained stable at £3.6m (H1 2021/22: £3.6m). 

Gross profit for the period was stable at £4.6m by comparison to the prior period (H1 2021/22: £4.6m). Gross margin decreased from 53.3% to 49.7%, driven by the Group's investment in sales & marketing resource within MD&T.

Adjusted EBITDA decreased by £0.5m to £1.1m (H1 2021/22: £1.6m Adjusted EBITDA) due to inflationary pressure on the UK and Indian cost bases, the strengthening of the Executive management team and the impact of adverse foreign exchange rate movements on the Group's Indian cost base.

The increase in operating loss, from a profit of £0.1m to a loss of £0.6m, reflects the reduction in EBITDA. The Group's operating loss is stated after a right-of-use assets charge of £0.7m (H1 2021/22: £0.6m), an amortisation on acquired intangibles under business combinations of £0.3m (H1 2021/22: £0.3m), a charge for intangible assets amortisation of £0.2m (H1 2021/22: £0.1m), a charge for depreciation of tangible assets of £0.3m (H1 2021/22: £0.3m), and non-recurring costs of £0.2m (H1 2021/22: £0.2m).

The net finance credit for the year of £0.1m compared to a net finance expense of £0.2m in H1 2021/22, reflecting the favourable impact of foreign exchange hedging.

The loss for the year from Continuing Operations, after a tax charge of £0.2m (H1 2021/22: £nil), amounted to £0.4m (H1 2021/22: £0.1m loss).

Income Statement - Discontinued Operations

The results of the Group's MET Operations, which have been reclassified as Discontinued Operations, are disclosed within Note 5. These show revenue of £4.8m (H1 2021/22: £3.6m), an Adjusted EBITDA loss of £0.3m (H1 2021/22: £0.3m Adjusted EBITDA loss) and a loss for the period of £0.6m (H1 2021/22: £0.6m loss).

Earnings and Dividends

Adjusted earnings per share (basic and diluted) from Continuing Operations in the period were a loss of 0.68 pence (H1 2021/22: earnings of 1.15 pence, basic and diluted) and were based on the adjusted loss for the period of £0.2m (H1 2021/22: £0.2m profit) with a weighted average number of shares in issue during the period of 23,956,124.

Earnings per share, both basic and diluted, from Continuing Operations in the period were a loss of 1.85 pence (H1 2021/22: loss of 0.41 pence) and were based on the loss after tax for the period of £0.4m (H1 2021/22: loss of £0.1m).

Total Earnings per share, both basic and diluted, in the period were a loss of 4.17 pence (H1 2021/22: loss of 3.11 pence) and were based on the loss after tax for the period of £1.0m (H1 2021/22: £0.6m)

Whilst the Company's focus remains on maintaining financial flexibility and repositioning the business for future growth, the Board is not proposing a dividend (H1 2021/22: £nil).

Going Concern

The Directors have considered the implications for Going Concern and remain satisfied with the Company's funding and liquidity position. See further comments below, under 'Statement of Financial Position'.

Statement of Financial Position

Assets

Non-current assets of £43.9m (31 March 2022: £47.0m) comprise goodwill of £27.6m (31 March 2022: £28.9m), intangible assets of £8.7m (31 March 2022: £9.8m), property, plant and equipment of £1.7m (31 March 2022: £1.8m), IFRS 16 rights-of-use assets of £4.9m (31 March 2022: £5.7m) and investments of £1.0m (31 March 2022: £0.8m).

Investments include the Group 40% stake in the issued share capital of Sans Frontières Associates (SFA) with a carrying value of £0.5m (31 March 2022: £0.3m). The Group also loaned SFA £0.1m (31 March 2022: £0.2m) at the period end. The loan was unsecured, carried no interest charge, and was repaid in October 2022.  Investments also include a 10.9% stake in DataWorks Ltd with a carrying value of £0.5m (31 March 2022: £0.5m).

During the period, the group completed the sale of its 30% stake in Social 360 Limited, previously carried as an asset held for resale, for cash consideration of £420,000.

The Group had a cash balance of 1.8m (31 March 2022: £2.3m) and gross bank borrowings of £5.0m at the period end (31 March 2022: £4.4m).

Total assets of the Group were £53.9m (31 March 2022: £55.5m), of which £3.6m are held for resale in respect of the MET operations which were disposed after the period end.

Equity and Liabilities

The Group has a bank term loan of £3.0m (31 March 2022: £2.4m). The current amount due is £0.2m (31 March 2022: £0.9m) and non-current is £2.8m (31 March 2022: £1.5m). The loan has a repayment schedule through to September 2027. £2.0 million of the term loan will be repaid following the disposal of the MET operations. The Group also has a RCF loan facility of £2.0m available through to September 2027. This RCF facility was fully drawn throughout the period and stood at £2.0m at the period end (31 March 2022: £2.0m). Due to its revolving nature, this loan is all shown as due within one year.

Current liabilities of £13.2m decreased by £1.1m during the period (31 March 2022: £14.3m) and include £3.1m of liabilities directly associated with the assets of the MET Operations, which have been classified as held for resale.

