Last checked at 18 Jun 2009 07:00
Braveheart Investment Group plc
("Braveheart" or "the Group")
Preliminary Results Announcement for the Year Ended 31 March 2009
Key Points
Operational:
Opening of London office
Appointments of CFO and Director of Marketing
Establishment of commercialisation partnership with the University of Aberdeen
First close of Strathclyde Innovation Fund and co-investment partners at £4.48m
Further funding of £2.77m by Group and its clients made in 16 portfolio companies
Client exit portfolio showing an internal rate of return of 33%
Overall client portfolio (being both realised and unrealised investments) showing an internal rate of return of 24%
Financial:
Loss from investment management operations before net movement on the revaluation of investments of £977,000 (2008: £42,000)
Loss before tax of £1.26m (2008: profit of £106,000)
Cash balances of £3.22m (2008: £4.81m)
Operational cash outflow before investments of £523,000 (2008: £501,000)
Net assets per share of 46.03p (2008: 54.80p)
Post period end
On 8 June 2009 the Group announced the acquisition of Inkopo Limited. This acquisition, based principally on an earn-out consideration, gives the Group an established presence in Yorkshire, an additional revenue stream and further complementary income from investment facilitation and management activities.
Garry S Watson OBE, Chairman said:
"With cash in excess of £3.2 million at the year end, and an experienced management team, we can confidently look ahead in the knowledge that we have the ability to deliver our growth strategy and make things happen. I believe this will create shareholder value in what is likely to be a consolidating market."
Geoffrey C B Thomson, Chief Executive Officer said:
"We have utilised our resources to put us into the best possible position going forward. Our offering now emanates from three offices (one this time a year ago) and we have added the provision of management services to our existing core businesses of private client investment management and fund management."
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) | |
| Richard Feigen/Catherine Leftley | |
| Tel: 020 7107 8000 |
Chairman's Statement
I have pleasure in presenting the results of Braveheart Investment Group for the year ended 31 March 2009.
Financial Environment
Like most AIM listed technology and financial stocks, Braveheart had a tough year as problems in the financial markets unfolded. Market volatility and shareholder nervousness which had been apparent at the start of the year was rapidly compounded by the credit crunch, deteriorating property markets, and a recession whose length and depth still remains uncertain. As the business environment deteriorated we experienced reduced client appetite for investment with a consequent reduction in deal fees from both clients and portfolio companies.
While our financial results reflect the current environment, your Board has responded positively to both challenges and opportunities by laying the foundation for future growth through establishing a broader geographical footprint and positioning the Group for expansion. At the same time, a strong balance sheet has been maintained.
Throughout these difficult times our priority has been to ensure that our portfolio companies receive the funding they need to pursue their development plans. The provision of such capital preserves and enhances the potential value of the Group's investments, and those of our clients.
Results
The loss from investment management operations before net movement on the revaluation of investments for the year ended 31 March 2009 was £977,000 (2008: £42,000).
The loss after tax for the year was £1.25m (2008: profit after tax £99,000) which equates to a loss per share of 9.22p (2008: earnings per share of 0.74p).
Total income before net movement on the revaluation of investments decreased to £565,000 (2008: £991,000). Investment management fee income fell to £350,000 (2008: £660,000), and interest income fell to £215,000 (2008: £331,000). Inclusive of the net unrealised loss arising on the revaluation of portfolio investments of £278,000 (2008: gain of £148,000), total income decreased to £287,000 (2008: £1.14m).
Operating costs increased to £1.54m (2008: £1.03m) as a result of the implementation of our growth strategy and one-time costs of £257,000.
Cash utilisation fell marginally in the year to £1.59m (2008: £1.67m) and comprised £1.06m (2008: £1.17m) invested in portfolio companies and £523,000 (2008: £501,000) used in other activities.
The Group continues to have a strong balance sheet with cash balances of £3.22m (2008: £4.81m) and net assets of £6.17m (2008: £7.35m) at the year end.
Investing for the Longer Term
As I reported last year, the Board had adopted a growth strategy in order to achieve the Group's potential. In the light of market conditions that strategy was tested throughout the second half of the year, with the Board concluding that it should press ahead with its plans. M&A transactions are one means of achieving this growth and at the present time values are attractive. I am therefore pleased that on 8 June 2009 we were able to report the acquisition of Inkopo Ltd, a highly regarded fund management and financial services business based in Yorkshire. I am personally delighted that Inkopo has joined our Group. I believe that this acquisition will give us a strong presence in Yorkshire and the North of England, further complementing our existing business and enhancing our fund management capacity.
