Final Results

RNS Number : 5880O

Merchant House Group PLC

30 June 2010

 

Merchant House Group PLC (the 'Company')

30 June 2010

Final results for the year ended 31 December 2009

CHAIRMAN'S STATEMENT

for the year ended 31 December 2009

In addition to the financial results, this announcement also includes preliminary details in relation to a series of proposals which shareholders will be asked to consider and vote on which the directors believe will reposition the Company. Full details of these proposals will be contained in a separate circular to shareholders convening a general meeting to consider the proposals. This circular will be posted to shareholders in due course.

Financial results

·; Revenues up 10 fold to £404,359 (2008: £41,668) and the increase in administrative expenses of £1,279,635 (2008: £671,814) charged in striking the loss from operations of £917,390 (2008: £990,656) reflects the year of transition that was 2009.

·; Revenues were £308,866 (2008: £34,668) in the second half of the year compared to £95,493 in the first half (2008: £7,000) reflecting the recovery of trading activity as new activities came on stream.

·; Merchant Capital returned to profit before tax of £11,287 (2008: loss of £82,095)

 

Achievements

You will know that Merchant House Group has faced significant challenges over the past few years, including a time of unprecedented market turmoil and this has been a difficult environment in which to reposition a company to exploit business opportunities going forward. Through that time, the Board has concentrated on securing the long term future of the Company by minimising the fixed cost base, and extending Merchant Capital's regulated activities through a series of carefully planned strategic initiatives, including;

·; becoming PLUS advisers with appointment as PLUS advisers to Pegasus Helicopter Group;

·; receiving FSA authorisation to deal with retail clients and to act as Investment Managers. In addition to an in house broking team we have established a structured product division by taking over the structured product book of ARC Capital and Income Plc. In 2010 Merchant Capital added the Keydata Investment Services Limited's blue chip structured product book to the company's in-house administration systems. This has boosted assets under management to £400 million and plans administered to approximately 28,000. The successful transfer of these plans is a major step towards achieving the company's ambition to be the largest independent provider of structured products to the UK retail investment market. To date the division has raised £6 million for its new structured product and investment plans, with its most recent issue, the Merchant Capital Kick Out Plan: Emerging Markets having increased its issue size to cope with demand from independent advisers and their clients;

·; securing FSA approval to trade options and futures. The first team operating on this platform, using a high volume F-X trading strategy delivers a minimum monthly income of £20,000 to the Group. Although trading is by its nature volatile, it now has a successful 9 month trading history and, in May, Merchant Capital earned gross revenue from its profit share of £177,000. The F-X trading team has agreed with JP Morgan that they will be appointed the second clearer as a way of growing this business. The Company is now in discussions to attract additional experienced trading teams and plans to develop a new investment management business designed to offer investors access to these trading returns

which, if successful, could become a significant contributor to Group revenues; and most recently;

·; being approved by the Irish Financial Services Regulatory Authority to establish and promote a Dublin based UCITS fund platform. Merchant Capital has recently signed a distribution agreement with a global retail asset manager (currently subject to confidentiality agreements) and this will enable eligible clients to seek funding which will itself assist in attracting high quality clients to establish their funds on our UCITS III platform. The Merchant European Equities Fund has invested its initial capital. I am pleased to confirm the launch of a Green Tech Equity Long/Short Fund, expected to have US$20million under management, and the UCITS III version of the Galaxy China Opportunities Fund which will launch in July with up to $500 million dollars under management and in which Merchant Capital is partnering with Galaxy Asset Management. As part of this development, Joe Chan and Johnson Cheung will work as part of Merchant Capital to develop and run the fund. Joe Chan was appointed in 1993 as a Managing Director of Morgan Stanley and Johnson Cheung worked for Goldman Sachs. We look forward to working with both; and

·; The recently announced Merchant Turnaround fund has already secured £1.8million raised by our in house broking team for suitable investment opportunities. We plan to expand this area of business by recruiting more team members, broadening the products offered and the possible development of an online share trading platform.