Also within current liabilities, trade and other payables decreased from £9.8m at 31 March 2022 to £6.2m at the period end, including a reduction of £0.3m in VAT liabilities which were deferred from FY21 under an arrangement made available as part of the UK Government's support for businesses impacted by Covid-19. Deferred VAT at the period end was £0.2m (31 March 2022: £0.5m).

Total equity reduced by £0.9m to £33.5m (31 March 2022: £34.4m), reflecting the loss for the period.

Liquidity and capital resources

Net cash generated by operations was neutral at £0.0m inflow in the period by comparison to an £0.3m outflow in H1 2021/22. Operating cashflow in respect of working capital movement were significantly reduced year-on-year at £0.9m outflow in the period compared to £1.4m in H1 2021/22 as the Group neared completion of the repayment of operating liabilities deferred from prior periods in response to Covid-19, with only £0.2m of deferred liabilities outstanding at the period end (31 March 2022: £0.5m). The movement in working capital of £0.9m also includes payment of the final £0.3m of deferred cash consideration on the Meritgroup Limited acquisition, and £0.3m of payments to HMRC as the Group fell within the VAT 'payment on account' regime.

After tax, net cash used in operating activities amounted to £0.2m (H1 2021/22: £0.4m) of which continuing operations generated £0.4m (H1 2021/22: £0.4m) and discontinued operations used £0.6m (H1 2021/22: £0.8m).

Investing activities produced a net cash inflow of £0.3m in the period, including the £0.4m receipt of proceeds from the sale of the Group's investment in Social 360 Limited in August 2022. This compares to a net cash outflow of £1.0m in the H1 2021/22, driven by the Group's investment in the Political Intelligence platform and DataWorks.

Total financing outflow used in the servicing of bank debt and interest and capital repayments on leases amounted to £1.1m in the period (H1 2021/22; £1.3m) and the Group received a net inflow on the bank refinancing in July 2022 of £0.6m.

The cash position at the period end was £1.8m (31 March 2022: £2.3m). As at 30 September 2022, the Group had a net debt position of £3.2m (31 March 2022: net debt of £2.1m).

Philip Machray

Chief Financial Officer

Condensed consolidated income statement

For the half year ended 30 September 2022

Continuing Operations	Note		Unaudited Half year ended 30 Sept 2022 £'000	Unaudited Half year ended 30 Sept 2021 (restated) £'000	Audited Year ended 31 Mar 2022 (restated) £'000
Revenue		3	9,229	8,698	17,981
Cost of sales			(4,641)	(4,060)	(8,986)
Gross profit			4,588	4,638	8,995
Administrative expenses			(5,142)	(4,556)	(10,489)
Operating loss from Continuing Operations			(554)	82	(1,494)
Memorandum:
Adjusted EBITDA1			1,080	1,566	2,302
Depreciation of property, plant and equipment			(301)	(296)	(596)
Depreciation of right-of-use assets			(661)	(641)	(1,277)
Amortisation of intangible assets acquired through business combinations			(255)	(255)	(511)
Amortisation of software intangible assets			(163)	(114)	(255)
Share-based payments			(31)	-	48
Non-recurring items		4
Impairments and asset write offs			-	-	(843)
People-related costs			(150)	(158)	(316)
Other non-recurring items			(73)	(20)	(46)
Operating loss from Continuing Operations			(554)	82	(1,494)
Net finance credit/(expense)			41	(167)	(411)
Share of profit of Associate			252	-	144
Loss before tax from Continuing Operations			(261)	(85)	(1,761)
Income tax (charge)/credit			(182)	-	292
Loss for the period from Continuing Operations			(443)	(85)	(1,469)
Loss for the period from Discontinued Operations			(556)	(561)	(103)
Loss for the period			(999)	(646)	(1,572)

(1) Adjusted EBITDA is defined as the operating loss after adding back depreciation, amortisation, share-based payments, and non-recurring items. 100% of the loss is attributable to owners of the parent.

Earnings per share (pence)

		p per share	p per share (restated*)	p per share (restated*)
Basic from Continuing Operations	6	(1.85p )	(0.41p)	(6.57p)
Basic from Discontinued Operations	6	(2.32p)	(2.70p)	(0.46p)
Basic total	6	(4.17p)	(3.11p)	(7.03p)

Prior period earnings per share have been restated in accordance with IAS33 to reflect the share consolidation and subdivision undertaken on 16 April 2021, as detailed in Note 12.

The notes on pages 13 to 25 form part of these unaudited interim results.

Condensed consolidated statement of comprehensive income

For the half year ended 30 September 2022

	Unaudited Half year ended 30 Sept 2022 £'000	Unaudited Half year ended  30 Sept 2021 £'000	Audited Year ended 31 Mar 2022 £'000
Loss for the period	(999)	(646)	(1,572)
Items that may be subsequently reclassified to Profit and loss:
Exchange differences on translation of foreign operations	21	28	31
Remeasurement of defined benefits obligation	36	20	3
Other comprehensive income for the period	57	48	34
Total comprehensive loss for the period	( 942)	(598)	(1,538)

The notes on pages 13 to 25 form part of these unaudited interim results.

