REG - Merit Group PLC - Half-year Report
17/11/2021 07:05
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RNS Number : 6036S Merit Group PLC 17 November 2021
17 November 2021
Merit Group plc (formerly Dods Group plc)
("Merit", the "Company" or "the Group")
UNAUDITED INTERIM RESULTS TO 30 SEPTEMBER 2021
Merit Group plc (AIM: MRIT), the data and intelligence business, announces its
unaudited interim results for the half year ending 30 September 2021.
Financial Highlights
· Strong year on year growth in Net Income, Gross Margin and Earnings;
· Adjusted EBITDA of £1.3m (H1 2021 Adjusted EBITDA loss of £0.2m)
· Recovery on track with first half loss before tax falling by £2.0m
to £0.6m; (H1 2021 loss £2.6m);
· Operating cash inflow, before deferred liabilities and exceptional
items, of £0.6m; (H1 2021 £0.2m inflow);
· Cash balance of £2.8m and Net Debt of £1.8m as at 30 September,
against total debt facilities of £4.6m.
H1 2022 Restated* H1 2021
30 Sept 21 30 Sept 20
Total revenue £12.3m £10.2m +21%
Net Income (1) £10.8m £9.4m +15%
Gross margin 39% 31% +26%
Adjusted EBITDA (2) £1.3m (£0.2m) N/A
Adjusted EBIT (3) (£0.3m) (£1.9m) -84%
Loss before tax (£0.6m) (£2.6m) -77%
Adjusted basic EPS(4) (0.33p) (8.55p) +8.22p
Basic EPS (3.10p) (12.88p) +9.78p
1. Net income is total revenue less pass through cost directly related to
provision of services to customers.
2. Adjusted EBITDA is calculated as earnings before interest, tax,
depreciation, amortisation of intangible assets, share based payments and
non-recurring items.
3. Adjusted EBIT is calculated as operating profit (loss) less non-recurring
costs.
4. Adjusted EPS is loss attributable to shareholders add back non-recurring
items, amortisation of intangible assets acquired via business combinations,
net exchange difference and share based payment expenses.
*Details of the restatement are found on note 14 on page 22 under the header
of "Condensed consolidated statement of financial position".
Operational Highlights
· Continued investment in technology to drive growth, including new
investment and commercial agreements with DataWorks and the development of a
new Political Intelligence technology platform which is progressing well and
on track to launch in H2;
· Completion of strengthened new management team with David Beck
confirmed as CEO and joined the Board in September 2021, and the arrival of a
new CFO, Philip Machray, in October and joining the Board today;
· Strong overall recovery with further anticipated in the second half
as some parts of the business were still being impacted by Covid-19
restrictions in H1;
· Good progress towards targeted significant reduction in UK property
overhead.
Mark Smith, Chairman of Merit Group plc, said;
"The recovery in trading we saw in the second half of the last financial year
has continued into FY22. We are confident Merit is trading in line with market
expectations for EBITDA in the full year. The newly strengthened management
team are making good progress in addressing the key drivers that will improve
the Group's prospects and returns to shareholders."
For further information, please contact:
Merit Group plc
Mark Smith - Non-Executive
Chairman
020 7593 5500
David Beck - CEO
www.meritgroupplc.com (http://www.meritgroupplc.com)
Canaccord Genuity Limited (Nomad and Broker)
Bobbie
Hilliam
020 7523 8150
Georgina McCooke
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.
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 market expectations, despite some
residual impact from the ongoing global pandemic. Adjusted EBITDA of £1.3m in
the first half compared to a first half EBITDA loss of £0.2m in the prior
year, driven by both higher revenue and improvements in gross margin.
Strategy
The Group's strategy is built around using technology to provide high quality
data and intelligence to its customers. Through a combination of technology
led data capture and delivery, tight cost controls and a focus on growth
markets we are seeking to grow gross margins in both our operating divisions;
Merit Data & Technology and Dods.
Merit Data & Technology
Merit Data & Technology uses its proprietary technology, including machine
learning and Artificial Intelligence (AI) to enhance industry intelligence and
marketing data. The business, which was acquired by the Group in 2019, has
longstanding 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.
Merit Data & Technology reported an Adjusted EBITDA of £1.0m in the first
half against £0.7m in the same period in the previous year.
The strength of customer relationships and the nature of the work undertaken
allowed the Merit Data & Technology division to continue to trade well
through the worst of the pandemic, with only its marketing data segment being
significantly affected, as clients were restricted in their ability to hold
face to face events.
The software and technology resourcing part of Merit Data & Technology
operates in a particularly buoyant market for people with technology skills.
Growth in this segment has been tempered by a significant shortage of supply
of good people which has led to both recruitment issues and wage inflation.
The industry data segment has secured new 'big data' projects in the
pharmaceutical and publishing spaces and developed new products. We are
particularly pleased to have increased our footprint with large existing
clients including Lexis Nexis, the biggest division of Relx and Informa
Intelligence. Expansion of our work for existing clients is a strong vote of
confidence in our delivery, we have further projects under consideration with
both companies.
