BUSINESS AND OPERATIONAL REVIEW

Whilst trading of the Dods Political Intelligence business continues to perform in line with management's expectations, the revenues of MD&T in the period have fallen by 8.5% year-on-year, as projects within the Data Technology division have reached their conclusion and conversion of the sales pipeline for new work has fallen short of expectations with both macro and local factors impacting prospects' willingness to commit to scale IT projects.

Group Revenue therefore decreased by 6.1% compared to H1 FY24, with Dods Political Intelligence revenues of £3.5m in line with the £3.5m reported in H1 FY24 and MD&T revenues of £5.8m falling 8.5% compared to the £6.4m reported in H1 FY24.

The reduction in revenue is mirrored by a £0.7m reduction in Gross profit, as the investments in product, sales and marketing have offset the natural reduction in costs to serve.  Gross profit margin has therefore reduced by four percentage points from 48% in H1 FY24 to 44% in the current period.

Administration costs have been tightly controlled in the period and are down 7.7% compared to H1 FY24, despite inflationary cost pressures in both the UK and India. £0.1m of Other Operating Income was recognised in the period, primarily relating to R&D tax credits, which helped to offset the £0.3m reduction in Other Operating Income derived from transitional services provided to the previously disposed MET operations during the comparative period.

The lower group revenue performance, combined with the above mentioned investments and cost movements has driven a reduction in Adjusted EBITDA - down 32.1% from £1.8m in H1 FY24 to £1.2m in the current period.

Merit Data & Technology

The Merit Data & Technology (Merit D&T) business provides a range of data and intelligence products and services, as well as data technology solutions.

For data & intelligence, the business has a long-standing customer base that provide the business with high levels of recurring revenue. Revenues of £3.3m in the period from these activities were relatively stable (down 4% on the £3.4m reported in H1 FY24).  Within Data Technology, projects are shorter in nature and typically have a scheduled project-end or reduced level of activity after the core technology-build phase.  As a consequence, revenues are less recurring in nature.  Having achieved significant growth in these revenues last year, adding some £1.2 million of Data Technology revenues in FY24, it is disappointing to report a 13.6% decline to £2.6m in the period (H1 F24: £3.0m) as a consequence of not winning and onboarding sufficient opportunities to replace the completed projects.

Revenue and gross profit shortfalls, have resulted in an Adjusted EBIDTA for MD&T of £0.6m

in the period, down 51% compared to H1 FY24.

Despite the pressure on revenues, we have retained our focus on pursuing long-term growth and continue to operate with an increased level of sales & marketing resources compared to prior periods.  We have recruited a dedicated technology sales team who have proven experience in technology solutions.  We have secured new clients in the period including Diversified Communications, With Intelligence, Hyve, Honch and TMT Finance.

In addition, we continued to invest in our capabilities, including having developed and launched a new AI-led, marketing data collection platform which allows us to serve our marketing data clients faster, with more accurate data and at a competitive price point. We continue to make similar developments in our data-scraping and data-collecting technologies including the development of a Knowledge Agent platform, which uses multiple AI models to enable users to extract data points form reports, diagrams, correspondence, web sites and PDFs.

Dods Political Intelligence

Dods Political Intelligence (Dods) is a provider of mission critical UK and European policy and political data and intelligence to over 700 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 public, private and not-for-profit sectors.

In the first half of the year, Dods revenue declined by 1.8% to £3.5m.  Whilst the period included some short-term revenues from Election Package products, the elections in both Westminster and Brussels provide a degree of disruption to the renewal of clients' subscriptions as a result of their being a moratorium on new policy statements by both parliaments during this time. With new Parliaments now elected in Europe and the UK, we expect a busier period in the rest of the year.

Dods reported Adjusted EBITDA of £1.1m, in line with the £1.1m in the same period last year, despite a reduction in Other Operating Income derived from the provision of transitional services to the businesses that were disposed of in November 2022. Those transitional services arrangements (reported as Other Operating Income, not Revenue) largely came to an end in FY24. On an underlying basis, excluding the other operating income and associated costs, the first half margin was 27% compared to 25% in H1 FY24.

In April, we launched a three year growth plan for Dods, the 'Strategy for Growth', underpinned by new customer research and investment in further product and service improvements, with the first significant success being the launch of a new integrated Dods People platform, providing extensive and unrivalled coverage of the Westminster and Brussels political and public affairs communities within our core Political Intelligence Platform. We also completed the recruitment of our expanded Dods sales & marketing team with a Brussels-based marketing manager and additional new business sales resource.

Central

Central costs continue to be closely managed and were reduced by 14% year-on-year to £0.4m in the first half, driven in part by the restructuring of the Board roles in January 2024.

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 and the recent fall in revenue, the underlying market demand for data and data-related technology is forecast to continue to grow in the coming years and the Board believes that MD&T is well positioned to benefit from this structural market growth. The Board has taken steps to strengthen sales and marketing capabilities across the Group and expects to see growth in the sales pipeline and an improvement in prospect conversion over the next 18 months. The Board is confident of delivering performance in line with the guidance provided in our October 2024 Trading Update; returning revenue to growth in the year to 31 March 2026; and, given the Company's strong operational gearing, expects to then report a strong return to profitability.

FINANCIAL REVIEW    

Income Statement

The Group's revenue decreased by 6.1% to £9.3m (H1 FY24: £9.9m).

