Last checked at 8 Dec 2009 07:00
Merchant Securities plc
Interim results for the six month period ended 30 September 2009
INTERIM REPORT TO SHAREHOLDERS
Merchant Securities plc (the "Group"), the financial services group specialising in institutional sales, research and trading, private client broking and investment management, corporate finance and corporate broking, announces its interim results for the six month period ended 30 September 2009.
Financial and operational highlights:
Gross revenue £3.3 million (£2.4 million for corresponding period in 2008) up 37%
Underlying profit before tax £289,471*, compared to a loss of £581,575** for the same period in 2008
Profit before taxation £123,000, compared to a loss of £1.35 million for the same period in 2008
Strong balance sheet with £2.2 million of net cash
Advisory and discretionary funds under management increased 70% on corresponding period in 2008 to £152 million
Trading subsidiaries integrated and rebranded as Merchant John East Securities Limited
Acquisition of Cavendish Young Limited, an Independent Financial Adviser and fee based Wealth Management company.
(* underlying profits are before amortisation of intangible assets and discretionary profit share)
(** underlying losses are before goodwill impairment, revaluation of investments and non-recurring items)
Patrick Claridge, Chief Executive, Merchant Securities plc, says:
"The action taken last year to focus on the Group's core activities and manage the cost base has assisted in producing the positive results presented in the interim report. Conditions allowing, we are optimistic that we will build on the progress of the first half when we moved back into profit before tax and that the Group is now well placed to take advantage of growth opportunities in the future."
For further information please contact:
| Merchant Securities plc Patrick Claridge, Chief Executive | 020 7375 9010 |
| Arden Partners plc Richard Day/Matthew Armitt | 020 7614 5917 |
| Broadgate Mainland Roland Cross/Elizabeth Hannaway
| 020 7726 6111 |
Chairman's Statement
Introduction
I am pleased to announce a profitable result for the six month period ended 30 September 2009. This is a substantial turnaround from the outcome for the same period in 2009 and reflects the board's decision, taken last year, to focus on the Group's core activities and has been assisted by an improvement in some of the markets in which we operate.
The restructure and branding referred to in my last Chairman's statement have been completed. Operating as one company under the single brand name of Merchant John East Securities Limited, we are now in a strong position within the industry to offer a full range of financial services encompassing private client broking and investment management, institutional research and sales trading and corporate finance and broking.
Operational and financial review
Gross revenue increased 37% in the period under review to £3.27 million (£2.39 million 2008) with operating profit before amortisation, and provision for a profit sharing bonus pool, of £289,471 compared to a loss of £581,575 in the corresponding period in 2008. Net profit before taxation was £123,000, compared to a loss of £1.35 million for the corresponding period last year.
Cash balances remain strong at £2.2 million net of a small overdraft resulting from the acquisition of Cavendish Young.
Equity markets were strong in the period under review, and provided a favourable environment for our institutional sales trading and research activities. All performed well and added to their client bases. In particular we have continued to increase the number of institutional clients subscribing to the daily research product, Mercantalyst, the insightful and highly regarded technical review of trends in the market.
Our private client business, too, together with our contracts for difference activities, enjoyed the more favourable market conditions. We launched a further three managed funds in the period, taking our total to seven. We also acquired Cavendish Young Limited, an independent wealth management company, which has allowed us to increase the range of services we offer to private clients. A combination of these factors enabled us to increase funds under group management by £46 million and the private client base by 2,500 clients.
Although there has been a pick up in the level of activity in the large end of the corporate market, this has not been true of AIM where we operate predominately. Business conditions have remained difficult for raising money for smaller companies. In June this year, however, our corporate finance division advised and acted for Toluna plc on its acquisition of the ISS division of Greenfield Online, Inc. a subsidiary of Microsoft Corporation, Inc. This transaction was named the AIM Transaction of the Year at the recent 2009 AIM Awards and we are pleased to have played our part in its execution.
Strategic development
We have now successfully completed the integration of the Merchant Securities' and John East & Partners' businesses. These are now trading under the single name of Merchant John East Securities Limited. We have no doubt that significant synergies will flow from this, particularly when we are able to move both businesses into the same office, which we expect to take place in the middle of next year.
