29 June 07
The year to December 2006 was a period of significant corporate development for Merchant House Group, enabling it to increase the range of corporate services offered to clients. In addition its policy of taking stakes in client companies bore fruit as shown in the value of our investments at a time when we also began to make realisations of earlier holdings.
During the year, our subsidiary, Merchant Capital became a full broking member of the London Stock Exchange and became an OFEX (now PLUS Markets) adviser while the Group also established an asset finance joint venture. We enhanced our
corporate finance/equity fund raising capacity through the recruitment of additional experienced corporate finance and legal executives.
While these developments did not fully show through in our turnover, there were a number of corporate transactions in hand during the latter part of 2006 that reached a successful conclusion early in the current year.
Our corporate team’s experience enables us to provide comprehensive advice to small cap clients both prior to IPO, through the IPO process and thereafter. We are now able to act as corporate broker to AIM and fully listed companies, thus
extending the scope of our services, and we have taken on a number of AIM and PLUS Markets companies as broker and/or financial advisor. We intend to build our position as AIM brokers and advisors but, while AIM has established itself as probably the leading junior market internationally, PLUS is beginning to develop as a real alternative for early stage and microcap companies.
We have established an asset-finance joint venture, Merchant House Finance Limited (“MHF”), in which we have an initial 49% stake, with an option in due course to take this up to 75%. MHF specialises in leasing and other asset-backed finance and provides a significant addition to the Group’s range of facilities. There have already been a number of introductions from the Group to MHF and vice versa and we expect this relationship to continue to develop and look forward to significant growth in MHF’s business.
In addition, we established a proprietary share trading activity during the year which generated turnover of £225,281 (2005: nil). Alongside these corporate developments, we continued our successful investment policy. The market value of our investments including warrants at 31st December 2006 was £672,595 (2005: £940,843) and this was struck after making net realisations during the year of £428,772. Between 1 January and 22 June 2007, the Company sold quoted investments with a cost of £87,621 and a market value at the year end of £163,337, realising £249,152 net of expenses.
Investee companies which made particular progress during the year were copper producer Weatherly International plc whose share price ended the year at 21.5p against an average investment price of 8.6p; Byotrol Plc, in which we hold
warrants, whose shares stood at 70p against a 2005 IPO price of 23p; and Future Internet Technologies Plc (now Artilium Plc) which returned to market after a long period of suspension and stood at 58.75p at the year end against our investment price of 5p.
Turnover for the year rose to £682,217 (2005: £656,864) and the operating result improved to a loss of £218, 574 from £392,414. As a result, the loss on ordinary activities before taxation fell to £238,782 (2005: £385,777), giving a loss per share of 0.69p (2005: 1.99p).
Group net assets were £144,422 at the year end. If investments were carried at market value, net assets would increase to £413,567 and assuming full conversation of the loan notes, which are otherwise repayable in 2010, shareholders’ funds on a pro-forma basis would increase further, to £913,567.
The Directors believe that good progress has been made in 2006 and are pleased to note a better start to 2007. Building on this foundation, the Board will continue to pursue and review opportunities to broaden our corporate advisory services in line with the Company’s stated strategy.
The Board and staff have worked hard in realising the achievements described in this report and I thank them for their efforts.
Martin Eberhardt
Chairman
28 June 2007