Shore Capital Group Limited : Preliminary Results

Shore Capital Group Limited

Preliminary Results for the Year Ended 31 December 2011

Shore Capital Group Limited ("Shore Capital"), the independent investment group specialising in principal finance, equity capital market activities and alternative asset management, today announces its preliminary results.

Financial Key Points

• Revenue from operating businesses^* of £32.3m (2010: £37.3m)  

• Profit before tax from operating businesses^* of £5.4m (2010: £10.2m)  

• Statutory revenue of £29.5m (2010: £35.5m), and loss before tax of £0.9m (2010: Profit £8.4m)  which includes:  

  • £4.8m loss on investment in Puma Hotels; and  

  • £1.3m loss due to the requirement to consolidate in full our investment in Spectrum Investments  

• Balance sheet liquidity of £50.5m (2010: £47.6m) of which £47.3m (2010: £44.2m) in cash  

*Operating businesses exclude Spectrum / DBD

Operational Highlights

• Extremely resilient performance from ECM achieving a pre tax profit of £5.0m (2010: £7.6m)  

• ECM starts 2012 with a significantly expanded corporate client base with more AIM advisory mandates won than any of its competitors in the last quarter of 2011  

• Asset management builds on strong VCT track record with launch of Puma VCT 8  

• Acquisition of Spectrum Investments presents significant opportunity  

Howard Shore, Executive Chairman of Shore Capital, said:
"2011 proved to be one of the most challenging years for our industry since the establishment of our business in 1985. Despite this tough backdrop, our diversified business continued to demonstrate considerable resilience with healthy profit contributions from our operating businesses.

While it is disappointing to report a statutory loss, as foreshadowed last November, it arises from the combination of the loss on our investment in Puma Hotels and the loss in Spectrum as anticipated when it was acquired.

Activity levels so far in 2012 have picked up well from the quieter months of last year's second half but are still behind the comparable period last year.

We continue to focus on the development of the Group's diverse niches of expertise with the aim of creating meaningful upside for shareholders."

Enquiries:

Notes to Editors

Shore Capital

1. Shore Capital is an AIM-listed independent investment group.  It specialises in principal finance, equity capital market activities and alternative asset management.  The Equity Capital Markets division ("ECM") offers a wide range of services for companies, institutions and other sophisticated clients, including corporate finance, stockbroking and market-making. Shore Capital Limited manages specialist funds, with a particular focus on alternative asset classes.

2. Shore Capital is based in Guernsey, London, Liverpool, Edinburgh and Berlin. Shore Capital Limited, Shore Capital Stockbrokers Limited and Shore Capital and Corporate Limited are each authorised and regulated by the Financial Services Authority. Shore Capital Stockbrokers Limited is a member of the London Stock Exchange.

3. Further information on Shore Capital, its products and services can be found at www.shorecap.gg

Chairman's Statement

Introduction

2011 proved to be one of the most challenging years for our industry since the establishment of our business in 1985. Despite this tough backdrop, our diversified business continued to demonstrate considerable resilience, achieving a profit before tax from our operating businesses of £5.4m (2010: £10.2m).

After a good start to the year, corporate activity levels waned in the third quarter amid Eurozone fears and poor IPO market conditions. However, our Equity Capital Markets ("ECM") division achieved a very creditable performance for the full year, adding 18 new mandates to its list of retained corporate clients and handling 9 fundraisings in the natural resources sector alone.  Market making, specialist research and corporate broking all contributed to one of the most resilient performances in the sector.

Other highlights of the year included the acquisition of a 51% controlling stake in Spectrum Investments Limited ("Spectrum"), which acquired a 58 per cent interest in DBD Deutsche Breitband Dienste GmbH ("DBD").  The investment in this German telecoms business builds further upon our existing presence in Germany, where we manage a substantial property portfolio.

Having used 2011 to focus our operating businesses on areas where we have strong market niches, we have closed those activities which we consider to be sub-scale, namely private client discretionary management and our fund of hedge funds.

Our statutory results for the year disappointingly show a loss before tax of £0.9m due to a combination of a loss of £4.8m on our investment in Puma Hotels and a loss of £1.3m as a result of the accounting requirement to consolidate in full our investment in Spectrum/DBD.