The investment in DataWorks announced earlier in the year is progressing with
advanced user testing underway and a comprehensive marketing plan in place for
launch later in the financial year.
Dods
The Dods business comprises a leading political intelligence offering that has
approximately 1,400 customers; a media portfolio of influential political
titles largely delivered online; an events business that supports our clients
in their engagement with political audiences and a growing training business
aimed at both the UK civil service and international NGOs.
In the first half Dods made an adjusted EBITDA of £0.2m, after central
overheads of £0.5m, against a loss of £0.9m in the same period last year.
All areas of the business grew revenues, with particularly strong recovery in
the events and training businesses.
Political Intelligence is at the centre of the Dods business, we are an
industry leader with an enviable reputation for the comprehensiveness of our
service and the quality of analysis we provide customers. In the second half
of the current financial year we will complete the upgrade of our online
platform to enhance the user experience and allow our customers to derive even
more value from the service we provide through tailored reports and
consultancy.
Our media business earned a higher proportion of revenue from online
advertising and growing user numbers for our websites, notably Politics Home
www.politicshome.com (http://www.politicshome.com) , our political news
website, which now averages 500,000 unique users per month. We have four other
core media properties, three centred around the workings of parliaments; The
House, Holyrood and The Parliament, and Civil Service World an essential
source of news and analysis for those that work in the UK civil service.
The Dods events business has recovered from the most severe impacts of the
pandemic however it has further to go to achieve a full recovery as customers
still have concerns, and face some ongoing restrictions, on full scale face to
face events. We ran a number of successful and high profile events during the
half including the NHS awards in June. We saw the return of in person events
at the political party conferences, and our prestigious annual Holyrood Garden
Party returned in September.
Dods' Training business has also recovered quickly and recent strong sales
activity gives us increasing confidence that there is further growth to come
from this segment. In the first half we won a significant three year
training contract with the Welsh Government.
London Premises
The Group has targeted to make significant overhead savings by reducing its
real estate costs in London where we are halfway through a ten year lease in
The Shard. Since the period end the Company has agreed its five year rent
review with its Landlord at a net effective rent of £66.50 per sq ft
(representing a 1% per annum increase). The Group and its property advisers
believe this new rent and the certainty of having concluded our mid lease
review will improve our ability to assign or sublet the space we currently
occupy in The Shard.
Board Appointments
David Beck was confirmed as CEO and joined the Board in September. The Board
are pleased to announce that Philip Machray, who joined the Company as CFO in
October 2021, has today been appointed to the Board. The Company can confirm
that save as disclosed in the announcement on 7 September 2021, there is no
further information to be disclosed in relation to Philip Machray's
appointments pursuant to AIM Rule 17 or paragraph (g) of Schedule Two of the
AIM Rules for Companies.
Simon Bullock will be stepping down from the Board following release of
today's interim results. Cornelius Conlon, was appointed CTO in September in
recognition of the importance the Board places on the Group continuing to
develop innovative and market leading technologies.
Outlook
The Group is confident of meeting market expectations for EBITDA in the full
year. Our growth prospects beyond the current year are underpinned by
investments we have been making in our businesses. Our market leading
political intelligence service will benefit from a major platform upgrade. Our
data business continues to win new clients in new sectors and is confident of
entering the very large e-commerce sector, enabled by the Group's strategic
investment in DataWorks made earlier this year.
David Beck
CEO
Merit Group
plc
FINANCIAL REVIEW
Income Statement
The Group's revenue increased by 21% to £12.3m (H1 2021: £10.2m).
Revenues from Merit Data and Technology increased by £0.1m (2%). Dods revenue
increased by 38% from £5.2m to £7.2m. The increase is largely attributable
to Events (from £0.2m to £1.4m), Training (from £0.4m to £0.9m) and Media
(from £1.1m to £1.6m).
During the period gross profit increased by 47% to £4.8m (H1 2021: £3.2m).
Gross margin increased from 31% to 39% in the period.
Adjusted EBITDA increased by £1.5m to £1.3m (H1 2021: £0.2m EBITDA loss)
Other operating income was £44k (H1 2021: £0.5m), as less staff were on
furlough and supported the improvement in revenue. Operating loss fell by
£1.8m to £0.5m (H1 2021: £2.3m loss), after a right-of-use assets charge of
£0.7m (H1 2021: £0.7m), an amortisation on acquired intangibles under
business combinations of £0.4m (H1 2021: £0.4m), a charge of £0.2m (H1
2021: £0.2m) for intangible assets amortisation, a charge of £0.3m (H1 2021:
£0.3m) for depreciation of tangible assets and non-recurring costs of £0.2m
(H1 2021: £0.5m).
Net finance costs have decreased for the period to £0.2m (H1 2021: £0.3m)
reflecting favourable foreign exchange movements.
Adjusted earnings per share, basic and diluted, in the period were a loss of
0.33 pence and 0.33 pence respectively (H1 2021: loss of 8.55 pence) and were
based on the adjusted loss for the period of £0.1m (H1 2021: £1.7m loss)
with a weighted average number of shares in issue during the period of
20,788,375 (diluted 20,844,161).
