Braveheart Inv Regulatory News (BRH)

3 September 2013

Braveheart Investment Group plc

("Braveheart" or "the Group")

Preliminary Results for the year ended 31 March 2013

KEY POINTS

Operational:

· Strathtay Ventures (formerly Braveheart Ventures) awarded fund management contract for £10 million Lachesis Fund, a University Challenge Seed Fund;

· Yorkshire fund management operation performing well;

· Strong start from newly established WhiteRock Capital Partners in Belfast;

· Re-organisation of Yorkshire operations;

· Envestors led £17.6 million of financing for companies and established a presence in Monaco; and

· Funds under management at 31 March 2013 of £121 million (2012: £110 million).

Financial:

· Investment management and consultancy fee income increased 139% to £3,020,000 (2012: £1,265,000);

· Profit before tax of £68,000 (2012: loss of £1,713,000);

· Excluding unrealised portfolio movements, loss before tax reduced to £240,000 (2012: loss of £1,500,000);

· Net unrealised gain on revaluation of portfolio investments of £254,000 (2012: loss of £742,000), giving total portfolio fair value of £3,560,000 (2012: £3,310,000);

· Cash utilisation in the year decreased to £385,000 (2012: £555,000);

· Placed a total of 3,333,331 shares raising £500,000;

· Cash balances of £39,000 (2012: £424,000) with no material borrowings; and

· Net assets per share of 19.43 pence (2012: 21.73 pence).

Events since the year end:

· Envestors led a further £2.7m financing for client companies;

· WhiteRock team wins key industry award in Northern Ireland;

· First exit achieved in Finance Yorkshire Equity Fund, generating a money multiple of 2.2 on the transaction; and

· Portfolio realisations expected in the short to medium term.

Jeremy Delmar-Morgan, Chairman said:

"It's very pleasing to see the progress achieved in the year. The Directors are focussed on growing the fund management business further and realising the value in the investment portfolio"

Geoffrey C B Thomson, Chief Executive Officer said:

"The year saw a good strong increase in turnover and a modest profit. We are particularly pleased with the fund management side of the business and the prospects in our investment portfolio."

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

Braveheart Investment Group plc

Geoffrey Thomson, Chief Executive

Tel: 01738 587555 gthomson@braveheartgroup.co.uk 

Media inquiries

Allerton Communications (for Braveheart)

Peter Curtain

Tel: 020 3137 2500 peter.curtain@allertoncomms.co.uk

Sanlam Securities UK Limited (Nominated Adviser and Broker)

Lindsay Mair

Catherine Miles

020 7628 2200

CHAIRMAN'S STATEMENT

I have pleasure in providing shareholders with my statement which accompanies our financial results for the year ending 31 March 2013.

I joined the Board of the Group in 2008 and became Chairman on 1 April 2013. .

The strategy of building the investment management business continues but let us not forget the on-going business of the Group which is that of seeking out great new companies and nurturing them to success. We see signs of green shoots in the economy, and whilst these are small, they can only enhance the growth prospects for our Company. Recent economic forecasts suggest gradual signs of recovery.

I would like to thank the previous Chairman, Garry Watson, for all his hard work and devotion to duty over the many years and also thank Edward Cunningham for his advice and statesmanship over a long period. Edward will be retiring as Non-executive Director at the forthcoming Annual General Meeting, but both he and Garry will remain in touch with the Company as they are investment clients of Strathtay Ventures Ltd. Thank you, to you both.

Results

Total fee-based revenue and finance income for the 12 months ended 31 March 2013 increased 136% to £3,033,000 (2012: £1,284,000). There were no portfolio realisations in the year (2012: gain on realisation £39,000). Total operating costs increased to £3,271,000 (2012: £2,836,000), resulting in a loss before unrealised movements in portfolio investments of £238,000 (2012: loss of £1,513,000). The net unrealised movement on the revaluation of portfolio investments was a gain of £254,000 (2012: loss of £742,000).

After taking account of portfolio movements, the profit after tax was £68,000 (2012: loss of £1,713,000) equating to a profit per share of 0.30 pence (2012: loss of 9.46 pence).

Cash utilised in the period decreased to £385,000 (2012: £555,000) and the Group had cash balances of £39,000 as at 31 March 2013 (2012: £424,000).

The Group is currently working on two material transactions as described in the Chief Executive Officer's report.

Jeremy Delmar-Morgan

Chairman

CHIEF EXECUTIVE OFFICER'S REPORT

I am pleased to report to shareholders for the 12 months ending 31 March 2013.