Financial Review

Table 1 gives an analysis of the results of the group on a like-for-like basis for the current and comparative years, split between the results of the operating businesses and movements in the value of investments held on our balance sheet.  It is pro forma as it excludes the income and expenditure relating to Spectrum and DBD in 2011 and the income and expenditure of Puma Brandenburg in 2010. As a result of the acquisition structure used, the accounting rules require the revenue and costs of Spectrum and DBD to be consolidated in full even though we only have a net economic interest in DBD of just under 30 per cent (via our holding in Spectrum).

Table 1: Analysis of the Pro forma Unaudited Consolidated Comprehensive Income Statement (excluding Spectrum and DBD for 2011 and Puma Brandenburg for 2010)

Table 2 takes the total from Table 1 and shows the effect of consolidating the income and expenditure relating to Spectrum and DBD since their acquisition. We own an economic interest of 51% in Spectrum and accordingly the balance of the loss before tax is not attributable to our shareholders.

 

Table 2: Analysis of the Unaudited Consolidated Comprehensive Income Statement (including Spectrum and DBD for 2011, and excluding Puma Brandenburg for 2010)

 

Income and Expenditure

The Group excluding Spectrum/DBD
Revenue from operating businesses declined by 13.5 per cent to £32.3m (2010: £37.3m), reflecting a highly resilient performance in an extremely challenging market.

Including the net loss of £5.0m from balance sheet holdings, total revenue for the Group was £27.2m (2010: £35.5m).  Last November we issued an announcement to alert our investors to the possibility of a substantial reduction in the value of our investment in Puma Hotels ("PHP"), and £4.8m of the loss from balance sheet holdings was attributable to this. As at 31 December 2011, our investment in PHP was valued at £450,000.

Administrative expenses were slightly down on the prior year at £26.5m (2010: £26.8m) providing an operating profit from our operating businesses of £5.8m (2010: £10.6m).

Interest income was £0.3m (2010: £0.3m), whilst finance costs were £0.6m (2010: £0.6m) resulting in profit before tax from operations of £5.4m (2010: £10.2m). The net margin before tax from operations was 16.8 per cent (2010: 27.3 per cent). Including the net loss from balance sheet holdings, the profit before tax was £0.4m (2010: £8.4m).

Revenue from ECM was £22.5m (2010: £26.3m) with a net margin of 22.3 per cent (2010: 29.1 per cent).  Revenue from Asset Management was £8.6m (2010: £10.0m) with a net margin of 26.0 per cent (2010: 41.4 per cent).

Spectrum Investments / DBD
As a result of the acquisition structure used, the accounting rules require the revenue and costs of Spectrum and DBD to be consolidated in full even though we only have a net economic interest in DBD of just under 30 per cent (via our holding in Spectrum).

The consolidated loss before tax arising from this investment is £1.3m. This has offset the profit before tax of the rest of the group and has led to a reported loss before tax of £0.9m (2010: profit of £8.4m).

Contribution from PBL
In the prior year, Puma Brandenburg generated £1.0m after tax in the period during which it was part of the Group. As a consequence of the de-merger we have presented, in accordance with accounting rules, the contribution from Puma Brandenburg separately from the continuing operations of the Group.

Basic Earnings per Share
Including the effects of Spectrum/DBD, the Group generated losses per share of 0.45p (2010: earnings of 1.83p).

Comprehensive Earnings per Share
On a Comprehensive basis, the group generated a loss of 0.89p per share (2010: earnings of 2.00p).

Staff Costs
Staff costs, including incentive costs, were 43.9 per cent of operating revenue (2010: 40.1 per cent).  For 2011, operating revenue excludes revenue from Spectrum and DBD, and for 2010 it excludes revenue from PBL as it was de-merged.

Liquidity
We extended our medium term evergreen bank facility by one year so that it now runs to June 2014 with a minimum two year notice period.  The facility size is £20m, of which £15m is committed and was drawn down at the year end.  Separately, our £20m working capital facility (which was unutilised at the year end) was also extended for a further year.  

