24th Jul 2007 07:01
Merchant Securities PLC24 July 2007 News release Merchant Securities Plc 24 July 2007 FINAL RESULTS FOR THE YEAR ENDED 31 MARCH 2007 Merchant Securities Plc ("the Group"), the private client and institutionalstockbroking company specialising in financial advisory services, broking,private equity and wealth management, announces its final results for the yearending 31 March 2007. Financial and operational highlights • Turnover of £4,090,737 • Gross profit of £3,737,997 • Underlying operating profit before tax of £465,857 (excluding £903,866 of non recurring expenses, goodwill written down and impairment of investments held for sale) • Net assets of £5,285,942, including cash of £2,113,638 • Cash generated from operating activities of £1,103,544 Tony Fabrizi, Chief executive, Merchant Securities says: "It is now fourteen months since we embarked on the expansion of MerchantSecurities into a more broadly based financial services group. During thisperiod the Group has successfully introduced and integrated an institutionaltrading business and a corporate finance division. We intend to continue thisexpansion during the current year and the Board is confident that the comingyear should begin to show the benefits of this expansion." For further information please contact: Tony Fabrizi, Merchant Securities PLC 020 7375 9010 Roland Cross/Emma Murphy, Broadgate 020 7726 6111 Chairman's Statement Introduction I am pleased to present our first set of accounts since the new group was formedin May 2006 and listed on AIM in October 2006. Since the new group was formed there has been significant work in integratingthe respective businesses, establishing appropriate compliance and financialcontrols and developing a platform for future growth. Significant hires have been made to address the opportunities identified, and anumber of acquisition and development prospects which would assist in movingtowards our objectives have been considered. The underlying financial results reported here, though satisfactory inthemselves, do not reflect the aspirations your Board has for the Group and wehope that next year we will be able to report results which better reflect afuller and more rounded business. Operational and financial review The last year was one of major structural change for the Group. In May 2006,Ghaliston Limited acquired Merchant Securities Limited with the support of anumber of institutional and private investors. The Group's business expandedsignificantly with the introduction of an institutional trading department and aseparate corporate finance division. Following the successful integration ofthese activities, the business listed on AIM in October by reversing into CastorInvestments plc, and moved to larger premises in the City in December. The last year was also one of significant reorganisation within the business.The Group is now focused on four distinct areas; namely, private clientstockbroking and wealth management, institutional broking, private equity andcorporate finance. Against this background of significant corporate change the Group achievedturnover of £4,090,737, which resulted in a pre-tax underlying operating profitof £465,857 (excluding £903,866 of non recurring expenses, goodwill written downand impairment of investments held for sale). Taking these expenses intoaccount, the Group made a loss before tax of £438,009, including a cost of£35,000 in respect of share based payments. The Group's net assets at the year end were £5,285,942 of which cash totalled£2,113,638. Net cash generated from operations totalled £1,103,544. The Board remains optimistic that following a year of significantreorganisation, the Group is well placed to develop each of its operatingdivisions. Outlook Having completed the first quarter of the financial year, I am pleased to reportthat Merchant Securities' financial results for that period are in line withmanagement expectations. The directors are confident that the current year willsee continuing development of the Company's business in its chosen markets. TheBoard will continue to review the potential acquisition of complementarybusinesses to augment the growth that it envisages. Finally, I would like to welcome all new shareholders and to thank them fortheir support and also express my thanks to all members of staff who havecontributed to the success of the Group. John GreenChairman 24 July 2007 CONSOLIDATED INCOME STATEMENT Year ended 31 March Year ended 31 March 2007 2006 (as restated) NOTES £ £ £ Revenue 4,090,737 295,400Cost of sales (352,740 ) (11,500 )Gross profit 3,737,997 283,900Other income 9,135 -General administrative expenses 3,471,019 216,275Impairment of goodwill 422,041 -Revaluation of investments held for sale 95,875 -Alternative Investment Market (AIM) admission 385,950 -expenses and other non-recurring items (4,374,885 ) (216,275 )Operating profit / (loss) (627,753 ) 67,625Investment revenues 195,249 2,409Finance costs (83,190 ) -Loss on disposal of fixed assets (11,733 ) -Profit on disposal of available-for-sale 89,418 1,490investmentsProfit / (loss) before taxation (438,009 ) 71,524Taxation (76,859 ) (12,430 )Profit / (loss) for the year attributable