Mercia Asset Regulatory News (MERC)

AIM: MERC

Merchant Securities Group plc

("Merchant Securities" or "the Group" or "the Company")

Half Year Results

for the six months ended 30 September 2011

Merchant Securities, the financial services group, provides wealth management services to individuals and investment banking services to UK small and mid-cap companies and institutional investors. Based in London, it currently operates from five offices in the UK and employs 76 staff.

Key Points

·; Recommended takeover offer by Sanlam UK Limited, a leading South African financial services group, announced in October 2011 and declared wholly unconditional on 14 December 2011

·; Revenue up 13% to £4.3 million (2010: £3.8 million)

·; Underlying* loss before tax of £35,000 (2010: underlying* profit before tax of £342,000)

- reduction reflects significant investment in new personnel

Statutory loss before tax of £240,000 (2010: statutory loss before tax of £242,000)

·; Underlying* basic loss per share of 0.07p (2010: underlying* earnings per share of 0.73p)

Statutory loss per share of 0.46p (2010: statutory loss per share of 0.52p)

·; Net cash of £2.2 million at 30 September 2011 (2010: £2.4 million)

·; Wealth management services; completed the integration of GT Independent Financial Advisers, acquired February 2011

·; Investment banking activities; completed 15 transactions, including 3 new AIM admissions

·; Prospects encouraging, with added cross-selling opportunities as part of wider Sanlam Group

* Underlying loss/profit is before amortisation and non-recurring costs.

For further information:

Chairman's Statement

Introduction

At the end of August 2011, we were pleased to report that we were in negotiations with Sanlam UK Limited ("Sanlam"), a wholly owned subsidiary of Sanlam Limited, a leading South African financial services group, for an agreed takeover of the Group. These negotiations concluded successfully and, as shareholders are aware, on 31 October, we announced terms of the recommended offer ("the Offer") by Sanlam Private Investment Holdings UK Limited ("SPIH") a wholly owned subsidiary of Sanlam. The Offer was declared unconditional as to acceptances on the 24 November and subsequently on 14 December, following receipt of FSA approval for the change of control and with the level of acceptances of shares subject to the Offer at 94.36%, it was declared wholly unconditional. As a result, the Company is applying to the London Stock Exchange for the cancellation of the admission to trading on AIM of Merchant Securities' shares and we expect to make a further announcement shortly regarding the proposed date for delisting.

In light of our agreed takeover by Sanlam and the forthcoming delisting, this half year report will be the Group's last as an AIM-quoted company. I am very pleased to highlight the continuing good progress we have made over the six months to 30 September 2011, with revenue growth across both our wealth management and investment banking activities.

In line with our growth strategy, we have been continuing to develop the Group and invested significantly in the first half in both our wealth management operations and in our investment banking business. In particular, we made a number of key hires. While our investment in resource has had the effect of increasing the cost base and therefore holding back profit growth in the period, we expect to see the benefits of our investment coming through more fully in the second half of the year and beyond. So far, the results we are seeing are very encouraging.

There is no doubt that current trading conditions present challenges however we continue to see interesting growth opportunities and the Group's diversified model gives us a robust platform on which to continue to build. As part of the wider Sanlam Group, we are very well positioned to develop these opportunities and to take advantages of the synergies between Merchant Securities and Sanlam.

Results

Revenues rose by 13% to £4.3 million (2010: £3.8 million) for the six months ended 30 September 2011. Our wealth management activities contributed £2.25 million of revenues to this result, up 7% half year on half year, with investment banking contributing £2.10 million, an increase of 21%. Reflecting the investment we are making to grow the business, particularly in personnel, general administrative expenses showed a significant increase of £0.9m to £3.9 million against the same period last year (2010: £3.0 million). This has affected profitability and as a result, the Group generated a small underlying loss before tax of £35,000 (2010: underlying profit of £342,000). The underlying loss per share was 0.07p (2010: underlying earnings per share of 0.73p). These underlying figures are stated before amortisation of intangible assets and non-recurring items. On a statutory basis, the loss before tax was £240,000 (2010: statutory loss before tax of £242,000) and the loss per share was 0.46p (2010: statutory loss per share of 0.52p).

The Group's balance sheet remains robust, with net cash balances at 30 September 2011 of £2.2 million (30 September 2010: £2.4 million) and no borrowings.