As at the balance sheet date, available liquidity was £50.5m (2010: £47.6m), comprising £47.3m (2010: £44.2m) of cash and £3.2m (2010: £3.4m) of gilts and bonds.  This demonstrates the Group's flexibility to undertake a range of transactions as opportunities arise.

Share Buy-backs and Cancellations
During the year, we bought back and cancelled 3,638,549 shares at a cost of £946,000 in aggregate, equating to an average price of 26.0 pence per share.

Balance Sheet
Our balance sheet remains strong. Total equity at the year end was £65.4m (2010: £69.8m). The movement comprised the comprehensive loss for the year of £2.0m, dividends paid of £3.7m (including those to minority interests), and £0.9m which the Group spent in the year buying back its own shares, against which there was an increase of £2.3m from the investment by the non controlling interests in Spectrum.

At the year end we held £3.2m of gilts and bonds, £1.2m net in quoted equities and £0.7m net in the Lily Partnership.  After allowing for £15.0m of borrowings on the Group's bank facilities, net cash was £32.3m.  There were £8.4m of holdings in the various Puma Funds and £1.4m in other holdings, all of which were unquoted, and (on a gross basis, before allowing for non controlling interests) £4.7m of assets in Spectrum.  The remainder of the balance sheet was £13.5m net, which includes £17.0m of net market debtors in our stockbroking subsidiary less various accruals.

Net Asset Value per Share
Net asset value per share at the year end was 24.2p (2010: 26.2p).

Dividend
We propose a final dividend of 0.25p per share (2010: 0.625p). In addition to the interim dividend of 0.25p (2010: 0.25p) per share, this gives a total dividend of 0.50p per share (2010: 0.875p per share).  The dividend will be paid on Thursday 3 May, 2012 to shareholders on the register as at Friday 20 April, 2012.

Last year I wrote that the dividend policy would be reviewed by the Directors in light of the changing fiscal environment, and we shall continue to keep this under review. Given the changes to the rate of income tax announced in the recent UK budget, it is the Board's current intention not to declare an interim dividend for 2012, but to declare a final dividend to be paid in April 2013.

Operating Review
The following operating review reports on our two main areas of focus, namely Equity Capital Markets and Alternative Asset Class Fund Management/Principal Finance.

Equity Capital Markets ("ECM")

Overview
In ECM we provide research in selected UK sectors covering c.200 companies, broking for institutional and professional clients, market-making in c.1,250 UK stocks, with a particular focus on the AIM segment, and corporate finance for mid and small cap companies.

Following on from its strong performance in the first half the division had a resilient performance in the second half trading profitably in the most challenging of environments and achieving a profit before tax for the year of £5.0m (2010: £7.6m). Each of the division's operating businesses continued to produce robust revenues and we continue to benefit from the division's diverse income streams. Having a strong balance sheet and continuing to be viewed as a strong and consistent counterparty by both our clients and market participants is believed to be a key strength in the current trading environment.

Our natural resource franchise continued to grow and we now have 19 clients which is an increase of 10 during the second half. Overall we are now retained adviser to some 60 companies having added a further 3 clients since the start of 2012. 

We saw strong interest in our equity income product that was introduced in the second half of 2011 and look forward to further progress.

Since the year end we have added three senior, experienced individuals to our sales team providing added breadth to our core UK distribution and also broadening our reach to (Swiss) Private banks and the Nordic region.

Market-making
After a very strong first half our market-making team had to contend with a back drop of fragile, volatile and much reduced volumes in the second half of the year. However, we are pleased to report that the team performed well, although at a lower level of profitably than in the first half. We continue to benefit from a relatively low inventory and tight cost structure, and this performance again demonstrates the strength and robustness of our franchise. Since the start of 2012 we have seen a recovery in volumes in the AIM and smaller companies segment. Any continuation of such trend will benefit the business.

We deal direct with the major retail brokers as a Retail Service Provider through a broad range of electronic links and with the institutions active in small cap stocks. London Stock Exchange statistics show us to be the third largest market maker by number of stocks covered, second largest on AIM by volume of trades and third largest by value.  