As stated above Cavendish Young, the wealth management advisory business, has recently been acquired. This has now been relocated to our head office in Bevis Marks, London and is expected to produce significant benefits for our existing private client business.
We continue to look for further acquisitions of groups of individuals and businesses which will help us to build our core activities.
Outlook
With the restructuring now completed and the Group positioned with the one Merchant John East Securities brand, we expect to make further progress in the second half. We look to continue to build our institutional and private client businesses, while there are signs of more activity in our corporate finance area.
The strength of the Group now allows us to seek to continue to grow by acquisition as well as organically and it is the board's intention to do so should the right opportunities arise.
All the activities of the Group are seeing signs of improvement. General conditions allowing, we are optimistic that we will continue with the progress made in the first half of the year.
8 December 2009
About Merchant Securities plc
Merchant Securities plc provides a range of financial service products and advice to high net worth private clients, institutions and smaller businesses. The Company is the parent company of Merchant John East Securities Limited, which is authorised and regulated by the Financial Services Authority and provides a range of services, including advisory and discretionary wealth management for high net worth private clients, research, sales and sales trading for institutional investors, and corporate finance and corporate broking services, including raising capital, for smaller public and private companies. In September 2009, it acquired Cavendish Young Limited, an Independent Financial Adviser and fee based Wealth Management company.
MERCHANT SECURITIES PLC
Interim unaudited accounts for the six month period ended 30 September 2009
CONSOLIDATED INCOME STATEMENT
| Six months to 30 September 2009 Unaudited £000 | Six months to 30 September 2008 Unaudited £000 | Year ended 31 March 2009 Audited £000 |
| Revenue | 3,266 | 2,381 | 5,425 | |||
| Cost of sales | (605) | (426) | (829) | |||
| Gross Profit | 2,661 | 1,955 | 4,596 | |||
| Other income | - | 4 | 40 | |||
| General administrative expenses | (2,396) | (2,626) | (5,266) | |||
| Impairment of goodwill | - | - | (2,624) | |||
| Impairment of intangible assets | - | - | (647) | |||
| Amortisation of intangible assets | (84) | (60) | (120) | |||
| Revaluation of assets held for sale | - | (422) | (382) | |||
| Profit/(loss) on disposal of trading investments | 19 | - | (15) | |||
| Non-recurring items | - | (287) | (287) | |||
| Profit share accrual | (82) | - | - | |||
| Operating profit/(loss) | 118 | (1,436) | (4,705) | |||
| Investment revenues*1 | 5 | 86 | 147 | |||
| Interest payable*1 | - | - | (18) | |||
| Profit/(loss) before taxation | 123 | (1,350) | (4,576) | |||
| Taxation | - | 9 | 108 | |||
| Profit/(loss) attributable to equity holders | 123 | (1,341) | (4,468) |
*1 September 2008 restated. Interest received and interest paid have been netted at September 2008 for comparability purposes.
