REG - Dods Group PLC - Half-year Report
29 October 2019
Dods Group plc
("Dods" or "the Group")
UNAUDITED INTERIM RESULTS FOR THE HALF YEAR ENDED 30 SEPTEMBER 2019
Dods, a leading technology company specialising in data, code, business intelligence and media, announces its unaudited interim results for the half year ended 30 September 2019. The Group continues to enhance its business credentials as a leading provider of Augmented Intelligence2 by embedding its services into client workflows, further enabled by the acquisition of Meritgroup Limited ("Merit") on 18 July 2019.
Financial Highlights
Continuing operations
H1 2020
H1 2019
30 Sept 19
30 Sept 18
Total revenue (£)
12.5m
10.7m
Gross margin (%)
34%
42%
Adjusted EBITDA (£) 1
1.4m
1.5m
Adjusted EBIT (£) 2
0.2m
0.9m
(Loss) / profit before tax (£)
(0.3m)
0.4m
Adjusted basic EPS (Pence)
0.04p
0.30p
Basic EPS (Pence)
(0.08p)
0.11p
Cash at bank (£)
6.8m
8.3m
Debt (£)
5.0m
-
Total assets (£)
64.3m
39.5m
1. Adjusted EBITDA is calculated as earnings before interest, tax, depreciation, amortisation of intangible assets, share based payments and non-recurring items.
2. Adjusted EBIT is calculated as operating profit plus non-recurring costs.
Operational Highlights
· Successful completion of the acquisition of Merit for £22.4 million, with associated net assets of £2.3 million
· Integration of Merit proceeding well and realisation of annual synergies of £0.5 million on track
· Commencement of technology upgrade of current business intelligence platform with phase one scheduled for delivery first half of calendar year 2020
· Delivery of an enterprise resource planning software system due to be completed before year end.
Board Changes in H1 2020
· As disclosed on 2 September 2019, Dods Group plc received notice of resignation from Nitil Patel, Director and Chief Financial Officer. Nitil has a notice period of 12 months and will facilitate an orderly transition to his successor.
Outlook
The results for the period have been in line with the Board's expectations and following completion of the Merit acquisition, the Group will benefit from an 8-month contribution from Merit in the current financial year. The Group continues to be cash generative and has strengthened and diversified its capabilities.
Due to the uncertainties in the political and economic environment, and with an approaching general election in the UK, the Board remains cautious about the outlook for the second half of the year.
Dr David Hammond, Chairman, commented:
"The Group continues to deliver quality products and services in a challenging environment. The addition of Merit has enabled us to diversify and increase our recurring revenue base. Notwithstanding the current cautious outlook, the Board views the Group's medium to long-term prospects with confidence."
This announcement is released by Dods 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.
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 Nitil Patel, Chief Financial Officer.
For further information, please contact:
Dods Group plc
Simon Presswell - CEO 020 7593 5500
Nitil Patel - CFO
Liberum (Nomad and Broker)
Neil Patel 020 3100 2000
Cameron Duncan
Louis Davies
Business and operational review
The interim results are in line with expectations and progress continues to be made in building a sustainable growth business with higher annual recurring revenues.
Having completed the acquisition of Merit and substantially concluded the integration on 30 September 2019, Dods is now one step closer to realising our ambition to become a leading Augmented Intelligence2 business, acting as trusted adviser to prominent brands seeking to navigate an increasingly complex political and economic environment.
Through the period, the operational priorities were:
· complete the acquisition and integration of Merit;
· leverage the expertise of Merit's founder as Chief Technology Officer of the enlarged Group;
· develop and invest in digital products to continue to drive recurring revenue;
· maintain focus on improving the retention of recurring revenues;
· explore opportunities to sell Merit's services to Dods customers and vice versa;
· search, appoint and induct the Chief Revenue Officer and the Chief Information Officer;
· continue to invest in data management, marketing automation and the Group's sales effectiveness;
· focus our growth in revenue across our owned events and engagement portfolio.
During the period the Group secured a number of notable contracts including those with Oracle, Fuji Film, Boehringer, GE, Google and the Coca-Cola Corporation and extended a contract with UK Government to provide Civil Service Live to October 2020.
