Condensed consolidated statement of cash flows

For the half year ended 30 September 2021

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.

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

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.

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

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

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

7.    Intangible assets

8.    Property, plant and equipment

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

*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).