Preliminary Results

RNS Number : 8268J

Braveheart Investment Group plc

13 August 2012

 



13 August 2012

Braveheart Investment Group plc

("Braveheart" or "the Group")

Preliminary Results for the year ended 31 March 2012

Key Points

Operational:

•              Completed transformation of the Group - now SME focussed fund and services management provider;

·           Completed acquisition of Neon Capital Partners Ltd, manager of £48m Finance Yorkshire Equity Fund;

•              Appointed to manage £50m Growth Loan Fund in Northern Ireland (in partnership with NEL and Clarendon);

•              Envestors opened for business in the Isle of Man;

•              Envestors led £13.1m financing for client companies;

•              Raised £950,000 (before expenses) through placing of 4,132,574 shares;

•              Facilitated strategic exit of two institutional shareholders;

•              Funds under management at year end of £110m (2011: £12m).

Financial:

•              Investment management and consultancy fee income increased 37% to £1,265,000 (2011: £926,000);

•              Excluding unrealised portfolio movements, loss before tax increased to £1,513,000 (2011: loss of £862,000);

•              Net unrealised loss on revaluation of portfolio investments of £742,000 (2011: loss of £444,000);

•              Including unrealised portfolio movements, the loss before tax increased to £1,713,000 (2011: loss of £1,306,000);

•              Cash utilisation in the year decreased to £555,000 (2011: £831,000);

•              Cash balances of £424,000 (2011: £643,000);

•              Net assets per share of 21.73 pence (2011: 30.66 pence).

Events since the year end:

•              Placed 3,333,331 shares raising £500,000;

•              Formed WhiteRock Capital Partners to manage Growth Loan Fund in Northern Ireland;

•              Awarded fund management contract for £10m Lachesis fund, a University Challenge Seed Fund;

·           Envestors led a further £2.4m financing for client companies.

Garry S Watson OBE, Chairman said:

"Two things have moved us forward significantly this year. Firstly the successful consortium bid to manage a £50 million growth loan fund aimed at supporting small to medium sized enterprises in Northern Ireland. Secondly the acquisition of Neon Capital Partners, which manages the £48 million Finance Yorkshire Equity Fund. With regard to the portfolio, we remain confident of material realisations in a more benign business climate."

 Geoffrey C B Thomson, Chief Executive Officer said:

"This year has seen a major transformation of our business and we are now an SME focussed fund and services management provider. The next few years will see us consolidate our market position as a leading manager of equity and equity linked products to the SME market." 

 For further information please visit www.braveheartinvestmentgroup.co.uk or contact:

Braveheart Investment Group plc                           

Geoffrey Thomson, Chief Executive                      

Tel: [phone]                                                            

[e-mail]               

Media inquiries

Allerton Communications (for Braveheart)

Peter Curtain

Tel: [phone]

[e-mail]

Merchant Securities Limited (Nominated Adviser and Broker)

Lindsay Mair

Catherine Miles

020 7628 2200

[e-mail]

[e-mail]

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 2012.

Implementing Change

In our Interim Statement I reported that we had been actively pursuing our strategy of increasing fee income through the acquisition of additional investment management businesses.  I am therefore delighted to report that in the month prior to our year end we were able to make two announcements that are highly significant in relation to the future of the Group. 

The first was that we were leaders of a consortium, consisting of ourselves, NEL Fund Managers Ltd and Clarendon Fund Managers Ltd, that has been appointed to manage a £50million growth loan fund aimed at supporting small to medium sized enterprises (SMEs) in Northern Ireland.  The second related to the acquisition of Neon Capital Partners Ltd which manages the £48million Finance Yorkshire Equity Fund, supporting SMEs in the Yorkshire and Humber region.

Immediately prior to and post the year end, the Group arranged further equity placements, aggregating £500,000 in support of its acquisition programme and for working capital purposes.  I am delighted to welcome several new investors, and I should like to thank a number of our existing shareholders for their increased support.

These new activities are a profound step in the implementation of your Board's strategy of focusing on the management of regional SME focused investment, with the consequent improvement in the quality of the Group's income.

Results

Total fee-based revenue and finance income for the year ended 31 March 2012 increased to £1,265,000 (2011: £926,000).  Additionally, we recorded a gain on the realisation of portfolio investments of £39,000 (2011: £168,000).  Total operating costs increased to £2,836,000 (2011: £1,988,000), resulting in a loss before unrealised movements in portfolio investments of £1,513,000 (2011: loss of £862,000).  Operating costs include £249,000 in relation to an M&A transaction only part of which was concluded. The net unrealised movement on the revaluation of portfolio investments was a loss of £742,000 (2011: £444,000). 