Research and Sales
2011 saw a continuation of the difficult market conditions seen in 2010 as volumes across the UK market declined. Market participants continued to grapple with the combination of an uncertain economic outlook and the knock on effect from regulatory changes which lessened trading activities.

Despite this difficult back drop, the strong and growing positive reputation of Shore Capital's equity research and distribution capabilities came to the fore in these prolonged challenging market conditions. An experienced, settled and expanding team grew market share through its close relationships with their clients; relationships that were also reflected in an excellent measure in the Thomson Reuters Extel survey, which positioned Shore Capital in the top ten for UK Small & Mid Cap research.

Our expanding presence in the market is also reflected in the many road shows and institutional investor events that we stage, often for FTSE-100 companies, and our high profile in leading financial journals. In addition to robust business flows, whereby we gained market share, our high quality research, distribution and execution also played a key role in the further development of our corporate client list.

 

Corporate Finance
Our corporate finance team had a busy year in 2011 completing several notable transactions including five admissions, two takeovers, eleven placings and a number of other transactions.  The admissions involved companies in a number of sectors including Clontarf (Oil & Gas Exploration), Beale (Department Stores) and New World Oil & Gas (Investing Company in Oil & Gas) in the first half of the year and Sovereign Mines of Africa (Gold Exploration Company) and Inspired Energy (Provider of Energy Purchasing and Energy Consultancy Services) in the second half of the year. We also acted for OpSec Security Group on its takeover by Investcorp and for a consortium of major banks on their offer for Cattles.

The team also achieved continued success in growing its retained client list adding 18 new clients in the period (excluding new clients floated as highlighted above) including Cranswick, a FTSE 250 company.  We are now retained adviser to some 60 companies having added a further 3 clients since the period end. 

Overall, there was a significantly improved contribution from corporate finance and corporate broking.

Since the year end, we have concluded a further fundraising for New World Oil & Gas raising £8.5 million, acted as broker for Tangiers Petroleum in relation to its admission on AIM and advised Bisichi Mining in relation to a disposal. The stronger market in resource related stocks continues and this together with the other marketing initiatives, have generated a healthier pipeline for 2012.

Alternative Asset Class Fund Management and Principal Finance

Overview
The revenue of our alternative asset class fund management business fell 14 per cent compared to 2010, primarily because of changes in the fee arrangements for Puma Hotels.  The Board took the decision to close two sub-scale activities, namely the discretionary investment management service for private clients and the hedge fund of funds to focus on areas where we have strong market niches. This will have the effect of reducing funds under management by c.£90m. We believe that the asset management business is well-positioned to grow organically by focusing on the activities in which it has critical mass.  

Fund performance
The table below summarises the performance of the various funds we run, both absolute and relative return, for the calendar year 2011 where applicable and since inception.  
Returns from Absolute Return Products
Performance in 2011 and since Inception (net of management and performance fees)

⁽¹⁾  Weighted composite of VCTs  ⁽²⁾ Based on last published Net Asset Values
⁽³⁾  Post tax returns include the effect of the tax relief gained upon initial investment

Funds Under Management
Funds under management as at 31 December 2011 were £1.21 billion ($1.86 billion), compared to the £1.31 billion ($2.06 billion) at 31 December 2010.  
Venture Capital

Puma Venture Capital Trusts ("VCTs")
To date we have successfully launched seven Puma VCTs and are currently raising Puma VCT 8 which will follow the same successful investment strategy, and build on the market-leading track record, of the previous Puma VCTs.  

Each of our VCTs has a focus on providing secured loans to well-run companies finding it hard to raise finance on attractive terms from banks.  They are each limited-life vehicles, aiming to distribute to their investors the initial capital and returns after five years. Puma VCTs I-V have each produced the highest total return of their respective peer groups.

The first two of our VCTs, which were raised in 2005, are the only such VCTs to have paid out in cash 100p to investors (which relates to a net investment cost of 60p per share). They have approximately 3p of assets yet to distribute and are the top performing VCTs in their limited-life peer group.  In accordance with the plans set out in their original prospectus, they are now being wound up.

