Half Yearly Report

MERCHANT HOUSE GROUP PLC

("MHG" or the "Group")

HALF YEARLY REPORT

CHAIRMAN'S STATEMENT

I am pleased to present the half yearly report for the six months to 30 June 2011, during which time the Group has continued to grow and move forward despite the economic gloom and pressure on other financial services companies.

Turnover for the period of £3.1 million was significantly ahead of the 2010 half year and full year figures (six months to 30 June 2010: £0.7 million; year to 31 December 2010: £2.2 million), due primarily to the effect of the acquisition by Merchant House Financial Services ("MHFS"), one of the MHG's subsidiaries, as announced on 23 December 2010 (the "Acquisition") which accounted for £2.1 million of revenues in the period.

Net assets at 30 June 2011 were £1.7 million (30 June 2010: net liabilities of £1.7 million; 31 December 2010: £1.6 million). The movement in net cash for the period was an increase of £0.1 million, which comprised a net cash outflow from operations of £0.7 million offset by interest received and proceeds from the issue of new shares and loans of around £0.8 million. Net debt as 30 June 2011 was £0.2 million (30 June 2010: £0.5 million; 31 December 2010: £0.3 million).

The loss before tax for the period was £0.4 million (six months to 30 June 2010: loss of £0.5 million; year to 31 December 2010: profit of £1.7 million). This loss was due to the time taken to obtain regulatory approval for the Independent Financial Advisers (IFAs) acquired as part of the Acquisition before they could commence trading operations while expenditure in relation to the Acquisition was being incurred. The regulatory approval process took approximately four months such that, by May 2011, all IFAs at MHFS have been in operation. The board intends to grow the MHFS business further with the introduction of new products, services and operating procedures in the near future.

I am pleased to report progress in our UCITS business, where the value of assets under management ("AUM") stood at US$2.1m million as at 30 June 2010. AUM are currently at approximately US$69m million and are expected to grow further before the end of the year.

The Structured Products division has been renamed "Structured Investments" and has been selling to a pool of approximately 3,000 IFAs. Since the end of the period, following negotiations and due diligence, the division has been accepted on to two major IFA platforms. This has increased the size of the pool of IFAs to whom the products can be sold from approximately 3,000 to approximately 9,000, which has had a significant favourable effect on revenues. Sales of structured investments in September are expected to show considerable growth compared with previous months.

Further to the announcement on 11 July 2011 of the launch of Merchant Capital Investment Services ("MCIS"), a dedicated distribution arm of the Group's private client financial services division, I am pleased to report that MCIS is now generating revenues and making a positive contribution to the Group's profitability.

The Directors continue to monitor cashflow carefully and will continue to control costs but at this stage the Directors are cautiously optimistic for the remainder of 2011.

Enquiries:

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six month period ended 30 June 2011

All results are in respect of continuing operations.

The Group has no recognised gains or losses other than the results for the period as set out above.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2011

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED CASH FLOW STATEMENT

for the six month period ended 30 June 2011

NOTES TO THE FINANCIAL STATEMENTS

For the six month period ended 30 June 2011

1. Accounting policies

Basis of accounting

The interim results have been prepared in accordance with International Accounting Standards 34 "Interim Financial Reporting".

The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs).

The interim results have been prepared on the historical cost basis except that certain financial instruments are accounted for at fair values. The report has been presented and prepared in a form consistent with that which will be adopted in the Group's 2011 annual accounts having regard to accounting standards applicable to such annual accounts.

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. The group incurred a loss of £424,492 for the period ended 30 June 2011.

The financial statements have been prepared on a going concern basis because the directors believe it is appropriate to prepare the financial report on this basis based upon the company's business plan and its trading prospects. 

2. Loan Interest

Loan interest is payable on secured and unsecured convertible loan notes 2011 at a floating rate of 100 basis points above Barclays Bank Plc base rate and on other unsecured loans at a fixed rate of 6.5% per annum.

3. Taxation

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

4. Loss per Share

The loss per share has been calculated on the net basis on the consolidated loss excluding associate for the period ended 30 June 2011, after taxation, of £(424,492) (June 2010: £(524,052), December 2010: profit £1,609,690 using the weighted average number of ordinary shares in issue at the period end of 774,540,549 (June 2010: 263,589,312, December 2010: 424,618,438).

