Merchant House Group PLC

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.

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