Puma VCTs III and IV have also passed their five year period and are in the process of completing the return of their capital to their shareholders.  A substantial proportion of their respective assets have been successfully liquidated and they have so far returned 85.5p per share in cash to their investors (which again relates to a net investment cost of 60p per share).  They have approximately 9p of assets yet to distribute, representing the highest total return of any limited life VCT raised in that year. 

Puma VCT V is the top performing VCT of all those raised in 2007, whilst Puma High Income VCT (launched in 2010) and Puma VCT VII (launched in 2011) have both started well and have paid out dividends to date of 14p and 5p respectively.

The continuing tight market in credit for companies since the financial crisis of 2008 has engendered a strong demand for this type of offering so we are pleased to have recently launched our eighth VCT for the current tax year and hope to capitalise on our excellent track record.

St Peter Port Capital ("St Peter Port")
St Peter Port Capital was launched in April 2007 as a pre-IPO fund but has since widened its investment mandate to include providing bridging finance ahead of trade sales and other opportunistic investing in development capital situations. As at 31 December 2011 it had investments in 49 investee companies and had a NAV per share of 105.35p after payment of an inaugural dividend of 3p per share and a special dividend of 2p per share. The reduction in NAV over the year of 7.0% was a particularly resilient performance in the face of another extremely distressed period for small cap and illiquid securities.

St Peter Port's portfolio is weighted towards stocks exposed to commodities (oil and gas, mining and resources).  The climate, both in the UK and in other relevant markets such as Canada, is currently conducive to listings of these kinds of stocks and as a result St Peter Port has benefited.  It has had several significant successes including a very large gain from Brazilian oil explorer HRT Participacoes em Petroleo ("HRT"), where it generated a gain of £20.7m from an initial investment of $5.0m.

Real Estate

Puma Brandenburg Limited ("PBL")
On 13 February 2012, Puma Brandenburg Holdings Limited ("PBHL") amalgamated with its subsidiary PBL to achieve a simplified corporate structure. The amalgamated entity, PBL, for which Shore Capital acts as the property investment adviser, is no longer listed. Shore Capital Stockbrokers Limited intends to continue to provide an over-the-counter matched bargain service for holders of the new PBL shares wishing to trade their shareholdings.

PBHL reported solid results for the 6 months ended 30 September 2011 with a profit after tax of €3.4m generated from revenues of €16.4m. A number of rent increases took effect in October across the Berlin residential portfolio and irrecoverable costs have been kept low due to fewer repairs and a lower cost associated with flat refurbishment. The demand for apartments at Mendelsohn Quartier in Berlin remains strong and sales generated €1.7m of cashflow in the 6 month period.  

Significant progress was also made on extending debt maturity within PBL's various subsidiaries. An extension of the "Barrel" portfolio debt was agreed in November for an additional two years, until August 2014, with an option to extend for a further two years. The portfolio holds the Hyatt Regency Hotel in Cologne, an Ibis hotel in Nuremberg and two other smaller assets.  During this period, the Company also secured an extension option for an additional two years to July 2014 on the Lidl portfolio senior debt. PBL also completed the drawdown of a new €2 million loan facility with Landesbank Berlin AG on part of the Mendelsohn Quartier Portfolio.

Germany's economy continues to demonstrate a comparatively robust and resilient position and investor sentiment towards the German real estate market has increased with investment levels in 2011 hitting €23.5bn, 20% up on 2010. Confidence has particularly improved in the Berlin residential market.

The team continues to actively manage the fundamentals of the portfolio to assist PBL in meeting its objective of delivering long term value.

Puma Hotels ("PHP")
PHP announced on 3 April 2012 that it had signed a business transfer agreement providing for the early termination of leases with Barceló Corporación Empresarial S.A. ("BCE") and various UK subsidiary undertakings of BCE (together "the BCE Entities").  This agreement relates to the leases of the hotels owned by PHP ("the Leases") which are held by the BCE Entities.   

The agreement with BCE and the BCE Entities, subject to certain conditions being met, provides for the termination of the Leases on 25 April 2012.  BCE will pay on the completion date to PHP the net sum of £20.25m (excluding VAT) in respect of the early termination of the Leases.  There will also be a completion adjustment payment made to PHP on completion to take account of various working capital apportionments.