·; Shareholders will be aware of Merchant Corporate Recovery Plc ("MCR") following announcements last year regarding its launch, fundraising, investment strategy and market background. In the present environment, where: (i) the availability of bank credit is severely limited; (ii) customers of businesses are in many cases, where possible, extending payment terms; and (iii) equity capital is unusually difficult to raise, many fundamentally sound private businesses are likely to experience financial difficulties. An opportunity exists to provide essentially short-term finance for such businesses to give them the prospect of trading out of their difficulties on terms which provide good security for a new lender and with the possibility of obtaining substantial equity stakes in such businesses. The Company seeks to provide finance for companies with significant turnover and a strong debtor book or other easily realisable assets over which security can be taken. Businesses meeting similar criteria may also be acquired out of receivership, administration or other insolvency process.

MCR's first transaction was to make a working capital advance and acquire a 49% stake in Countryliner Group Limited, a group of transport companies that operates bus services for local authorities. MCR invested £200,000 in a new investment company which has acquired 100% of the transport group. MCR has provided a working capital facility of up to £300,000 to the group which is a market leader in its sector in the South of England. MCR saw this as a well managed operation squeezed both by lack of credit availability and rising oil prices but with a fundamentally strong business.

MCR has also invested £102,000 for a 49% shareholding in a new holding company which in turn has acquired 100% of LM Logistics Limited ("LM") and Syntex Logistics Limited ("Syntex"). LM is a warehouse and transport group founded in 1973 and based in Felixstowe, Suffolk; Syntex specialises in container haulage. MCR is also providing a £398,000 loan facility to the new group, secured against a first charge over its otherwise unencumbered assets.

 

These group accounts are qualified in respect of the accounting treatment of Merchant Corporate Recovery Plc, owing to the circumstance that accounts for the investee companies are not yet due. Shareholders should note that the Company's investment in Merchant Corporate Recovery Plc is carried at nil cost.

These initiatives have enabled us to identify and negotiate a series of long-term revenue generating agreements as well as building an in-house sales team to take full advantage of the market opportunities open to the Company.

As a result of this groundwork, we now believe that we have repositioned the Group with a firmly established business generating more stable monthly revenues and an in-house structured investment plan business, retail brokerage and re invigorated corporate finance team which John Newlands and Andrew Homewood have recently joined.

Board changes

With the rebuilding of the Company's trading prospects, the Company is now clearly ready for a formal repositioning. It is therefore the Board's view that the executive team should be strengthened to fully exploit the opportunities open to the Group. Accordingly, I am delighted to announce that, subject to his appointment as director by shareholders, Chris Day will be appointed Group Chief Executive at the conclusion of the forthcoming AGM. At that time, James Holmes will be appointed Chairman while I will step down as Chairman and assume the role of Finance Director. Chris was formerly CEO of a company managing some US$2billion and prior to that was managing director of Dresdner Bank's Far East asset management business raising the funds under management from US$600million to US$2.2billion.

Proposed fund raising and the forthcoming AGM

Any challenging situation such as that which faced the Company in the autumn of 2008 inevitably requires investment and support in nurturing new businesses in anticipation that revenue streams take time to build. In this respect the group has benefitted from financial and other support from a number of businesses and individuals. In particular, Liberty Capital Ltd and its subsidiaries and associates ("Liberty") which, in addition to subscribing for new equity, has provided management services and guarantees in respect of liabilities and contingencies which enabled the Group's current revenue streams to be established as well as settling a number of historic liabilities.

Liberty has undertaken to provide financial support for the Group for a period of at least 12 months from the date of this report. This undertaking is conditional upon:

 

1) Shareholder approval for the change in conversion terms of the convertible loans detailed in note 16 ("2005 Convertible Debt") and further described below under "2005 Convertible Debt";

2) Shareholder approval for a fundraising to raise up to £650,000 at a price of 0.05p; and

3) Shareholder approval for the issue of shares to settle certain liabilities in particular, loans and other debts amounting to £175,000 and settling unpaid directors' contractual remuneration totalling £168,750 in shares, to be issued at the share price at the time of issue. This has been agreed with the directors concerned and is subject only to the shareholders approving the issue of shares to settle the transaction. As part of the agreement the Company will account for PAYE and NI on the share payments, and, net of such PAYE and NI issue shares to a value of £168,750.