After taking account of portfolio movements, the loss after tax was £1,713,000 (2011: loss of £1,306,000) equating to a loss per share of 9.46 pence (2011: 9.06 pence).

Cash utilisation in the year decreased to £555,000 (2011: £831,000) and the Group ended the year with cash balances of £424,000 (2011: £643,000).

Investment Portfolio

With the value of weaker investments now written off, we remain confident about the performance of the ongoing portfolio, consisting of investments in some 20 companies, most of them having made useful progress during the year.  No material realisations were achieved during the year but progress, in a recession that shows no sign of abating, augurs well for their disposal in a more benign business climate.

Board, Management and Staff

There was one change in our Board of Directors during the year.  Aileen Brown joined us as the Chief Financial Officer in January 2012.

For staff, it has been a tough year, with reduced numbers in our Head Office, as we have sought to contain our costs.  I want to express my thanks for the enthusiasm and hard work that have been so important during a period of considerable change.

Prospects

Since the year end work has progressed on integrating the new investment management businesses into our structure. These businesses will result in a significant change in our operating results, and they represent an important milestone for us.  Your Board is determined to build critical mass and our management team is seeking further opportunities that will enable the Group to increase its SME targeted funds under management. 

Garry S Watson

Chairman

CHIEF EXECUTIVE OFFICER'S REPORT

This year has seen a major transformation of our business and we are now an SME focused fund and services management provider rather than being an investment company.  This transformation has taken us a number of years and has included three acquisitions and one substantial fund management contract award.  During this time we have also extended our geographical footprint and this year we have established operations in Belfast and the Isle of Man.    

During the year, we acquired Neon Capital Partners for £380,000.  Neon is the fund manager for the £48 million Finance Yorkshire Equity Fund (FYEF).  The FYEF is scheduled to run until 2018 and invests equity and/or debt in SMEs in Yorkshire and Humberside. This acquisition consolidates our position in a region where we already operate as Viking Fund Managers and have various funds under management.  Andrew Burton, our regional managing director, has assumed responsibility for both Neon and Viking and in the fullness of time we expect to operate under one brand in the region.

In February we announced that we had been successful in leading a consortium bid to manage the £50 million Growth Loan Fund (GLF) in Northern Ireland.  A new product in Northern Ireland, the GLF provides debt funding to SMEs and is scheduled to run until 2022.  Working with our partners, NEL Fund Managers and Clarendon Fund Managers, we have established a joint venture vehicle under the name of WhiteRock Capital Partners.  Paul Millar has been appointed Chief Investment Officer and leads a newly recruited team of three investment managers and two financial analysts.

Since the year end we have reported that, subject to contract, we have been appointed to manage the £10.25million Lachesis Fund (Lachesis).  Lachesis is the University Challenge Seed Fund for a number of universities in the East Midlands and supports seed stage technology investments emanating from those universities.  Our appointment is for a minimum of two years and involves providing support, mentoring and business development services to portfolio companies in addition to providing fund administration services.   

Last summer we completed a share placing which raised just under £1m of fresh capital for the Group, at the same time as achieving an exit for two institutional shareholders.  This placing and the removal of a share 'overhang' gave us confidence going forward and when we acquired Neon Capital Partners some months later, we did so using our own resources.  Once the acquisition was complete, we raised an additional £500,000 of equity at a premium to our share price.  A strong shareholder base is vital and I would like to thank our shareholders for their support.   

The financial performance of the business underlines the appropriateness of our strategy.  The results show that our fee generating business is growing while our investment portfolio has continued to suffer from downward valuations, partly as a function of the poor market for initial public offerings and M&A.  Envestors made an important maiden full year contribution and this is a business that we are looking to expand in other regions.    Included within our overheads are fees that relate to a partially aborted acquisition package.  Neon was the most important part and we concluded that acquisition.   

Our investment portfolio is maturing well and we have good expectations for realisations.  However, as we have noted on previous occasions, the timing of these realisations is uncertain and in these market conditions one has to be patient.  Our current focus is on optimising exit valuations and supporting incumbent management.

The Coalition Government has made progress on the important matter of SME financing, with more money being made available to the sector and, with an increasing amount of it distributed by intermediaries other than banks.  While the amounts at this stage are modest, the general trend is good news for SMEs and bodes well for us as a business.

In my last annual report I noted various government initiatives that were due to improve the financing landscape for SMEs. The £50 million Angel Cofund is now up and running and we are represented on the Board of that entity.  The Enterprise Investment Scheme (EIS) landscape has been improved once again, and as noted above we are seeing more public money being managed by intermediaries such as ourselves, rather than being provided as a guarantee to clearing banks.  This is all positive news for us and I believe we are well placed to win additional fund management mandates over the next few years.