In early 2012 we delivered two major initiatives to the Group. These were the acquisition of Neon Capital Partners (Neon), the manager of the £48 million Finance Yorkshire Equity Fund and the winning of the mandate to manage the £50 million Growth Loan Fund in Northern Ireland. The latter resulted in the establishment of our joint venture company, WhiteRock Capital Partners in Belfast. Our focus during the year has been to ensure these new businesses are integrated and performing in-line with expectations. I am happy to report further as follows:

Since the acquisition we have brought more high quality staff into Neon and allocated resources to business development. Under the direction of Andrew Burton, our Regional Managing Director, the business has performed well and is now hitting stretching investment targets. As we deploy our cash resources, monitoring and management of the growing portfolio becomes an increasingly important part of our role. In that regard we have recently expanded our portfolio management team and as we go forward we are making an increasing number of portfolio company Non-executive Director appointments.

We signed contracts for the management of the Growth Loan Fund in Northern Ireland in mid-May 2012. Thereafter, Paul Millar, Chief Investment Officer of what is now WhiteRock Capital Partners, set about building the team and creating awareness of the fund. Our investment phase commenced in earnest in September 2012 and a steady number of loans are now being made. We are delighted with the reception the fund has received in the market and our newly formed team won a prestigious award for 'best private equity firm of the year' in April 2013.

It is now two and a half years since we acquired Envestors, the Group's corporate finance unit, and once again the business has shown steady growth in the year. The operation now has a presence in London, Manchester, Jersey, the Isle of Man, Monaco and Dubai. We are seeing particularly strong investment appetites from our off-shore locations and Monaco has made a good start with our Envestors SARL subsidiary now being approved and formally established in the Principality.

We recently rebranded Braveheart Ventures as Strathtay Ventures and launched a new Group website. We have also reorganised our Yorkshire businesses with Neon now being renamed Viking Fund Managers, which is a strong regional brand. At the same time we transferred the management of the Yorkshire Association of Business Angels (often referred to as YABA) to Envestors where there are good synergies with the Envestors business.

During the year Strathtay Ventures was awarded the fund management mandate for the Lachesis Fund, the Challenge Seed Fund for a number of universities in the East Midlands. The Lachesis Fund, which has been operating for 10 years, is fully invested and Carolyn Smith, Group Chief Investment Officer, and her team have invested significant amounts of time looking at ways of maximising returns to the partner universities.

While the Group focus is now on managing SME focused equity and loan funds, we still have a valuable directly held portfolio. This portfolio is maturing well and we have a number of realisation prospects both in the short and medium term. We are currently considering various options for the portfolio in order to reflect its true value and in particular how shareholder value could be enhanced.

Our financial results are described in detail by Aileen Brown, our Chief Financial Officer, in her report. I would simply note the following:

· Fee based revenue grew 139% during the year to £3.020 million (2012: £1.265 million);

· Total income (including realised and unrealised gains and losses from the investment portfolio) grew 197% to £3.339 million (2012: £1.123 million);

· Profit after tax, and amounts attributable to non-controlling interests, increased to £68,000 (2012: loss of £1.713 million), equivalent to a profit per share of 0.30p (2012: loss per share 9.46p);

· At the year end the fair value of our directly held portfolio increased to £3.560 million (2012: £3.280 million);

· During the period we raised £500,000 in new equity with shares being issued at a premium to the prevailing share price; and

· Cash at the year-end was £39,000 with no material borrowings.

I believe the results show our strategy to grow the asset management and fee income side of our business is working, and it is pleasing to see a level of profit, albeit modest, now coming through. Going forward our strategy remains the same and we are looking at organic growth opportunities in addition to M&A opportunities where we can acquire assets at appropriate prices.

The Government has a number of initiatives aimed at increasing the availability of finance to SMEs and these initiatives include making resources available to fund managers such as ourselves. We plan to work in conjunction with the Business Bank and Capital for Enterprise as we investigate these initiatives. We note that the Angel Cofund, which we helped form and are represented on the Board, has recently been extended to £100 million (from an initial £50 million).

I would like to endorse our Chairman's thanks to both Garry Watson and Edward Cunningham for their unstinting service to the Company over many years. I wish them well in their retirement. I would like to thank our team, particularly our new staff members at Viking Fund Managers and WhiteRock Capital Partners, for all their hard work over the year. More of the same is required please, as we continue to grow the business.