Our Training division continued to win international contracts and deliver various programmes across the globe from the Supreme Court (UK), United Nations, CBI and the Government of India and over 315 (H1 FY2019: 220) training workshops to the UK Government.
Our digital media titles have continued to enjoy strong growth in readership, with page views for PoliticsHome up 104% on the same period to 10.6 million and unique visitors up 63% to 6.7 million.
We continue to expand our points of contact within our customer base, going beyond public affairs and into the Chief Data Science, Information, Technology and Marketing Officer's agenda as we seek to help customers manage risk and find competitive advantage in the regulated markets within which they operate.
We do this by providing data and technology solutions that inform, engage and connect professionals who wish to drive actionable insights for business-critical decisions, not just in political and policy areas, but increasingly across new and existing regulated markets.
Outlook
Whilst it is impossible to predict the extent of the continued political uncertainty and any impact this might have on the second half of the year the Board remains confident in the medium to long-term prospects of the Group.
Simon Presswell
Chief Executive Officer
Financial review
Income statement
The Group's revenue from continuing operations increased by 16.8% to £12.5 million (H1 FY2019: £10.7 million) and gross profit decreased by 6.7% to £4.2 million (H1 FY2019: £4.5 million). This reflects the 2.4 months results of the Merit business.
Gross margin decreased from 42% to 34% in the period. The decrease in gross margin is a combination of the change in the product mix following the addition of Merit and the increased venue and delivery costs experienced by Dods in H2 FY2019.
The Group has adopted IFRS16 and therefore reclassified material operating leases (right-of-use-assets) both on the income statement and statement of financial position. Consequently, administration costs decreased by 6.7% to £2.8 million (H1 FY2019: £3.0 million).
Adjusted EBITDA decreased by 9.3% to £1.36 million (H1 FY2019: £1.5 million). Operating loss was £0.1 million (H1 FY2019: profit of £0.4 million), after a right-of-use assets charge of £0.5 million (H1 FY2019: £nil), an amortisation charge of £0.3 million (H1 FY2019: £0.2 million) for business combinations and a charge of £0.1 million (H1 FY2019: £0.3 million) for intangible assets. The depreciation charge in the period remained flat at £0.2 million (H1 FY2019: £0.2 million). During the period, the Group incurred £0.3 million of non-recurring costs (H1 FY2019: £0.5 million).
Net finance costs have increased for the period to £0.2 million (H1 FY2019: income of £4,000) reflecting IFRS16 adoption (charge of £0.2 million), borrowing costs following the acquisition of Merit (charge of £39,000) and foreign exchange movement during the period (income of £61,000).
The taxation charge for the period was £37,000 (H1 FY2019: £nil) and relates to the Group's Belgian operations. For the overall Group, the tax charge is based on the use of accumulated tax losses.
Adjusted earnings per share, both basic and diluted, from continuing operations in the period were 0.04 pence (H1 FY2019: 0.30 pence) and were based on the adjusted profit for the period of £0.2 million (H1 FY2019: £1.0 million) with a weighted average number of shares in issue during the period of 431,276,215 (H1 FY2019: 341,774,286).
Earnings per share, both basic and diluted, from continuing operations in the period were a loss of 0.08 pence (H1 FY2019: earnings of 0.11 pence) and were based on the net loss for the period of £0.3 million (H1 FY2019: net profit of £0.4 million).
The Board is not proposing a dividend (H1 FY2019: £nil).
Statement of Financial Position
Assets
As mentioned previously, the Group has adopted IFRS16 and has reclassified operating leases as right-of-use assets and corresponding lease liabilities. Under the modified retrospective approach the Group has not restated prior periods. The impact has been to increase non-current assets by £8.6 million (H1 FY2019: £nil) and there is an associated increase in finance lease liability of £10.0 million (H1 FY2019: £nil). This has been shown as £1.5 million as current liability and £8.5 million as non-current liability.
Other non-current assets consisted of goodwill of £28.2 million (H1 FY2019: £13.3 million), intangible assets of £10.3 million (H1 FY2019: £8.0 million) and tangible fixed assets of £2.3 million (H1 FY2019: £2.2 million). The movements in goodwill, intangible and tangible fixed assets reflect the acquisition of Merit during the period.
