Final Results

RNS Number : 7678O
Braveheart Investment Group plc
05 July 2010
 



5 July 2010

 

 

Braveheart Investment Group plc

("Braveheart" or "the Group")

 

Preliminary Results Announcement for the Year Ended 31 March 2010

 

Key Points

 

Operational:

·      Acquired Yorkshire based Viking Fund Managers Ltd (VFM) (formerly Inkopo Ltd)

·      VFM's management service agreement to administer the Yorkshire Association of Business Angels renewed for a further three years

·      First investments made by Strathclyde Innovation Fund

·      Further funding of £1.70m by Group and its clients made in 14 portfolio companies

·      Client exit portfolio showing an internal rate of return of 30% (2009: 33%)

·      Overall client portfolio (being both realised and unrealised investments) showing an internal rate of return of 23% (2009: 24%)

 

Financial:

·      Investment management and consultancy income increases to £568,000 (2009: £350,000)

·      Net unrealised gain on revaluation of portfolio investments of £316,000 (2009: loss of £278,000)

·      Total income increases 220% to £918,000 (2009: £287,000)

·      Loss before tax decreases 39% to  £767,000 (2009: £1.26m)

·      Cash balances of £1.47m (2009: £3.22m)

·      Net assets per share of 40.25p (2009: 46.03p)

 

 

 

Geoffrey C B Thomson, Chief Executive Officer said:

"Other than our people, our portfolio remains our key asset. During the year we have continued to support our better companies with additional resources and management support particularly in terms of corporate development and re-financings." 

 

"Our ongoing strategy is to continue to build shareholder value by way of both portfolio development and growth of our investment management business.  In time we plan to build three brands in the market, split into private client investment management, fund management and management advisory services.  We can see significant potential for growth in all of these areas."

 

 

For further information please visit www.braveheart-ventures.co.uk or contact:

 

Braveheart Investment Group

Tavistock Communications

Geoffrey Thomson, Chief Executive

Simon Hudson

Tel: 01738 587555

Tel: 020 7920 3150

gthomson@braveheart-ventures.co.uk

shudson@tavistock.co.uk



Seymour Pierce Limited

(Nominated Adviser to Braveheart)

John Cowie

Tel: 020 7107 8000

 



CHAIRMAN'S STATEMENT

I have pleasure in providing shareholders with my Statement which accompanies the results of the Group for the year ended 31 March 2010.

 

Financial Markets Environment

During most of the year under review we continued to operate in the hostile market conditions that had been such a feature of 2008/09.  We have kept our heads down, worked assiduously with our portfolio companies and taken further steps to implement our strategy of extending the base of our investment business. 

 

In the final quarter of the year we welcomed early signs of recovery as some confidence returned to the equity markets and investors recognised that capitalism had survived the near melt-down of the financial markets.  But we anticipate that recovery will be fragile, particularly as the sovereign debt problems of the European market are played out.

 

Results

Total income for the year ended 31 March 2010, including unrealised revaluation gains, was £918,000 (2009: £287,000).

 

In this turbulent market, our fee based income from historic sources suffered some deterioration, but this was more than offset by a maiden contribution from Viking Fund Managers Ltd (VFM), and operating income before net movement on the revaluation of investments and interest income increased to £568,000 (2009: £350,000).

In addition, we recorded a net unrealised gain arising on the revaluation of our portfolio investments of £316,000 (2009: loss of £278,000). Interest income fell sharply to £34,000 (2009: £215,000).

Total operating costs increased to £1.68m (2009: £1.54m) reflecting our expansion, although non-payroll related costs were 39% lower at £455,000 (2009: £742,000) and the loss after tax for the year decreased to £767,000 (2009: £1.25m) which equates to a loss per share of 5.61p (2009: 9.22p).

Cash utilisation rose marginally in the year to £1.75m (2009: £1.59m) and comprised £176,000 (2009: nil) related to the acquisition of VFM, £557,000 (2009: £1.06m) invested in portfolio companies, and £1.01m (2009: £523,000) used in other operating activities.