The agreement also provides for an orderly handover of the operations of the hotels from the BCE Entities to PHP.  Prior to the grant of the Leases in 2007, PHP itself operated the hotels through the head office infrastructure and team which it established in Hinckley and that head office will transfer back to PHP upon completion of the agreement. 

In conjunction with the negotiation of the agreement with BCE, PHP has negotiated with its bankers, Irish Bank Resolution Corporation Limited, an option to extend its current debt facility until 31 December 2013, subject to meeting certain conditions.

Shore Capital will continue to provide asset management services to PHP. PHP has also appointed Chardon Management Ltd ("Chardon") to assist in the management of the hotels.  Chardon is a leading independent UK hotel management company working on behalf of numerous hotel owners and investment groups.  It currently manages 33 hotels, across the UK, with 3 new openings scheduled in Glasgow, Windsor and Southend this year.

PHP intends to revive its Paramount Hotels brand as part of a strategy to focus on the strengths of its hotels in their local and regional markets.  It is intended that a full public re-launch of the Paramount brand will be made following the successful handover of the hotels from the BCE Entities.

Hedge Funds

Puma Sphera
Asset markets were highly volatile in 2011, impacted by a range of events including social uprisings in several Arab countries and the re-emergence of the European debt crisis. Puma Sphera had a difficult year, returning -8.1% with a volatility of 5.3%. This compares with a return and volatility for the Tel Aviv Stock Exchange of -20.1% and 11.8% respectively. Nevertheless, Puma Sphera's investment strategy remains robust and its long term track record highly attractive; with an IRR since inception of 10% compared with 2.3% for the index.

Puma Absolute Return Fund ("PARF") and Private Client Investment Management
In 2011 PARF had a resilient performance in the face of volatile markets. Over the year it returned -7.03% per cent, which compared to -6.21% per cent for the BarclayHedge Fund of Hedge Funds Index (the relevant benchmark). In light of the size of PARF, which at the year end had a net asset value of c.$14m, Shore Capital advised the Board of PARF that it considered PARF to be sub-scale and recommended that it be closed.  The Board of PARF has since determined to liquidate the portfolio and return the proceeds to investors.  It is anticipated that cash will be returned to shareholders on or about 30 April 2012 and that thereafter PARF will be liquidated.  

Following the year end, the Board of Shore Capital has also taken the decision to cease to provide discretionary investment management services to private clients. The strategic decision was taken despite the division's strong track record because it was considered that the offering was sub-scale and it would be preferable to focus our efforts on building upon our strong record in delivering investment products.  Existing clients have been notified and arrangements made for an orderly and efficient transfer of funds under management.

In conjunction with the closure of PARF and the private client discretionary investment management service, Alex Abadie will be stepping down as Chief Executive Officer of the Asset Management division on 30 April 2012.  The Board would like to thank Alex for his hard work since joining Shore Capital in 2009.  I am pleased to announce that the Board intends to appoint David Kaye, currently Commercial Director and General Counsel of the Group, to the role with effect from 1 May 2012.

Principal Finance

Investment in German Telecoms Business
We completed a new investment of €2.9m to take a controlling interest in Spectrum Investments Limited ("Spectrum"). Spectrum was formed in 2011 to acquire a 58 per cent controlling interest in DBD Deutsche Breitband Dienste GmbH ("DBD"), a German telecoms business. Spectrum plans to exploit Israeli-developed radio technology to broaden the use of the radio frequencies licensed.  The aim is to provide services which would enable mobile operators to supply 4G data services to their customers more efficiently and reliably.  

As anticipated at the time of the acquisition of DBD, operating expenses have exceeded revenues within DBD.  Our share of these losses through our holding in Spectrum resulted in a reduction in basic earnings per share of 0.26p for the period since completion on 13 April 2011. On acquisition of Spectrum's interest in DBD, €3m of new capital was injected into DBD to fund the projected negative cashflow of DBD until the implementation of the business plan results in new sources of revenue from business customers.