The establishment of an office in London and the setting up of a dedicated marketing resource was the second part of our expansion plan. While the catalyst of an economic upturn is required to cement new relationships, we are well pleased with the progress that has been made to date.
Portfolio Investment
Notwithstanding short term fluctuations in valuations, our investment strategy is well proven, involving investment from our clients and our own balance sheet, leveraged by specialist public sector funds. With reduced levels of investment from our clients, and correspondingly lower public sector matched funding, greater proportionate responsibility has rested upon the Group's own resources than has been necessary in the past.
I would emphasise that our firepower has been focused on supporting our existing portfolio investments. More rounds of funding were concluded last year, albeit at lower average investment amounts, than in recent years and your Board is confident that no portfolio company deserving of additional capital has gone without.
Board, Management and Staff
We appointed Colin Grant as Chief Financial Officer in October, and he immediately joined the Group's Board. He has also taken over the role of Company Secretary from Carolyn Smith. Colin joined us from Digital Bridges Ltd where he held similar appointments. His experience and his knowledge of technology businesses makes him a valuable addition to the executive team.
With the appointment of its first CFO, Braveheart now has a well balanced Board of executive and non-executive talent which, in my view, gives the Group the best possible opportunity to deliver its growth plans. I am most encouraged by the cohesive and positive way in which the Board is tackling current issues.
In the financial services sector it is particularly true that companies are judged by the quality of their people. For our part we employ people of the highest calibre and it is their decisions and hard work that makes Braveheart what it is. I should like to thank all of them for working so well together in what have been particularly challenging conditions.
Prospects
We are pursuing our growth strategy because of our belief in the underlying strength of our investment business, and the confidence that we have in our executive team to nurture our investments and extract value when more benign economic conditions return and realisation opportunities emerge.
Braveheart has strong liquid resources. With cash in excess of £3.2 million at the year end, and an experienced management team, we can confidently look ahead in the knowledge that we have the ability to deliver our growth strategy and make things happen. I believe this will create shareholder value in what is likely to be a consolidating market.
Garry S Watson
Chairman
Chief Executive's Report
My last report to shareholders was drafted early in December 2008. Since that date the carnage in the financial markets has continued unabated and Churchill's wish made in 1925, about preferring to see 'finance less proud' has certainly come to pass. In addition, other sectors such as retail and property have felt the pain that hitherto had principally been felt by the financial services sector, of which we are a part. The economic world of the last three decades has changed probably forever.
Whilst some commentators tell us that we are through the worse of the recession I believe prudent investors will be bearish for some time to come and I do not see confidence returning to the financial system in short course. It is therefore particularly important that we continue to take a conservative and prudent approach to running our business, that we plan for the long term and that we have contingency plans for 'rainy days'.
Our financial results as outlined in this report continue to reflect the state of the markets and we have posted a loss after tax for the year of £1.25m (2008: £99,000 profit after tax). This loss comes mainly as a result of reduced fee income from investment clients and from a reduction in the aggregate value of our investment portfolio. However, the portfolio remains fundamentally strong and includes some potentially very valuable companies. In addition, our cash balances of £3.22m put us in a strong position, and we believe we are well placed to grow our business once more stable market conditions prevail.
Our new London office has been active and our associated marketing activities have been well received. In addition, I was very pleased to announce the recent acquisition of Inkopo Ltd which provides growth opportunities in a new geographical location and extends the services the overall Group can provide to both the private and public sectors.
In these difficult times our main focus has been on the following:
Managing our cash;
Supporting our existing portfolio companies;
Utilising more flexible investment instruments;
Positioning ourselves for growth when markets stabilise; and
Looking for M&A opportunities where we can add value.
These priorities have not changed from when I last reported to you. I will deal with each of these matters in turn:
Managing cash
Despite our losses this year, we managed our balance sheet well and cash utilisation remained in line with last year. We pared back investment in new opportunities and, while continuing to support an increased number of portfolio companies, we reduced the typical unit investment size from our own balance sheet. During the year we moved away from setting up new strategic partnerships that are cash hungry and increased our focus on medium term opportunities that are revenue and cash generative. Our operating costs for the year under review included a number of one-off costs and with continued sound financial management our cash balances are sufficient to see the business through the medium term.