Trading Overview

The acquisition of GT Independent Financial Advisers Limited ("GT") in February 2011 represented another step forward in our strategy to build our wealth management activities. The acquisition has more than doubled the Group's assets under advisory and discretionary management, with the total rising to approximately £421 million from £205 million as a result. During the period, we completed the integration of GT within the Group and we are now focusing on the cross-selling opportunities that are available. With GT adding some new 3,300 private clients, we see excellent scope to offer our wealth management products and services to these newly acquired clients. In June 2011, we appointed a sales director to the wealth management division and we will be continuing to focus on broadening our offering to high net worth individuals. Over the course of the second half, we will be launching a number of new products, including a redeemable income certificate with an annual coupon rate in excess of 8%.

Our investment banking division completed 15 transactions in the period, including three new AIM admissions, Music Festivals plc, the music festivals company, Powerhouse Energy Group plc, the alternative energy company, and Silvermere Energy plc, the investment company. Revenues at the division reached a record high for a six month period and we have continued to expand our equity research coverage. Two highly rated analysts joined us to cover the Oil & Gas and Life Sciences sectors, adding to our existing coverage of the Alternative Energy, Consumer, Support Services and Technology sectors. We also appointed a head of institutional sales and research and strengthened the sales team with new appointments. We see scope to broaden further our research coverage, adding sectors selectively over the coming year.

Outlook

On behalf of the Board, I wish to thank all staff who have contributed to the Group's good performance in the period. As we enter a new phase of growth as part of the wider Sanlam Group, I believe that the Company is very well placed to achieve its growth ambitions.

John Green

Non-executive Chairman

15 December 2011

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Earnings per share

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

*As restated - see note 2

CONSOLIDATED CASH FLOW STATEMENT

* the Company received a capital contribution towards the cost of refurbishing the new premises amounting to £200,000. The benefit from this receipt has been spread over the life of the lease, 6 years.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES

Note 1 - Accounting policies

Basis of preparation

The consolidated interim financial information has been prepared in accordance with IAS 34 'Interim Financial Reporting'. These policies are in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union.

The interim financial statements have been prepared on the basis of the accounting policies as stated in the consolidated financial statements for the year ended 31 March 2010. The interim financial statements should be read in conjunction with those audited financial statements for the year ended 31 March 2011.

The financial information set out in this interim statement is unaudited and does not constitute statutory accounts within the meaning of Section 434 (3) of the Companies Act 2006.

The statutory accounts for the year ended 31 March 2011, which were prepared under IFRS, have been delivered to the Registrar of Companies. The auditors of the Group, Crowe Clark Whitehill LLP, reported on those accounts: their report was unqualified and did not contain a statement under either Section 498 (2) or Section 498 (3) of the Companies Act 2006.

Note 2 - Basis of consolidation

The financial information incorporates the results of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

All intra-group transactions, balances, income and expenses have been eliminated on consolidation.

The income statement for September 2010 has been restated to include the profit share accrual as part of general administrative expenses. The effect of the reinstatement in 2010 is as follows:

The consolidated statement of financial position as at 31 March 2011 has been restated to reflect the increase in the carrying value of goodwill, and the corresponding non-current liability, originally accounted for on a provisional basis. in respect of the acquisition of GT. Following a review of the performance of the GT business since the acquisition and the estimated deferred performance consideration payable, this estimate has been revised. The effect of the restatement as at 31 March 2011 is as follows:

Note 3 - Revenue and gross profit by segment

The Group's results for the period ended 30 September 2011, all of which were generated within the United Kingdom, can be analysed by product as follows:

The Group does not allocate its balance sheet between business segments. 

Note 4 - Particular Administrative Expenses

The Group has disclosed separately the following items, due to their material effect on the accounts:

Note 5 - Taxation

Taxation disclosed in the Consolidated Income Statement represents an estimate of the sum of corporation tax currently payable, any adjustments to previously disclosed corporation tax, and deferred tax income and charges.

The corporation tax currently payable is based on the estimated taxable profit for the period. Taxable profit differs from net profit or loss as reported in the Consolidated Income Statement because it excludes items of income and expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The Group's current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

The tax charge/(credit) is based on the results for the period of ordinary activities and movement in deferred tax. 

Note 5 - Earnings per share

The basic and diluted earnings per share is calculated based on:

Diluted EPS