Since we acquired DBD, there have been a number of significant market developments in the 3.5GHz band where DBD operates. In particular, this band has now been included in the range of frequencies to be included within the 4G LTE standard, which will be used by the next generation of wireless equipment. Some major manufacturers have adapted their LTE equipment to support 3.5GHz transmission and a number of operators in Asia-Pacific and Europe plan to deploy LTE at 3.5GHz. As a result, customer equipment operating at 3.5GHz is also beginning to be available. These developments demonstrate the potential to exploit the significant commercial opportunity arising from the growth of 4G in Germany. Increased corporate activity is expected to accompany these developments.

Employees and Board Change

I should like to thank our employees for their commitment and hard work during the year. In another volatile year for the investment markets, they are to be congratulated on achieving strong operational profitability in both ECM and Asset Management.  

As previously announced, I also welcome to the Board Lynn Bruce, who is a Chartered Accountant (Scotland) having trained at KPMG. She was the CFO of an international wealth management group, Stenham Limited, for 11 years where she was also a member of both their Risk and Audit Committees.  Prior to that, she was the CFO for The Leasing Corporation plc and Financial Controller at AT&T Capital Europe. At the same time, Chris Cochrane stepped down from the Board and I would like to thank him for his contribution to Shore Capital.

Current Trading and Prospects

Activity levels so far in 2012 have picked up well from the quieter months of last year's second half but are still behind the comparable period last year. Our ECM division has started 2012 with a significantly expanded corporate client base with more AIM advisory mandates won than any of its competitors in the last quarter of 2011.

Within the Asset Management division the launch of Puma VCT8 is receiving a warm reception, building on our excellent track record in the VCT arena.

Our German telecoms investment, Spectrum, held within the Principal Finance division represents an excellent medium term capital growth prospect while we have taken steps to limit its short term cash burn in its current phase of development

The Board will continue to focus on the development of the Group's diverse niches of expertise with the aim of creating meaningful upside for shareholders.

Howard Shore
Executive Chairman
4 April 2012
Unaudited Consolidated Income Statement
For the year ended 31 December 2011

Unaudited Consolidated Statement of Comprehensive Income
For the year ended 31 December 2011

Unaudited Consolidated Statement of Financial Position
As at 31 December 2011

Unaudited Consolidated Statement of Changes in Equity
For the year ended 31 December 2011

Unaudited Consolidated Statement of Changes in Equity
For the year ended 31 December 2011

Unaudited Consolidated Cash Flow Statement
For the year ended 31 December 2011

Notes

1.            Financial information

Basis of preparation
The annual financial statements of Shore Capital Group Limited (the "Company") have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("Adopted IFRS").

Presentation of the financial statements and financial information
The Company was formed in the prior year on 18 January 2010. On 26 March 2010 it acquired the entire share capital of Shore Capital Group plc. In accordance with merger accounting principles, the comparative period in these financial statements covers the twelve month period to 31 December 2010 including the period prior to the acquisition during which Puma Brandenburg Limited ("PBL") was part of the Group prior to its de-merger.

The financial information set out in the announcement does not constitute the company's statutory accounts for the year ended 31 December 2011 within the meaning of section 244 of the Companies (Guernsey) Law, 2008.  

The financial information for the year ended 31 December 2010 is derived from the statutory accounts of the company for that year.  The auditors reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under section 263(2) or (3) of the Companies (Guernsey) Law, 2008.  Those accounts were prepared under Adopted IFRS and have been reported on by the Company's auditors and delivered to the Guernsey registry office.

The audit of the statutory accounts of Shore Capital Group Limited for the year ended 31 December 2011 is not yet complete.  These accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement.

The statutory accounts will be prepared in accordance with IFRS as adopted by the European Union.  Details of the accounting policies that will be applied in the statutory accounts are set out in the 2010 Annual Report and Accounts of the Company.

A copy of this statement is available on the Company's website at www.shorecap.gg.

The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments.  The financial statements are rounded to the nearest thousand except where otherwise indicated.

Adoption of new and revised standards
In the current year, the adoption of the following new and revised Standards and Interpretations has not had any significant impact on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements.