The Group holds a 40% stake in the issued share capital of Sans Frontières Associates (SFA) and has loaned SFA £0.6 million (H1 FY2019: £0.7 million) at the period end. The loan is unsecured and carries no interest charge. Additionally, the Group holds a 30% stake in Social 360 at a cost of £0.5 million (H1 FY2019: £1.67 million).
Trade and other receivables increased by £1.8 million to £7.0 million (H1 FY2019: £5.2 million), as a result of the Merit acquisition. Included in prepayments is an amount of £0.8 million due in cash to certain vendors of Merit. The corresponding amount is in current and non-current liabilities as deferred consideration. The Group had a cash balance of £6.8 million (H1 FY2019: £8.3 million) and gross borrowings of £5 million at the period end (H1 FY2019: £nil).
The Group has borrowed a term loan of £3 million (H1 FY2019: £nil) over a 5-year period carrying a rate of 3.25% over LIBOR. In addition, it has a revolving credit facility (RCF) of £2 million carrying a rate of 3.5% over LIBOR. The current amount due is £0.3 million and non-current is £4.7 million.
Current liabilities increased by £2.9 million to £12.6 million (H1 FY2019: £9.7 million) as a result of the Merit acquisition, the adoption of IFRS16 and the impact of the current component of the bank loan. Deferred tax liability was £0.5 million (H1 FY2019: £0.8 million). The Group has also recognised a deferred consideration of £1.6 million (H1 FY2019: £nil) which is payable in both shares and cash over the coming two and three years to certain Merit vendors.
Total assets of the Group were £64.3 million (H1 FY2019: £39.4 million) with the main movements being an increase in goodwill and intangibles as well as the IFRS 16 adoption. Total equity increased by £7.7 million to £36.6 million (H1 FY2019: £28.9 million), mainly reflecting the issue of shares during the period.
Liquidity and capital resources
The Group has generated cash from operations of £0.2 million (H1 FY2019: £16,000) during the period. It has received £13 million (H1 FY2019: £nil) from the issuance of shares, borrowed £5 million (H1 FY2019: £nil) and paid £19.2 million relating to investing activities (H1: FY2019: £0.4 million). The cash position at the period end was £6.8 million (H1 FY2019: £8.3 million).
As at 30 September 2019 the Group had a net cash position of £1.8 million.
Nitil Patel
Chief Financial Officer
Condensed consolidated income statement
For the half year ended 30 September 2019
Note
Unaudited
Half year ended
30 Sept 2019
£'000
Unaudited
Half year ended
30 Sept 2018
£'000
Audited
Year ended
31 Mar 2019
£'000
Revenue
2
12,524
10,702
21,301
Cost of sales
(8,326)
(6,241)
(13,419)
Gross profit
4,198
4,461
7,882
Administrative expenses
(2,842)
(2,958)
(6,381)
Adjusted EBITDA
1,356
1,503
1,501
Depreciation of tangible fixed assets
(243)
(185)
(379)
Depreciation of right-of-use assets
(507)
-
-
Amortisation of intangible assets acquired through business combinations
(281)
(198)
(351)
Amortisation of software intangible assets
(144)
(267)
(1,789)
Non-recurring items
3
Non-recurring acquisition costs and
professional fees
(70)
-
(2,239)
Impairment expense - investment in equity
accounted associate
-
-
(1,231)
Impairment expense - intangible assets
-
-
(259)
People-related costs
(121)
(315)
(332)
Other non-recurring items
(116)
(146)
(697)
Operating (loss) / profit
(126)
392
(5,776)
Net finance costs
(177)
4
-
Share of profit / (loss) of associate
-
(18)
50
(Loss) / profit before tax
(303)
378
(5,726)
Income tax (charge) / credit
(37)
-
197
(Loss) / profit for the period
(340)
378
(5,529)
(Loss) / profit per share (pence)
Basic
4
(0.08p)
0.11p
(1.62p)
Diluted
4
(0.08p)
0.11p
(1.62p)
The following notes form part of these unaudited interim results.