During the second half of the year the Board conducted a thorough review of the Group's cost base and steps were taken to effect reductions to ensure that our operations were as tight as was compatible with the provision of a quality client service, the stewardship of our assets, and the safety of our business.

The Group continues to have a strong financial position with cash balances of £1.47m (2009: £3.22m) and net assets of £5.60m (2009: £6.17m), equivalent to 40.25p per share, at the year end (2009: 46.03p).

Growth Strategy

Experience has demonstrated that our earlier business model, which largely relied upon income linked to the level of client investment, resulted in it being increasingly difficult to cover the costs of managing our own portfolio and those of our clients during periods of low investor activity. Following the acquisition of the Yorkshire-based VFM a year ago, we are working on further opportunities to extend our business with the aim of completing the transformation of Braveheart from a strictly Scottish investor in university intellectual property into a more broadly based UK group that invests directly in early stage technology companies, manages the investment of client and third party funds, and uses corporate finance skills to match entrepreneurs with business angels.

 

Moving forward, we intend that Braveheart's expanded business should have a more diversified income stream, increased skills, and the opportunity to develop a UK-wide client base. Our CEO explains our plans for our enlarged Group in greater detail in his Report.

 

Investment Portfolio

As noted in my Interim Statement, we have been committed to supporting our promising portfolio companies through the financial turmoil with both infusions of capital and advice where appropriate.  As is the nature of our business, some companies have unfortunately failed to survive, but within our investment portfolio there are some increasingly exciting and mature companies.

 

Board, Management and Staff 

There were no changes in our Board of Directors during the year.

 

We are fortunate in the quality and the skills of our management and staff who work together as a closely knit team.  We place high demands upon our staff, and I should like to thank them for their enthusiasm and commitment during what was a particularly difficult year.

 

Prospects

We have a demanding year ahead of us as we work towards extending the base of our client income, expanding VFM's fund management reach and building a truly UK-wide investment group with consequent benefits for our fee-based income stream. 

 

At the same time, a number of our portfolio investments are approaching the point where realisation can be targeted and both Braveheart and portfolio company management are focused on that objective.  We will use our skills to bring these realisations to fruition, with positive implications for cash flow and liquidity.

 

 

Garry S Watson

Chairman



CHIEF EXECUTIVE OFFICER'S REPORT

My most recent report to shareholders was dated last December.  Since then much has happened that will impact both business and personal wealth in the UK:  The crisis in Europe is still unfolding and we are unsure how the Euro will fare in this fight, and of the potential impact on Sterling.  Our own sovereign debt is a massive weight on our shoulders and wage earners, tax payers, savers and borrowers alike are all going to feel the pain of reducing this burden over the next few years. 

 

Our financial results as outlined in this report continue to reflect the depressed state of the market.  However as a result of our M&A activity during the year (as more fully described below) and the reversal of unrealised revaluation losses on our portfolio last year into gains this year, total income has increased to £918,000 (2009: £287,000) and losses after tax have fallen to £767,000 (2009: £1.25m). We continue to have a strong net asset position of £5.60m (2009: £6.17m) including cash balances of £1.47m (2009: £3.22m).

 

Since we listed in March 2007 we have, as planned, spent a large part of the IPO proceeds on our portfolio.  We deal principally with early stage technology companies and these types of businesses take time to mature and generate returns for shareholders.  Inevitably, the lemons ripen before the pears and this means that losses are shown before gains materialise.  After three years, our portfolio is maturing in line with expectation and we expect that, subject to the market being receptive, we will be realising a number of investments over the next two years and that shareholders will be pleased with the results.