Flexible investment structures
We have invested £508,000 by way of convertible loan notes this year, compared to £183,000 in the previous year. These instruments have a number of advantages: firstly they are easier to tranche, secondly they are faster and less expensive to arrange, and thirdly we can take security over the assets of the business thereby reducing our risk. Typically the interest income is rolled up and will be converted, at a discount, to equity at some future date. The flipside is that these instruments are not as tax efficient for private investors and the balance sheets of the portfolio companies concerned appear highly geared which can be a disadvantage in commercial matters.
Supporting our existing portfolio companies
Both institutional and private investors have shown a heavily reduced appetite for investment in the current market conditions. This impacted directly on our portfolio and placed an increased responsibility on us to support our companies both with cash and management assistance particularly regarding business strategy and fund raising. In the year we invested an aggregate of £1.06m into 15 existing portfolio companies and one new business. The investment in the new business was made early in the year.
Positioning ourselves for growth when markets reopen
As noted in our December 2008 statement your Board believes that shareholder value can best be achieved by scaling up the Group's business. To this end we opened a modest London office last November. In the intervening months our director of marketing and myself have been working hard building our presence and brand in London and the Home Counties. As a result we have ongoing dialogue with a number of intermediaries regarding potential strategic alliances and we expect these discussions to bear fruit in the fullness of time. Our London office has quickly become a valuable resource to the Group and is the first part of our plan to increase our geographical coverage.
Looking for M&A opportunities where we can add value
Over the last few months we have looked at a number of M&A opportunities and we have recently announced the acquisition of Inkopo Ltd. This acquisition gives us an operating base in the North of England which fits well with our two existing offices in Scotland and London. As well as owning a small portfolio of investments, Inkopo generates income from fund management, private client/business angel network management and management services. By working closely with Inkopo's incumbent management team, we believe we can successfully grow this business. This acquisition has been structured in such a way that Inkopo's management will benefit from growth whilst being tied in to the Group as a whole.
We continue to look for other M&A opportunities and see good value in the market given the cash constraints of a number of advisory type businesses.
Forward Strategy
Given the current market conditions your Board is particularly focused on reviewing strategic options on a regular basis. Our key goals over the short and medium term are as follows:
Continue to provide strong support to our highly ranked portfolio companies;
Complete the integration of Inkopo into the Group and provide resources to enable that entity to fulfil its potential;
Build our core business lines of fund management, private client investment management and management services;
Continue to look for additional M&A opportunities where we can add value; and
Use our cash wisely.
Outlook
At the time of writing there are early signs that the worst of the turmoil in the financial markets may be over. In my view it would be premature to take such a view as read.
We have utilised our resources to put us into the best possible position going forward. Our offering now emanates from three offices (one this time a year ago) and we have added the provision of management services to our existing core businesses of private client investment management and fund management.
We have a number of new opportunities presenting themselves to us and we expect further M&A activity or new business creation within the next twelve months.
When the market returns to more stable levels we will be first in the queue for an uptick in business.
Geoffrey C B Thomson
Chief Executive Officer
CONSOLIDATED INCOME STATEMENT
For the year ended 31 March 2009
| 2009 | 2008 | ||
| Notes | £ | £ | |
| Revenue | 350,335 | 659,449 | |
| Unrealised (loss)/profit on the revaluation of investments | (377,815) | 458,142 | |
| Movement on contingent consideration | 100,206 | (309,717) | |
| Finance revenue | 214,675 | 330,856 | |
| Total income | 287,401 | 1,138,730 | |
| Employee benefits expense | (800,341) | (558,532) | |
| Other operating costs | (741,070) | (474,187) | |
| Finance costs | (991) | - | |
| Total costs | (1,542,402) | (1,032,719) | |
| (Loss)/profit before taxation | (1,255,001) | 106,011 | |
| Taxation | 3 | 1,772 | (6,828) |
| (Loss)/profit for the period | (1,253,229) | 99,183 | |
| (Loss)/profit attributable to: | |||
| Equity holders of the parent | (1,235,902) | 99,183 | |
| Minority interest | (17,327) | - | |
| (1,253,229) | 99,183 | ||
| (Loss)/earnings per share | Pence | Pence | |
| - basic and diluted | 4 | (9.22) | 0.74 |
All revenues and (losses) /profits arise from continuing operations.