Earnings per share, both basic and diluted, from continuing operations in the
period were a loss of 3.10 pence (H1 2021: loss of 12.88 pence) and were based
on the loss after tax for the period of £0.6m (H1 2021: loss of £2.6m).
Whilst the Company's focus remains on cash preservation and repositioning the
business for future growth, the Board is not proposing a dividend (H1 2021:
£nil).
Going Concern
The Directors assessed the Group's prospects, both as a going concern and its
longer term viability, at the time of approval of the Group's 2021 Annual
Report. Further information is set out on page 19 of the 2021 Annual Report.
At the half year, the directors have reviewed the going concern assessment,
including the ongoing impact of Covid-19 and the mitigating actions in place
to manage cost and cash flow. Having regard to the financial position of the
Group, it's cash, liquidity position and borrowing facilities as detailed
further in the Statement of Financial Position, the Directors are satisfied
that the Group is able to continue to meet its financial liabilities as they
fall due for the foreseeable future. Accordingly, the Directors have adopted
the going concern basis of accounting in the preparation of the Group's
interim results report.
Statement of Financial Position
Assets
Non-current assets consisted of goodwill of £28.9m (FY 2021: £28.9m),
intangible assets of £10.4m (FY 2021: £10.4m) and tangible fixed assets of
£2.1m (FY 2021: £2.2m).
The Group holds a 40% stake in the issued share capital of Sans Frontières
Associates (SFA) with a carrying amount of £0.2m (FY 2021: £0.2m) and has
loaned SFA £0.4m (FY 2021: £0.6m) at the period end. The loan is unsecured
and carries no interest charge. Additionally, the Group holds a 30% stake in
Social 360 at cost of £0.5m (FY 2021: £0.5m). The Group acquired a 10.9%
stake in DataWorks Ltd for £0.5m during the period.
The Group had a cash balance of £2.8m (FY 2021: £5.6m) and gross borrowings
of £4.5m at the period end (FY 2021: £4.6m).
Total assets of the Group were £58.2m (FY 2021: £60.7m) with the main
movements being a reduction in cash and cash equivalents of £2.8m and an
increase in investments in associate of £0.5m for DataWorks Ltd investment.
Equity and Liabilities
The Group has a bank term loan of £2.6m (FY 2021: £2.6m). The current amount
due is £0.5m (FY 2021: £0.3m) and non-current is £2.0m (FY 2021: £2.4m).
The loan has a repayment schedule through to June 2024. The Group also has a
RCF loan facility of £2.0m available through to December 2023. This RCF
facility was fully drawn throughout the period and stood at £2.0m at the
period end (FY 2021: £2.0m). Due to its revolving nature, this loan is all
shown as due within one year.
Current liabilities fell by £1.1m to £16.3m (FY 2021: £17.4m). Excluding
the term loan and RCF, the current liabilities decreased primarily because of
payments of £0.5m of VAT, paid between April 2021 and September 2021, which
was 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 £0.9m (FY21 £1.4m).
Deferred tax liability was £0.2m (FY 2021: £0.2m).
Total equity reduced by £0.6m to £33.4m (FY 2021: £34.0m), reflecting the
loss for the period.
Liquidity and capital resources
Net cashflow from operating activities amounted to a £0.3m outflow in the
period (H1 2021 £0.7m outflow) as operating cashflows were utilised in the
repayment of operating liabilities deferred from prior periods in response to
Covid-19. The total net movement in working capital of £1.4m during the
period , reflected a reversal of some of the working capital measures taken
during FY21 in response to Covid-19, including £0.5m partial repayment of the
deferred VAT liability. Operating liabilities of £1.0m in relation to these
measures remain deferred at the period end.
Operating cash inflow, before repayment of deferred liabilities and
exceptional items amounted to £0.6m; (H1 2021 £0.2m inflow).
The cash position at the period end was £2.8m (H2 2021: £4.1m). As at 30
September 2021 the Group had a net debt position of £1.8m (H1 2021: net cash
£1.1m).
On 30 June 2021 the Group agreed revised facilities with Barclays Bank which
included:
· Term Loan: reduced payments in the current year with offsetting
increases in subsequent years although no increase in overall duration of the
loan; a change in pricing from 3.25% above LIBOR to 3.75% above the Bank of
England interest rate;
· RCF: a change in pricing, effective January 2022; from 3.50% above
LIBOR to 4.00% above the Bank of England interest rate;
· Covenants: revised leverage and debt service covenants with effect
from 1 April 2021 for the balance of the facility (June 2024);
· Cash: the requirement to maintain a minimum cash balance, across the
Group, of £0.5m.