Diluted earnings per share have been calculated using the weighted average number of ordinary 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 1,777,797,247 (June 2010: 593,855,979, December 2010: 1,777,797,247).

5. Related party transactions

During the period ended 30 June 2011, J Holmes was also a director of Merchant Corporate Recovery Plc, Merchant House Finance Ltd, Merchant Strategic Renewal Plc and Countryliner Group Limited.

During the period ended 30 June 2011, C Day was also a director of Merchant Capital Ltd, Merchant House Financial Services Ltd, Jordasic Investment Holdings Limited, Independent Portfolio Managers Ltd and a member of Merchant Trading LLP.

During the period ended 30 June 2011, M Eberhardt was also a director of Merchant Capital Ltd

During the period transactions took place as follows:

During the period ended 30 June 2011 the Company issued 37,384,192 new ordinary shares of 0.01p each in the capital of the Company at a price of 0.05p to Jordasic Investment Holdings Limited pursuant to the proposals approved by shareholders at the Company's general meeting held on 31 August 2010.

The Company is a partner in Merchant Trading LLP and during the period ended 30 June 2011 Merchant Trading LLP made partnership distributions to the Company totalling £106,222.(June 2010: 3Nil, December 2010 £276,655)

Merchant House Finance Ltd, Merchant Corporate Recovery Plc, Merchant Strategic Renewal Plc and Merchant Turnaround Plc are associate companies.

At the period end the Company owed Merchant Turnaround Plc £11,325 (June 2010: £Nil, December 2010: £1,325). During the period ended 30 June 2011, Merchant House Group Plc recovered expenses totalling £Nil (June 2010: £108,557, December 2010: £144,489) in respect of transactions with Merchant Turnaround Plc.

At the period end the Company owed Merchant Corporate Recovery Plc and its wholly owned subsidiary MCR Support Services Limited £132,330 ( June 2010: £239,149, December 2010: £132,330). During the period ended 30 June 2011, Merchant House Group Plc recovered expenses totalling £Nil (June 2010: £158,767, December 2010: £29,353) in respect of transactions with Merchant Corporate Recovery Plc.

During the period ended 30 June 2011, Merchant House Group Plc received £451,000 (June 2010: £372,000, December 2010: £986,000) in management fees from Merchant Capital Limited, a wholly owned subsidiary. At the period end the balance owed to Merchant Capital Ltd was £149,978 (at 30 June 2010: £188,800, at 31 December 2010: £155,304).

During the period ended 30 June 2011, Merchant House Group Plc credited £1,545,600 including VAT (June 2010: £Nil, December 2010 £Nil) in management fees to Merchant House Financial Services Ltd, a wholly owned subsidiary. Merchant House Group Plc also incurred expenses totalling £202,713 (June 2010 £Nil, December 2010 £354,596) on behalf of Merchant House Financial Services Ltd. At the period end the balance it owed to Merchant House Financial Services Ltd was £1,342,886 (at 30 June 2010 £Nil, at 31 December 2010 it was owed £1,900,196).

6. Post Balance Sheet Event

On 28 July 2011 the Company issued 542,586,200 new ordinary shares of 0.01p each in the capital of the Company at a price of 0.145p.per share by way of placing which raised £786,750 before expenses.

On 2 September 2011 the Company issued 3,403,652 new ordinary shares of 0.01p each in the capital of the Company at a price of 0.16p.per share, pursuant to the proposals approved by shareholders at the Company's general meeting held on 31 August 2010. On the same day it issued 400,843,744 new ordinary shares of 0.01p each in the capital of the Company at a price of 0.05p.per share in respect of the conversion of loan and an additional 188,940,092 new ordinary shares of 0.01p each in the capital of the Company at a price of 0.11p.per share in respect of the settlement of loans.

7. Availability of accounts

Copies of this statement are available to shareholders and members of the public, free of charge, from the Company's principal place of business at Aldermary House, 10-15 Queen Street, London, EC4N 1TX

Alternatively a downloadable version is available from the Company's website:

http://www.merchanthousegroup.com/investor-relations