Earnings per share
| Basic | 0.26p | (3.61p) | (10.63p) | |||
| Diluted | 0.24p | (3.61p) | (10.63p) |
| The profit/(loss) for the period attributable to equity holders of the Company is as follows: | | | | | | |
| Profit before tax, goodwill impairment, revaluation of investments and non-recurring items | 289 | | (582) | | (501) | |
| Impairment of goodwill | - | | - | | (2,624) | |
| Impairment of intangible assets | - | | - | | (647) | |
| Amortisation of intangible assets | (84) | | (60) | | (120) | |
| Revaluation of investments held for sale | - | | (421) | | (382) | |
| Loss on disposal of investments held for sale | - | | - | | (15) | |
| Non-recurring items | - | | (287) | | (287) | |
| Profit share accrual | (82) | | - | | - | |
| | 123 | | (1,350) | | (4,576) | |
| Taxation | - | | 9 | | 108 | |
| Profit/(loss) attributable to equity holders | 123 | | (1,341) | | (4,468) | |
| | | | | | | |
MERCHANT SECURITIES PLC
Interim unaudited accounts for the six month period ended 30 September 2009
CONSOLIDATED BALANCE SHEET
| 30 September 2009 Unaudited £000 | 30 September 2008 Unaudited £000 | 31 March 2009 Audited £000 |
| Non-current assets | ||||||
| Goodwill | 2,757 | 5,128 | 2,554 | |||
| Intangible assets | 478 | 1,269 | 562 | |||
| Property, plant and equipment | 243 | 332 | 275 | |||
| Trade and other receivables | 150 | 150 | 150 | |||
| 3,628 | 6,879 | 3,541 | ||||
| Current assets | ||||||
| Trade and other receivables | 1,522 | 877 | 1,027 | |||
| Trading investments | - | - | - | |||
| Cash and cash equivalents | 2,191 | 2,270 | 2,153 | |||
| 3,713 | 3,147 | 3,180 | ||||
| Total assets | 7,341 | 10,026 | 6,721 | |||
| Current liabilities | ||||||
| Trade and other payables | (1,052) | (916) | (727) | |||
| Current tax liabilities | - | - | - | |||
| (1,052) | (916) | (727) | ||||
| Non-current liabilities | ||||||
| Deferred consideration | (176) | - | - | |||
| Deferred tax liabilities | (16) | (21) | (16) | |||
| Total liabilities | (1,244) | (937) | (743) | |||
| Total assets less liabilities | 6,097 | 9,089 | 5,978 | |||
| Equity | ||||||
| Share capital | 3,272 | 3,272 | 3,272 | |||
| Share premium account | 11,705 | 11,705 | 11,705 | |||
| Other reserves | (3,845) | (3,845) | (3,845) | |||
| Share-based payment reserve | 288 | 241 | 292 | |||
| Revaluation reserve/(deficit) | - | 35 | - | |||
| Retained earnings | (5,323) | (2,319) | (5,446) | |||
| Equity attributable to equity holders | 6,097 | 9,089 | 5,978 |
CONSOLIDATED CASH FLOW STATEMENT
| Six months to 30 September 2009 Unaudited £000 | Six months to 30 September 2008 Unaudited £000 | Year ended 31 March 2009 Audited £000 |
| Cash flow from operating activities | ||||||
| Cash generated from operations | 97 | (1,081) | (1,087) | |||
| Interest received | 5 | 158 | 147 | |||
| Interest paid | - | (72) | (19) | |||
| Tax paid | - | (46) | (92) | |||
| Net cash generated from / (used in) operating activities | 102 | (1,041) | (1,051) | |||
| Cash flows from investing activities | ||||||
| Acquisition of subsidiary business | (60) | - | (50) | |||
| Purchase of property, plant and equipment | (23) | (4) | (11) | |||
| Proceeds from disposal of available-for-sale investments | 19 | - | 25 | |||
| Purchase of held-for-sale investments | - | - | (75) | |||
| Net cash generated from investing activities | (64) | (4) | (111) | |||
| Cash flows from financing activities | ||||||
| Net proceeds from sale of shares | - | 1,522 | 1,522 | |||
| Net cash generated from financing activities | - | 1,522 | 1,522 | |||
| Net increase in cash and cash equivalents | 38 | 477 | 360 | |||
| Cash and cash equivalents at beginning of period | 2,153 | 1,793 | 1,793 | |||
| Cash and cash equivalents at end of period | 2,191 | 2,270 | 2,153 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
| Share capital | Share premium | Other reserves | Revaluation reserve | Share based payment reserve | Retained earnings | Total Equity | |
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| Equity as at 1 April 2007 | 1,942 | 7,408 | (3,845) | (41) | 64 | (242) | 5,286 |
| Revaluation of investments available for sale at fair value | (64) | (64) | |||||
| Deferred tax credit | 19 | 19 | |||||
| Profit for the 6 months ended 30 September 2007 | 53 | 53 | |||||