Condensed consolidated statement of financial position

As at 30 September 2022

	Note	Unaudited 30 Sept 2022 £'000	Unaudited 30 Sept 2021 £'000	Audited 31 Mar 2022 £'000
Non-current assets
Goodwill	8	27,642	28,911	28,911
Intangible assets	9	8,679	10,358	9,826
Property, plant and equipment	10	1,673	2,082	1,807
Right-of-use assets		4,869	6,541	5,660
Investment in associates		997	1,167	777
Total non-current assets		43,860	49,059	46,981
Current assets
Work in progress and inventories		-	119	14
Trade and other receivables		4,448	5,786	5,569
Loan receivable		140	420	210
Cash and cash equivalents		1,834	2,804	2,321
		6,422	9,129	8,114
Assets held for resale		3,591	-	410
Total current assets		10,013	9,129	8,524
Total assets		53 ,873	58,188	55,505
Current liabilities
Trade and other payables		6,168	10,966	9,718
Defined benefit pension obligation		84	78	85
Deferred consideration		-	1,046	-
Bank loan/RCF	11	2,200	2,541	2,860
Lease liability	11	1,640	1,680	1,679
Liabilities directly associated with assets classified as held for resale		3,101	-	-
Total current liabilities		13,193	16,311	14,342
Non-current liabilities
Deferred tax liability		-	222	-
Pension obligation		232	146	197
Bank loan/RCF	11	2,800	2,024	1,518
Lease liability	11	4,153	6,045	5,042
Total non-current liabilities		7,185	8,437	6,757
Capital and reserves
Issued capital	12	6,708	5,821	6,708
Share premium		1,067	-	1,067
Retained profit/(loss)		12,033	13,958	13,032
Redemption reserve		13,680	13,680	13,680
Translation reserve		(28)	(52)	(49)
Other reserves		(6)	(25)	(42)
Share option reserve		41	58	10
Total equity		33,495	33,440	34,406
Total equity and liabilities		53,873	58,188	55,505

The notes on pages 13 to 25 form part of these unaudited interim results.

Condensed consolidated statement of changes in equity

For the half year ended 30 September 2022

	Share  capital £'000	Share premium reserve1 £'000	Merger reserve2 £'000	Retained earnings £'000	Capital redemption reserve3 £'000	Translation reserve4 £'000	Other reserves £'000	Share option reserve5 £'000	Total shareholders' funds £'000
Unaudited
At 1 April 2021	19,501	20,866	409	(6,671)	-	(80)	(45)	58	34,038
Total comprehensive income:
Loss for the period	-	-	-	(646)	-	-		-	(646)
Currency translation differences	-	-	-	-	-	28	-	-	28
Remeasurement of defined benefits obligations	-	-	-	-	-	-	20	-	20
Transactions with owners:
Share consolidation	(13,680)	(20,866)	(409)	21,275	13,680	-	-	-	-
At 30 September 2021	5,821	-	-	13,958	13,680	(52)	(25)	58	33,440
At 1 April 2022	6,708	1,067	-	13,032	13,680	(49)	(42)	10	34,406
Total comprehensive income:
Loss for the period	-	-	-	(999)	-	-		-	( 999)
Currency translation differences	-	-	-	-	-	21	-	-	21
Remeasurement of defined benefits obligations	-	-	-	-	-	-	36	-	36
Share-based payments	-	-	-	-	-	-	-	31	31
At 30 September 2022	6,708	1,067	-	12,033	13,680	(28)	(6)	41	33,495

1  The share premium reserve represents the amount paid to the Company by shareholders above the nominal value of shares issued.

2  The merger reserve represents the accounting treatment in relation to historical business combinations.

3  The capital redemption reserve is a non-distributable reserve created on cancellation of deferred shares.

4  The translation reserve comprises foreign currency translation differences arising from the translation of financial statements of the Group's foreign entities into Sterling.

5   The share option reserve represents the cumulative expense recognised in relation to equity-settled share-based payments.

The notes on pages 13 to 25 form part of these unaudited interim results.

Condensed consolidated statement of cash flows

For the half year ended 30 September 2022

	Note	Unaudited Half year ended 30 Sept 2022 £'000	Unaudited Half year ended 30 Sept 2021 £'000	Audited Year ended 31 Mar 2022 £'000
Cash generated by operations	7	6	(349)	696
Taxation paid		(163)	(85)	(332)
Net cash (used in)/generated from operating activities		(157)	(434)	364
Cash flows from investing activities
Interest and similar income received		40	7	28
Additions to property, plant and equipment		(132)	(127)	(314)
Additions to intangible assets		(108)	(568)	(1,240)
Acquisition of investment			(450)	(450)
Proceeds from sale of Investment in Associates		410	-	-
Repayment of long-term loan by Associate		70	140	350
Net cash raised/(used) in investing activities		280	(998)	(1,626)
Cash flows from financing activities
Proceeds from issue of share capital		-	-	908
Interest and similar expenses paid		(153)	(87)	(213)
Payment of lease liabilities		(806)	(913)	(2,055)
Payment of lease interest		(161)	(280)	(369)
Net drawings from bank facility		774	-	-
Repayment of bank loan		(152)	(101)	(253)
Net cash used in financing activities		(498)	(1,381)	(1,982)
Net decrease in cash and cash equivalents		(375)	(2,813)	(3,244)
Opening cash and cash equivalents		2,321	5,565	5,565
Effect of exchange rate fluctuations on cash held		(112)	52	-
Closing cash at bank		1,834	2,804	2,321
Comprised of:
Cash and cash equivalents		1,834	2,804	2,321
Closing cash at bank		1,834	2,804	2,321

The notes on pages 13 to 25 form part of these unaudited interim results.