to equity holders (514,868 ) 59,094 Earnings per shareBasic and diluted 3 (3.23p ) 1.8p The profit / (loss) for the year attributable toequity holders is as follows:Profit before tax, goodwill impairment, revaluation of investments and non recurring items 465,857 71,524Impairment of goodwill 422,041Revaluation of investments held for sale 95,875Alternative Investment Market (AIM) admission expenses and other non-recurring items 385,950 (903,866 ) - (438,009 ) 71,524Taxation (76,859 ) (12,430 ) (514,868 ) 59,094 No dividends were paid during the year (2006: £Nil). CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSES Year ended Year ended 31 31 March March 2006 2007 (as restated) £ £ Loss on revaluation of available-for-sale shares, options and warrants taken to equity (58,907 ) (6,680 )Deferred tax on losses on available-for-sale shares, options and warrants 17,672 2,004Net expenses recognised directly in equity (41,235 ) (4,676 )Released from equity on disposal of assets (110,684 ) -Gain/(Loss) for the year (514,868 ) 59,094Total recognised income and expense for the year (666,787 ) 54,418 CONSOLIDATED BALANCE SHEET AS AT 31 MARCH 2007 2007 2006 (as restated) £ £ £ £ Non-current assetsGoodwill 2,708,015 -Property, plant and equipment 76,489 4,455Available for sale investments 74,760 342,620 2,859,264 347,075Current assetsTrade and other receivables 3,022,949 121,825Trading investments 390,000 -Cash and cash equivalents 2,113,638 113,455Deferred tax asset 35,654 - 5,562,241 235,280Current liabilitiesTrade and other payables 2,999,528 32,710Current tax liabilities 113,607 28,546 (3,113,135 ) (61,256 ) Net current assets 2,449,106 174,024 Non-current liabilitiesDeferred tax liabilities (22,428 ) (47,436 ) Total assets less liabilities 5,285,942 473,663 EquityShare capital 1,942,000 90,001Share premium account 7,408,351 -Other reserves (3,845,350 ) -Retained earnings (241,890 ) 272,978Revaluation reserve / (deficit) (41,235 ) 110,684Share-based payment reserve 64,066 - Equity attributable to equity holders 5,285,942 473,663 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2007 2007 2006 as restated NOTES £ £ Cash (used) / generated from operating activitiesCash (used) / generated from operations 4 1,103,544 (37,625 )Interest received 195,249 2,409Interest paid (83,190 ) -Tax paid (9,993 ) (2,822 ) Cash (used) / generated from operating activities 1,205,610 (38,038 ) Cash (used) / generated from investing activitiesAcquisition of subsidiary business (3,534,858 ) -Reverse acquisition of Merchant Securities plc ("MSPLC") 43,486 -Purchase of property, plant and equipment (42,877 ) (3,523 )Proceeds / (cost) from disposal of tangible fixed assets (96 ) -Proceeds from disposal of available-for-sale 273,918 34,190investments Net cash (used) / generated from investing activities (3,260,427 ) 30,667 Net cash (used) / generated from financing activitiesProceeds from issue of shares 4,055,000 -Repayment of subordinated loan - (25,000) Net cash (used) / generated from financing activities 4,055,000 (25,000 ) Net (decrease) /increase in cash and cash equivalents 2,000,183 (32,371 )Cash and cash equivalents at beginning of year 113,455 145,826 Cash and cash equivalents at end of year 2,113,638 113,455 NOTES TO THE PRELIMINARY REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2007 1. GENERAL INFORMATION Merchant Securities plc is a company incorporated in the United Kingdom underthe Companies Act 1985. Following the acquisition in October referred to in the Chairman's Statement,the principal activities of the Group are now the provision of investmentservices to private clients and funds, the raising of venture capital funds,the provision of a specialist execution and dealing service to institutionalclients, and the provision of corporate finance advisory services. Investmentservices provided include research, investment advice, execution, settlement andcustody for domestic and foreign equities, equity derivatives, bonds,equity-linked structured products and collective investment schemes. Allprincipal activities are now provided by Merchant Securities Group Limited ("MSGL"), the Group's main operating subsidiary, which is authorised by the FSA. The financial statements are presented in pounds sterling, the functionalcurrency of all companies in the Group. Transactions denominated in foreign currencies are recorded in the localcurrency at actual exchange rates as of the date of transaction. Monetaryassets and liabilities denominated in foreign currencies at the close of theyear are reported at the rates of exchange prevailing at the year end. Any gainor loss arising from a change in exchange rates subsequent to the date oftransaction is included as an exchange gain or loss in the income statement. 2. SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) as endorsed by the European Union for thefirst time. Comparative figures have been restated in accordance with IFRS.Explanation of the full transition from UK GAAP to IFRS will be presented in theGroup's Annual Report. The full accounting policies are presented as anappendix to this document. 