Condensed consolidated statement of comprehensive income
For the half year ended 30 September 2019
Unaudited
Half year ended
30 Sept 2019
£'000
Unaudited
Half year ended
30 Sept 2018
£'000
Audited
Year ended
31 Mar 2019
£'000
(Loss) / profit for the period
(340)
378
(5,529)
Items that may be subsequently reclassified to Profit and loss
Exchange differences on translation of foreign operations
-
-
(8)
Other comprehensive (loss) / income for the period
-
-
(8)
Total comprehensive (loss) / income for the period
(340)
378
(5,537)
The following notes form part of these unaudited interim results.
Condensed consolidated statement of financial position
As at 30 September 2019
Note
Unaudited
30 Sept 2019
£'000
Unaudited
30 Sept 2018
£'000
Audited
31 Mar 2019
£'000
Non-current assets
Goodwill
5
28,218
13,282
13,282
Intangible assets
6
10,245
8,035
6,421
Property, plant and equipment
7
2,286
2,209
2,063
Right-of-use asset
10
8,629
-
-
Investment in associates
503
1,666
503
Long-term loan receivable
630
700
700
Total non-current assets
50,511
25,892
22,969
Current assets
Inventories
35
34
16
Trade and other receivables
7,010
5,169
3,584
Cash and cash equivalents
6,787
7,062
7,160
Restricted cash held in deposit account
-
1,266
1,266
Total current assets
13,832
13,531
12,026
Total assets
64,343
39,424
34,995
Capital and reserves
Issued capital
19,239
17,096
17,096
Share premium
20,082
8,142
8,142
Other reserves
409
409
409
Retained (loss) / profit
(3,148)
3,291
(2,616)
Share option reserve
55
44
55
Translation reserve
(67)
(59)
(67)
Total equity
36,570
28,923
23,019
Current liabilities
Trade and other payables
9,381
9,738
11,489
Deferred consideration
9
1,318
-
-
Bank loan
353
-
-
Lease liability
10
1,524
-
-
Total current liabilities
12,576
9,738
11,489
Non-current liabilities
Deferred tax liability
487
763
487
Deferred consideration
9
1,590
-
-
Bank loan
4,647
-
-
Lease liability
10
8,473
-
-
Total non-current liabilities
15,197
763
487
Total equity and liabilities
64,343
39,424
34,995
The following notes form part of these unaudited interim results.
Condensed consolidated statement of changes in equity
For the half year ended 30 September 2019
Share capital
£'000
Share premium reserve1
£'000
Merger reserve2
£'000
Retained earnings
£'000
Translation reserve3
£'000
Share option reserve4
£'000
Total shareholders' funds
£'000
Unaudited
At 1 April 2018
17,096
8,142
409
2,913
(59)
44
28,545
Total comprehensive income
Profit for the period
-
-
-
378
-
-
378
At 30 September 2018
17,096
8,142
409
3,291
(59)
44
28,923
Unaudited
At 1 April 2019
17,096
8,142
409
(2,616)
(67)
55
23,019
Effect of adoption of IFRS 16 Leases
-
-
-
(192)
-
-
(192)
At 1 April 2019 (adjusted)
17,096
8,142
409
(2,808)
(67)
55
22,827
Total comprehensive income
Loss for the period
-
-
-
(340)
-
-
(340)
Transactions with owners
Issue of ordinary shares
2,143
11,940
-
-
-
-
14,083
At 30 September 2019
19,239
20,082
409
(3,148)
(67)
55
36,570
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 accounting treatment in relation to historical business combinations.
3 The translation reserve comprises foreign currency translation differences arising from the translation of financial statements of the Group's foreign entities into sterling.
4 The share option reserve represents the cumulative expense recognised in relation to equity-settled share-based payments.
The following notes form part of these unaudited interim results.