CONSOLIDATED BALANCE SHEET
At 31 March 2009
| 2009 | 2008 | ||
| Notes | £ | £ | |
| ASSETS | |||
| Non-current assets | |||
| Property, plant and equipment | 44,034 | 26,734 | |
| Investments at fair value through profit or loss | 5 | 3,260,512 | 2,574,595 |
| 3,304,546 | 2,601,329 | ||
| Current assets | |||
| Trade and other receivables | 99,804 | 442,879 | |
| Current tax asset | - | 24,577 | |
| Cash and cash equivalents | 3,221,844 | 4,808,870 | |
| 3,321,648 | 5,276,326 | ||
| Total assets | 6,626,194 | 7,877,655 | |
| LIABILITIES | |||
| Current liabilities | |||
| Trade and other payables | (172,693) | (198,712) | |
| Contingent consideration | (209,511) | (309,717) | |
| Deferred income | (22,585) | (22,442) | |
| Borrowings | (9,875) | - | |
| (414,664) | (530,871) | ||
| Non-current liabilities | |||
| Deferred tax liability | - | (1,772) | |
| Borrowings | (41,078) | - | |
| (41,078) | (1,772) | ||
| Total liabilities | (455,742) | (532,643) | |
| Net assets | 6,170,452 | 7,345,012 | |
| EQUITY | |||
| Called up share capital | 268,078 | 268,078 | |
| Share premium account | - | 7,008,838 | |
| Retained earnings | 5,919,701 | 68,096 | |
| Total shareholders' equity | 6,187,779 | 7,345,012 | |
| Minority interest in equity | (17,327) | - | |
| Total equity | 6,170,452 | 7,345,012 |
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 March 2009
| 2009 | 2008 | |
| £ | £ | |
| Operating activities | ||
| (Loss)/profit before tax | (1,255,001) | 106,011 |
| Adjustments to reconcile (loss)/profit before tax to net cash flows from operating activities | ||
| Depreciation of property, plant and equipment | 12,399 | 8,278 |
| Share-based payments expense | 78,669 | 24,360 |
| Decrease/(increase) on the revaluation of investments | 377,815 | (456,492) |
| Loss/(profit) on disposal of property, plant and equipment | 1,615 | (19) |
| Interest income | (214,675) | (330,856) |
| Increase in investments | (1,063,732) | (1,171,947) |
| Decrease/(increase) in trade and other receivables | 367,652 | (381,277) |
| (Decrease)/increase in trade and other payables | (47,934) | 178,768 |
| Net cash flow from operating activities | (1,743,192) | (2,023,174) |
| Investing activities | ||
| Acquisition of subsidiaries (net of cash acquired) | - | 20,963 |
| Purchase cost of property, plant and equipment | (31,314) | (9,448) |
| Proceeds from disposal of property, plant and equipment | - | 672 |
| Interest received | 214,675 | 330,856 |
| Net cash flow from investing activities | 183,361 | 343,043 |
| Financing activities | ||
| Expenses recovered in connection with share issue | - | 7,250 |
| Capital element of hire purchase contract | (27,195) | - |
| Net cash flow from financing activities | (27,195) | 7,250 |
| Net decrease in cash and cash equivalents | (1,587,026) | (1,672,881) |
| Cash and cash equivalents at the beginning of the year | 4,808,870 | 6,481,751 |
| Cash and cash equivalents at the end of the year | 3,221,844 | 4,808,870 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2009
| Attributable to equity holders of the Company | ||||||
| Share Capital | Share Premium | Retained Earnings | Total | Minority Interest | Total Equity | |
| £ | £ | £ | £ | £ | £ | |
| At 1 April 2007 | 268,078 | 7,001,588 | (55,447) | 7,214,219 | - | 7,214,219 |
| Consolidated profit for the year | - | - | 99,183 | 99,183 | - | 99,183 |
| Expenses recovered in connection with share issue | - | 7,250 | - | 7,250 | - | 7,250 |
| Total recognised income and expense | 268,078 | 7,008,838 | 43,736 | 7,320,652 | - | 7,320,652 |
| Share-based payments | - | - | 24,360 | 24,360 | - | 24,360 |
| At 1 April 2008 | 268,078 | 7,008,838 | 68,096 | 7,345,012 | - | 7,345,012 |
| Consolidated loss for the year | - | - | (1,235,902) | (1,235,902) | (17,327) | (1,253,229) |
| Total recognised income and expense | 268,078 | 7,008,838 | (1,167,806) | 6,109,110 | (17,327) | 6,091,783 |
| Reduction in share premium account | - | (7,008,838) | 7,008,838 | - | - | - |
| Share-based payments | - | - | 78,669 | 78,669 | - | 78,669 |
| At 31 March 2009 | 268,078 | - | 5,919,701 | 6,187,779 | (17,327) | 6,170,452 |
NOTES
1. This preliminary announcement was approved for issue by a duly appointed and authorised committee of the Board of Directors on 17 June 2009.