Notes to the condensed consolidated financial statements

For the half year ended 30 September 2022

1.  Basis of preparation

Merit Group plc is a Company incorporated in England and Wales.

This condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the UK. The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) in conformity with the requirements of the Companies Act 2006.  As required by AIM Rules, the condensed set of financial statements has been prepared applying accounting policies and presentation that were applied in the preparation of the Group's published consolidated financial statements for the year ended 31 March 2022.

The condensed consolidated financial statements are neither audited in accordance with International Standards on Auditing (UK) nor subject to review as per International Standard on Review Engagements (ISRE) 2410.  The comparative figures for the year ended 31 March 2022 have been extracted from the Group's statutory accounts for that financial period and, where applicable, have been restated to remove Discontinued Operations as outlined in note 5.  Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies.  The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

Going concern

The Directors have considered the financial projections of the Group, including cash flow forecasts and the availability of committed bank facilities for the coming 12 months. They are satisfied that the Group has adequate resources for the foreseeable future and that it is appropriate to continue to adopt the going concern basis in preparing these interim financial statements.

2.  Critical accounting estimates and judgements

Accounting estimates and judgements

The Group makes estimates and judgements concerning the future and the resulting estimates may, by definition, vary from the actual results. The Directors considered the critical accounting estimates and judgements used in the interim financial statements and concluded that the main areas of judgement and estimates are:

Significant Financial Judgements

§ Going concern

§ Recognition of deferred tax assets

§ Identification of cash generating units for goodwill impairment testing

§ Non-recurring administrative expenses

Significant Financial Estimates

§ Carrying value of goodwill

§ Bad debt allowance

§ Pensions

§ Share based payments

The condensed set of interim financial statements have been prepared on a going concern basis and were approved by the Board on 30 November 2022 . 

3.  Segmental information

Business segments 

The Group considers that it has two operating business segments, Merit Data & Technology (MD&T) and Dods, plus a (non-revenue generating) central corporate segment. In the half year ended 30 September 2021, the Group reported activity against the two operating business segments only, and therefore the prior period segmental analysis has been restated to reflect a like-for-like comparison with the 2022 disclosures.

The Merit Data & Technology business segment focuses on the provision of data, data engineering and machine learning, and on the provision of software and technology resourcing.

The Dods business segment concentrates on the provision of key information and insights into the political and public policy environments around the UK and the European Union.

The central corporate segment contains the activities and costs associated with the Group's head office business.

The following table provides an analysis of the Group's segment revenue by business segment.

Continuing Operations(1)	Unaudited  Half year ended 30 Sept 2022  '000	Unaudited Half year ended 30 Sept 2021 (restated*) £'000	Audited Year ended 31 Mar 2022 (restated*) £'000
Merit Data & Technology	5,626	5,111	10,696
Dods	3,603	3,587	7,285
	9,229	8,698	17,981

No client accounted for more than 10 percent of total revenue.

Group Revenue by stream Continuing Operations(1)	Unaudited  Half year ended 30 Sep 2022 £'000	Unaudited Half year ended 30 Sep 2021 (Restated) £'000	Audited Year ended 31 Mar 2022 (Restated) £'000
Data	2,981	2,649	5,567
Software & Technology Resourcing	2,645	2,462	5,129
Political Intelligence	3,414	3,431	6,866
Political engagement	189	156	419
	9,229	8,698	17,981

(1) Prior periods have been restated to remove Discontinued Operations as outlined in Note 5.

*Prior period segmental analysis has been restated to reflect a like-for-like comparison with the 2022 disclosures, as outlined above.

3.   Segmental information (continued)

Unaudited half year ended 30 Sep 2022 Business segment profit before tax Continuing Operations	MD&T 30 Sep 2022 £'000	Dods 30 Sep 2022 £'000	Central 30 Sep 2022 £'000	Total 30 Sep 2022 £'000
Adjusted EBITDA	733	889	(542)	1,080
Depreciation of property, plant and equipment	(140)	(161)	-	(301)
Depreciation of right-of-use assets	(281)	(211)	(169)	(661)
Amortisation of intangible assets acquired through business combinations	(255)	-	-	(255)
Amortisation of software intangible assets	-	(163)	-	(163)
Share based payments	-	-	(31)	(31)
Non-recurring items
People-related costs	(34)	(23)	(93)	(150)
Other non-recurring items	-	(48)	(25)	(73)
Operating profit/(loss)	23	283	( 860)	(554)
Net finance income/(expense)	45	(16)	12	41
Share of profit of Associate	-	-	252	252
Profit/(loss) before tax from Continuing Operations	68	267	( 596)	(261)