Condensed consolidated statement of cash flows
For the half year ended 30 September 2019
Unaudited
Half year ended
30 Sept 2019
£'000
Unaudited
Half year ended
30 Sept 2018
£'000
Audited
Year ended
31 Mar 2019
£'000
Cash flows from operating activities
(Loss) / profit for the period
(340)
378
(5,529)
Depreciation of property, plant and equipment
243
185
379
Depreciation of right-of-use assets
507
-
-
Amortisation of intangible assets acquired through business combinations
281
198
351
Amortisation of other intangible assets
144
267
1,789
Impairment charges
-
-
1,490
Share-based payments charge
-
1
11
Share of profit of associate
-
-
(50)
Lease interest expense
200
-
-
Non-recurring acquisition costs and professional fees
1,670
-
400
Income tax charge / (credit)
37
-
(197)
Operating cash flows before movement in working capital
2,742
1,029
(1,356)
Change in inventories
(18)
(22)
(4)
Change in trade and other receivables
(1,363)
(1,497)
(114)
Change in trade and other payables
(1,060)
506
2,337
Cash generated by operations
301
16
863
Taxation paid
(85)
-
(166)
Net cash from operating activities
216
16
697
Cash flows from investing activities
Interest and similar income received
-
-
12
Non-recurring acquisition costs and professional fees
(1,670)
(185)
(400)
Additions to property, plant and equipment
(45)
(68)
(115)
Additions to intangible assets
(161)
(191)
(512)
WIP on software not yet capitalised
(300)
-
-
Investment in subsidiaries (net of cash acquired)
(17,055)
-
-
Bank loan
5,000
-
-
Repayment of long-term loan by associate
70
-
-
Net cash used in investing activities
(14,161)
(444)
(1,015)
Cash flows from financing activities
Proceeds from issue of share capital
13,037
-
-
Interest and similar expenses paid
-
-
(12)
Payment of lease liabilities
(731)
-
-
Net cash from / (used in) financing activities
12,306
-
(12)
Net decrease in cash and cash equivalents
(1,639)
(428)
(330)
Opening cash and cash equivalents
8,426
8,757
8,757
Effect of exchange rate fluctuations on cash held
-
(1)
(1)
Closing cash at bank
6,787
8,328
8,426
Comprised of:
Cash and cash equivalents
6,787
7,062
7,160
Restricted cash held in deposit account
-
1,266
1,266
Closing cash at bank
6,787
8,328
8,426
The following notes form part of these unaudited interim results.
Notes to the condensed consolidated financial statements
For the half year ended 30 September 2019
1. Basis of preparation
Dods 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 EU. The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. As required by AIM Rules, the condensed set of financial statements has been prepared, and 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 2019, with the exception of IFRS 16 Leases, which was adopted on 1 April 2019.
The comparative figures for the year ended 31 March 2019 have been extracted from the Group's statutory accounts for that financial period. 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.
The taxation charge for the six months ended 30 September 2019 is based on the utilisation of accumulated tax losses.
The condensed set of interim financial statements have been prepared on a going concern basis and were approved by the Board on 28 October 2019.
2. Segmental information
Business segments
The Group considers that it has one operating business segment, being the provision of key information and insights into the political, public policy and other regulated environments around the UK and European Union. This is the basis on which operating results are reviewed and resources allocated by the senior management team.
No client accounted for more than 10 percent of total revenue.
Geographical segments
The following table provides an analysis of the Group's segment revenue by geographical market. Segment revenue is based on the geographical location of customers.
Unaudited
Half year ended
30 Sept 2019
£'000
Unaudited
Half year ended
30 Sept 2018
£'000
Audited
Year ended
31 Mar 2019
£'000
UK
10,244
8,753
16,183
Rest of world
2,280
1,949
5,118
12,524
10,702
21,301
Asset segment information has not been disclosed because this information is not reviewed by the senior management team for the purpose of allocating resources.
