Final Results

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

Consolidated and Company statement of financial position

At 31 December

Statement of changes in equity

Year ended 31 December 2011

Consolidated and Company cash flow statement

For the year ended 31 December

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

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 on 1,375,535,419 shares 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).

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 on 1,375,535,419 shares 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 plcJames Holmes, ChairmanChristopher Day, CEO+44 (0) 20 3544 4793

Allenby Capital LimitedJeremy Porter / James Reeve+44 (0) 20 3328 5656