Simon Bullock
Chief Financial Officer
Condensed consolidated income statement
For the half year ended 30 September 2021
Unaudited Restated Unaudited Audited
Half year ended Half year ended Year ended
30 Sept 2021 30 Sept 2020 31 Mar 2021
Note £'000 £'000 £'000
Revenue 2 12,338 10,227 24,690
Cost of sales (7,565) (7,051) (16,402)
Gross profit 4,773 3,176 8,288
Administrative expenses* (3,566) (3,873) (6,979)
Other operating income 3 44 500 688
1,251 (197) 1,997
Adjusted EBITDA
Depreciation of tangible fixed assets* (273) (297) (612)
Depreciation of right-of-use assets* (660) (704) (1,330)
Amortisation of intangible assets acquired through business combinations* (431) (426) (862)
Amortisation of software intangible assets* (184) (228) (488)
Total administrative expense((1)) (5,114) (5,028) (10,271)
Non-recurring items 4
People-related costs (158) (415) (995)
Other non-recurring items (20) (35) (210)
(475) (2,302) (2,500)
Operating loss
Net finance costs (171) (300) (669)
Share of profit of associate - - 56
Loss before tax (646) (2,602) (3,113)
Income tax credit - 3 389
(646) (2,599) (2,724)
Loss for the period
Loss per share (pence)
5 (3.10p) (12.88p) (13.28p)
Basic
5 (3.10p) (12.88p) (13.28p)
Diluted
((1) Total of all line items marked (*))
The notes on pages 15 to 23 form part of these unaudited interim results.
Restatement:
- £500k of other operating income has been reclassed from
"Administrative expenses" and shown separately in "Other operating income" to
bring into conformity with the FY21 Annual report, the £500k relates to the
UK Governments Coronavirus Job Retention scheme. This has no impact on the
prior results and is only a reclassification. Previously "Administrative
expenses" was stated as £3,373k and "other operating income" as £nil.
- £272k has been restated within Non-recurring items to "people
related costs", previously was part of "Non-recurring acquisition costs and
professional fees". This has no impact on the prior results and is only a
reclassification. Previously "Non-recurring acquisition costs and professional
fees" was £272k and "people related costs" was £143k.
Condensed consolidated statement of comprehensive income
For the half year ended 30 September 2021
Unaudited Unaudited Audited
Half year ended Half year ended Year ended
30 Sept 2021 30 Sept 2020 31 Mar 2021
£'000 £'000 £'000
Loss for the period (646) (2,599) (2,724)
Items that may be subsequently reclassified to Profit and loss
Exchange differences on translation of foreign operations 28 117 (19)
Remeasurement of defined benefits obligation 20 - (45)
Other comprehensive income for the period 48 117 (64)
Total comprehensive loss for the period (598) (2,482) (2,788)
The notes on pages 15 to 23 form part of these unaudited interim results.
Condensed consolidated statement of financial position
As at 30 September 2021
Unaudited Restated* Unaudited Audited
30 Sept 2021 30 Sept 2020 31 Mar 2021
Note £'000 £'000 £'000
Non-current assets
Goodwill 6 28,911 28,845 28,911
Intangible assets 7 10,358 11,042 10,449
Property, plant and equipment 8 2,082 1,879 2,184
Right-of-use asset 6,541 7,412 6,688
Investment in associates 1,167 690 717
Long-term loan receivable - 560 -
Total non-current assets 49,059 50,428 48,949
Current assets
Work in progress and inventories 119 434 36
Trade and other receivables 5,786 5,544 5,584
Loan receivable 420 - 560
Cash and cash equivalents 2,804 4,100 5,565
Total current assets 9,129 10,078 11,745
Total assets 58,188 60,506 60,694
Capital and reserves
Issued capital 10 5,821 19,501 19,501
Share premium - 20,866 20,866
Merger reserves - 415 409
Retained profit/(loss) 13,958 (6,473) (6,671)
Redemption reserve 13,680 - -
Share option reserve 58 85 58
Other reserves (25) - (45)
Translation reserve (52) (72) (80)
Total equity 33,440 34,322 34,038
Current liabilities
Trade and other payables 10,966 12,495 12,582
Pension obligation 78 54 73
Deferred consideration 1,046 1,046 1,046
Bank loan & RCF 2,541 857 2,253
Lease liability 1,680 1,515 1,467
Total current liabilities 16,311 15,967 17,421
Non-current liabilities
Deferred tax liability 222 862 222
Pension obligation 146 84 166
Bank loan 2,024 2,143 2,378
Lease liability 6,045 7,128 6,469
Total non-current liabilities 8,437 10,217 9,235
Total equity and liabilities 58,188 60,506 60,694
The notes on pages 15 to 23 form part of these unaudited interim results.
*Restatements:
· "Trade and other payables" from £12,633k to £12,495k due to the
separate disclosure of the "Pension obligation", the difference of £138k is
now shown as a separate line item "Pension obligation" of £54k in "Current
liabilities" and £84k in "Non-current liabilities". Previously "Pension
obligation" was not separately disclosed.
· Upon the acquisition of Meritgroup Limited the Company became
obligated, under certain conditions, to make payments to two employees, these
were originally recorded in "Deferred consideration" and "Trade and other
receivables" effectively grossing up the balance sheet assets and liabilities,
however subsequently it was decided this is not the correct treatment as these
are contingent liabilities. "Deferred consideration" of £272k has been
removed from both "Current liabilities" and "Non-current Liabilities"
restating the balance from £1,318k to £1,046k and £272k to £nil
respectively. "Trade and other receivables" have also been reduced by £544k
from £6,088k to £5,544k.