3. Non-recurring items
Unaudited
Half year ended
30 Sept 2019
£'000
Unaudited
Half year ended
30 Sept 2018
£'000
Audited
Year ended
31 Mar 2019
£'000
Non-recurring acquisition costs and professional fees
70
-
2,239
Impairment expense - investment in equity accounted associate
-
-
1,231
Impairment expense - intangible assets
-
-
259
People-related costs
121
315
332
Other
- Branding and marketing
-
-
206
- Costs relating to ongoing strategic corporate
review and initiatives
-
-
244
- Professional services
63
-
129
- Consultancy
15
-
82
- Other
38
146
36
307
461
4,758
4. Earnings per share
Unaudited
Half year ended
30 Sept 2019
£'000
Unaudited
Half year ended
30 Sept 2018
£'000
Audited
Year ended
31 Mar 2019
£'000
(Loss) / profit attributable to shareholders
(340)
378
(5,529)
Add: non-recurring items
307
461
4,758
Add: amortisation of intangible assets acquired through business combinations
281
198
351
Add: net exchange (gains) / losses
(61)
(4)
12
Add: share-based payment expense
-
-
11
Adjusted post-tax profit / (loss) attributable to shareholders
187
1,033
(397)
Unaudited
Half year ended
30 Sept 2019
Ordinary shares
Unaudited
Half year ended
30 Sept 2018
Ordinary shares
Audited
Year ended
31 Mar 2019
Ordinary shares
Weighted average number of shares
In issue during the period - basic
429,464,215
341,524,286
341,640,953
Adjustment for share options
1,812,000
250,000
1,067,375
In issue during the period - diluted
431,276,215
341,774,286
342,708,328
Unaudited
Half year ended
30 Sept 2019
Pence per share
Unaudited
Half year ended
30 Sept 2018
Pence per share
Audited
Year ended
31 Mar 2019
Pence per share
Earnings per share - continuing operations
Basic
(0.08)
0.11
(1.62)
Diluted
(0.08)
0.11
(1.62)
Adjusted earnings per share - continuing operations
Basic
0.04
0.30
(0.12)
Diluted
0.04
0.30
(0.12)
5. Goodwill
Unaudited
Half year ended
30 Sept 2019
£'000
Unaudited
Half year ended
30 Sept 2018
£'000
Audited
Year ended
31 Mar 2019
£'000
Cost and net book value
Opening balance
13,282
13,282
13,282
Acquisition of subsidiary
14,936
-
-
Closing balance
28,218
13,282
13,282
6. Intangible assets
Assets acquired through business combinations
Software
Total
£'000
£'000
£'000
Cost
At 1 April 2018
24,215
2,907
27,122
Additions - internally generated
-
512
512
Impairment
(259)
-
(259)
At 31 March 2019
23,956
3,419
27,375
Additions - internally generated
-
161
161
Acquisition of subsidiary
4,086
-
4,086
At 30 September 2019
28,042
3,580
31,622
Accumulated amortisation
At 1 April 2018
17,359
1,455
18,814
Charge for the year
351
1,789
2,140
At 31 March 2019
17,710
3,244
20,954
Charge for the period
280
143
423
At 30 September 2019
17,990
3,387
21,377
Net book value
At 31 March 2018 - audited
6,856
1,452
8,308
At 31 March 2019 - audited
6,246
175
6,421
At 30 September 2019 - unaudited
10,052
193
10,245
7. Property, plant and equipment
Leasehold Improvements
Equipment and Fixtures and Fittings
Total
£'000
£'000
£'000
Cost
At 1 April 2018
1,944
1,072
3,016
Additions
66
49
115
At 31 March 2019
2,010
1,121
3,131
Additions
4
41
45
Acquisition of subsidiary
-
421
421
At 30 September 2019
2,014
1,583
3,597
Accumulated depreciation
At 1 April 2018
279
410
689
Charge for the year
201
178
379
At 31 March 2019
480
588
1,068
Charge for the period
100
143
243
At 30 September 2019
580
731
1,311
Net book value
At 31 March 2018 - audited
1,665
662
2,327
At 31 March 2019 - audited
1,530
533
2,063
At 30 September 2019 - unaudited
1,434
852
2,286
8. Interest-bearing loans and borrowings
During the period, the Group borrowed a term loan of £3 million (H1 FY2019: £nil) over a 5-year period carrying a rate of 3.25% over LIBOR. In addition, it has a revolving credit facility (RCF) of £2 million carrying a rate of 3.5% over LIBOR.
9. Acquisition of subsidiaries
During the current period, on 18 July 2019, the parent entity acquired 100 percent of the issued share capital of Meritgroup Limited and its subsidiaries, a provider of data services and software code. The acquisition will enable the Group to further diversify and strengthen its presence in new end markets and open up significant opportunities through the sharing of resources and talent across the Group.