Finally I am happy to report that the Group is currently progressing two capital transactions, both of which are at an advanced stage. If completed, each of these transactions is expected to generate six-figure cash receipts.

Geoffrey Thomson, Chief Executive Officer

CHIEF FINANCIAL OFFICER'S REPORT

Income statement

Fee based revenue is now generated by the Group's three principal operating companies, namely Strathtay Ventures Ltd (SVL) (formerly known as Braveheart Ventures Ltd), Envestors Ltd and Viking Fund Managers Ltd (VFM). For operational reasons VFM and Neon Capital Partners Ltd (Neon) were combined as at 31 March 2013, with the new combined business called Viking Fund Managers Ltd. The revenue comprises investment management fees and consultancy income, which grew 139% during the year to £3.020 million (2012: £1.265 million).

Investment management revenue, including success fees of £462,000 (2012: £377,000) generated by Envestors, was £2.592 million (2012: £932,000), an increase of 178%.

Consultancy income, earned from the provision of business advisory services by VFM and by the provision of corporate finance services by Envestors, was £497,000 (2011: £333,000), an increase of 49%.

Finance income was £13,000 (2012: £19,000), the reduction being due to reducing overall balances for outstanding loan notes within the investment portfolio.

As at 31 March 2012, the Group's own investment portfolio of 20 companies was valued at £3.280 million. During the year the Group made investments totalling £46,000 (2012: £101,000) into one existing portfolio company with the balance being invested in the Northern Ireland Growth Loan Fund (NIGLF). Of this investment, £14,000 (2012: £25,000) was made by way of equity. The balance of £32,000 (2012: £76,000) was invested in the NIGLF which is a loan fund. No realisations were made in the year (2012: gain on realisation of £39,000). Two companies repaid loan notes totalling £15,000 (2012: £9,000). At 31 March 2013 the fair value of the investment portfolio of 20 companies was £3.560 million, resulting in an aggregate unrealised revaluation gain of £254,000 (2012: unrealised revaluation loss of £742,000).

The Group's investments are held either by the Company, Strathclyde Innovation Fund LP (SIF), or Caledonia Portfolio Realisations Ltd (CPR). There is a decrease in contingent consideration of £41,000 (2012: decrease in contingent consideration of £184,000) payable on future exit values of CPR portfolio companies.

Total income for the year ended 31 March 2013 including realised gains and unrealised revaluation losses was £3.339 million, an increase from £1.123 million in 2012.

Average employee numbers increased by 5 in the year, due principally to the acquisition of the Neon Capital Partners Ltd team in March 2012 and the recruitment of a new team. Employee benefits expense was £1.971 million (2012: £1.762 million). Other operating and finance costs increased to £1.300 million (2012: £1.074 million). The increase in costs is due largely to the fund management costs associated with managing the NIGLF.

Excluding unrealised portfolio movements, the loss before tax reduced to £0.240 million (2012: £1.500 million) reflecting the benefit of growing the profitable fund management business line. The total profit after tax and amounts attributable to non-controlling interests increased to £68,000 (2012: £1.720 million), equivalent to a profit per share of 0.30 pence (2012: loss per share of 9.46 pence).

Financial position

Net assets at 31 March 2013 were £4.520 million (2012: £4.190 million), equivalent to 19.43 pence per share (2012: 21.73 pence). The slight decrease reflects the new share issue during the financial year.

The Group's net assets include goodwill of £1.367 million (2012: £1.353 million) and intangible assets of £96,000 (2012: £109,000). Goodwill arises from the acquisitions of VFM, Envestors and Neon. The carrying value of goodwill has been reviewed during the year and in light of current projections of future performance the Directors do not believe the assets are impaired, however, a revision of £14,000 was made to the Neon goodwill. Intangible assets are amortised straight line over 10 years.

A new share subscription raised £500,000 from the placing of 3,333,331 shares during the period.

At the year end the Group had cash balances of £39,000 (2012: £424,000). There were no material borrowings. Cash utilisation decreased to £385,000 (2012: £555,000).

A summary analysis of the Group's performance is:

Aileen Brown

Chief Financial Officer

CHIEF INVESTMENT OFFICER'S REPORT

I am pleased to report to shareholders for the 12 months ending 31 March 2013.

