BUSINESS AND OPERATIONAL REVIEW

The Group had a very good first half and is benefitting from the restructuring of both its operations and cost base achieved in the prior year.  Despite challenging economic conditions, in the first half year the Group has delivered revenue growth and an increase in Adjusted EBITDA from Continuing Operations to £1.8m, compared to £1.1m in the prior year. Both operating divisions, Merit Data & Technology (Merit D&T) and Dods Political Intelligence (Dods) performed strongly.  

The revenue growth in both operating businesses combined with cost efficiencies has helped drive an Adjusted EBITDA margin improvement of six percentage points in Merit D&T and four percentage points in Dods.

The Group has returned to a Profit before tax of £0.5m in the half year (H1 FY23: loss before tax of £0.3m), a significant improvement driven in part by the reduction in depreciation of right-of-use assets following the successful disposal of the Group's excess London office space at the end of the previous financial year.

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, as well as data solutions to a loyal customer base. The business uses its proprietary technology and AI skills to gather and enhance industry intelligence and marketing data.

Merit D&T saw strong and accelerating revenue growth in the first half, up 13.3% to £6.4m from £5.6m in H1 FY23. Adjusted EBITDA of £1.2m in the first half benefitted from the recovery in the Sterling/INR exchange rate and compares to the £0.7m in the same period in the previous year.

The upgraded sales and marketing function within Merit D&T that was recruited and expanded in FY23 is helping to generate new customers and new revenue from existing customers across all areas of the business. The business secured new clients in Pythian, Media 42, Hyve and ION, and has also secured additional work from existing clients Jato, Lloyds List Intelligence and Wilmington amongst others.

With the increasing acceptance of AI tools as a driver of business efficiency Merit D&T is able to actively pursue new revenue opportunities from customers seeking to implement AI solutions.  The business is also using increasing amounts of AI within its own operations; reducing costs to make it even more price competitive and to continue to deliver margin improvements.

Dods Political Intelligence

Dods is a provider of mission critical UK and European policy and political data and intelligence to approximately 800 subscribers. Dods is the UK's industry leader with an enviable reputation for the comprehensiveness of its service and the quality of its analysis and consultancy. The business benefits from subscription revenues from a large, diverse and loyal subscriber base of blue-chip customers.

In the first half the Continuing Operations of Dods grew revenue by 2.7% to £3.5m and made Adjusted EBITDA of £1.1m against £0.9m in the same period last year. An adjusted EBITDA margin of 30.9% was flattered by the inclusion of Other Operating Income (not included in revenue) from the provision of transitional services to the businesses that were disposed of in November 2022. Those transitional services arrangements have largely come to an end and will therefore not recur in the second half, a normalised first half margin taking out the other operating income and associated costs would be circa 25%.

The increased focus on, and investment in, the Dods business to focus on growth commenced with the recruitment of a new Director of Sales and Marketing at the end of the first half. The newly restructured business now benefits from a three year growth plan underpinned by new customer research and investment in further product and service improvements. New customers in the period include Drax, Thakeham Homes, The Royal College of Surgeons and the German Animal Welfare Association.

Central

Central costs continue to be closely managed; despite some inflationary pressures in the costs of professional fees and insurance, central costs reduced by 8% year-on-year to £0.5m in the first half.

In contrast to prior years, the Group reports no non-recurring items in the period, reflecting the substantial completion of the Group's restructuring.

Outlook

Despite challenging economic conditions, the Group is accelerating its revenue growth whilst also increasing its margins. Both operating businesses are delivering improved results by working to detailed growth plans which, when combined with their high levels of subscription or recurring revenue, maximises their natural operational gearing.

The Group's deep technology skills and increasing use of AI to drive both new revenue opportunities and operational efficiencies gives the Board further confidence in the business' ability to build on the progress already achieved.

David Beck

CEO

Merit Group plc                                                          

FINANCIAL REVIEW    

On 30 November 2022, the Group completed the disposal of the Media, Events and Training operations of its Dods segment (together, the "MET Operations") for a cash consideration of £4.5 million to Political Holdings Limited.

On 12 January 2023, the Group completed the disposal of the trade and assets of Le Trombinoscope SAS, the Paris-based activities of the Dods segment ("Le Trombinoscope") to Trombimedia Limited for £0.1 million cash consideration.

As a consequence of the disposals, the activities of the MET Operations and Le Trombinoscope have been classified as Discontinued Operations within the Consolidated Income Statement and therefore excluded from the presentation of items on a Continuing Operations basis in prior periods to provide a like-for-like comparator.

Income Statement - Continuing Operations

The Group's revenue from Continuing Operations increased by 9.3% to £9.9m (H1 FY23: £9.1m).

Revenues from Merit Data and Technology (MD&T) were £0.8m higher than the equivalent prior half year (H1 FY24: £6.4m compared to H1 FY23: £5.6m), representing an increase of 13%. Dods revenues for the period increased by 3% to £3.5m (H1 FY23: £3.4m). 

Gross profit for the period increased to £4.7m compared to the prior period (H1 FY23: £4.3m). Gross margin increased from 47% to 48%, driven by the Group's improving revenue growth and operational gearing.

Adjusted EBITDA increased by £0.7m to £1.8m (H1 FY23: £1.1m) due to strong revenue growth, operational gearing, and the net £0.2m benefit of transitional services provided to the disposed MET business during the period.

