SORTED GROUP HOLDINGS PLC

NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2024

1              General information

Sorted Group Holdings PLC and its subsidiary Location Sciences AI Limited (together the "Group") provide a Software as a Service (SaaS) Delivery Experience Platform (DEP) that powers dynamic checkouts, delivery management and tracking globally. Through partnerships with some of the biggest global carriers and customer-obsessed retailers, Sorted transforms the delivery experience into a delight, for everyone that touches it. Sorted provides mission critical software using an application programming interface (API) driven platform that enables fast and seamless integrations with retailers offering enhanced features.

The Company is a public limited company which is quoted on the AIM market of the London Stock Exchange and is incorporated and domiciled in England and Wales.

2              Basis of preparation

The financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the United Kingdom, International Financial Reporting Interpretations Committee ("IFRIC") interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The accounting policies adopted are consistent with those of the financial statements for the year ended 31 December 2023, as described in those financial statements.

The accounting resulting from the reverse acquisition (see notes 3 and 6) causes the comparative amounts to be restated such that the figures for the six-month period ended 30 June 2023, as well as the balance sheet as on 31 December 2023, represent those of Sorted Holdings Limited and subsidiaries (before the reverse acquisition). The results for the six-month period 30 June 2024, as well as the balance sheet as on 30 June 2024 is the same as the comparatives but also includes the balances of Sorted Group Holdings Plc and subsidiaries (before the reverse acquisition) as on 30 June 2024 and the results of the same from the acquisition date of 16 February 2024. The comparative results and balances, although largely extracted from audited results of Sorted Holdings Limited, have not been audited. The results and balances for the current period have not been subject to an audit.

The latest financial statements of Sorted Group Holdings Plc are those for the year ended 31 December 2023 and have been delivered to the Registrar of Companies and included an unqualified auditors' report and did not contain a statement under Section 498(2) or Section 498(3) Companies Act 2006. As described above, the current results are not comparable with this latest financial statements due to the reverse acquisition.

3               Going concern

This going concern note should be read in conjunction with the note for the year ended 31 December 2023, which detailed significant events and strategic initiatives for the Company.

On 30 January 2024, we announced and published an AIM admission document in connection with the Proposed Acquisition. The AIM admission document detailed, among other things, the proposed acquisition of SHL, a proposed subscription of 2,285,712 new ordinary shares at 87.50 pence per share to raise approximately £2.0 million, a proposed 625 to 1 share consolidation, a proposed change of name and AIM ticker symbol to Sorted Group Holdings PLC and SORT respectively, director appointments, a notice of general meeting, and the restoration of trading of the Company's existing ordinary shares on AIM. Terms were agreed for the acquisition of the entire issued and to be issued share capital of SHL for an aggregate nominal consideration of approximately £66.73 to be paid in cash at completion.

The Proposed Acquisition was attractive for several reasons, including:

·      Significant opportunity to leverage Sorted's technology and substantial capital investment (exceeding £70 million).

·      An attractive software-as-a-service ("SaaS") business model in the ecommerce sector with scalable, predictable revenue performance.

·      Diverse customer base of household retail brands and strong industry partnerships.

·      Global ecommerce market forecast to grow significantly.

·      Highly fragmented market.

·      UK-based business with over 60 employees.

On 25 January 2024, we announced that the Company had entered into an unsecured term loan facility agreement with Bidco 3 Limited (the "Lender" or "Bidco 3") for a total principal amount of up to £3.0 million (the "Facility"). Bidco 3 is a special purpose holding company focused on making strategic investments. The Directors believe that the Group has adequate resources and will not need to draw on this loan to continue in operational existence for the foreseeable future.

On 16 February 2024, all resolutions were duly passed at a general meeting of the Company. The proposals set out in the AIM admission document were completed on 19 February 2024 with the enlarged group successfully admitting to AIM on the same day ("Admission"). As part of this, Carmen Carey was appointed as Chief Executive Officer, Mahmoud Warriah as Chief Financial Officer, and Petar Cvetkovic as Non-Executive Director. To reflect the Company's new name, the website changed to www.sorted.com on Admission.

