Merchant House Group plc : Final Results - Replacement

The following amendments have been made to the 'Final results for the year ended 31 December 2011' announcement released on 28/09/2012 at 16:52 under RNS No 5156N.

Under the note entitled "(Loss)/earnings per share" a table has been inserted before the first paragraph and after the second paragraph.

All other details remain unchanged.

The full amended text is shown below.

Merchant House Group PLC (the "Company" or the "Group")

Final results for the year ended 31 December 2011

Chairman's Statement

Revenues have continued to increase, up 258% to £7,696,000 (2010: £2,151,000).  Although a loss of £5,613,000 was incurred, this was after a number of significant one-off charges and costs as detailed in the financial statements. Net debt was £1,291,000 compared to £419,000 at December 2010. Importantly, we have since the year end secured the support of investors who, with the board, see exciting prospects in the businesses going forward.

Investments

Shareholders are aware of the purchase of assets of the Clarkson Hill Group (in administration) in December 2010 by Merchant House Financial Services Limited ('MHFS'), our Independent Financial Advisor business.  This came with a pipeline receivable of £2,710,000 which was recognised in the December 2010 accounts and reported last year, although these monies were received during 2011.  Furthermore, during the year under review, MHFS incurred a loss of £2,447,000 before a subsidy from Merchant House Group. This loss is largely the result of the costs related to the complex process of arranging for the authorisation of the new advisors, during which, they were unable to operate and write business. For most advisers, this lasted until March or April 2011, and for some until May and even June 2011.  There was also a considerable one-off investment in training, compliance and additional support required at the time.  Had the business operated during that period, much of the loss could have been mitigated. For example, during the first three months of 2011, the average gross income for MHFS was £20,000 whilst in June 2011, after all advisors had been authorised, income was £740,000.  During this time, a team of some 120 advisors and the staff were not earning fees and had to be supported by additional and exceptional expense by MHFS and the Group.  As shareholders can see, this amount accounts for a considerable proportion of the Group loss for the year being reported.  However, following a year of restructuring and investment, the directors view this business with more confidence.

2011 also saw investment in new teams:   PYXMarkets, the new binary options trading business, a new foreign exchange trading business and additional senior marketing staff for the existing structured products business.

Growth

There has been considerable growth in the principal businesses during the year under review.  Sales of structured products grew by 116% with gross sales of £22,862,000 (2010: £10,540,000).  MHFS increased client numbers by 36% or 11,000 (to a total of 42,000) and assets under influence by 30% or some £100m.

Assets under management in the asset management business grew by 25% from around US$36.2m to almost US$45.3m.

Current trading

2012 has seen revenues continue to rise, and new funding has been secured.  The second tranche subscription of loan notes by Beia Capital Limited has been completed and FSA approval has been received for the £400,000 placing of new ordinary shares with Beia Investment Partners LLP, as announced on 26 June 2012, which is expected to be completed in the next few weeks.  The Company is also in advanced discussions to secure further investment into the business, which may include a standby equity distribution agreement.

The interim results for the six months to 30 June 2102 are expected to be published  early next month and will provide shareholders with a full update on the period under review.  Accordingly, trading in the Company's ordinary shares on AIM will remain suspended pending release of the interim results.  

As has been the case for all companies in the last few years, the markets and environment remain challenging and cash flow is tight and is being monitored by the Directors which underscores the accomplishment of such growth for 2011 and for which I would like to thank the whole team.

J Holmes

Chairman

Consolidated income statement

For the year ended 31 December

	2011		2010
	£		£
Revenue	7,696,738		2,151,181
Cost of sales	(7,451,698)		(610,867)
Gross profit	245,040		1,540,314
Surplus of fair value over purchase cost	-		1,915,026
Sales and marketing expenses	(7,482)
Administrative expenses	(4,336,148)		(2,631,377)
Impairment of associate			-
Other operating income	146,792		116,481
Unrealised (loss)/gain on current asset investments	-		(4,463)
Disposal of non controlling interest	10,749		-
Impairment loss on investments	(500,000)		-
(Loss)/Profit from operations	(4,441,049)		935,981
Finance expense	(719,974)		(7,507)
Investment income	193,461		96,482
Share of loss of equity-accounted investees (net of tax)	(665,490)		665,490
(Loss)/Profit Before Taxation	(5,633,052)		1,690,446
Income tax expense	19,493		(80,756)
(Loss)/Profit for the financial period	(5,613,559)		1,609,690
Attributable to:
Owners of the Company	(5,547,545)		1,609,690
Non-controlling interests	(66,014)		-
	(5,613,559)		1,609,690
(Loss)/Profit per share (pence) including share of associates' results
Basic	(0.26p)		0.38p
Diluted	(0.16p)		0.07p
(Loss)/profit per share (pence) excluding share of associates' results
Basic	(0.23p)		0.22p
Diluted	(0.14p)		0.04p

