Merchant House Group plc : Half Yearly Report

MERCHANT HOUSE GROUP PLC

("MHG or "the Group")

INTERIM STATEMENT

For the 6 months ended 30 June 2012

The Board of MHG is pleased to announce interims results for the six month period ended 30 June 2012.

Financial Results

In the half year to June 2012:

·     Turnover increased by 31% to £4.0 million (6 months to June 2011: £3.1 million)

·     Gross profit increased by 20% to £1.3 million (6 months to June 2011: £1.1 million)

·     Operating loss of £1.4 million (6 months to June 2011: £0.5 million loss) after charging £0.5 million in respect of acquisition costs of IFA members

Revenues have continued to grow, especially within our IFA business, Merchant House Financial Services Ltd, where sales of £2.7 million in the first half compare to sales of £2.2 million for the same period last year and £4.7 million in the whole of 2011.

Within Merchant Capital Ltd, predominantly Structured Products, sales were £1.3 million compared to £0.9 million for the same period last year and £2.9 million for the whole of 2011. 

Net debt grew to £1.6 million at the period end (30 June 2011: net cash of £0.09 million).  As shareholders will know, the Group has procured an aggregate investment of £2 million from Beia Capital Ltd and Beia Investment Partners LLP (together "Beia") of which these results reflect the first £0.25 million, received as a convertible loan.  Subsequent to the period end, a further £1.35 million before expenses has been received leaving £0.4 million to be remitted by 22 November 2012.

Operating Review

In the structured products division of Merchant Capital Limited, following a strong start to the year, sales slowed following the difficulties previously reported around the loss and subsequent replacement of our custodian.  Whilst the UK retail business has been particularly difficult and is likely to remain so in the short term, the marketing of plans offshore has provided a continuing source of sales.  In order to expand the latter market, a new sales team has recently been appointed and as it is settles into the business is expected to contribute to more diversified sales.

The client assets held by the previous custodian have been transferred in full to Reyker Securities plc, our new custodian.  Whilst some client monies remain to be released by the special administrator of the previous custodian, it is understood that the Financial Services Compensation Scheme protections will mean that no clients affected by the special administration will incur a loss. 

The asset management division has also been through a difficult period as a consequence of the suspension of the Group's shares and weak stock markets caused largely by the uncertainty in Europe.  Four UCITS funds were liquidated in 2012 as redemptions resulted in uneconomic fund sizes.  In contrast, a new UCITS fund has recently been approved by the central bank of Ireland and is expected to launch in the near future.  Whilst assets under management have fallen in the UCITS business, revenues have not as yet been adversely affected but new funds will have to be launched if this is to be sustained.  Current total assets under management are approximately USD25 million and there are plans to launch additional funds.

PYXMarkets, the options trading platform was, as reported, launched in the second quarter of 2012.  Following an initial period of low trading volumes, the group expects to accelerate the promotion of this business.

Merchant House Financial Services Limited has since the beginning of the year made progress in the reduction of its monthly running costs and in reducing the number of low profit advisors.  This has been implemented during a period, in which as previously mentioned, revenues have increased by approximately 22% over the same period last year.  The business, in partnership with our regulatory principal, has also made progress in being RDR (the new regulatory regime under which IFA businesses will have to operate from early 2013) ready.  This is against a generally accepted opinion that much of the IFA market still has some way to go to be RDR ready.

Financial Position and Prospects

The difficulties outlined above and reported this year, as well as the suspension on AIM, have inevitably impacted the business, the Group's financial and trading position and its performance within the regulatory framework in which it operates.   The directors have considered the short term trading prospects of the Group together with the current financial position of the Group.  That includes a number of creditors who are due monies outside their normal settlement terms and with which the Company is in ongoing discussions to allow settlement over a period of time.  The final £0.4 million due from Beia in respect of their investment in 1 billion shares at a price of 0.04p, the receipt of which having initially been delayed by the need for approval by the FSA, is now expected shortly but it is clear that additional funds will be required in the short term to provide sufficient working capital and investment in the business.