3. EARNINGS PER SHARE Basic earnings per share are based on the post-tax loss for the period of£514,868 (2006: £59,094 profit) and on 15,932,619 ordinary 10p shares (2006:3,306,524) being the weighted average number of shares in issue during the year. The effect of all potential ordinary shares under option is anti-dilutive. Calculations are as follows: Earnings 2007 2006 £ £ Earnings for the purpose of basic and diluted earnings per share:net (loss) / profit attributable to equity holders of MSPLC (514,868 ) 59,094 Number of shares 2007 2006 Weighted average number of ordinary shares for the purpose ofcalculating basic earnings per share 15,932,619 3,306,524 4. NOTE TO THE CASH FLOW STATEMENT Year ended Year ended 31 March 2007 31 March 2006 £ £Operating (loss) / profit for the year (627,753 ) 67,625Adjustments for:Depreciation 41,673 1,461Impairment of goodwill 422,041 -Amortisation of options and warrants 95,875 -Share based payment expense 35,000 -Increase in debtors (461,303 ) (75,534 )(Decrease) / increase in creditors 1,598,011 (31,177 )Net cash inflow / (outflow) from operating activities 1,103,544 (37,625 ) 5. FINANCIAL INFORMATION The financial information in this statement does not constitute the Group'sstatutory accounts for the year ended 31 March 2007 or 2006 (but is derived fromthose accounts). 6. NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given of the first Annual General Meeting of MerchantSecurities plc to be held at John Stow House, 18 Bevis Marks, London EC3A 7JB on26th day of September 2007, at 10.00 am. APPENDIX - SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) as endorsed by the European Union for thefirst time. Comparative figures have been restated in accordance with IFRS.Explanation of the full transition from UK GAAP to IFRS will be presented in theGroup's Annual Report. The following published standards and interpretations are not yet effective andhave not been adopted early by the Group: - IFRS 7 Financial Instruments: Disclosures- IFRS 8 Operating Segments- IFRIC 8 Scope of IFRS 2 Share-based Payment- IFRIC 9 Reassessment of Embedded Derivatives- IFRIC 10 Interim Financial Reporting and Impairment- IFRIC 11 IFRS 2 - Group and Treasury share transactions- IFRIC 12 Service Concession Arrangements Basis of consolidation The Group's financial statements consolidate the financial statements of thecompany and its subsidiaries. The company purchased the entire share capital ofMerchant Securities Holdings Limited ("MSHL") on 25 October 2006 by issuing newshares to MSHL's shareholders. As a result, the former shareholders of MSHLbecame the majority shareholders of the company, owning 86% of the newlyincreased share capital, and the executive managers of MSHL replaced thecompany's previous management. In substance, therefore, MSHL acquired MSPLC bya reverse takeover. The company subsequently changed its name from CastorInvestments plc to Merchant Securities plc. IFRS3 prescribes the application ofreverse acquisition accounting as the basis of consolidation. Having applied reverse acquisition accounting, the results of the Group for theyear ended 31 March 2007 comprise the results of MSHL for the year ended 31March 2007 and those of the company from the date of the reverse acquisition.As MSHL had previously acquired MSGL, the results of the latter company havebeen incorporated from 24 May 2006, the date of this earlier acquisition. Thecomparative figures for the Group are those of MSHL for the year ended 31 March2006. All intra-group transactions, balances, income and expenses have been eliminatedon consolidation. Goodwill Goodwill has been calculated as the excess of the fair value paid onacquisition, plus associated costs over the fair value of the net assets of thecompany acquired. Goodwill is reviewed at least annually, and any impairment isrecognised in the Consolidated Income Statement. Such impairment is permanent,as it is not permitted to be reversed in future periods. Goodwill arising on the acquisition of MSGL by MSHL in May amounted to£2,708,015. Goodwill of £422,041 arising on the reverse acquisition in Octoberhas been written off as it was felt that Castor Investments plc had nocontinuing business, and the goodwill therefore had little ongoing value. Property, plant and equipment Tangible fixed assets are stated at historic cost less accumulated depreciation.Depreciation is charged so as to write off the cost or valuation of the assetsover their estimated useful lives on a straight line basis over the followingperiods. Leasehold improvements Over the remaining length of the lease Computer hardware 3 to 4 yearsComputer software 3 to 6 yearsFurniture and fittings 10 yearsOffice equipment 4 yearsTelephone equipment 5 years Investments Investments are reported at fair value based on current bid prices if theinvestments are quoted on a recognised exchange, or based on other appropriatevaluation techniques if unquoted. Investments are classified as "held fortrading" if management intends to dispose of them within a year. Otherwise,they are classified as "available for sale" and designated as non-currentassets. Changes in the valuation of assets held for sale are included in theConsolidated Income Statement, whereas gains and losses arising from