Consolidated and Company statement of financial position

At 31 December

	Group		Company		Group		Company
	2011		2011		2010		2010
	£		£		£		£
ASSETS
Non-current Assets
Property, plant and equipment	13,429		13,429		17,230		17,230
Investment in group undertakings	-		650,000		665,490		641,001
Trade and other receivables	-		1,230,013		-		-
	13,429		1,893,442		682,720		658,231
Current Assets
Trade and other receivables	3,055,260		468,613		3,434,083		2,020,391
Cash and cash equivalents	141,801		16,368		309,376		4,160
Investments	2,847		2,847		502,847		2,847
Total current assets	3,199,908		487,828		4,246,306		2,027,398
TOTAL ASSETS	3,213,337		2,381,270		4,929,026		2,685,629
EQUITY AND LIABILITIES
Current Liabilities:
Loans and borrowings	661,646		156,385		185,200		185,200
Trade and other payables	3,897,496		2,296,143		2,933,425		1,872,586
	4,559,142		2,452,528		3,118,625		2,057,786
Non-current liabilities:
Loans and borrowings	199,866		78,928		123,957		123,957
Subordinated loan	100,000		-		100,000		-
	299,866		78,928		223,957		123,957
Equity and Reserves
Called up share capital	867,592		867,592		613,342		613,342
Shares to be issued	12,235		12,235		57,857		57,857
Convertible loan notes	471,572		471,572		293,043		293,043
Share premium	4,143,810		4,143,810		2,139,775		2,139,775
Retained Earnings	(7,065,118)		(5,645,395)		(1,517,573)		(2,600,131)
Equity attributable to equity holders of the parent	(1,569,909)		(150,186)		1,586,444		503,886
Non-controlling interest	(75,763)		-		-		-
Total Equity	(1,645,672)		(150,186)		1,586,444		503,886
TOTAL EQUITY AND LIABILITIES	3,213,336		2,381,270		4,929,026		2,685,629

Statement of changes in equity

Year ended 31 December 2011

	Attributable to owners of the Company
Group											Non- Controlling interest
	Convertible Loan Note		Share Capital		Share Premium		Retained earnings		Total				Total Equity
	£		£		£		£		£		£		£
Balance at 1 January 2010	18,682		542,350		1,031,924		(3,127,263)		(1,534,307)		-		(1,534,307)
Total Comprehensive Income for the year	-		-		-		1,609,690		1,609,690		-		1,609,690
Movement in equity	274,361		-		-		-		274,361		-		274,361
	274,361		-		-		1,609,690		1,884,051				1,884,051
Transactions with owners recorded directly in equity:
Share issue	-		70,992		719,015		-		790,007		-		790,007
Shares to be issued	-		57,857		388,836		-		446,693		-		446,693
	-		128,849		1,107,851		-		1,236,700		-		1,236,700
Balance at 31 December 2010	293,043		671,199		2,139,775		(1,517,573)		1,586,444		-		1,586,444
Disposal of non controlling interest	-		-		-		-		-		-		-
Total Comprehensive Income for the year	-		-		-		(5,547,545)		(5,547,545)		(66,014)		(5,613,559)
Movement in equity component of Loan Note	178,529		-		-		-		178,529		-		178,529
Pre-acquisition losses	-		-		-		-		-		(10,749)		(10,749)
	178,529		-		-		(5,547,545)		(5,369,016)		(76,763)		(5,445,779)
Transactions with owners recorded directly in equity:
Share Capital	-		-		-		-		-		1,000		1,000
Shares issued	-		208,628		2,004,035		-		2,212,663		-		2,212,663
	-		208,628		2,004,035		-		2,212,663		1,000		2,213,663
Balance at 31 December 2011	471,572		879,827		4,143,810		(7,065,118)		(1,569,909)		(75,763)		(1,645,672)