The directors are therefore pursuing a number of fund raising opportunities with a view to raising additional funds.  This includes a funding agreement under negotiation which the Board believes would, in conjunction with the £0.4 million to be received from Beia, deliver the required finance, either immediately on completion or in stages.  There are also other opportunities in negotiation.

However, the adequacy of working capital at this time remains uncertain and as sufficient funding may not be received in the short term, the Board is also exploring all other options available to it, which may include asset or business disposals, and there is also a risk of cancellation of trading on AIM.  The Company's shares remain suspended from trading on AIM and shareholders will be updated in due course. 

Outlook

While the Board's immediate focus is on the successful conclusion to raising sufficient funds, it is positive that the underlying businesses have made good progress this year and the Board looks forward to the continued development of the business in the final quarter and into next year.

Also during the period under review, the board has been strengthened with the addition of Mr James Keane and Mr Stephen Drew, who were appointed on 19 June.

I would like to take this opportunity to thank all our employees for their continued hard work and commitment and shareholders for their continued support.

James Holmes

Chairman

26 October 2012

Enquiries;

Merchant House Group PLC

James Holmes, Chairman                                                                                             [phone]

Chris Day, CEO

Allenby Capital Ltd, Nominated Adviser

                                                                                                                                                [phone]

Jeremy Porter

James Reeve

Consolidated statement of changes in equity

Period ended 30 June 2012

		Attributable to owners of the Company										Non- Controlling interest		Total Equity
		Convertible Loan Note		Share Capital		Share Premium		Retained earnings		Total
		£		£		£		£		£		£		£
Balance at 1 January 2011		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)
Total Comprehensive Income for the year		-		-		-		(1,400,959)		(1,400,959)		(57,102)		(1,458,061)
Movement in equity		(95,000)		-		-		-		(95,000)		-		(95,000)
		376,572		879,827		4,143,810		(8,466,077)		(3,065,868)		(132,865)		(3,198,733)
Transactions with owners recorded directly in equity:
Share issue		-		99,912		588,113		-		688,025		-		688,025
Shares to be issued		-		-		-		-		-		-		-
Balance at 30 June 2012		376,572		979,739		4,731,923		(8,466,077)		(2,377,843)		(132,865)		(2,510,708)

Consolidated cash flow statement

Period ended 30 June 2012

		Six month		Six month		Year ended
		period ended		period ended		31 December
		30 June 2012		30 June 2011		2011
		(Unaudited)		(Unaudited)		(Audited)
		£		£		£
Reconciliation of operating loss to net cash flow from operating activities
Operating profit/(loss)		(1,402,096)		(523,928)		(4,441,049)
(Increase) in trade & other receivables		(801,831)		(222,092)		378,823
Increase in trade & other payables		1,065,968		107,245		990,113
Depreciation		-		4,381		8,239
Impairment of investment		-		-		500,000
Unrealised loss/(gain) on current asset investments		-		(33,173)		-
Disposal of non controlling interest		-		-		(10,749)
Tax payable		213,632		-		19,493
Net cash (outflow)/inflow from operating activities		(924,327)		(667,567)		(2,555,130)
Investing Activities
Financial income		-		109,943		193,461
Sales of investments		-		-		1,000
Purchase of plant & equipment		(1,974)		(2,853)		(4,438)
Net cashflow from investing activities		(1,974)		107,090		190,023
Financing activities
Proceeds from share issue		688,025		345,000		2,212,663
Loan proceeds		1,301,297		303,650		1,391,247
Loans repaid		(857,752)		-		(518,862)
Loan notes converted to ordinary shares		(95,000)		-		(141,500)
Financial expense		(67,255)		(10,507)		(719,974)
Net cash inflow from financing activities		969,315		638,143		2,223,574
Increase/(decrease) in cash & cash equivalents		43,014		77,666		(141,533)