Unaudited half year ended 30 Sep 2021 Business segment profit before tax Continuing Operations(1)	MD&T 30 Sep 2021 (restated*) £'000	Dods 30 Sep 2021 (restated*) £'000	Central 30 Sep 2021 (restated*) £'000	Total 30 Sep 2021 (restated*) £'000
Adjusted EBITDA	1,020	995	(449)	1,566
Depreciation of property, plant and equipment	(138)	(158)	-	(296)
Depreciation of right-of-use assets	(264)	(209)	(168)	(641)
Amortisation of intangible assets acquired through business combinations	(255)	-	-	(255)
Amortisation of software intangible assets	-	(114)	-	(114)
Non-recurring items
People-related costs	-	-	(158)	(158)
Other non-recurring items	-	10	(30)	(20)
Operating profit/(loss)	363	524	(805)	82
Net finance expense	(42)	(124)	(1)	(167)
Share of profit of Associate	-	-	-	-
Profit/(loss) before tax from Continuing Operations	321	400	(806)	(85)

(1) Prior periods have been restated to remove Discontinued Operations as outlined in Note 5.

*Prior period segmental analysis has been restated to reflect a like-for-like comparison with the 2022 disclosures, as outlined above

3.   Segmental information (continued)

Audited year ended 31 Mar 2022 Business segment profit before tax Continuing Operations(1)	MD&T 31 Mar 2022 £'000	Dods 31 Mar 2022 £'000	Central 31 Mar 2022 £'000	Total 31 Mar 2022 £'000
Adjusted EBITDA	1,898	1,395	(991)	2,302
Depreciation of property, plant and equipment	(279)	(317)	-	(596)
Depreciation of right-of-use assets	(531)	(413)	(333)	(1,277)
Amortisation of intangible assets acquired through business combinations	(511)	-	-	(511)
Amortisation of software intangible assets	-	(255)	-	(255)
Share based payments	-	-	48	48
Non-recurring items
Impairments and asset write offs	-	(746)	(97)	(843)
People-related costs	-	-	(316)	(316)
Other non-recurring items	-	-	(46)	(46)
Operating profit/(loss)	577	(336)	(1,735)	(1,494)
Net finance expense	74	(375)	(110)	(411)
Share of profit of Associate	-	-	144	144
Profit/(loss) before tax from Continuing Operations	651	(711)	(1,701)	(1,761)

(1) Prior periods have been restated to remove Discontinued Operations as outlined in Note 5.

4.  Non-recurring items

Continuing Operations(1)	Unaudited  Half year ended 30 Sep 2022 £'000	Unaudited Half year ended 30 Sep 2021 (restated) £'000	Audited Year ended 31 Mar 2022 (restated) £'000
Impairments and asset write offs	-	-	843
People-related costs	150	158	316
Other:
- Professional services and consultancy	73	20	46
	223	178	1,205

(1) Prior periods have been restated to remove Discontinued Operations as outlined in Note 5.

During the full year to 31 March 2022, the Group made an impairment charge of £97k against the carrying value of investments and wrote off £746k of intangible fixed assets under construction.

People-related costs include deferred cash consideration on the acquisition of Meritgroup Limited. Also included are redundancy costs reflecting the effect of Group initiatives to appropriately restructure the business.

Other non-recurring costs relate to one-off consultancy and professional fees associated with the rental review of the London premises.

5.  Disposal

On 27 October 2022, the Group announced that it had agreed to sell the Media, Events and Training operations of its Dods segment (together, the "MET Operations") for a cash consideration of £4.5 million. The Disposal remains subject to the satisfaction of certain conditions, including satisfaction of financing by Political Holdings Limited (the Purchaser), but is expected to complete before the end of the 2022 calendar year.

As a consequence of the agreed disposal, the assets of the MET Operations have been reclassified as assets held for resale within current assets; the transferring liabilities of the MET Operations have been reclassified as liabilities directly associated with assets classified as held for resale within current liabilities; and the activities of the MET Operations have been classified as Discontinued Operations within the Condensed Consolidated Income Statement.

The results of the Discontinued MET Operations for the period are as follows.

Discontinued Operations	Unaudited Half year ended 30 Sept 2022 £'000	Unaudited Half year ended 30 Sept 2021 £'000	Audited Year ended 31 Mar 2022 £'000
Revenue	4,770	3,640	9,418
Cost of sales	(4,280)	(3,491)	(7,610)
Gross profit	490	149	1,808
Administrative expenses	(1,044)	(750)	(1,945)
Other operating income	-	44	42
Operating loss	(554)	(557)	(95)
Memorandum:
Adjusted EBITDA	(269)	(314)	519
Depreciation of property, plant and equipment	(45)	(48)	(93)
Depreciation of right-of-use assets	(19)	(19)	(38)
Amortisation of intangible assets acquired through business combinations	(176)	(176)	(351)
Non-recurring items
People-related costs	(45)	-	(132)
Operating loss	(554)	(557)	(95)
Net finance expense	(2)	(4)	(8)
Loss before tax	(556)	(561)	(103)
Income tax	-	-	-
Loss for the period	(556)	(561)	(103)