Outside the UK, the eurozone continues to be in serious difficulty and attempts to remedy the crisis have to date proved largely ineffective. Market commentary tends to view a European banking union as likelihood and we remain unsure what impact that might have on the UK economy.

The transformation mentioned earlier is now complete and we are at the start of our journey.  The next few years will see us consolidate our position as a leading manager of equity and equity linked products to the SME market. In addition, we will use our balance sheet to good effect when circumstances allow, and we will continue to provide innovative products to a receptive market. 

We are a 'people' business and in closing I would like to thank our staff for all their hard work over the year.

Geoffrey C B Thomson

Chief Executive Officer

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2012

			2012	2011
	Notes		£	£
Revenue			1,265,139	925,781
Unrealised (loss)/profit on the fair value movements of investments			(742,143)	(464,029)
Movement on contingent consideration			541,882	20,314
Fair value uplift on disposal of investment			39,326	168,365
Finance revenue			18,811	31,629
Total income			1,123,015	682,060
Employee benefits expense			(1,762,114)	(1,291,280)
Other operating costs			(1,045,206)	(692,543)
Total operating expenses			(2,807,320)	(1,983,823)
Finance costs			(28,691)	(4,369)
Total costs			(2,836,011)	(1,988,192)
Loss before tax			(1,712,996)	(1,306,132)
Tax	3		-	-
Total loss and total comprehensive loss for the year			(1,712,996)	(1,306,132)
Loss attributable to:
Equity holders of the parent			(1,724,083)	(1,305,815)
Minority interest			11,087	(317)
			(1,712,996)	(1,306,132)
Loss per share			Pence	Pence
- basic and diluted	4		(9.46)	(9.06)

All revenues and losses arise from continuing operations.

Consolidated Statement of Financial Position

as at 31 March 2012

			2012	2011
	Notes		£	£
ASSETS
Non-current assets
Goodwill	6		1,352,915	987,105
Other intangibles	7		109,115	121,951
Property, plant and equipment			21,158	28,646
Investments at fair value through profit or loss	8		3,275,655	3,978,621
Other receivables			-	54,112
			4,758,843	5,170,435
Current assets
Trade and other receivables			299,452	182,106
Cash held for new share subscription			336,000	-
Cash and cash equivalents			87,974	643,203
			723,426	825,309
Total assets			5,482,269	5,995,744
LIABILITIES
Current liabilities
Trade and other payables			(438,049)	(244,722)
Consideration re Neon Capital Partners Ltd			(294,244)	-
Contingent consideration	9		(360,599)	(592,420)
Deferred income			(15,642)	(14,202)
Borrowings			-	(6,629)
			(1,108,534)	(857,973)
Non-current liabilities
Contingent consideration	9		(140,616)	(574,378)
Borrowings			(43,392)	(41,664)
			(184,008)	(616,042)
Total liabilities			(1,292,542)	(1,474,015)
Net assets			4,189,727	4,521,729
EQUITY
Called up share capital			385,620	294,988
Shares to be issued			336,000	-
Share premium			819,551	-
Merger reserve			431,821	316,101
Retained earnings			2,214,934	3,919,926
Equity attributable to owners of the Parent			4,187,926	4,531,015
Non-controlling interest			1,801	(9,286)
Total equity			4,189,727	4,521,729

Consolidated Statement of Cash Flows

for the year ended 31 March 2012

			2012	2011
			£	£
Operating activities
Loss before tax			(1,712,996)	(1,306,132)
Adjustments to reconcile loss before tax to net cash flows from operating activities
Depreciation of property, plant and equipment			7,880	9,631
Amortisation of intangibles			12,836	6,418
Share-based payments expense			19,091	34,651
Decrease/(increase) on the fair value movements of investments			742,143	464,029
Gain on disposal of equity investments			(39,326)	(168,365)
Acquisition of subsidiaries			(71,415)	(30,010)
(Gain)/loss on disposal of property, plant and equipment			(86)	5,561
Interest income			(18,811)	(31,629)
Increase in trade and other receivables			(371,320)	(12,055)
Decrease in trade and other payables			(38,379)	(18,310)
Net cash flow from operating activities			(1,470,383)	(1,046,211)
Investing activities
Proceeds from sale of equity investments			91,956	315,006
Increase in investments			(100,554)	(112,656)
Repayment of borrowings			8,747	-
Purchase cost of property, plant and equipment			-	(7,811)
Proceeds from sale of property, plant and equipment			446	-
Interest received			18,811	31,629
Net cash flow from investing activities			19,406	226,168
Financing activities
Proceeds from issue of new shares			949,703	-
Transaction cost of new shares			(47,500)	-
New share subscription			336,000	-
Capital element of hire purchase contract			(6,455)	(10,697)
Net cash flow from financing activities			1,231,748	(10,697)
Net decrease in cash and cash equivalents			(219,229)	(830,740)
Cash and cash equivalents at the beginning of the year			643,203	1,473,943
Cash and cash equivalents at the end of the year			423,974	643,203