The return to operating profit, from a loss of £0.6m in H1 FY23 to a profit of £0.9m, reflects the increase in Adjusted EBITDA, a reduction in depreciation following the disposal of the Shard lease in the prior year and the lack of non-recurring charges. The Group's operating profit is stated after a right-of-use assets charge of £0.4m (H1 FY23: £0.7m), an amortisation on acquired intangibles under business combinations of £0.3m (H1 FY23: £0.3m), a charge for intangible assets amortisation of £0.1m (H1 FY23: £0.2m) and a charge for depreciation of tangible assets of £0.1m (H1 FY23: £0.3m).

The net finance expense for the year of £0.3m compares to a net finance credit of £0.1m in H1 FY23, reflecting the increase in interest rates and the impact of foreign exchange hedging.

The profit for the year from Continuing Operations, after a tax charge of £0.2m (H1 FY23: £0.2m), amounted to £0.4m (H1 FY23: £0.4m loss).

Earnings and Dividends

Earnings per share (basic and diluted) from Continuing Operations in the period were 1.47 pence (H1 FY23: loss of 1.82 pence, basic and diluted) and were based on the profit for the period of £0.4m (H1 FY23: £0.4m loss) with a weighted average number of shares in issue during the period of 23,956,124.

Adjusted earnings per share, both basic and diluted, from Continuing Operations in the period were 3.16 pence (H1 FY23: loss of 0.49 pence) and were based on the adjusted profit after tax for the period of £0.8m (H1 FY23: loss of £0.1m).

Total Earnings per share, both basic and diluted, in the period were 1.47 pence (H1 FY23: loss of 4.17 pence) and were based on the profit after tax for the period of £0.4m (H1 FY23: loss of £1.0m).

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 FY23: £nil).

Going Concern

The Directors have considered the position and projections of the Group for the purpose of assessing Going Concern and remain satisfied with the Group's funding and liquidity position.

Statement of Financial Position

Assets

Non-current assets of £37.7m (31 March 2023: £37.7m) comprise goodwill of £26.9m (31 March 2023: £26.9m), intangible assets of £7.6m (31 March 2023: £7.9m), property, plant and equipment of £0.4m (31 March 2023: £0.3m), IFRS 16 rights-of-use assets of £2.2m (31 March 2023: £1.9m), investments of £0.5m (31 March 2023: £0.4m) and deferred tax assets amounting to £0.5m (31 March 2023: £0.5m). Movements in the year reflect amortisation and depreciation charges in the period offset by the addition of a new London premises lease (£0.7m).

Current assets comprise Trade and other receivables of £5.5m (31 March 2023: £5.5m) and cash balances.

The Group had a cash balance of £1.1m at the period end (31 March 2023: £2.1m), reduced as the group actively manages the level of RCF drawing to minimise interest costs. Net debt amounted to £2.5m at the period end (31 March 2023: £2.6m).

Total assets of the Group were £44.3m (31 March 2023: £45.3m).

Liabilities

Current liabilities of £9.7m (31 March 2023 £10.8m) comprise Trade and other payables of £6.1m (31 March 2023: £6.6m), bank loans and borrowings of £2.9m (31 March 2023: £3.4m), IFRS16 lease liabilities of £0.6m (31 March 2023: £0.7m) and defined benefit pension liabilities of £0.1m (31 March 2023: £0.1m).

Non-current liabilities of £2.5m (31 March 2023 £2.8m) comprise bank loans and borrowings of £0.6m (31 March 2023: £1.3m), IFRS16 lease liabilities of £1.6m (31 March 2023: £1.2m) and defined benefit pension liabilities of £0.3m (31 March 2023: £0.2m).

Movement in the year primarily reflect the repayment of £1.2m of bank loans and borrowings, the repayment of £0.5m of IFRS16 lease liabilities and the addition of £0.7m of IFRS16 lease liabilities in respect of the new London premises lease.

Capital and reserves

Total equity increased by £0.3m to £32.1m (31 March 2023: £31.8m), reflecting the retained profit for the period.

Cash flows, liquidity and capital resources

Net cash generated by operations was an £0.8m inflow in the period by comparison to an £0.0m in H1 FY23 (£0.6m from Continuing operations). After tax, net cash used in operating activities amounted to £0.7m (H1 FY23: outflow of £0.2m in total of which Continuing Operations generated £0.4m and Discontinued Operations used £0.6m).

Investing activities, primarily related to the addition of IT equipment, leasehold improvements within the new London premises and the internal development of software amounted to £0.2m in the period, compared to £0.2m in the prior period which was offset by £0.5m of proceeds from the disposal of Associates.

Total financing outflows were £1.4m in the period (H1 FY23; £0.5m) as the group significantly reduced gross bank debt.  This comprised £1.9m used in the servicing of bank debt and interest and capital repayments on leases, offset by the receipt of £0.5m in the period in respect of recoverable VAT paid on the disposal of the Shard lease in the prior period.

Net debt amounted to £2.5m at the period end (31 March 2023: £2.6m).

At 30 September 2023, the Group had bank debt of £3.5m (31 March 2023: £4.7m) comprising amounts owed on term loans and amounts drawn on a revolving credit facility (RCF).

The Group had a term loan with £0.8m outstanding (31 March 2023: £0.9m) taken out in July 2022 over a five-year period, with interest at 4.75% over Bank of England interest rate. A further £1.2m (31 March 2023: £1.8m) was outstanding on a £1.8m term loan taken out in March 2023 over an 18-month period, to part-fund disposal of the Shard lease. This loan has the same interest rates and covenants as the Group's existing term loan.

In addition, the Group had a £2.0m RCF facility available through to September 2027, of which £1.5m was drawn at the period end (31 March; £2.0m). Due to its revolving nature, this loan is all shown as due within one year.

Phil Machray

Chief Financial Officer