5.  Disposal

Cashflows generated by the Discontinued Operation for the period were as follows:

Discontinued Operations	Unaudited Half year ended 30 Sept 2022 £'000	Unaudited Half year ended 30 Sept 2021 £'000	Audited Year ended 31 Mar 2022 £'000
Net cash outflow from operating activities	(576)	(833)	(330)
Net cash outflow from financing activities	(22)	(22)	(44)
Net decrease in cash, cash equivalents and bank overdrafts from Discontinued Operations	(598)	(855)	(374)

6.  Earnings per share

Continuing Operations(1)	Unaudited  Half year ended 30 Sep 2022 £'000	Unaudited Half year ended 30 Sep 2021 (restated) £'000	Audited Year ended 31 Mar 2022 (restated) £'000
Loss attributable to shareholders	(443)	(85)	(1,469)
Add: non-recurring items	223	178	1,205
Add: amortisation of intangible assets acquired through business combinations	255	255	511
Add: net exchange losses/(gains)	(230)	(109)	(147)
Add: share-based payment (credit)/expense	31	-	(48)
Adjusted post-tax (loss)/profit from Continuing Operations attributable to shareholders	(164)	239	52

(1) Prior periods have been restated to remove Discontinued Operations as outlined in Note 5.

Discontinued Operations	Unaudited  Half year ended 30 Sep 2022 £'000	Unaudited Half year ended 30 Sep 2021 £'000	Audited Year ended 31 Mar 2022 £'000
Loss attributable to shareholders	(556)	(561)	(103)
Add: non-recurring items	45	-	132
Add: amortisation of intangible assets acquired through business combinations	176	176	351
Adjusted post-tax (loss)/profit from Discontinued Operations attributable to shareholders	(335)	(385)	380

6.  Earnings per share (continued)

	Unaudited  Half year ended 30 Sept 2022 Ordinary shares	Unaudited Half year ended 30 Sept 2021 Ordinary shares (restated*)	Audited Year ended 31 Mar 2022 Ordinary shares
Weighted average number of shares
In issue during the period - basic	23,956,124	20,805,685	22,367,910
Adjustment for share options	-	55,786	-
In issue during the period - diluted	23,956,124	20,861,471	22,367,910

Performance Share Plan (PSP) options over 1,420,791 Ordinary shares have not been included in the calculation of diluted EPS for the period ended 30 September 2022, nor for the year ended 31 March 2022, because their exercise is contingent on the satisfaction of certain criteria that had not been met at those dates.

Continuing Operations(1)	Unaudited  Half year ended 30 Sep 2022 Pence per share		Unaudited Half year ended 30 Sep 2021 Pence per share (restated*)	Audited Year ended 31 Mar 2022 Pence per share (restated*)
Earnings per share - Continuing Operations
Basic		(1.85)	(0.41)	(6.57)
Diluted		(1.85)	(0.41)	(6.57)
Adjusted earnings per share - Continuing Operations
Basic		( 0.68)	1.15	0.23
Diluted		( 0.68)	1.15	0.23

(1) Prior periods have been restated to remove Discontinued Operations as outlined in Note 5.

* Prior period figures for the number of shares and earnings per share have been restated in accordance with IAS33 to reflect the share consolidation and subdivision undertaken on 16 April 2021, as detailed in Note 12.

Discontinued Operations	Unaudited  Half year ended 30 Sep 2022 Pence per share			Unaudited Half year ended 30 Sep 2021 Pence per share	Audited Year ended 31 Mar 2022 Pence per share
Earnings per share - Discontinued Operations
Basic			(2.32)	(2.70)	(0.46)
Diluted			(2.32)	(2.70)	(0.46)
Adjusted earnings per share - Discontinued Operations
Basic			(1.40)	(1.85)	1.70
Diluted			(1.40)	(1.85)	1.70

6.  Earnings per share (continued)

Total	Unaudited  Half year ended 30 Sep 2022 Pence per share	Unaudited Half year ended 30 Sep 2021 Pence per share (restated *)	Audited Year ended 31 Mar 2022 Pence per share (restated *)
Earnings per share
Basic	(4.17)	(3.11)	(7.03)
Diluted	(4.17)	(3.11)	(7.03)
Adjusted earnings per share
Basic	(2.08)	(0.70)	1.93
Diluted	(2.08)	(0.70)	1.93

* Prior period figures for the number of shares and earnings per share have been restated in accordance with IAS33 to reflect the share consolidation and subdivision undertaken on 16 April 2021, as detailed in Note 12.