Standards in issue but not yet effective
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

The Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the Group in the period of initial and future application, except as follows:

• IFRS 9 will impact both the measurement and disclosure of financial instruments  

• IFRS 12 will impact the disclosure of interests the Group has in other entities;  

• IFRS 13 will impact the measurement of fair value for certain assets and liabilities as well as the associated disclosures.  

2. Segment Information  

Additional analysis of revenue and results is presented in the Chairman's Statement on page 4.

For management purposes, the group is organised into business units based on their services, and has five reportable operating segments as follows:

• Equity Capital Markets provides research in selected sectors, broking for institutional and professional clients, market-making in AIM and small cap stocks and corporate finance for mid and small cap companies.   

• Asset Management provides advisory and discretionary fund management services, and manages specialist funds invested in alternative asset classes.  

• Central Costs comprises the costs of the group's central management team and structure  

• Balance Sheet / Principal Finance comprises investments and other holdings acquired, together with principal finance activities conducted, using our own balance sheet resources.  

• Spectrum / DBD comprises the group's investment in a German-based telecoms business  

Management monitors the operating results of its business segments separately for the purpose of making decisions about resource allocation and performance assessment. Segmental performance is evaluated based on operating profit or loss.

Transfer prices between operating segments are on an arm's-length basis in a manner similar to transactions with third parties.

No material amounts of revenue or profit before tax were generated outside of Europe.

No material amounts of revenue or profit before tax were generated outside of Europe.

3.        Acquisition of subsidiary

On 10 March 2011 the Group subscribed for 51 per cent of the share capital of Spectrum Investments Limited ("Spectrum") a newly incorporated company. On 13 April 2011 Spectrum completed the purchase of 58.35 per cent of the share capital of Deutsche Breitband Dienste GmbH ("DBD"), a German telecoms business. This was achieved through both the acquisition of existing shares and a subscription for new shares in DBD. Spectrum plans to exploit Israeli-developed radio technology to expand the use of the use of the radio frequencies licensed. The aim is to provide services which would enable mobile operators to supply 4G data services to their customers more efficiently and reliably.

The Group has elected to measure the non controlling interests in both Spectrum and DBD at their fair value.

Recognised amounts of assets acquired and liabilities assumed:

i.   Spectrum
As a newly incorporated company there were no prior assets or liabilities when Shore Capital subscribed for shares of Spectrum. The company's only asset was the cash subscribed and accordingly there was no goodwill. The fair value of the non controlling interests in Spectrum has been recognised as their share of the monies subscribed into Spectrum.

ii.   DBD

The tangible fixed assets represent equipment currently installed and available for new customers, and the intangible fixed assets represent the spectrum licences held by DBD. Their fair value was £4,174,000 at the acquisition date.

The carrying value of the current assets and of the current liabilities each approximated their fair value.

The long term liabilities represent loans to the company from its shareholders. These obligations are only repayable to the extent that DBD has surplus net assets and this is the basis used to determine their fair value. This fair value has then been adjusted to only reflect the long term liabilities due to the non controlling interests, as the balance of the liabilities eliminate on consolidation. As a result, the fair value recognised was £2,839,000 at the acquisition date.

The fair value of the non controlling interests in DBD has been recognised as their share of the fair valued assets and liabilities at the acquisition date (as above) and their share of the results since acquisition.

In line with the anticipated business plan, during the period Spectrum and DBD combined have contributed revenues of £2,289,000 and a loss of £1,252,000 to the results of the Group.

Goodwill
The negative goodwill arising on acquisition of £49,000 comprises the amount by which the fair value of the expected benefit of owning the rights to the spectrum held by DBD, once the spectrum has been expanded using Israeli-developed radio technology, exceeds the acquisition price paid.

4.        Rates of Dividends Paid and Proposed

5.        Earnings per Share

The earnings and number of shares in issue or to be issued used in calculating the earnings per share and diluted earnings per share in accordance with IAS 33 were as follows:

As at 31 December 2011 there were 241,639,601 ordinary shares in issue (2010: 244,450,877).
A copy of this announcement is available on the Company's website at www.shorecap.gg. The annual report & accounts will be sent to shareholders in due course and will also be available on the Company's website from the date of posting.