adjustmentsto the value of investments available for sale are recognised directly inequity. On the disposal or permanent impairment of an investment available forsale, amounts previously recognised directly in equity are included in theConsolidated Income Statement. Trade receivables Trade receivables are financial assets with fixed or determinable payments; theyare recognised at fair value less any provision for impairment. Such provisionwill be made when there is objective evidence that the Group will not be able tocollect all amounts due according to the original contractual terms. Cash and cash equivalents Cash and cash equivalents comprise cash in hand and demand deposits and othershort term highly liquid investments that are readily convertible to a knownamount of cash and are subject to an insignificant risk of changes in value. Financial liabilities and equity Financial liabilities and equity instruments are classified according to thesubstance of contractual arrangements entered into. An equity instrument is anycontract that evidences a residual interest in the assets of the Group afterdeducting all of its liabilities. Trade payables Trade payables are initially measured at fair value and subsequently measured atamortised cost using the effective interest rate method. Provisions Provisions are recognised when the Group has a present obligation arising from apast event, and it is probable that the Group will need to settle theobligation. Provisions are recorded at the directors' best estimate of theamount needed to settle the obligation at the date of the balance sheet. Deferred income tax Full provision is made for deferred taxation in respect of timing differenceswhich have arisen but not reversed at the balance sheet date, at the tax ratesthat are expected to apply in the years in which timing differences are expectedto reverse, based on the tax rates and laws that have been enacted orsubstantially enacted at the balance sheet date. Timing differences aredifferences between the Group's taxable profits or losses, and its results asstated in the financial statements. Deferred taxation is measured on anon-discounted basis. Deferred tax assets are only recognised where they arisefrom timing differences, and where their recoverability in the short term isregarded as more likely than not. Deferred tax is credited or charged directly to equity in cases where the assetsor liabilities to which the deferred tax calculations relate have also beencredited or charged directly to equity. Equity instruments Equity instruments issued by the company are recorded at the value of proceedsreceived, net of direct issue costs. Income recognition Revenue has been measured at the fair value of the consideration received orreceivable and represents gross commissions and fees in the course of ordinarybusiness, net of discounts, VAT and any other sales taxes. Commission fromclients on investment services and dealing and execution services is recognisedat the time those transactions are executed. Commission and fees from thirdparties are recognised when the relevant deals have been substantiallycompleted. Management fees payable by clients are levied twice yearly.Uninvoiced fees accruing to 31 March 2007 have been accounted for. Interest isrecognised as it accrues. Operating expenses and other charges are provided for in full up to the balancesheet date on an accruals basis. Taxation Taxation disclosed in the Consolidated Income Statement represents the sum ofcorporation tax currently payable, any adjustments to previously disclosedcorporation tax, and deferred tax income and charges. The corporation tax currently payable is based on taxable profit for the year.Taxable profit differs from net profit or loss as reported in the ConsolidatedIncome Statement because it excludes items of income and expense that aretaxable or deductible in other years and it further excludes items that arenever taxable or deductible. The Group's current tax is calculated using taxrates that have been enacted or substantively enacted by the balance sheet date. Share based payments The Group operates an equity-settled, share-based compensation plan on behalf ofits employees. The Group has applied the requirements of IFRS 2 under which acharge is recognised in the Group's Consolidated Income Statement based on thefair value of the grant of options, as measured at the grant date. The chargeis applied on a straight line basis over the expected vesting period, based onthe Group's estimate of shares that will eventually vest; the expense isadjusted for the effects of expected market volatility and non-market-basedvesting conditions. The corresponding credit is allocated to the share warrantreserve. Fair value is measured by using the Black-Scholes-Merton option pricing model.The expected life used in the model has been adjusted based on management's bestestimates of the effects of staff departures, exercise restrictions andbehavioural considerations. Pension costs The Group's contributions to money purchase schemes on behalf of certainemployees are charged to the Consolidated Income Statement as they becomepayable. 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