Due to the above restatements the balances of "Current assets" have changed
from £6,088k to £5,544k, "Total assets" from £61,050k to £60,506k.
"Current liabilities" has changed from £16,323k to £15,967k and "Non-current
liabilities" from £10,405k to £10,217k, "Total equity and liabilities" has
changed from £61,050k to £60,506k.
Condensed consolidated statement of changes in equity
For the half year ended 30 September 2021
Total shareholders' funds
Share premium reserve(1) Retained earnings Redemption Share option reserve(4) Translation reserve(3) £'000
Issued capital £'000 Merger reserve(2) £'000 reserve £'000 Other reserve £'000
£'000 £'000 £'000 £'000
Unaudited
At 1 April 2020 19,239 20,082 409 (3,991) - 75 - (61) 35,753
Total comprehensive income
Loss for the period - - - (2,482) - - - - (2,482)
Transactions with owners
Issue of ordinary shares 262 784 - - - - - - 1,046
Other comprehensive loss
Currency translation differences - - 6 - - - - (11) (5)
Share-based payment - - - - - 10 - - 10
At 30 September 2020 19,501 20,866 415 (6,473) - 85 - (72) 34,322
At 1 April 2021 19,501 20,866 409 (6,671) - 58 (45) (80) 34,038
Total comprehensive income
Loss for the period - - - (646) - - - (646)
Currency translation Differences - - - - - 28 28
- -
Remeasurement of defined benefits obligations - - - - - - 20
- 20
Total comprehensive income 598
Transactions with owners
Issue of ordinary shares - - - - - - - - -
Other comprehensive loss
Share consolidation (13,680) (20,866) (409) 21,275 13,680 - - - -
Share-based payment - - - - - - - - -
At 30 September 2021 5,821 - - 13,958 13,680 58 (25) (52) 33,440
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 notes on pages 15 to 23 form part of these unaudited interim results.
Condensed consolidated statement of cash flows
For the half year ended 30 September 2021
Unaudited Restated* Unaudited Audited
Half year ended Half year ended Year ended
30 Sept 2021 30 Sept 2020 31 Mar 2021
£'000 £'000 £'000
Cash flows from operating activities
Loss for the period (646) (2,599) (2,724)
Depreciation of property, plant and equipment 273 297 612
Depreciation of right-of-use assets 660 704 1,330
Amortisation of intangible assets acquired through business combinations 431 426 862
Amortisation of other intangible assets 184 228 488
Share-based payments charge - 10 27
Share of profit of associate - - (56)
Lease interest expense 195 228 422
Net finance (income) / costs (24) 62 247
Income tax credit - (3) (389)
Operating cash flows before movement in working capital 1,073 (647) 819
Change in inventories (83) (161) 237
Change in trade and other receivables (202) 1,720 852
Change in trade and other payables (1,137) 388 670
Cash generated by operations (349) 1,300 2,578
Taxation paid (85) 3 -
Net cash from operating activities (434) 1,303 2,578
Cash flows from investing activities
Interest and similar income received 7 - 16
Additions to property, plant and equipment (127) (304) (662)
Additions to intangible assets (568) (196) (561)
Investment in associates (450) (29) -
Repayment of loan by associate 140 - -
Net cash used in investing activities (998) (529) (1,207)
Cash flows from financing activities
Interest and similar expenses paid (87) (300) (262)
Payment of lease liabilities (913) (579) (1,181)
Payment of lease interest (280) (177) (362)
Net proceeds from bank loan - - 2,000
Repayment of bank loan (101) - (369)
Net cash from / (used in) financing activities (1,381) (1,056) (174)
Net decrease in cash and cash equivalents (2,813) (282) 1,197
Opening cash and cash equivalents 5,565 4,368 4,368
Effect of exchange rate fluctuations on cash held 52 14 -
Closing cash at bank 2,804 4,100 5,565
Comprised of:
Cash and cash equivalents 2,804 4,100 5,565
Closing cash at bank 2,804 4,100 5,565
The notes on pages 15 to 23 form part of these unaudited interim results.
*Restatement of "Non-recurring acquisition costs and professional fees" from
£450k to £nil in "Cash flows from operating activities", and from (£272k)
to £nil in "Cash flows from Investment activities" as these should not have
been included in the condensed consolidated statement of cashflows.
Restatement of "Change in trade and other payables" from £210k to £388k. As
a result of the restatements the line items of "Non-recurring acquisition
costs and professional fees" have been removed from presentation.
Restatement of "Payment of lease liabilities" previously (£756k) and "Payment
of lease Interest" previously £nil, the new presentation has the payment now
split between the two lines, no impact in the overall "Cash flow from
financing activities".
Due to the above: "Operating cashflows before movement in working capital"
restated from (£197k) to (£647k). "Cash generated by operations" restated
from £1,572k to £1,300k. "Net cash from operating activities" restated from
£1,575k to £1,303k. "Net cash used in investing activities" restated from
(£801k) to (£529k).
Notes to the condensed consolidated financial statements
For the half year ended 30 September 2021
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, 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 2021.
The comparative figures for the year ended 31 March 2021 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
comparative figures for the six months ended 30 September 2021 have been
restated, see note 14 for details.