 

Last year I talked about prudence and how it was vital to run our business in a conservative way and to plan for the long term.  That view has not changed and I can report to you that we have 'stuck to our knitting' whilst running our businesses with an eye on what might be round the corner, rather than what is simply staring us in the face.  In everyday terms, this has meant;

 

·      Concentrating on our key portfolio assets

·      Controlling costs

·      Managing our cash wisely

·      Seeking out opportunities for growth

·      Working with and integrating the acquisition we made last year

 

I comment on these individual aspects as follows:

 

1.                   Other than our people, our portfolio remains our key asset. During the year we have continued to support our better companies with additional resources and management support particularly in terms of corporate development and re-financings.  This means we have provided further funding, by way of equity or loans, to 12 of our companies.  Weaker elements of the portfolio, or companies that have not hit their milestones, have been rationalised or closed down - three businesses fell into these categories:  Two of these were legacy investments which we acquired when we purchased W L Ventures (renamed Caledonia Portfolio Realisations) and one was a directly held investment.   

 

2.                   Whilst supporting our portfolio is vital, so is our ability to support our investment management clients.  However, the appetite for investment from these high net worth clients has diminished in the current market and consequently we pared back our headcount without detracting from the quality of service we provide.  Our business might be fairly complex, but we are a relatively small operation, currently 20 staff, and our overhead is simple to review.  We shine the spotlight on our cost base on a regular basis to ensure that we are carrying no more cost than is absolutely necessary. 

 

3.                   We use our cash to support portfolio companies, and wherever possible we 'gear' our money from other sources because this makes our cash go further.  In 2009/10 for each £1 invested by Braveheart and its clients we raised in excess of £2.30 from elsewhere.  We also use our cash to underpin the overhead cost of supporting the portfolio.  In the year under review, with the exception of one modest investment into a Yorkshire based company, we only invested in companies already in our portfolio. 

 

4.                   Our London office has been instrumental in identifying M&A possibilities and in the last 12 months we have actively considered a number of such opportunities.  We are currently at Heads of Terms with one opportunity and in the event that due diligence is positive, we would anticipate being able to complete this transaction in the near term.    

 

5.                   Since acquiring Viking Fund Managers Ltd (VFM) (formerly Inkopo Ltd) last June we have worked with them on a number of major initiatives and, as described above, the business has made an important maiden contribution to our results.  When we acquired VFM all of its business was carried out within the one entity.  We have recently separated the investment management side of the business from the business advisory activity and it is intended that the latter will shortly commence trading as Inkopo Consulting Ltd, utilising the Inkopo brand which is an established name in the market.  VFM's investment business spans running investor networks (such as the Yorkshire Association of Business Angels and the Viking Club) and fund management activities (such as the Viking Fund and Viking Loan Fund). 

 

Last September we announced that HMG had accredited us as an approved lender under the Enterprise Finance Guarantee Scheme (EFG).  At that time EFG had a longstop date of 31 March 2010, and while the outgoing government extended the scheme by a further year the quantum of guarantee was significantly reduced.  In the Emergency Budget, the new coalition government extended the quantum of the scheme by 40% but as at the time of writing have remained silent on timing implications.  While it is difficult to devote resources to a short term scheme we are hopeful that the scheme will be further extended and we are holding preliminary talks about setting up a dedicated pilot fund for a specialised SME loan vehicle. 

 

We test marketed our Beta EIS Fund in Q4 of our last fiscal year, but given market conditions and the lack of clarity in the political situation, there was limited interest in the EIS market as a whole. Consequently we withdrew our offer. Given that we now have a new government and higher rates of tax, we expect to market a segregated EIS portfolio fund later this year.

 

We have exclusive relationships with the universities of Strathclyde and Aberdeen.  Our specialist dedicated fund for intellectual property commercialisation at Strathclyde, the Strathclyde Innovation Fund, made its first investments during the year and we are seeing a number of opportunities coming forward from that University.  We are also working closely with Aberdeen's commercialisation department and we anticipate that one of the opportunities, that we have been working on jointly, will come to fruition over the next six months. 