Reconciliation of net cash flow to movement in net debt

Period ended 30 June 2012

		Six month		Six month		Year ended
		period ended		period ended		31 December
		30 June 2012		30 June 2011		2011
		(Unaudited)		(Unaudited)		(Audited)
		£		£		£
Increase/(decrease) in cash in the period		43,014		77,666		(141,533)
Cash inflow from issue of loan note		(1,301,297)		(303,650)		(1,391,247)
Loan note repaid		857,752		-		518,862
Loan notes converted to ordinary shares		95,000		-		141,500
Movement in year		(305,531)		(225,984)		(872,418)
Net (debt) brought forward		(1,291,284)		318,866		(418,866)
Net (debt)  carried forward		(1,596,815)		92,882		(1,291,284)

Notes

1.     Basis of accounting

The condensed consolidated interim financial statements for the six months ended 30 June 2012 have been prepared under applicable International Financial Reporting Standards adopted by the European Union ('IFRS') and in accordance with IAS 34 Interim Financial Reporting. They do not include all of the information required for full annual financial statements and should be read in conjunction with the financial statements of the Group for the year ended 31 December 2011.

The interim financial statements have been prepared under the same accounting policies as those used for the financial statements for the year ended 31 December 2011. A number of IFRS's and Interpretations have been endorsed by the EU in the period to 30 June 2012 and although they have been adopted by the Group, none of them has had a material impact on the Group's financial statement.

The Group's 2011 annual report provides full details of significant judgements and estimates used in the application of the Group's accounting policies. There have been no significant changes to these judgements and estimates during the period.

The financial information included in this document is unaudited and does not comprise statutory accounts within the meaning of section 498 of the Companies Act 2006. The comparative figures for the financial year ended 31 December 2011 are not the company's statutory accounts for that financial year. 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 include a reference to matters to which the auditor drew attention by way of emphasis without qualifying their report (see below), and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

2.     Going concern

The financial statements for the year ended 31 December 2011 drew attention to the significant uncertainties surrounding whether the company would be able to continue as a going concern. The directors have considered the short term trading prospects of the Group together with the current financial position of the Group.  That includes a number of creditors who are due monies outside their normal settlement terms and with which the Company is in ongoing discussions to allow settlement over a period of time.

The directors are therefore pursuing a number of fund raising opportunities with a view to raising sufficient funds, which in conjunction with the £0.4 million still to be received from Beia, is expected to deliver the required finance, either immediately on completion or in stages.

Assuming these, compliance with regulatory requirements and the trading prospects of the Group, the Board considers it remains appropriate to prepare these statements on a going concern basis.

3.     Taxation

No provision for corporation tax has been provided for, due to tax losses incurred in the current period.

Loss per share

		Six month		Six month		Year ended
		period ended		period ended		31 December
		30 June 2012		30 June 2011		2011
		(Unaudited)		(Unaudited)		(Audited)
(Loss)/Profit per ordinary share (pence)		(0.034)p		(0.05)p		(0.26)p
Diluted (Loss)/Profit per ordinary share (pence)		(0.026)p		(0.02)p		(0.16)p

The loss per share has been calculated on the net basis on the consolidated loss excluding associate for the period ended 30 June 2012, after taxation, of £(1.4 million) (June 2011: £(0.4 million), December 2011: £(5.5 million)) using the weighted average number of ordinary shares in issue at the period of 4,097,910,741 (June 2011: 774,540,549, December 2011: 2,157,289,310).

Diluted earnings per share have been calculated using the weighted average number of shares in issue, diluted for the effect of share and loan conversion rights and warrants. There were unexercised share and loan conversion rights and warrants on shares in existence at the period end of 1,289,950,166 (June 2011: 1,777,797,247, December 2011: 2,157,289,310).

Availability of statement

A copy of this statement is available to shareholders and members of the public, free of charge, from the Company's website:http://www.merchanthousegroup.com/investor-relations