7.  Cash generated by operations

		Unaudited Half year ended 30 Sept 2022 £'000	Unaudited Half year ended 30 Sept 2021 £'000	Audited Year ended 31 Mar 2022 £'000
Cash flows from operating activities
Loss for the period		(999)	(646)	(1,572)
Depreciation of property, plant and equipment		346	273	689
Depreciation of right-of-use assets		680	660	1,315
Amortisation of intangible assets acquired through business combinations		431	431	862
Amortisation of other intangible assets		163	184	255
Share-based payments charge/(credit)		31	-	(48)
Share of profit of Associate		(252)	-	(144)
Lease interest expense		161	195	369
Loss on disposal of fixed assets		-	-	2
Write off of intangible assets		-	-	746
Impairment of investments in associates		-	-	97
Interest income		(40)	(110)	(28)
Interest expense		153	86	213
Foreign exchange on operating items		24	-	-
Income tax charge/(credit)		182	-	(292)
Operating cash flows before movement in working capital		880	1,073	2,464
(Increase)/decrease in inventories		14	(83)	22
(Increase)/decrease in trade and other receivables		(422)	(202)	430
Decrease in trade and other payables		(466)	(1,137)	(2,220)
Cash generated by operations		6	(349)	696

8.  Goodwill

	Unaudited Half year ended 30 Sep 2022 £'000	Unaudited Half year ended 30 Sep 2021 £'000	Audited Year ended 31 Mar 2022 £'000
Cost and net book value
Opening balance	28,911	28,911	28,911
Reclassified as assets held for resale	(1,269)	-	-
Closing balance	27,642	28,911	28,911

9.  Intangible assets

	Assets acquired through business combinations	Software	Under Construction Capitalised costs	Total
	£'000	£'000	£'000	£'000
Cost
At 1 April 2021	28,042	4,834	746	33,622
Additions - internally generated	-	1,240	-	1,240
Asset write off	-	-	(746)	(746)
At 31 March 2022	28,042	6,074	-	34,116
Additions - internally generated	-	108	-	108
Reclassified as assets held for resale	(1,294)	-	-	(1,294)
At 30 September 2022	26,748	6,182	-	32,930

Accumulated amortisation
At 1 April 2021	19,283	3,890	-	23,173
Charge for the year	862	255	-	1,117
At 31 March 2022	20,145	4,145	-	24,290
Charge for the period	431	163	-	594
Reclassified as assets held for resale	(633)	-	-	(633)
At 30 September 2022	19,943	4,308	-	24,251

Net book value
At 31 March 2021 - audited	8,759	944	746	10,449
At 31 March 2022 - audited	7,897	1,929	-	9,826
At 30 September 2022 - unaudited	6,805	1,874	-	8,679

10.  Property, plant and equipment

		Leasehold Improvements	IT Equipment and Fixtures and Fittings	Total
		£'000	£'000	£'000
Cost
At 1 April 2021		2,037	2,255	4,292
Additions		-	314	314
Disposals		-	(48)	(48)
At 31 March 2022		2,037	2,521	4,558
Additions		-	132	132
Foreign exchange		-	88	88
Reclassified as assets held for resale		(52)	(17)	(69)
At 30 September 2022		1,985	2,724	4,709

Accumulated depreciation
At 1 April 2021		918	1,190	2,108
Charge for the year		210	479	689
Disposals		-	(46)	(46)
At 31 March 2022		1,128	1,623	2,751
Charge for the period		105	241	346
Reclassified as assets held for resale		(44)	(17)	(61)
At 30 September 2022		1,189	1,847	3,036

Net book value
At 31 March 2021 - audited		1,119	1,065	2,184
At 31 March 2022 - audited		909	898	1,807
At 30 September 2022 - unaudited		796	877	1,673

11.  Interest-bearing loans and borrowings

	Unaudited  Half year ended 30 Sep 2022 £'000	Unaudited Half year ended 30 Sep 2021 £'000	Audited Year ended 31 Mar 2022 £'000
Current liabilities:
Bank loan/RCF	2,200	2,541	2,860
Leases	1,640	1,680	1,679
	3,840	4,221	4,539
Non-current liabilities:
Bank loan/RCF	2,800	2,024	1,518
Leases	4,153	6,045	5,042
	6,953	8,069	6,560
Total loans and borrowings
Bank loan/RCF	5,000	4,565	4,378
Leases	5,793	7,725	6,721
	10,793	12,290	11,099

On 22 July 2022, the Group agreed new secured loan facilities with Barclays which included:

§ Term Loan: a £3 million, five-year term loan, amortising on a straight-line basis at £150,000 per quarter;

§ RCF: a £2 million non-amortising, revolving credit facility for the five-year duration of the Term Loan;

§ Both the Term loan and RCF accruing interest at 4.75% above Bank of England base rate;

§ Covenants: leverage covenants measured quarterly from September 2022, Cash cover measured quarterly from June 2023, and Interest cover measured quarterly from December 2023, each for the duration of the facilities. Debt service covenants measured quarterly from June 2022 to March 2023.

Following disposal of the Dods MET Operations, the Group has agreed to a £2m repayment of the Term Loan, reducing overall post-disposal debt facilities to £3m (£1m Term Loan, amortising on a straight-line basis at £50,000 per quarter and a £2m RCF), retaining financial flexibility.