 

Since the acquisition of VFM we have established a management board comprising myself, Carolyn Smith, Colin Grant and the two Yorkshire-based executive directors of VFM, Andrew Burton and Viv Hallam.  This group meets monthly and, in addition to operational reporting, provides an important source of feedback on market development and opportunity for our plc Board. 

 

Our ongoing strategy is to continue to build shareholder value by way of both portfolio development and growth of our investment management business.  In time we plan to build three brands in the market, split into private client investment management, fund management and management advisory services.  We can see significant potential for growth in all of these areas.

 

In closing, I would like to thank shareholders for their continuing support, our private client investors for their resilience in difficult market conditions, and our staff for their loyalty and hard work. 

 

 

Geoffrey C B Thomson

Chief Executive Officer

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2010

 




2010

2009


Notes


£

£






Revenue



568,241

350,335

Unrealised profit/(loss) on the fair value movements of investments

7


611,186

(377,815)

Movement on contingent consideration

7


(295,392)

100,206

Finance revenue                  



33,541

214,675

Total income



917,576

287,401






Employee benefits expense



(1,230,188)

(800,341)

Other operating costs



(452,769)

(741,070)

Finance costs



(1,774)

(991)

Total costs



(1,684,731)

(1,542,402)






Loss before tax



(767,155)

(1,255,001)






Tax

3


-

1,772






Total loss and total comprehensive loss for the year



(767,155)

(1,253,229)






Loss attributable to:





Equity holders of the parent



(775,513)

(1,235,902)

Minority interest



8,358

(17,327)




(767,155)

(1,253,229)






Loss per share



Pence

Pence

- basic and diluted

4


(5.61)

(9.22)






 

All revenues and losses arise from continuing operations.

There were no gains or losses other than the loss for the year.

Consolidated Statement of Financial Position

as at 31 March 2010

                                                                                                          




2010

2009


Notes


£

£

ASSETS





Non-current assets





Goodwill

6


327,064

-

Property, plant and equipment



31,367

44,034

Investments at fair value through profit or loss       

7


4,530,747

3,260,512




4,889,178

3,304,546






Current assets





Trade and other receivables



101,907

99,804

Cash and cash equivalents



1,473,943

3,221,844




1,575,850

3,321,648






Total assets



6,465,028

6,626,194






LIABILITIES





Current liabilities





Trade and other payables



(126,036)

(172,693)

Contingent consideration                                                 

8


(592,819)

(209,511)

Deferred income



(20,230)

(22,585)

Borrowings



(10,696)

(9,875)




(749,781)

(414,664)

Non-current liabilities





Contingent consideration                                                 

8


(78,822)

-

Borrowings



(35,205)

(41,078)




(114,027)

(41,078)






Total liabilities



(863,808)

(455,742)






Net assets



5,601,220

6,170,452






EQUITY





Called up share capital



278,316

268,078

Share premium account



140,783

-

Retained earnings



5,191,090

5,919,701

Equity attributable to owners of the Parent



5,610,189

6,187,779

Minority interest



(8,969)

(17,327)

Total equity



5,601,220

6,170,452






 

 



 

Consolidated Statement of Cash Flows

for the year ended 31 March 2010

                                                                                                                           




2010

2009




£

£

Operating activities





Loss before tax



(767,155)

(1,255,001)

Adjustments to reconcile loss before tax to net cash flows from operating activities





Depreciation of property, plant and equipment



13,333

12,399

Share-based payments expense



46,902

78,669

(Increase)/decrease on the fair value movements of investments



(611,186)

377,815

Loss on disposal of property, plant and equipment



-

1,615

Interest income



(33,541)

(214,675)

Decrease in trade and other receivables



198,414

367,652

Increase/(decrease) in trade and other payables



115,551

(47,934)

Net cash flow from operating activities



(1,037,682)

(679,460)






Investing activities





Acquisition of subsidiaries (net of cash acquired)



(124,349)

-

Net cash and cash equivalents acquired on acquisition



(52,137)

-

Increase in investments



(557,400)