Company
	Convertible Loan Note		Share Capital		Share Premium		Retained Earnings		Total
	£		£		£		£		£
Balance at 1 January 2010	18,682		542,350		1,031,924		(3,146,907)		(1,553,951)
Total Comprehensive Income for the year	-		-		-		546,776		546,776
Movement in Equity	274,361		-		-		-		274,361
	274,361		-		-		546,776		821,137
Transactions with owners recorded directly in equity:
Share issue	-		70,992		719,015		-		790,007
Shares to be issued	-		57,857		388,836		-		446,693
	-		128,849		1,107,851		-		1,236,700
Balance at 31 December 2010	293,043		671,199		2,139,775		(2,600,131)		503,886
Total Comprehensive Income for the year	-		-		-		(3,045,264)		(3,045,264)
Movement in Equity	178,529		-		-		-		178,529
	178,529		-		-		(3,045,264)		(2,866,735)
Transactions with owners recorded directly in equity:
Share issue	-		208,628		2,004,035		-		2,212,663
Balance at 31 December 2010	471,572		879,827		4,143,810		(5,645,395)		(150,186)

Consolidated and Company cash flow statement

For the year ended 31 December

	2011				2010
	Group		Company		Group		Company
	£		£		£		£
Reconciliation of operating loss to net cash flow from operating activities
Operating (loss)/profit	(4,441,049)		(2,800,492)		935,981		554,282
Decrease/(Increase) in trade & other receivables	378,823		321,764		(3,122,639)		(1,995,002)
Increase in trade & other payables	990,113		449,599		1,239,464		285,035
Depreciation	8,239		8,239		5,414		5,414
Impairment of investment	500,000		-		-		-
Unrealised loss/(gain) on current asset investments	-		-		4,464		4,463
Disposal of non controlling interest	(10,749)		-		-		-
Tax repayable	19,493		-		-		-
Net cash (outflow)/inflow from operating activities	(2,555,130)		(2,020,889)		(937,316)		(1,145,808)
Investing Activities
Financial income	193,461		17,096		96,482		-
Sales of investments	1,000		1,000		-		-
Purchase of plant & equipment	(4,438)		(4,438)		(20,800)		(20,800)
Investment in subsidiary	-		(9,999)		-		-
Net cashflow from investing activities	190,023		3,659		75,682		(20,800)
Financing activities
Proceeds from share issue	2,212,663		2,212,663		790,008		790,008
Loan proceeds	1,391,247		275,000		417,000		417,000
Loans repaid	(518,862)		(28,815)		(59,800)		(59,800)
Loan notes converted to ordinary shares	(141,500)		(141,500)		-		-
Financial expense	(719,974)		(261,867)		(7,507)		(7,507)
Net cash inflow from financing activities	2,223,574		2,055,481		1,139,701		1,139,701
Increase/(decrease) in cash & cash equivalents	(141,533)		38,251		278,067		(26,907)

Reconciliation of net cash flow to movement in net debt
	2011				2010
	Group		Company		Group		Company
	£		£		£		£
Increase/(decrease) in cash in the period	(141,533)		38,250		278,067		(26,907)
Cash inflow from issue of loan note	(1,391,247)		(275,000)		(417,000)		(417,000)
Loan note repaid	518,862		28,815		59,800		59,800
Loan notes converted to ordinary shares	141,500		141,500		223,000		223,000
Movement in year	(872,418)		(66,435)		143,867		(161,107)
Net (debt) brought forward	(418,866)		(624,083)		(562,733)		(462,976)
Net (debt)  carried forward	(1,291,284)		(690,518)		(418,866)		(624,083)

Analysis of changes in cash and cash equivalents and net(debt)
Group	At 1 January 2011		Cashflows		Other non cash changes		At 31 December 2011
	£		£		£		£
Cash at bank and in hand	309,376		(167,575)		-		141,801
Bank overdraft	(26,042)		26,042		-		-
Cash and cash equivalents	283,334		(141,533)		-		141,801
Debt due within one year:
Secured loan notes	(160,200)		18,815		-		(141,385)
Unsecured loan notes	(442,000)		(265,000)		141,500		(565,500)
Other unsecured loans	(100,000)		(626,200)		-		(726,200)
Net debt	(418,866)		(1,013,918)		141,500		(1,291,284)

Company	At 1 January 2011		Cashflows		Other non cash changes		At 31 December 2011
	£		£		£		£
Cash at bank and in hand	4,160		12,208		-		16,368
Bank overdraft	(26,042)		26,042		-		-
Cash and cash equivalents	(21,882)		38,250		-		16,368
Debt due within one year:
Secured loan notes	(160,200)		18,815		-		(141,385)
Unsecured loan notes	(442,000)		(265,000)		-		(707,000)
Other unsecured loans	-		-		141,500		141,500
Net debt	(624,082)		(207,935)		141,500		(690,517)

Notes

The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 December 2011 or 2010, but is derived from those accounts.  Statutory accounts for 2010 have been delivered to the registrar of companies, and those for 2011 will be delivered in due course.  The auditors have reported on those accounts; their reports (i) were unqualified), (ii) except as noted below did not include a reference to any matters to which the auditors 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 audit report on the accounts for 2011 includes an Emphasis of Matter paragraph regarding the disclosures in the accounts about the ongoing applicability of the going concern basis in preparing those accounts. 