12.  Issued Share Capital

	9p deferred shares Number	1p ordinary shares Number	28p ordinary shares Number	Total £'000
Issued share capital as at 1 April 2021	151,998,453	582,071,380	-	19,501
Shares cancelled during the year	(151,998,453)		20,788,375	(13,680)
Share consolidation during the year	-	(582,071,380)	3,167,749	-
Shares issued during the year	-	-	-	887
Issued share capital as at 31 March 2022	-	-	23,956,124	6,708
Issued share capital as at 30 September 2022	-	-	23,956,124	6,708

On 16 April 2021, shareholders approved a reorganisation of the parent company's share capital. This reorganisation included cancellation of 151,998,453 Deferred Shares and the consolidation and sub-division of the parent company's Ordinary Shares (including the purchase of certain of the parent company's shares), having the impact of reducing the total number of Ordinary Shares by a factor of 28 and increasing the nominal value by a factor of 28 (from 1 pence to 28 pence nominal).

On 1 October 2021, the parent company issued 1,675,749 ordinary shares due as contingent consideration on the acquisition of Meritgroup Limited in 2019.

On 1 October 2021, the parent company issued 1,492,000 ordinary shares in a fundraising subscription at 62.4 pence per share, raising £908,000, net of costs.

13. Related party transactions

During the period, the Group received a repayment of £70,000 (H1 2021/22: £140,000) on its interest free loan to its Associate Sans Frontières Associates (SFA). At 30 September 2022, the balance outstanding was £140,000 (31 March 2022: £210,000).

During the period, an amount of £17,493 (2021: £55,166) was payable to an Associate, Social 360 Limited, in relation to profit-share for monitoring services provided. At 30 September 2022, £34,466 (31 March 2022: £16,973) of this balance was outstanding.  On 8 August 2022, the Company completed the sale of its 30% stake in Social 360 Limited for cash consideration of £420,000.

On acquisition of Meritgroup Limited, an arm's length non-repairing 7-year lease was entered into between a Merit subsidiary (Letrim Intelligence Services Private Limited) and Merit Software Services Private Limited. Cornelius Conlon, a Director of the Group, is the beneficial owner of Merit Software Services Private Limited. The lease relates to the Chennai office of MD&T. During the period, payments of £400,900 (H1 2021/22: £416,900) were made to Merit Software Services Private Limited in relation to the lease and other property-related costs.

Cornelius Conlon, a Director of the Group, was entitled to shares and cash consideration on the first three anniversaries of the Meritgroup Limited acquisition in 2019. During the period, Cornelius Conlon was paid cash consideration of £220,000.

During the period, an amount of £nil (H1 2021/22: £nil) was recognised in the profit and loss account in relation to licence fees to software charged by Web Data Works Limited, a company in which the Group has a 9.2% investment, and of which Cornelius Conlon is a Director. At 30 September 2022, there was a balance of £105,000 (31 March 2022: £105,000) outstanding.

During the year, an amount of £18,000 (H1 2021/22: £28,000) was billed in relation to recruitment services charged by Acolyte Resource Group Limited, a company in which the Group had a 13.3% investment at the start of the period, and of which Cornelius Conlon is a Director and shareholder. At 30 September 2022, there was a balance of £nil (31 March 2022: £nil) outstanding.

Acolyte Resource Group Limited is also a customer of MD&T and was billed £131,033 (H1 2021/22: £155,908) for Software and Technology Resourcing services. At 30 September 2022, there was a balance of £61,125 (31 March 2022: £104,000) due.

On 23 September 2022, the Group paid £50,364 in consideration for further shares in Acolyte Resource Group Limited as part of a £336,000 funding round by the company.  As a consequence of this share subscription, the Group's stake in Acolyte Resource Group Limited increased from 13.3% to 13.5%.

During the current and previous period, Deacon Street Partners Limited, a company related by virtue of Angela Entwistle, a Director of the Company also being a Director, invoiced £15,000 (2021: £12,500) to the Company for the services of Angela Entwistle as a Non-Executive Director. At 30 September 2022 the balance outstanding was £2,500 (31 March: £2,500).

System1 Group plc, a company related by virtue of Philip Machray, a Director of the Company also being a Director, is a customer of MD&T and was billed £55,857 (H1 2021/22: £nil) for Technology Resourcing Services. At 30 September 2022 the balance outstanding was £40,028 (31 March 2022: £nil).

14. Subsequent events

On 27 October 2022, the Group announced that it had agreed to sell the Media, Events and Training operations of its Dods segment (together, the "MET Operations") for a cash consideration of £4.5 million. This transaction completed on 30 November 2022.

Following the above disposal, the Group has agreed to a £2m reduction in debt facilities to £3m (£1m Term Loan, amortising on a straight-line basis at £50,000 per quarter and a £2m RCF). For more details on the disposal, see Note 5. For more details on the debt facilities see Note 11.

Further to the above disposal, the Group has concluded that a considerable proportion of the available floorspace within its leased London premises is surplus to its ongoing requirements. It is considering potential options of assigning or sub-letting the space and in the event it is unable to achieve this, management expect to impair the portion of the Right-of Use assets no longer utilised and make a provision for the running costs of the vacant space for the remainder of the lease which runs to July 2026.

Between the 3^rd and 10^th of October 2022 the Company received loan repayments totalling £140,000 from its Associate, Sans Frontières Associates (SFA).

 

END

 

 

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