(1,063,732)

Purchase cost of property, plant and equipment



-

(31,314)

Interest received



33,541

214,675

Net cash flow from investing activities



(700,345)

(880,371)






Financing activities





Capital element of hire purchase contract



(9,874)

(27,195)

Net cash flow from financing activities



(9,874)

(27,195)






Net decrease in cash and cash equivalents



(1,747,901)

(1,587,026)

Cash and cash equivalents at the beginning of the year



3,221,844

4,808,870

Cash and cash equivalents at the end of the year



1,473,943

3,221,844






 



 

Consolidated Statement of Changes in Equity

for the year ended 31 March 2010

 


Attributable to owners of the Parent




Share Capital

Share Premium

Retained Earnings

Total

Minority Interest

Total Equity


£

£

£

£

£

£








At 1 April 2008

268,078

7,008,838

68,096

7,345,012

-

7,345,012

Reduction in share premium account

-

(7,008,838)

7,008,838

-

-

-

Share-based payments

-

-

78,669

78,669

-

78,669

Transactions with owners

-

(7,008,838)

 

7,087,507

 

78,669

-

 

78,669

Loss and total comprehensive loss for the year

-

-

(1,235,902)

(1,235,902)

(17,327)

(1,253,229)








At 1 April 2009

268,078

-

5,919,701

6,187,779

 (17,327)

6,170,452

Issue of new share capital

10,238

140,783

-

151,021

-

151,021

Share-based payments

-

-

46,902

46,902

-

46,902

Transactions with owners

 

10,238

140,783

 

46,902

 

197,923

-

 

197,923

(Loss)/profit and total comprehensive loss for the year

-

-

(775,513)

(775,513)

8,358

(767,155)








At 31 March 2010

278,316

140,783

5,191,090

5,610,189

(8,969)

5,601,220

 



 

NOTES

1. This preliminary announcement was approved for issue by a duly appointed and authorised committee of the Board of Directors on 2 July 2010.

2. Basis of preparation

 

The financial information set out in this announcement does not constitute statutory financial statements for the years ended 31 March 2010 or 31 March 2009. Statutory accounts for the years ended 31 March 2010 and 31 March 2009 have been reported on by the Independent Auditors. The Independent Auditors' Report on the Annual Report and Financial Statements for 2009 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under s.237(2) or s.237(3) of the Companies Act 1985. The Independent Auditors' Report on the Annual Report and Financial Statements for 2010 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under s.498(2) or s.498(3) of the Companies Act 2006. The accounting policies adopted in this announcement have been consistently applied to all the years presented and are consistent with the policies used in the preparation of the statutory accounts for the period ended 31 March 2009. The statutory financial statements for the year ended 31 March 2009 have been delivered to the Registrar of Companies. The statutory financial statements for the year ended 31 March 2010 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

 

3. Tax

 

The charge to tax is arrived at as follows:

 


 

 

 2010

 

 

 2009


£

£




UK corporation tax

-

-

Deferred tax

-

(1,772)

Tax in the statement of comprehensive income

-

(1,772)

 

The effective tax rate for the year is 21% (2009: 21%). The Group's deferred tax assets, other than those relating to short term timing differences, are not recognised in accordance with Group policy.

 

4. Loss per Share

 

Loss per share is calculated by dividing the loss attributable to equity holders of Braveheart Investment Group plc of £775,513 (2009: £1,235,902) by the weighted average number of ordinary shares in issue during the year ended 31 March 2010 of 13,824,665 (2009: 13,403,895).