The taxation charge for the six months ended 30 September 2021 is based on the
utilisation of accumulated tax losses.
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.
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
· Capitalisation of development costs
· Accounting for acquisitions
· Identification of cash generating units for goodwill impairment
testing
· Non-recurring administrative expenses
· Contingent cash pay-out
· Investments
Significant Financial Estimates
· Carrying value of goodwill
· Bad debt allowance
· Pensions
The condensed set of interim financial statements have been prepared on a
going concern basis and were approved by the Board on 16 November 2021.
2. Segmental information
Business segments
The Group considers that it has two operating business segments, Dods and
Merit Data & Technology.
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 Merit Data & Technology segment focuses on the fields of data
engineering, machine learning, and artificial intelligence.
The following table provides an analysis of the Group's segment revenue by
business segment.
Unaudited Unaudited Audited
Half year ended Half year ended Year ended
30 Sept 2021 £'000 30 Sept 2020 31 Mar 2021
£'000 £'000
Dods 7,227 5,210 14,394
Merit Data & Technology 5,111 5,017 10,296
12,338 10,227 24,690
No client accounted for more than 10 percent of total revenue.
Unaudited Unaudited Audited year ended
Group Revenue by stream Half year Half year ended 31 Mar 2021
ended 30 Sept 2020 £'000
30 Sept £'000
2021
£'000
Political Intelligence 3,431 3,425 6,839
Events 1,366 207 2,952
Training 864 437 1,616
Media 1,566 1,141 2,987
Industry Intelligence 1,597 1,922 3,586
Marketing Data 1,052 1,031 2,239
Software & Technology Resourcing 1,519 1,416 2,875
BPO 943 648 1,596
12,338 10,227 24,690
Unaudited Restated Audited year ended
Dods business segment profit before tax Half year Unaudited
ended Half year ended
30 Sept 2020 2021
30 Sept £'000 £'000
2021
£'000
Adjusted EBITDA 209 (893) 503
Depreciation of tangible fixed assets (205) (182) (392)
Depreciation of right-of-use assets (396) (368) (753)
Amortisation of intangible assets acquired through business combinations (176) (176) (351)
Amortisation of software intangible assets (114) (228) (488)
Non-recurring items
People-related costs (158) (415) (995)
Other non-recurring items (20) (35) (168)
Operating loss (860) (2,297) (2,644)
Net finance Cost (185) (191) (424)
Share of profit of associate - - 56
Loss before tax (1,045) (2,488) (3,012)
Restated: £272k has been restated within Non-recurring items to "people
related costs", previously was part of "Non-recurring acquisition costs and
professional fees". This has no impact on the prior results and is only a
reclassification. Previously "Non-recurring acquisition costs and professional
fees" was £272k and "people related costs" was £143k.
Unaudited Dods Unaudited Audited year ended 2021
Merit business segment profit before tax Half year ended Half year ended £'000
30 Sept 2021 £'000 30 Sept 2020
£'000
Adjusted EBITDA 1,042 696 1,494
Depreciation of tangible fixed assets (68) (115) (220)
Depreciation of right-of-use assets (264) (336) (577)
Amortisation of intangible assets acquired through business combinations (255) (250) (511)
Amortisation of software intangible assets (70) - -
Non-recurring items
Non-recurring acquisition costs and professional fees - - -
People-related costs - - -
Other non-recurring items - - (42)
Operating profit/(loss) 385 (5) 144
Net finance Cost 14 (109) (245)
Share of profit of associate - - -
Profit/(loss) before tax 399 (114) (101)
Total loss from both segments for H1 2022 equal to £646k which is equal to
the total Group's loss before tax as shown in the income statement.
3. Other operating income
During the period the Group participated in the UK Government's Coronavirus
Job Retention Scheme (CJRS) for its London and Edinburgh based employees.
The Group has accounted for this scheme using the accrual model; all amounts
received are recognised as Other Income in the Condensed Consolidated Income
Statement. There are no unfulfilled conditions and other contingencies
attaching to the government assistance.
The number of employees who were put on the CJRS varied from month to month up
to a maximum of 10. Total amount received during the period was £41,000 (H1
2021: 69 employees and £500,000).
In August 2021 the Group also received a grant from the Scottish Government.
The grant was issued by the Pivotal Event Businesses Fund (the Issuer) and was
for £2,500 (H1 2021: £nil).
Again, the Group has accounted for this scheme using the accrual model; all
amounts received are recognised as Other Income in the Consolidated Income
Statement.
4. Non-recurring items
Unaudited Restated Unaudited Audited
Half year ended Half year ended Year ended
30 Sept 2021 30 Sept 2020 31 Mar 2021
£'000 £'000 £'000
People-related costs 158 415 995
Other
- Professional services and consultancy 20 - 85
- Other - 35 125
178 450 1,205
Restated: £272k has been restated within Non-recurring items to "people
related costs", previously was part of "Non-recurring acquisition costs and
professional fees" which is now £nil. Previously "Non-recurring acquisition
costs and professional fees" was £272k and "people related costs" was £143k.