2. Basis of preparation
The financial information set out in this announcement does not constitute statutory financial statements for the year ended 31 March 2009 or 31 March 2008. The report of the auditor on the statutory financial statements for each of the years ended 31 March 2009 and 31 March 2008 were (i) unqualified; (ii) did not include references to any matters to which the auditor drew attention by way of emphasis without qualifying their report; and (iii) did not contain statements under section 237(2) or (3) of the Companies Act 1985. The statutory financial statements for the year ended 31 March 2008 have been delivered to the Registrar of Companies. The statutory financial statements for the year ended 31 March 2009 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
3. Taxation
The charge to taxation is arrived at as follows:
| 2009 | 2008 | |
| £ | £ | |
| UK corporation tax | - | - |
| Deferred tax | (1,772) | 6,828 |
| Tax (credit)/charge in the income statement | (1,772) | 6,828 |
The effective tax rate for the year is 21% (2008: 20%). 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)/Earnings per Share
(Loss)/earnings per share is calculated by dividing the loss attributable to equity holders of Braveheart Investment Group plc of £1,235,902 (2008: profit of £99,183) by the weighted average number of ordinary shares in issue during the year ended 31 March 2009 of 13,403,895 (2008: 13,403,895).
5. Investments at Fair Value through Profit or Loss
| Listed | Unlisted | ||||||
| Equity | Loan | Sub-total | Equity | Loan | Sub-total | Total | |
| £ | £ | £ | £ | £ | £ | £ | |
| Fair value at 1 April 2007 | 135,845 | 40,000 | 175,845 | 720,311 | - | 720,311 | 896,156 |
| Additions at cost | 98,639 | - | 98,639 | 939,845 | 183,463 | 1,123,308 | 1,221,947 |
| Transfers | 58,695 | - | 58,695 | (58,695) | - | (58,695) | - |
| Disposals proceeds | - | - | - | (1,650) | - | (1,650) | (1,650) |
| Change in fair value in year | (146,458) | (40,000) | (186,458) | 673,989 | (29,389) | 644,600 | 458,142 |
| Fair value at 1 April 2008 | 146,721 | - | 146,721 | 2,273,800 | 154,074 | 2,427,874 | 2,574,595 |
| Additions at cost | - | - | - | 556,126 | 507,606 | 1,063,732 | 1,063,732 |
| Conversions | - | - | - | 208,846 | (208,846) | - | - |
| Change in fair value in year | (131,069) | - | (131,069) | (21,746) | (225,000) | (246,746) | (377,815) |
| Fair value at 31 March 2009 | 15,652 | - | 15,652 | 3,017,026 | 227,834 | 3,244,860 | 3,260,512 |
6. Post balance sheet acquisition
On 5 June 2009, the Company acquired the entire issued share capital of Inkopo Ltd, a specialist investment business based in Yorkshire.
The initial consideration comprised a cash payment of £75,000 and 511,937 ordinary shares in Braveheart. In addition at the date of acquisition Inkopo had approximately £52,000 of net debt. Two further tranches of consideration are payable on the first and second anniversary of completion (Contingent Consideration). The Contingent Consideration will be settled by the further issue of ordinary shares in Braveheart or, at Braveheart's discretion, in cash or by the issue of unsecured loan notes. The Contingent Consideration will be based on (i) Inkopo's turnover for the years ending 31 March 2010 and 31 March 2011, and (ii) the attainment by Inkopo of certain other non-turnover based operating targets benefitting the Group. The total aggregate consideration is capped at £1.31 million irrespective of any over performance of Inkopo's targets. All Braveheart ordinary shares issued as consideration will be valued at a price of 39.2p, representing a one third premium to the average closing price of Braveheart shares on the five days prior to 15 May 2009, being the date on which heads of agreement were signed.
Due to the proximity of the date of approval of the financial statements to the date of acquisition there has been insufficient time available to enable the identification of all assets, liabilities and contingent liabilities existing at date of acquisition and to perform a full and reliable fair value exercise thereon. Consequently, full disclosure as set out in IFRS 3 'Business Combinations' has not been given as it is impracticable to provide this information.
7. Availability of statutory financial statements
Copies of the full statutory financial statements will be mailed to shareholders no later than 18 August 2009 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.braveheart-ventures.co.uk.