The financial statements include the following notes:

Going concern

The financial statements have been prepared on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business. In applying the going concern basis, the directors have considered the current financial position of the Group and Company, its trading prospects and the funding provided by Beia Capital Limited, an investor in the Company.  They have considered all of the above factors in relation to a period of at least the next 12 months. Taking all these factors into account, the directors have concluded that it remains appropriate to prepare the financial statements on a going concern basis. This indicates the existence of material uncertainty which may cast significant doubt about the company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the company was unable to continue as a going concern.

(Loss)/earnings per share

	2011	2010
(Loss)/Profit per share (pence) including share of associates' results
Basic	(0.26)p	0.38p
Diluted	(0.16)p	0.07p

The (loss)/profit per share has been calculated by dividing the loss for the year after taxation, including share of associates' losses of £665,490 (2010: profit of £665,490) attributable to the equity holders of the Company of £(5,547,545) (2010: £1,609,690) by the weighted average number of ordinary shares in issue at the year end of 2,157,289,310 (2010: 424,618,438).

Diluted (loss)/profit per share has been calculated using the weighted average number of ordinary shares in issue at the year end, diluted for the effect of loan conversion rights, convertible preference shares and warrants.  There were unexercised loan conversion rights, convertible preference shares and warrants on1,375,535,419shares in existence at the year end (2010: 1,777,797,247) in addition to the weighted average number of ordinary shares in issue at the year end of 2,157,289,310 (2010: 424,618,438).

(Loss)/profit per share (pence) excluding share of associates' results
Basic	(0.23p)	0.22p
Diluted	(0.14p)	0.04p

The (loss)/profit per share has been calculated by dividing the loss for the year after taxation, excluding share of associates' losses of £665,490 (2010: profit of £665,490) attributable to the equity holders of the Company of £(4,882,055) (2010: £944,000) by the weighted average number of ordinary shares in issue at the year end of 2,157,289,310 (2010: 424,618,438).

Diluted (loss)/profit per share has been calculated using the weighted average number of ordinary shares in issue at the year end, diluted for the effect of loan conversion rights, convertible preference shares and warrants.  There were unexercised loan conversion rights, convertible preference shares and warrants on1,375,535,419shares in existence at the year end (2010: 1,777,797,247) in addition to the weighted average number of ordinary shares in issue at the year end of 2,157,289,310 (2010: 424,618,438).

Subsequent events

A total of 1,213,412,693 ordinary shares of 0.01p have been issued since the year end for a total consideration of £856,500.

On 23 February 2012, the Company agreed to terminate its Shareholder Agreement of 28th November 2006 with Industrial Investment Group Limited, disposing of its 49% stake in Merchant House Finance Limited for £1.

On 9th May 2012, the Company subscribed for 50,000,000 ordinary shares of 0.5p each in Merchant Capital Ltd for a consideration of £250,000 payable in cash.

On 19 June, the Company entered into an agreement with Beia Capital Limited("BCL") whereby the Company will seek to issue and BCL will seek to place for subscription £1,350,000 nominal value secured non-convertible loan notes 2017 in the Company. The interest rate is negotiable and will be announced when agreed. If not subscribed for in full, BCL will either subscribe for the shortfall itself or be obliged to make a loan to the Company for the shortfall. £675,000 was subscribed for on 31 July 2012

On 26 June 2012, the Company issued, subject to FSA approval, 1,000,000,000 new ordinary shares of 0.01 pence each at 0.04 pence per share ("Placing Shares") to Beia Investment Partners LLP ("Beia").  FSA approval was gained on 22 August.

On 3 July 2012 Beia subscribed for a 5-year convertible loan note for £250,000 with a 6.5 per cent. coupon, convertible at the option of the noteholder at 0.04 pence at any time until 10 May 2017. The loan notes are secured by way of a debenture dated 3 July 2012 and transferable. The notes, loan made by BCL and the 6.5 per cent. convertible loan notes will rank pari passu as secured obligations of the Company unless the Company, BCL and Beia agree otherwise.

Annual Report

A copy of the Annual Report and Financial Statements for the year ended 31 December 2011 will be posted to shareholders shortly and will be available on the Company's website, www.merchanthousegroup.com.

For further information:

Merchant House Group plc
James Holmes, Chairman
Christopher Day, CEO
[phone]

Allenby Capital Limited
Jeremy Porter / James Reeve
[phone]