 

2005 Convertible Debt

As shareholders are aware, the 2005 Convertible Debt falls due for repayment on 25th August 2010 unless 2005 Loan Note Holders choose to convert the debt into Ordinary Shares at a price of 2p per share. Recognising that the share price has not been at that level for some time, the Board is negotiating with the 2005 Loan Note Holders that they will, subject to approval by shareholders, convert all of the 2005 Loan Notes at 0.5p per share. This would represent a material change to the conditions attaching to the original loan notes which were approved by shareholder resolution and the Board intends therefore to seek shareholder approval for the issue of the shares pursuant to the revised terms that are agreed.

 

In the light of the imminent requirement to repay the 2005 Loan Notes and of the other financial obligations incurred by the Company earlier this year, Liberty indicated to the Company that it would be prepared to invest up to £650,000 in Merchant House througha combination of a subscription for ordinary shares at a price of 0.05p per share and a subscription for convertible debt with the right to convert into ordinary shares at the same price to ensure that Liberty's shareholding remained below 30% at any time together with 1 warrant for every two shares or 0.1p of convertible debt up to £468,000, exercisable at 0.05p. The proceeds of such investment would be used to repay the 2005 Loan Note Holders if revised terms for payment of the 2005 Convertible Debt cannot be agreed (or in the event that agreement is reached with the 2005 Loan Note Holders on revised conversion terms but shareholders do not thereafter approve those changed terms). If revised terms of the 2005 Convertible Debt are approved, the proposed investment from Liberty Capital referred to above would be applied to settle certain outstanding liabilities and provide additional working capital for the Group.

 

Preference share investment by Liberty

Finally, Liberty have transferred £500,000 of 10% preference shares in Tixway UK Limited, a wholly owned subsidiary of Liberty, to the Company, which were in turn transferred to Merchant Capital Ltd, a wholly-owned subsidiary of the group, inconsideration for the issue of £500,000 of ordinary shares. This investment holding of preference shares strengthens the subsidiary's balance sheet and capital position, which will allow Merchant Capital to continue to comply with the continuing capital adequacy requirements of the Irish Financial Services Regulatory Authority for the establishment of the Dublin based UCITS fund platform. In consideration of the transfer the Company has issued an unsecured convertible loan note of £500,000 carrying no interest and which shall mature in 2015 (the Tixway Convertible Loan Note). The terms of the Tixway Convertible Loan Note provide for conversion into Ordinary Shares at 0.5p each at any time. As noted above, shareholder approval for the issue of New Ordinary Shares will be required for this loan note to convert. In the event that shareholders do not authorise the issue of shares sufficient to fulfil this agreement, the preference shares in Tixway UK Limited will need to be returned to Liberty and the Company will need to seek alternative arrangements to satisfy the capital adequacy requirements.

The directors recognise that 0.05p is substantially lower than the prevailing market price and with the support of Liberty are, in conjunction with their advisers, considering options to raise the funds the Company requires in a way that will give shareholders the opportunity of participating at the same price should they so wish. The Company expects to update shareholders on this shortly, together with a notice for the 2010 AGM.

Going concern

At this time, the Company remains dependent upon the ongoing support of Liberty Capital. An undertaking has been received from Liberty Capital Ltd to continue to provide financial support until at least 30 June 2011 provided that shareholders approve the resolution at the forthcoming AGM which will empower the directors to issue shares to raise up to £650,000 cash, repay loans and salaries in shares of £344,000 in aggregate and to issue the Tixway Convertible loan note.

Future prospects

The board would point shareholders, when considering future prospects to the fact that Merchant Capital returned to profit in the year 2009. There are now a series of exciting businesses, showing considerable progress this year despite being early stage and the board considers the teams recruited to be particularly important. Shareholders should note the depth of their experience, their track record of success at major banks, financial institutions [and corporate] and their decision to join Merchant House where they evidently believe they can be contribute to the success of the business.. The Board remains cautious and cashflow remains tight but we are now of the view, firstly, that elements exist that are required to significantly grow the revenues of the company and secondly that the new teams have now demonstrated their ability to make real progress on the agreed business strategies. This should, in time, allow shareholder value to grow.