On 30 April 2024, SGH plc announced that it had received approximately £2.0 million in research and development ("R&D") tax credits from His Majesty's Revenue & Customs ("HMRC"). The R&D Tax Credit relates to Sorted Group Limited's claim made to HMRC in respect of the financial year ended 30 September 2022. The R&D Tax Credit has been directly applied towards reducing the Group's pay as you earn ("PAYE") and value added tax ("VAT") liabilities for the financial year ended 31 December 2023 and up to 29 February 2024.

On 28 May 2024, it was announced that Carmen Carey stepped down as Chief Executive Officer ("CEO") and Executive Director of the Group with immediate effect and will continue to support Sorted during a three-month notice period.

During this period, we undertook significant restructuring efforts to align the business with its strategic goals and ensure long-term sustainability, which are outlined as follows:

·      Employee Headcount Reduction: The headcount was reduced from 66 to 51, eliminating an expensive corporate layer that is no longer required for the business. This enabled the Board to promote the next level of high-end talent to form the new senior management team.

·      Cost Reduction: We have reduced back-office costs related to legal, HR, and finance functions, enabling management to reallocate resources towards front-office functions, specifically software engineering and sales. This is anticipated to lead to a total people cost reduction of approximately £1.2 million on an annualised basis.

·      Property Costs: We have reorganised our offices, closing the London office and resizing the Manchester office to be more fit for purpose. This is expected to deliver an annualised six-figure saving.

·      Operational Efficiencies: We are introducing efficiencies to run the Sorted platform more cost-effectively. Our second largest cost, outside of personnel, is our IT infrastructure, which we will focus on reducing in the second half of the financial year ending 31 December 2024 ("FY24").

These strategic actions have been taken to streamline operations, reduce costs, and position the Company for future growth. The Directors have prepared detailed cash flow forecasts and have considered various scenarios, including the potential impacts of market conditions and the restructuring efforts.

The Directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements for the period from 1 July 2024 to 30 June 2025.

4               Loss per share

The calculation of basic loss per share of 51.2p (June 2023: 155.6p) is based on loss after taxation and the weighted average number of ordinary shares in issue during the period. The weighted average number of shares for 30 June 2023 retrospectively includes the impact of the share consolidation (see note 6).

5              Segmental analysis

Operating segments are based on internal reports about components of the Company, which are regularly reviewed and used by the Board of Directors being the Chief Operating Decision Maker ("CODM") for strategic decision making and resource allocation, in order to allocate resources to the segment and to assess its performance.

The segmental analysis has been restated due to the reverse acquisition (refer note 7). The comparative period is represented by two reportable segments - 'Corporate & Enterprise' and 'Return & Reverse Logistics'. With the reverse acquisition on 16 February 2024, the additional reportable segment, 'Verify', was added.

Verify provides location verification services, utilising sophisticated machine learning and pattern recognition technologies Verify detects location ad-fraud and checks the accuracy and quality of location signals used to improve the performance of digital advertising. The Verify business was gradually scaled down beginning on February 16th, with operations progressively reduced until its full closure in June 2024. This strategic move was made to concentrate resources and focus on the Sorted Corporate and Enterprise business.

The corporate & enterprise segments provides a software as a service platform, the Delivery Experience Platform, that powers dynamic checkouts, delivery management and tracking globally. The segment remains stable with a successful renewal of a major client and a consistently low churn rate. This revenue stream continues to be our primary focus.

The return & reverse logistics segment provides software as a service platform that enables retailers of all sizes to automate their return processes and access competitively priced carrier return rates. We continue to develop the business, focusing on organic growth.

It should be noted that a segmental analysis of the Consolidated Statement of Financial Position is not part of routine management reporting and, consequently, no segmental analysis of assets is shown here.

An analysis of operating revenue is as follows:

An analysis of EBITDA is as follows:

An analysis of profit or loss before tax is as follows:

6              Share capital

Share issue

Share consolidation and issue

Following an announcement on 28 June 2023 where the Company entered into an exclusive non-binding heads of terms for a potential acquisition of the entire issued share capital of Sorted Holdings Limited (the "Proposed Acquisition"), we published an AIM admission document on 30 January 2024. This document detailed the proposed acquisition of SHL, a proposed subscription of 2,285,712 new ordinary shares at 87.50 pence per new ordinary share to raise approximately £2.0 million, a proposed 625 to 1 share consolidation, a proposed change of name and AIM ticker symbol to Sorted Group Holdings PLC and SORT respectively, director appointments, a notice of general meeting, and the restoration of trading of the Company's existing ordinary shares on AIM. Terms were agreed for the acquisition of the entire issued and to be issued share capital of SHL for an aggregate nominal consideration of approximately £66.73 to be paid in cash at completion which was subsequently paid in full.