Consolidated Statement of Changes in Equity

for the year ended 31 March 2012

			Attributable to owners of the Parent
	Share Capital	Shares to be Issued	Share Premium	Merger Reserve	Retained Earnings	Total	Non-controlling interest	Total Equity
	£			£	£	£	£	£
At 1 April 2010	278,316	-	-	140,783	5,191,090	5,610,189	(8,969)	5,601,220
Issue of new share capital	16,672	-	-	175,318	-	191,990	-	191,990
Share-based payments	-	-	-	-	34,651	34,651	-	34,651
Transactions with owners	16,672	-	-	175,318	34,651	226,641	-	226,641
Loss and total comprehensive loss for the year	-	-	-	-	(1,305,815)	(1,305,815)	(317)	(1,306,132)
At 1 April 2011	294,988	-	-	316,101	3,919,926	4,531,015	(9,286)	4,521,729
Issue of new share capital	90,632	-	819,551	115,720	-	1,025,903	-	1,025,903
Shares to be issued	-	336,000	-	-	-	336,000	-	336,000
Share-based payments	-	-	-	-	19,091	19,091	-	19,091
Transactions with owners	90,632	336,000	819,551	115,720	19,091	1,380,994	-	1,380,994
Loss and total comprehensive loss for the year	-	-	-	-	(1,724,083)	(1,724,083)	11,087	(1,712,996)
At 31 March 2012	385,620	336,000	819,551	431,821	2,214,934	4,187,926	1,801	4,189,727

NOTES

1. This preliminary announcement was approved for issue by a duly appointed and authorised committee of the Board of Directors on 10 August 2012.

2. Basis of preparation

The financial information set out in this announcement does not constitute statutory financial statements for the years ended 31 March 2012 or 31 March 2011. Statutory accounts for the years ended 31 March 2012 and 31 March 2011 have been reported on by the Independent Auditors. The Independent Auditors' Reports on the Annual Report and Financial Statements for 2012 and 2011 were 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 2011. The statutory financial statements for the year ended 31 March 2011 have been delivered to the Registrar of Companies. The statutory financial statements for the year ended 31 March 2012 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:

	2012	2011
	£	£
UK corporation tax	-	-
Deferred tax	-	-
Tax in the statement of comprehensive income	-	-

The effective tax rate for the year is 20% (2011: 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 £1,724,083 (2011: £1,305,815) by the weighted average number of ordinary shares in issue during the year ended 31 March 2012 of 18,225,817 (2011: 14,412,495).

5. Business combination

On 22 March 2012 the Company acquired 100% of the issued share capital of Neon Capital Partners Ltd (Neon) from NF Holdings Ltd for a total consideration of £674,244, such consideration satisfied entirely in cash. Neon owns 100% of the issued share capital of Finance Yorkshire Equity GP Ltd (FYGP).Both companies are based in the UK.

The cost of the acquisition excludes legal and other fees of £53,000 which have been charged to the statement of comprehensive income in accordance with IFRS 3 Revised under other operating costs. The acquisition forms part of the Group's strategy to grow its fee business and to increase its geographical reach.

The allocation of the acquisition cost to the identifiable assets and liabilities of Neon and FYGP consolidated at the acquisition date is as follows:

			Neon & FYGP Consolidated
			Carrying Value	Fair Value
			£	£
Property, plant and equipment			753	753
Cash and cash equivalents			308,595	308,595
Trade and other payables			(914)	(914)
Net assets			308,434	308,434
Cash paid			380,000	380,000
Deferred consideration			294,244	294,244
Fair value cost of acquisition			674,244	674,244
Goodwill			365,810	365,810

The goodwill that arose on the acquisition can be attributed to revenue synergies expected to be derived from the combination and the value of personnel of Neon, which cannot be recognised as an intangible asset under IAS 38.  From the date of acquisition, Neon has contributed £24,798 revenue and £14,190 profit to the Group. Neon had not traded and until immediately prior to the acquisition the management services for the Fund were performed by another company in the NF Holdings group. 