 

Martin Eberhardt

Chairman

30 June 2010

Enquiries:

 

Merchant House Group Plc

Martin Eberhardt

Tel: 020 7332 2200

 

Shore Capital and Corporate Limited Pascal Keane

Tel: 020 7408 4090

 

CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2009

 

	Note	Year to 31 December 2009 £		Year to 31 December 2008 £
Revenue	2	404,359		41,668
Cost of sales		(59,264)		(42,143)
Gross profit /(loss)		345,095		(475)
Administrative expenses		(1,279,635)		(671,814)
Loss on disposal of associate		-		(137,822)
Impairment of associate		(23,700)		(67,492)
Impairment of intangible assets		-		(88,496)
Other operating income		36,140		27,770
Realised gain /(loss) on current asset investments		2,500		(11,287)
Unrealised gain /(loss) on current asset investments		2,210		(41,040)
(Loss) from operations	3	(917,390)		(990,656)
Share of operating loss in associate undertakings		-		(107,222)
Finance expense		(8,776)		(27,170)
Investment income		10,903		11,176
(Loss) Before Taxation		(915,263)		(1,113,872)
Income tax expense	6	-		-
(Loss) for the financial period		(915,263)		(1,113,872)
(Loss) per share (pence)	8	(0.77p)		(1.28p)
Diluted loss per share (pence)	8	(0.29p)		(0.39p)

 

 

The Company has taken advantage of Section 408 of the Companies Act 2006 not to publish its income statement.

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2009

 

	Year to 31 December 2009 £		Year to 31 December 2008 £
(Loss) for the year attributable to the parent's equity holders	(915,263)		(1,113,872)
Total comprehensive (expense) for the year attributable to the parent's equity holders	(915,263)		(1,113,872)

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 

31 December 2009

	Note	2009 £		2008 £
ASSETS
Non Current Assets
Intangible assets	10	-		-
Property, plant and equipment	11	1,844		3,461
Investment in group undertakings	9	-		-
		1,844		3,461
Current Assets
Trade and other receivables	12	311,444		89,517
Cash and cash equivalents	13	5,267		97,783
Investments	14	507,310		10,100
Total current assets		824,021		197,400
TOTAL ASSETS		825,865		200,861
EQUITY AND LIABILITIES
Current Liabilities: Trade and other payables	15	1,810,854		399,587
Convertible loan notes	15	449,318		-
		2,260,172		399,587
Non current liabilities:
Convertible loan notes	17	-		419,654
Subordinated loan	17	100,000		-
		2,360,172		819,241
Equity and Reserves
Called up share capital	18	542,350		539,350
Convertible loan notes	16	18,682		48,346
Share premium		1,031,924		1,005,924
Retained Earnings		(3,127,263)		(2,212,000)
Total Equity		(1,534,307)		(618,380)
TOTAL LIABILITIES		825,865		200,861

 

These financial statements were approved by the Directors on 30June 2009 and are signed on their behalf by:

J Holmes

Director

 

COMPANY STATEMENT OF FINANCIAL POSITION

31 December 2009

 

	Note	2009 £		2008 £
ASSETS
Non Current Assets
Intangible assets	10	-		-
Property, plant and equipment	11	1,844		3,461
Investment in group undertakings	9	641,001		115,001
		642,845		118,462
Current Assets
Trade and other receivables	12	25,389		38,156
Cash and cash equivalents	13	5,024		2,036
Investments	14	7,310		10,100
Total current assets		37,723		50,292
TOTAL ASSETS		680,568		168,754
EQUITY AND LIABILITIES
Current Liabilities: Trade and other payables	15	1,785,201		375,837
Convertible loan notes	15	449,318		-
	15	2,234,519		375,837
Non current liabilities:
Convertible loan notes	17	-		419,654
		2,234,519		795,491
Equity and Reserves
Called up share capital	18	542,350		539,350
Convertible loan notes	16	18,682		48,346
Share premium		1,031,924		1,005,924
Retained Earnings		(3,146,907)		(2,220,357)
Total Equity		(1,553,951)		(626,737)
TOTAL LIABILITIES		680,568		168,754

 

 

These financial statements were approved by the Directors on 30June 2009 and are signed on their behalf by:

 

 

J Holmes

Director

 

Company Registration Number: 04034645

 