Share rights

Ordinary shares have attached to them full voting, dividend and capital distribution (including on winding up) rights; they do not confer any rights of redemption.

Deferred shares have attached to them no voting, dividend or capital distribution (including on winding up) rights; they do not confer any rights of redemption.

Warrants in Issue

1)   Promoter Warrants - non-transferable warrants to subscribe for up to 2,400,000 Ordinary Shares, exercisable at £1.25 for five years from 25 May 2021, were issued to certain members of the Concert Party in consideration of those persons assembling and co-ordinating the Concert Party's investment in the Company in May 2021 and facilitating the appointment of Simon Wilkinson as Non-Executive Chairman.

2)  Cornerstone Investor Warrants - non-transferable warrants to subscribe for up to 400,000 Ordinary Shares, exercisable at £1.25 for five years from 25 May 2021, were issued to the Cornerstone Investors of the May 2021 placing.

3) Broker Warrants - transferable warrants to subscribe for up to 160,000 Ordinary Shares, exercisable at £1.25 for five years from 25 May 2021 were issued as shown below.

4)  Director Warrants - non-transferable warrants to subscribe for, in aggregate, 192,000 Ordinary Shares were issued to the Executive Directors and the Non-Executive Directors, exercisable at £1.25 for five years from 21 May 2021, provided that the Ordinary Shares have traded at a Volume Weighted Average Price (VWAP) at or above 0.30p for 20 consecutive Business Days, or on a change of control of the Company.

7              Reverse acquisition

On 16 February 2024, Sorted Group Holdings Plc acquired all the outstanding share capital in Sorted Holdings Limited (refer to note 3). The acquisition was one whereby a nominal value of £66,73 was paid in cash to acquire the outstanding share capital of Sorted Holdings Limited. Consequentially, new directors were appointed, being directors and key management personnel from Sorted Holdings Limited.

Consistent with the AIM Rules classifying this transaction as a reverse takeover, management assessed and concluded that the acquisition is, in substance, a reverse acquisition in accordance with the principles in IFRS 3. However, given that Sorted Group Holdings Plc and subsidiaries (before the acquisition) do not meet the definition of a business in accordance with IFRS 3, the reverse acquisition is rather accounted for by analogy to the reverse acquisition accounting principles in IFRS 3 and the principles in IFRS 2 (as generally acceptable accounting principles exist).

As a result, the acquisition is accounted for such that Sorted Holdings Liming is identified as the acquirer and the net assets of Sorted Group Holdings Plc and subsidiaries (before the acquisition) deemed acquired. The consideration for the reverse acquisition is measured at the fair value of the cash transferred and the deemed consideration of the loan previously granted to Sorted Holdings Limited, which remains outstanding on 16 February 2024.

Accordingly, the resulting balances and transactions for the periods prior to 16 February 2024 are those of Sorted Holdings Limited and subsidiaries (before the acquisition).

The consideration transferred is as follows:

The allocation of the consideration transferred to the net assets acquired by Sorted Holdings Limited is as follows:

8              Availability of half year report

Copies of the half-year report are available on request from the Company's registered office at Level 6 111 Piccadilly, Manchester, England, M1 2HY and can also be viewed at:

https://www.sorted.com

For further information please contact:

Sorted Group Holdings plc                                                                                                   Tel: +44 (0)3300 555 284

Simon Wilkinson, Chairman

Allenby Capital Limited (Nominated Adviser)                                                                  Tel: +44 (0)20 3328 5656

David Hart

Vivek Bhardwaj

Turner Pope Investments (TPI) Ltd (Broker)                                                                   Tel: +44 (0)20 3657 0050

James Pope

Andy Thacker

About Sorted

Sorted's Delivery Experience supports retailers in providing exceptional delivery experiences and analysing post-purchase performance. It enables customers to track deliveries and returns or exchange of parcels with ease.

Founded more than a decade ago, Sorted is trusted by leading retailers - such as Asda, ASOS and M&S - to make customer purchase experiences a differentiator.

www.sorted.com

@SortedOfficial

Media contact - Shaun Weston - shaun.weston@sorted.com