6. Goodwill

	VFM	Envestors	Neon	Total
	£	£	£	£
At 1 April 2010	327,064	-	-	327,064
Acquired on acquisition	-	615,161	-	615,161
Increase in period	44,880	-	-	44,880
At 31 March 2011	371,944	615,161	-	987,105
Acquired on acquisition	-	-	365,810	365,810
At 31 March 2012	371,944	615,161	365,810	1,352,915

The acquisition of Viking Fund Managers (VFM) has been accounted for under IFRS 3. At initial recognition, contingent consideration settled, or to be settled, in shares was fair valued by reference to the Company's share price at the acquisition date. The movement in goodwill in the period since acquisition is primarily due to movements in the fair value of contingent consideration resulting from movements in the Company's share price.

The acquisition of Envestors has been accounted for under IFRS 3 Revised. 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. Under IFRS 3 Revised, future changes to the fair value of contingent consideration are applied to the statement of comprehensive income, and accordingly goodwill will remain constant unless impaired.

The acquisition of Neon has been accounted for under IFRS 3 Revised. £380,000 was paid to NF Holdings Ltd on 22 March 2012 and a further £244,244 paid over on 7 June 2012. On the first anniversary of the acquisition, subject to certain specific liabilities not having arisen by such date, a further £50,000 is due to be paid.

At the end of the year, the Group assessed the recoverable amount of the above goodwill associated with each of the VFM and Envestors cash-generating units (both being part of the Group's only operating segment), and determined that goodwill was not impaired.

7. Intangible assets

	Brand	Database	Total
Group	£	£	£
Cost
At 1 April 2011 and 31 March 2012	66,869	61,500	128,369

Accumulated amortisation                             

At 1 April 2011	3,343	3,075	6,418
Amortisation	6,686	6,150	12,836
At 31 March 2012	10,029	9,225	19,254

Net Book Value

At 31 March 2012	56,840	52,275	109,115
At 31 March 2011	63,526	58,425	121,951

Intangible assets acquired on acquisition first arose on the acquisition by Envestors of the business of Envestors LLP and comprise Envestors' brand and database of high-net-worth investor contacts. The brand has been valued using the 'relief from royalty' method and the database using the 'cost to recreate' method.

All intangible assets are depreciated at 10% straight line over 10 years.

8. 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
Group	£	£	£	£	£	£
At 1 April 2010	35,021	-	-	4,201,301	294,425	4,530,747
Additions at Cost	-	-	-	77,389	35,267	112,656
Disposals	-	-	-	(200,753)	-	(200,753)
Conversions	-	-	-	239,117	(239,117)	-
Change in Fair Value	17,609	-	-	(521,063)	39,425	(464,029)
At 31 March 2011	52,630	-	-	3,795,991	130,000	3,978,621
Additions at Cost	-	-	-	65,554	35,000	100,554
Disposals	(52,630)	-	-		(8,747)	(61,377)
Conversions	-	-	-	105,000	(105,000)	-
Change in Fair Value	-	-	-	(742,143)	-	(742,143)
At 31 March 2012	-	-	-	3,224,402	51,253	3,275,655

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

All unquoted investments have been classified within Level 3, their respective valuations having been calculated using a number of valuation techniques and assumptions, notwithstanding that the basis of the valuation methodology used most commonly by the Group is 'price of most recent investment'. 

9.  Contingent consideration

Short term contingent consideration of £360,599 (2011: £592,420) comprises (i) £76,062 (2011: £123,701) being the fair value of the consideration due at 31 March 2012 in respect of the acquisition of Envestors, and will be satisfied by the issue of 647,334 ordinary shares of 2 pence each in the Company and (ii) £284,537 (2011: £468,719) being the sum due on future exit values of the CPR portfolio.

Long term contingent consideration of £ 140,616 (2011: £574,378) represents the fair value of long term contingent consideration due in respect of the acquisition of Envestors, equivalent to 1,196,731 shares (2011: 1,852,832 shares).

No further consideration (2011: £123,701) remains payable in respect of the acquisition of VFM.

10. Events after the reporting date

On 5 April 2012 the company raised approximately £336,000 via the placing of 2,239,998 ordinary shares of 2 pence each at an issue price of 15 pence each.  On 11 May 2012 the company raised a further £164,000 via the placing of 1,093,333 new ordinary shares of 2 pence each at an issue price of 15 pence each.

11. Availability of statutory financial statements

Copies of the full statutory financial statements will be mailed to shareholders no later than 29 August 2012 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.

 

END

 

 

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