| Total recognised income and expenses for the period | (45) | 53 | 8 | ||||
| Share based payments | 33 | 33 | |||||
| Equity as at 30 September 2007 | 1,942 | 7,408 | (3,845) | (86) | 97 | (189) | 5,327 |
| Revaluation of investment at fair value | 133 | 133 | |||||
| Deferred tax credit | (11) | (11) | |||||
| Loss for the 6 months ended 31 March 2008 | (789) | (789) | |||||
| Total recognised income and expenses for the period | 122 | (789) | (667) | ||||
| Issue of shares | 1,173 | 2,932 | 4,105 | ||||
| Share based payments | 55 | 55 | |||||
| Equity as at 31 March 2008 | 3,115 | 10,340 | (3,845) | 36 | 152 | (978) | 8,820 |
| Revaluation of investment at fair value | - | ||||||
| Deferred tax credit | - | ||||||
| Loss for the 6 months ended 30 September 2008 | (1,341) | (1,341) | |||||
| Total recognised income and expenses for the period | (1,341) | (1,341) | |||||
| Issue of shares net of costs | 157 | 1,365 | 1,522 | ||||
| Share based payments | 89 | 89 | |||||
| Equity as at 30 September 2008 | 3,272 | 11,705 | (3,845) | 36 | 241 | (2,319) | 9,090 |
| Revaluation reserve movement | (36) | (36) | |||||
| Share based payments | 52 | 52 | |||||
| Loss for the 6 months ended 31 March 2009 | (3,127) | (3,127) | |||||
| Equity as at 31 March 2009 | 3,272 | 11,705 | (3,845) | - | 293 | (5,446) | 5,979 |
| Share based payments | (5) | (5) | |||||
| Profit for the 6 months ended 30 September 2009 | 123 | 123 | |||||
| Equity as at 30 September 2009 | 3,272 | 11,705 | (3,845) | - | 288 | (5,323) | 6,097 |
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 2009. The interim financial statements should be read in conjunction with those audited financial statements for the year ended 31 March 2009. The Group has adopted the requirements of IFRS 8 - Segmental Reporting for the first time, the results of which are presented in note 3. below.
The financial information set out in this interim statement is unaudited and does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985.
The statutory accounts for the year ended 31 March 2009, which were prepared under IFRS, have been delivered to the Registrar of Companies. The auditors of the Group, Horwath Clark Whitehill LLP, reported on those accounts: their report was unqualified and did not contain a statement under either Section 237 (2) or Section 237 (3) of the Companies Act 1985.
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.
Note 3 - Revenue and gross profit by segment
The Group's results for the period ended 30 September 2009, all of which were generated within the United Kingdom, can be analysed by product as follows:
| Six months to 30 September 2009 Unaudited £000 | Six months to 30 September 2008 Unaudited £000 | Year ended 31 March 2009 Audited £000 | |
| Revenue | ||||||
| Private client | 1,788 | 1,175 | 2,396 | |||
| Institutional broking | 708 | 336 | 1,199 | |||
| Corporate | 803 | 870 | 1,830 | |||
| Central | (33) | - | - | |||
| 3,266 | 2,381 | 5,425 | ||||
| Profit/(loss) before tax | ||||||
| Private client | 585 | (152) | (253) | |||
| Institutional broking | 100 | (261) | 355 | |||
| Corporate | (396) | (259) | (714) | |||
| Central | (166) | (678) | (3,965) | |||
| 123 | (1,350) | (4,577) | ||||
| Total assets - Central | 7,341 | 10,026 | 6,721 | |||
The Group does not allocate its balance sheet between business segments. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 4 - 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.
| Six months to 30 September 2009 Unaudited £000 | Six months to 30 September 2008 Unaudited £000 | Year ended 31 March 2009 Audited £000 |
| Current UK corporation tax | - | 5 | (78) | |||
| UK Corporation tax adjustments in respect of prior periods | - | - | (25) | |||
| Deferred tax | - | (14) | (5) | |||
| - | (9) | (108) |
Note 5 - Earnings per share
The basic and diluted earning per share is calculated based on:
| Six months to 30 September 2009 Unaudited £000 | Six months to 30 September 2008 Unaudited £000 | Year ended 31 March 2009 Audited £000 |
Basic EPS
| Profit/(loss) for the period | 123 | (1,341) | (4,468) | |||
| Weighted average number of shares in issue (000) | 46,897 | 37,172 | 42,021 |
Diluted EPS
| Profit/(loss) for the period | 123 |
(1,341) |
(4,468) | |||
| Weighted average number of shares in issue (000) | 52,219 |
42,717 | 47,220 |