STATEMENT OF CHANGES IN EQUITY 

for the year ended 31 December 2009

Group

	Convertible Loan Note £	Share Capital £	Share Premium £	Retained Earnings £		Total   £
Balance at 1 January 2009	48,346	539,350	1,005,924	(2,212,000)		(618,380)
Total Comprehensive Expense for the year	-	-	-	(915,263)		(915,263)
Movement in Equity	(29,664)	-	-	-		(29,664)
	18,682	539,350	1,005,924	(3,127,263)		(1,563,307)
Transactions with owners recorded directly in equity
Contribution by owners
Share issue	-	3,000	26,000	-		29,000
Balance at 31 December 2009	18,682	542,350	1,031,924	(3,127,263)		(1,534,307)

 

Company

	Convertible Loan Note £	Share Capital £	Share Premium £	Retained Earnings £	Total   £
Balance at 1 January 2009	48,346	539,350	1,005,924	(2,220,357)	(626,737)
Total Comprehensive Expense for the year	-	-	-	(926,550)	(926,550)
Movement in Equity	(29,664)	-	-	-	(29,664)
	18,682	539,350	1,005,924	(3,146,907)	(1,582,951)
Transactions with owners recorded directly in equity
Contribution by owners
Share issue	-	3,000	26,000	-	29,000
Balance at 31 December 2009	18,682	542,350	1,031,924	(3,146,907)	(1,553,951)

  

 

 

STATEMENT OF CHANGES IN EQUITY Continued

for the year ended 31 December 2008

 

Group

	Convertible Loan Note £	Share Capital £	Share Premium £	Retained Earnings £	Total   £
Balance at 1 January 2008	38,214	271,733	501,389	(1,098,128)	(286,792)
Total Comprehensive Expense for the year	-	-	-	(1,113,872)	(1,113,872)
Movement in Equity	10,132	-	-	-	10,132
	48,346	271,733	501,389	(2,212,000)	(1,390,532)
Transactions with owners recorded directly in equity
Contribution by owners
Share issue	-	267,617	504,535	-	772,152
Balance at 31 December 2008	48,346	539,350	1,005,924	(2,212,000)	(618,380)

 

 

 

Company

Balance at 1 January 2008	38,214	271,733	501,389	(1,166,441)	(355,105)
Total Comprehensive Expense for the year	-	-	-	(1,053,916)	(1,053,916)
Movement in Equity	10,132	-	-	-	10,132
	48,346	271,733	501,389	(2,220,357)	(1,398,889)
Transactions with owners recorded directly in equity
Contribution by owners
Share issue	-	267,617	504,535	-	772,152
Balance at 31 December 2008	48,346	539,350	1,005,924	(2,220,357)	(626,737)

 

 

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 December 2009

		2009 £		2008 £
Reconciliation of operating loss to net cash flow from operating activities
Operating loss		(917,390)		(990,656)
Associated company losses written off		-		(139,666)
(Increase)/Decrease in trade & other receivables rerereceivablereceivables		(221,927)		152,442
Increase in trade & other payables		1,422,328		92,514
Depreciation		2,082		6,589
Impairment of associate		23,700		49,505
Impairment of intangible assets		-		88,496
Realised (gain)/loss on current asset investments		(2,500)		11,287
Unrealised (gain)/loss on current asset investments		(2,210)		41,040
Net cash inflow/(outflow) from operating activities		304,083		(688,449)
Investing
Investing Activities
Interest received		10,903		11,176
Purchase of investments		(500,000)		(260,400)
Sales of investments		7,500		234,598
Purchase of plant & equipment		(465)		(1,566)
Investment in associate		(23,700)		51
Net cashflow from investing activities		(505,762)		(16,141)
Financing activities
Proceeds from share issue		29,000		683,656
Loan		100,000		-
Interest paid		(8,776)		(27,170)
Net cash inflow from financing activities		120,224		656,486
Decrease in cash & cash equivalents		(81,455)		(48,104)
Reconciliation of net cash flow to movement in net debt
Decrease in cash in the period		(81,455)		(48,104)
Movement in year		(81,455)		(48,104)
Net (debt) brought forward		(381,278)		(333,174)
Net (debt) carried forward		(462,733)		(381,278)

 