There were no acquisitions in the half year ending 30 September 2018.
Details of the purchase consideration, the net assets acquired and goodwill are as follows:
Purchase consideration
Unaudited
Half year ended
30 Sept 2019
£'000
Cash paid
18,231
Ordinary shares issued
1,046
Deferred consideration
2,091
Purchase consideration
21,368
The fair value of the 13,715,881 shares issued as part of the consideration was based on the average of the middle market quotations for Purchaser Ordinary Shares on AIM for each of the five dealing days prior to the completion date. The deferred consideration is not contingent on any future event occurring and requires the Group to issue a variable number of shares to the value of £1.045m on the first anniversary of the acquisition and £1.045m on the second anniversary of the acquisition.
Deferred consideration
Current
£'000
Non-current
£'000
Unaudited
Total
£'000
Deferred consideration to be settled in shares
1,046
1,045
2,091
Contingent consideration to be settled in cash
272
545
817
1,318
1,590
2,908
Net assets acquired
Unaudited
Half year ended
30 Sept 2019
£'000
Cash and cash equivalents
1,176
Trade and other receivables
2,336
Property, plant and equipment
421
Right-of-use assets
4,209
Identifiable intangible assets
4,086
Trade and other payables
(1,587)
Lease liabilities
(4,209)
Net identifiable assets acquired
6,432
Add: goodwill
14,936
Net assets acquired
21,368
The goodwill arising from the acquisition consists of largely intangible assets that cannot be separately recognised, such as the assembled workforce of the acquired entity and cost synergies expected to flow to the Group. The goodwill is not expected to be deductible for income tax purposes.
9. Acquisition of subsidiaries - continued
Net cash outflow arising on acquisition
Unaudited
Half year ended
30 Sept 2019
£'000
Cash paid
18,231
Less: cash and cash equivalent balances acquired
(1,176)
Net cash outflow
17,055
10. Leases
The Group has adopted IFRS 16 Leases as at 1 April 2019, which replaces IAS 17 Leases. The Group has elected to apply the modified retrospective approach, with the cumulative effect of adopting IFRS 16 being recognised as an opening balance adjustment to retained earnings as at 1 April 2019. Prior periods have not been restated.
On transition to IFRS 16 on 1 April 2019, the Group recognised a £4.9m right-of-use asset, along with a corresponding lease liability of £6.2m. Accrued rent has been adjusted by £1.1m and the difference of £0.2m against opening retained earnings. The incremental borrowing rate used by the Group in applying IFRS 16 is 5 percent.
A reconciliation of total operating lease commitments disclosed at 31 March 2019 to the lease liability amount recognised on adoption of IFRS 16 is as follows:
Unaudited
£'000
Total operating lease commitments disclosed at 31 March 2019
7,546
Discounted using incremental borrowing rate
(1,359)
Total lease liabilities recognised under IFRS 16 at 1 April 2019
6,187
Unaudited
Right-of-use assets
£'000
Unaudited
Lease liabilities
£'000
On adoption - 1 April 2019
4,927
(6,187)
Additions through acquisition of subsidiary
4,209
(4,209)
Depreciation
(507)
-
Lease interest
-
(200)
Lease payments
-
731
Decrease in accruals/prepayments
-
(132)
30 September 2019
8,629
(9,997)
The right-of-use assets relate to office space.
11. Related party transactions
During the period, Artefact Partners LLP provided strategic consultancy services to Dods Group plc to the value of £20,000. Current non-executive director Richard Boon is an LLP designated member of Artefact Partners LLP.
During the period, the Group received a repayment of £70,000 on its interest free loan to its associate Sans Frontieres Associates (SFA). At 30 September 2019 the balance of this loan was £630,000.
During the period, an amount of £24,650 was payable to an associate, Social 360 Limited, in relation to profit-share for monitoring services provided. At 30 September 2019, £24,650 was outstanding.
On acquisition of Merit, 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, CTO of the Group, is the beneficial owner of Merit Software Services Private Limited. The lease relates to the Chennai office of Merit. During the period, payments of £158,000 were made to Merit Software Systems Private Limited in relation to the lease.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDIR MPBBTMBTTTFL
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