5. Earnings per share
Unaudited Unaudited Audited
Half year ended Half year ended Year ended
30 Sept 2021 30 Sept 2020 31 Mar 2021
£'000 £'000 £'000
Loss attributable to shareholders (646) (2,599) (2,724)
Add: non-recurring items 178 450 1,205
Add: amortisation of intangible assets acquired through business combinations 431 426 862
Add: net exchange (gains) / losses [included within net finance costs] (32) (12) 68
Add: share-based payment expense - 10 27
Adjusted post-tax profit / (loss) attributable to shareholders (69) (1,725) (562)
Unaudited Restated Unaudited Restated
Half year ended Half year ended Year ended
30 Sept 2021 30 Sept 2020 31 Mar 2021
Ordinary shares Ordinary shares Ordinary shares
Weighted average number of shares
In issue during the period - basic 20,788,375 20,170,945 20,512,125
Adjustment for share options 55,786 59,358 57,870
In issue during the period - diluted 20,844,161 20,230,303 20,569,995
Unaudited Restated Unaudited Restated
Half year ended Half year ended Year ended
30 Sept 2021 30 Sept 2020 31 Mar 2021
Pence per share Pence per share Pence per share
Earnings per share - continuing operations
Basic (3.10) (12.88) (13.28)
Diluted (3.10) (12.88) (13.28)
Adjusted earnings per share - continuing operations
Basic (0.33) (8.55) (2.74)
Diluted (0.33) (8.55) (2.74)
Prior periods have been restated per IAS 33 due to share consolidation and
subdivision and ordinary shares of 1p were consolidated and subdivided
reducing the number of shares by a factor of 28 and increasing the value of
the shares to 28p
6. Goodwill
Unaudited Unaudited Audited
Half year ended Half year ended Year ended
30 Sept 2021 30 Sept 2020 31 Mar 2021
£'000 £'000 £'000
Cost and net book value
Opening balance 28,911 28,911 28,911
Reclass to intangibles - (66) -
Closing balance 28,911 28,845 28,911
7. Intangible assets
Under Construction Capitalised Costs
Assets acquired through business combinations
Software Total
£'000 £'000 £'000 £'000
Cost
At 1 April 2020 28,042 3,715 1,304 33,061
Additions - internally generated - 200 316 516
Additions - other - 45 - 45
Reclass to Software - 874 (874) -
746
At 31 March 2021 28,042 4,834 33,622
Reclass to PPE - - (44) (44)
Additions - internally generated - 22 546 568
At 30 September 2021 28,042 4,856 1,248 34,146
Accumulated amortisation
At 1 April 2020 18,421 3,402 - 21,823
Charge for the year 862 488 - 1,350
19,283 3,890 - 23,173
At 31 March 2021
Charge for the period 431 184 - 615
At 30 September 2021 19,714 4,074 - 23,788
Net book value
1,304
At 31 March 2020 - audited 9,621 313 11,238
746
At 31 March 2021 - audited 8,759 944 10,449
At 30 September 2021 - unaudited 8,328 782 1,248 10,358
8. Property, plant and equipment
Equipment and Fixtures and Fittings
Leasehold Improvements Total
£'000 £'000 £'000
Cost
At 1 April 2020 2,025 1,714 3,739
Additions 12 650 662
Disposals - (109) (109)
At 31 March 2021 2,037 2,255 4,292
Additions - 127 127
Reclass from Intangible - 44 44
At 30 September 2021 2,037 2,426 4,463
Accumulated depreciation
At 1 April 2020
692 913 1,605
Charge for the year 226 386 612
Disposals - (109) (109)
At 31 March 2021 918 1,190 2,108
Charge for the period 105 168 273
At 30 September 2021 1,023 1,358 2,381
Net book value
At 31 March 2020 - audited 1,333 801 2,134
At 31 March 2021 - audited 1,119 1,065 2,184
At 30 September 2021 - unaudited 1,014 1,068 2,082
9. Interest-bearing loans and borrowings
On the 30 June 2021 the Group agreed revised facilities with Barclays Bank
which included:
· Term Loan: reduced payments in the current year with offsetting
increases in subsequent years although no increase in overall duration of the
loan; a change in pricing from 3.25% above LIBOR to 3.75% above the Bank of
England interest rate;
· RCF: a change in pricing, effective January 2022; from 3.50% above
LIBOR to 4.00% above the Bank of England interest rate;
· Covenants: revised leverage and debt service covenants with effect
from 1 April 2021 for the balance of the facility (June 2024);
· Cash: the requirement to maintain a minimum cash balance, across the
Group, of £0.5m.
In the 12 month period from the balance sheet date capital repayments of
£2.5m is due be repaid to the bank with the remaining £2.0m due in
subsequent periods.
During the period, the Group maintained a term loan of £3m (H1 2021: £3m),
over a 5-year period carrying a rate of 3.75% over Bank of England interest
rate. The balance outstanding on the term loan at 30 June 2021 is £2.6m.
In addition, the Group has accessed a credit facility (RCF) of £2.0m carrying
a rate of 4.0% above the Bank of England rate. The current balance outstanding
on the RCF is £2.0m.