 



 

5. Business Combination

On 5 June 2009 the Company acquired 100% of the issued share capital of Viking Fund Managers Ltd (VFM) (formerly Inkopo Ltd), a company based in the UK. The total cost of the acquisition includes the components stated below:

 


£

Purchase price:


Initial consideration

226,021

Contingent consideration

235,643

Total purchase price

461,664

Legal and professional fees

42,750

Other costs

6,600

Total cost of acquisition

511,014

 

£75,000 of the initial consideration was settled in cash. The balance of the initial consideration was settled by the issue of 511,937 ordinary shares. Contingent consideration will be based on (i) VFM's turnover for the years ending 31 March 2010 and 31 March 2011, and (ii) the attainment by VFM of certain other non-turnover based operating targets benefitting the Group.   It is expected that contingent consideration will be settled in shares. Contingent consideration has been fair valued in accordance with IFRS 3. At initial recognition, consideration settled, or to be settled, in shares was fair valued by reference to the Company's share price at the acquisition date.

 

The allocation of the acquisition costs to the assets and liabilities of VFM at the acquisition date is as follows:


Carrying Value

Fair Value


£

£

Property, plant and equipment

667

667

Investments

151,621

101,649

Trade and other receivables

112,589

112,589

Cash and cash equivalents

(52,137)

(52,137)

Trade and other payables

(47,724)

(47,724)

Net assets

165,016

115,044

Fair value of cost of acquisition


511,014

Goodwill


395,970

 

6. Goodwill


£

At 1 April 2008 and 31 March 2009

-

Arising on initial recognition of acquisition of VFM

395,970

Reduction in period

(68,906)

At 31 March 2010

327,064

 

At initial recognition, contingent consideration to be settled in shares was fair valued by reference to the Company's share price at the acquisition date. The reduction in goodwill in the period since acquisition is primarily due to a decrease in the fair value of contingent consideration resulting from a decrease in the Company's share price.



7. Investments at Fair Value through Profit or Loss


Level 1

Level 2

Level 3



Equity investments in quoted companies

Equity investments in unquoted companies

Debt investments in unquoted companies

Equity investments in unquoted companies

Debt investments in unquoted companies

Total


£

£

£

£

£

£

At 1 April 2009

15,652



3,017,026

227,834

3,260,512

Additions at Cost

-

-

-

348,533

310,516

659,049

Conversions

-

-

-

100,872

(100,872)

-

Change in Fair Value

19,369

-

-

734,870

(143,053)

611,186

At 31 March 2010

35,021

-

-

4,201,301

294,425

4,530,747

 

The Group classifies its investments using a fair value hierarchy. Classification within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant investment as follows:

 

·      Level 1 - valued using quoted prices in active markets for identical assets

·      Level 2 - valued by reference to valuation techniques using observable inputs other than quoted prices included within Level 1

·      Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data

 

The Group's investments are held either by the Company, Caledonia Portfolio Realisations Ltd (CPR), Strathclyde Innovation Fund LP or VFM. 

 

The acquisition of CPR in 2007 included contingent consideration based on future exit values of its investment portfolio.

 

At 31 March 2010 an unrealised revaluation gain in respect of CPR portfolio investments has resulted in an increase of £295,392 (2009: reduction of £100,206) in the contingent consideration liability.

 

8.  Contingent consideration

 

Short term contingent consideration of £592,819 comprises (i) £87,916 being the fair value of the consideration due at 31 March 2010 in respect of the acquisition of VFM, and will be satisfied by the issue of 390,737 ordinary shares of 2p each in the Company and (ii) £504,903 being the sum due on future exit values of the CPR portfolio (see note 7).

 

Long term contingent consideration of £78,822 represents the fair value of the currently estimated remaining balance after (i) above due on the acquisition of VFM.

 



 

9. Availability of statutory financial statements

 

Copies of the full statutory financial statements will be mailed to shareholders no later than 12 August 2010 from which date they will also be available from the Company's offices at Cherrybank Gardens, Perth PH2 0PF and on its website at www.braveheartinvestmentgroup.co.uk

 

 

 

 

 

Disclaimer

This Preliminary Announcement contains certain forward-looking statements which reflect the knowledge of, and information available to, the directors at the date of preparation of this announcement. By their nature, these statements involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future and there are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements.

 

 

 

 

 

 


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