CONSOLIDATED CASH FLOW STATEMENT Continued

 

Reconciliation of net cash flow to movement in net (debt)/funds		Year to 31 December  2009 £		Year to 31 December 2008 £
(Decrease) in cash in the period		(81,455)		(48,104)
Movement in year		(81,455)		(48,104)

 

Net (debt) at 1 January		(381,278)		(333,174)
Net (debt) at 31 December		(462,733)		(381,278)

 

Analysis of changes in net (debt)	At 1 January 2009 £		Cashflows     £		Other non cash changes £		At 31 December 2009 £
Cash at bank and in hand	97,783		(92,516)		-		5,267
Bank overdraft	(10,816)		10,816		-		-
Cash held in stockbroker's client accounts	(245)		245		-		-
Cash and cash equivalents	86,722		(81,455)		-		5,267
Debt due within one year:
Secured loan notes	(408,000)		-		-		(408,000)
Unsecured loan notes	(60,000)		-		-		(60,000)
	(381,278)		(81,455)		-		(462,733)

 

Other non cash changes

 

During the year the company incurred development expenditure cost amounting to £Nil (2008: £88,496 when the consideration was paid in shares).

 

 

 

COMPANY CASH FLOW STATEMENT

for the year ended 31 December 2009

		2009 £		2008 £
Reconciliation of operating loss to net cash (outflow) from operating activities
Operating loss		(917,779)		(1,035,483)
Decrease in trade & other receivables rerereceivablereceivables		12,767		162,191
Increase in trade & other payables		1,420,425		31,203
Depreciation		2,082		6,589
Impairment of associate		23,700		57,188
Impairment of intangible assets		-		88,496
Realised (gain)/loss on current asset investments		(2,500)		11,287
Unrealised (gain)/loss on current asset investments		(2,210)		41,040
Net cash flow from operating activities		536,485		(637,489)
Investing
Investing Activities
Interest received		5		8,737
Purchase of investments		-		(260,400)
Sales of investments		7,500		234,598
Purchase of plant & equipment		(465)		(1,566)
Investment in associate		(23,700)		(17,937)
Investment in subsidiary		(526,000)		(65,000)
Net cashflow from investing activities		(542,660)		(101,568)
Financing activities
Proceeds from share issue		29,000		683,656
Interest paid		(8,776)		(27,170)
Net cash inflow from financing activities		20,224		656,486
Increase/(Decrease) in cash & cash equivalents		14,049		(82,571)

 

	At 1 January 2009 £		Cashflows		At 31 December 2009 £
Cash at bank and in hand	2,036		2,988		5,024
Bank overdraft	(10,816)		10,816		-
Cash held in stockbroker's client accounts	(245)		245		-
Cash and cash equivalents	(9,025)		14,049		5,024

 

Other non cash changes

During the year the company incurred development expenditure cost amounting to £Nil: (2008: £88,496 and the consideration was paid in shares).

1. The financial information set out in this announcement does not constitute statutory accounts within the meaning of section S434 of the Companies Act 2006 for the years ended 31 December 2008 and 2007. The financial information for the year ended 31 December 2007 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under s237(2) or (3) of the Companies Act 1985. The statutory accounts for the year ended 31 December 2008 will be delivered to the Registrar of Companies in due course.

2. Loss per share 

	2009		2008
Loss per ordinary share (pence)	(0.77p)		(1.28p)
Diluted loss per ordinary share (pence)	(0.29p)		(0.39p)

The loss per share has been calculated on the net basis on the group deficit excluding associate for the financial year, after taxation, of £(915,263) (2008: £(1,006,650)) using the weighted average number of ordinary shares in issue of 118,555,080 (2008: 86,870,886). Subsequent to the year end, a further 143,083,868 shares have been issued, as disclosed in note 23.

 

Diluted earnings per share have been calculated using the weighted average number of ordinary shares in issue, diluted for the effect of loan conversion rights, convertible preference shares and warrants. There were unexercised loan conversion rights, convertible preference shares and warrants on 200,066,667 shares in existence at the year end (2008: 200,066,667).

 

The annual report is being posted to shareholders today and is also available on the Company's website: www.merchanthousegroup.com 

 

 

 

This information is provided by RNS

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