In total the Group has a £2.0m RCF liability and £2.6m term loan liability
at the balance sheet date.
10. Share Capital
9p* deferred shares 28p* ordinary shares Total
Number Number £'000
Issued share capital as at 1 April 2021 151,998,453 582,071,380 19,501
Share consolidation & subdivision* - (561,283,005) -
Cancellation of deferred shares (151,998,453) - 13,680
Issued share capital as at 30 Sept 2021 - 20,788,375 5,821
*Deferred shares of 9p were cancelled and ordinary shares of 1p were
consolidated and subdivided reducing the number of shares by a factor of 28
and increasing the value of the shares to 28p.
11. Related party transactions
During the period, the Group received a repayment of £140,000 (H1 2021:
£nil) on its interest free loan to its associate Sans Frontieres Associates
(SFA). At 30 September 2021 the balance of this loan was £420,000 (H1 2021:
£560,000).
During the period, an amount of £55,166 (H1 2021: £29,753) was payable to an
associate, Social 360 Limited, in relation to profit-share for monitoring
services provided. At 30 September 2021, £55,166 (H1 2021: £nil) 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. Con Conlon, a director
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 £305,000 (H1 2021: £339,000) were made to Merit Software Systems
Private Limited in relation to the lease.
In addition, Con Conlon was paid £220,000 due to his continued employment,
post-acquisition (see note 12).
12. Contingent Liabilities
Upon the acquisition of Meritgroup Limited the Company became obligated, under
certain conditions, to make payments to two employees. In the period £272,000
was paid.
A further payment of £272,000 could become due in July 2022 contingent upon
their continued employment.
13. Subsequent events
On 1 October 2021 the Company issued 1,675,749 ordinary shares related to the
acquisition of Merit. The Company issued 854,732 ordinary shares of the
1,675,749, to Con Conlon, Managing Director of the Merit Data & Technology
division.
On 1 October 2021 the Company issued 1,492,000 ordinary shares related to
capital fundraising for the company raising £931,000.
The shares were issued on the 1 October 2021 at 62.4pence per share, bringing
the total issued share capital of the Group to 23,956,124.
14. Restatements
The flowing restatements have been made to H1 2021 throughout the interim
accounts and have been disclosed throughout, for ease of use all the
restatement have been listed below:
Condensed consolidated income statement:
· £500k of other operating income has been reclassed from
"Administrative expenses" and shown separately in "Other operating income" to
bring into conformity with the FY21 Annual report, the £500k relates to the
UK Governments Coronavirus Job Retention scheme. This had no impact on the
prior results and is only a reclassification. Previously "Administrative
expenses" was stated as £3,373k and "Other operating income" as £nil.
· £272k has been restated within Non-recurring items to "people
related costs", previously was part of "Non-recurring acquisition costs and
professional fees". This had no impact on the prior results and is only a
reclassification. Previously "Non-recurring acquisition costs and professional
fees" was £272k and "people related costs" was £143k.
Condensed consolidated statement of financial position:
· "Trade and other payables" from £12,633k to £12,495k due to the
separate disclosure of the "Pension obligation", the difference of £138k is
now shown as a separate line item "Pension obligation" of £54k in "Current
liabilities" and £84k in "Non-current liabilities". Previously "Pension
obligation" was not separately disclosed.
· Upon the acquisition of Meritgroup Limited the Company became
obligated, under certain conditions, to make payments to two employees, these
were originally recorded in "Deferred consideration" and "Trade and other
receivables" effectively grossing up the balance sheet assets and liabilities,
however subsequently it was decided this is not the correct treatment as these
are contingent liabilities. "Deferred consideration" of £272k has been
removed from both "Current liabilities" and "Non-current Liabilities"
restating the balance from £1,318k to £1,046k and £272k to £nil
respectively. "Trade and other receivables" have also been reduced by £544k
from £6,088k to £5,544k.
Due to the above restatements the balances of "Current assets" have changed
from £6,088k to £5,544k, "Total assets" from £61,050k to £60,506k.
"Current liabilities" has changed from £16,323k to £15,967k and "Non-current
liabilities" from £10,405k to £10,217k, Total equity and liabilities from
£61,050k to £60,506k.
Condensed consolidated statement of cash flows:
· "Non-recurring acquisition costs and professional fees" from £450k
to £nil in "Cash flows from operating activities", and from (£272k) to £nil
in "Cash flows from Investment activities" as these should not have been
included in the condensed consolidated statement of cashflows. Restatement of
"Change in trade and other payables" from £210k to £388k. As a result of the
restatements the line items of "Non-recurring acquisition costs and
professional fees" have been removed from presentation.
· Restatement of "Payment of lease liabilities" previously (£756k) and
"Payment of lease Interest" previously £nil, the new presentation has the
payment now split between the two lines, no impact in the overall "Cash flow
from financing activities".
Due to the above: "Operating cashflows before movement in working capital"
restated from (£197k) to (£647k). "Cash generated by operations" restated
from £1,572k to £1,300k. "Net cash from operating activities" restated from
£1,575k to £1,303k. "Net cash used in investing activities" restated from
(£801k) to (£529k).
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