Revenues from Merit Data and Technology (MD&T) were £0.5m lower than the equivalent prior half year (H1 FY25: £5.8m compared to H1 FY24: £6.4m), representing a decrease of 8%. Dods revenues for the period decreased by 2% to £3.5m (H1 FY24: £3.5m). 

Gross profit for the period decreased to £4.1m compared to the prior period (H1 FY24: £4.7m). Gross margin decreased from 48% to 44%, driven by the Group's reduced revenue and the impact of its operational gearing.

Adjusted EBITDA decreased by £0.6m to £1.2m (H1 FY24: £1.8m) due to the fall in revenue, operational gearing, and a reduction of £0.2m in the contribution form transitional services provided to the disposed MET business during the period.

The reduction in operating profit, from £0.9m in H1 FY24 to an operating profit of £0.2m in the current period, reflects the £0.7m period-on-period reduction in Gross Profit, together with the reduction in other operating income relating mainly to the transitional services (see Note 12), offset by a £0.2m saving in Administrative expenses.  The Group's operating profit is stated after non-cash depreciation and amortisation charges of £1.0m (H1 FY24: £0.9m).

The net finance expense for the year of £0.5m compares to £0.3m in H1 FY24, reflecting a £0.3m adverse movement in the mark-to-market valuation of forward currency swaps, with the INR/GBP rate increasing to 112 Indian Rupees to the pound at 30 September 2024.

The loss for the year from Continuing Operations, after a tax charge of £0.1m (H1 FY24: £0.2m), amounted to £0.3m (H1 FY24: profit of £0.4m).

Earnings and Dividends

Earnings per share (basic and diluted) from Continuing Operations in the period were a loss of 1.27 pence (H1 FY24: earnings of 1.47 pence, basic and diluted) and were based on the loss for the period of £0.3m (H1 FY24: profit of £0.4m) 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 1.08 pence (H1 FY24: 3.16 pence) and were based on the adjusted profit after tax for the period of £0.3m (H1 FY24: £0.8m).

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 FY24: £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 £36.9m (31 March 2024: £37.3m) comprise goodwill of £26.9m (31 March 2024: £26.9m), intangible assets of £7.2m (31 March 2024: £7.3m), property, plant and equipment of £0.6m (31 March 2024: £0.6m), IFRS16 rights-of-use assets of £1.5m (31 March 2024: £1.9m), investments of £0.4m (31 March 2024: £0.4m) and deferred tax assets amounting to £0.3m (31 March 2024: £0.3m). Movements in the year reflect amortisation and depreciation charges in the period.

Current assets comprise Trade and other receivables of £3.8m (31 March 2024: £4.3m) and cash balances of £0.5m at the period end (31 March 2024: £0.8m).

Total assets of the Group were £41.2m (31 March 2024: £42.4m).

Liabilities

Current liabilities of £8.5m (31 March 2024: £8.8m) comprise Trade and other payables of £5.2m (31 March 2024: £5.7m), bank loans and borrowings of £2.4m (31 March 2024: £2.1m), IFRS16 lease liabilities of £0.8m (31 March 2024: £1.0m) and defined benefit pension liabilities of £0.1m (31 March 2024: £0.1m).

Non-current liabilities of £1.4m (31 March 2024: £1.7m) comprise bank loans and borrowings of £0.5m (31 March 2024: £0.6m), IFRS16 lease liabilities of £0.6m (31 March 2024: £0.9m) and defined benefit pension liabilities of £0.3m (31 March 2024: £0.3m).

Movements in the year primarily reflect the repayment of £0.5m of IFRS16 lease liabilities and the drawdown of £0.2m of bank loans and borrowings.

Capital and reserves

Total equity decreased by £0.6m to £31.3m (31 March 2024: £31.9m), reflecting the retained loss for the period of £0.3m and £0.3m of exchange differences on translation of foreign operations

Cash flows, liquidity and capital resources

Net cash generated by operations was an £0.7m inflow in the period by comparison to £0.8m in H1 FY24. After tax, net cash generated from operating activities amounted to £0.7m (H1 FY24: inflow of £0.7m).

Investing activities, primarily related to the addition of IT equipment and the internal development of software amounted to £0.5m in the period, compared to £0.2m in H1 FY24.

Total financing outflows were £0.4m in the period (H1 FY24; £1.4m) comprising capital repayments on leases (£0.5m) and repayment of scheduled term-loan payments (£0.7m), offset by a further £0.9m draw down on the RCF facilities.

Net debt amounted to £2.3m at the period end (31 March 2024: £1.9m).

At 30 September 2024, the Group had bank debt of £2.9m (31 March 2024: £2.6m) comprising amounts owed on term loans and amounts drawn on a revolving credit facility (RCF).

The Group had a term loan with £0.6m outstanding (31 March 2024: £0.7m) taken out in July 2022 over a five-year period, with interest at 3.5% over Bank of England interest rate. The £1.8m term loan taken out in March 2023 to part-fund disposal of the Shard lease, of which £0.6m was outstanding at 31 March 2024, had been fully repaid at the period end.

In addition, the Group had a £3.0m RCF facility available through to September 2027, of which £2.2m was drawn at the period end (31 March: £1.3m). Due to its revolving nature, this loan is all shown as due within one year.

Phil Machray

Chief Executive Officer & Chief Financial Officer

Merit Group plc