Investment Activity

At the end of the year under review the Group's portfolio of companies comprised 20 companies. As you will note from the list below we continue to have holdings in a diverse range of mainly technology-based companies. Nine of the companies received further funding throughout the year - Bloxx, Pyreos, mLED, Phase Focus, AppShare, Vascular Flow Technologies, Traak Systems, NiTech Solutions and Scalar Technologies. Since July 2012 the Group has generally ceased making direct investments into the portfolio given our strategy of building our investment management business. However, there continues to be modest investment from the Group's clients alongside substantial funds from venture capital funds and corporate investors. In the aggregate, our portfolio companies noted above received aggregate funding of almost £9m.

The portfolio ranges from companies that are building a platform for growth by advancing valuable proprietary technology in readiness for market entry, to those more established companies seeking to build sales in their marketplace in order to be more visible to potential acquirers. About 75% of the portfolio is consistently generating revenue. Whilst the current environment may have slowed the growth aspirations of some companies, the drive is to capitalise on their global presence. We continue to work with our companies in exploring strategies for exit and, as our CEO has mentioned, the portfolio has some potential realisation prospects in the short to medium term.

In addition to our directly-held portfolio, Strathtay Ventures has assumed the position as fund manager for the Lachesis Seed Fund. This £10m Fund was set up in 2002 and comprises a portfolio of spin-out companies from the universities of De Montfort, Leicester, Loughborough, Nottingham and Nottingham Trent. Some of the companies in the portfolio show particular promise including OncImmune (cancer diagnostic test development and screening service with its 'EarlyCDT' test for lung cancer commercially available), Monica Healthcare (design and manufacture of foetal-maternal monitoring systems for use in labour and delivery rooms) and Haemostatix (new class of active haemostat which is synthetic and therefore does not have the infection risks associated with similar blood derived products when used to stop bleeding).

Portfolio Performance

During the year the Group's own portfolio showed an unrealised gain before the movement on contingent consideration of £254,063 (2012: unrealised revaluation loss of £742,000). The effect of multiple fundraisings across the portfolio, the performance of the companies and macroeconomic factors inevitably causes valuations to ebb and flow from year to year. As I have said previously, it is the ultimate realisation value of these portfolio assets that will be of interest to shareholders.

Our rebased client exit portfolio (being a portfolio where all exited investment returns are modelled since Braveheart's inception in 1997) showed an IRR of 28% while the overall client portfolio (modelling both exited and unexited investment returns) shows a return of 21%.

Over the next year we will continue to develop our key Group assets and work towards optimising shareholder value.

Carolyn Smith

Chief Investment Officer

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2013

All revenues and losses arise from continuing operations.

Consolidated Statement of Financial Position

as at 31 March 2013

Consolidated Statement of Cash Flows

for the year ended 31 March 2013

Consolidated Statement of Changes in Equity

for the year ended 31 March 2013

NOTES

1. This preliminary announcement was approved for issue by a duly appointed and authorised committee of the Board of Directors on 2 September2013.

2. Basis of preparation

The financial information set out in this announcement does not constitute statutory financial statements for the years ended 31 March 2013 or 31 March 2012. Statutory accounts for the years ended 31 March 2013 and 31 March 2012 have been reported on by the Independent Auditors.

The Independent Auditors' Reports on the Annual Report and Financial Statements for 2013 and 2012 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 financial statements have been prepared on the assumption that the company is a going concern. The Directors have prepared cash flow projections which show they can operate within their agreed overdraft facility of £500,000, which has recently been renewed through to July 2014 in the normal course of the bank's annual review of bank facilities. Some of the revenue streams of the business are inherently volatile, such as the success related fees in Envestors Ltd, and it is therefore difficult to accurately project the timing of cash receipts from these sources. The projections show modest headroom but under certain sensitivity analyses, the facilities would be breached. However, as noted in the Chief Executive Officer's report, the company has two potential realisations that are likely to complete within the next few months which would provide the company with additional cash flow of around £1m. In the event that these did not complete or were delayed beyond the expected timeframe and the company required some short term funding, the Directors have received indicative support from some shareholders of bridging facilities. In addition, the Directors have the option to raise finance from the market and, in discussion with their brokers, they are confident that sufficient additional finance could be secured to provide the business with headroom for the foreseeable future.

Consequently, after making enquiries and considering the uncertainties described above, the directors have formed a judgement that, at the time of approval of the financial statements, the company has sufficient resources to continue operating for the foreseeable future. For these reasons, they continue to adopt the going concern basis to prepare the financial statements.

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 2012. The statutory financial statements for the year ended 31 March 2012 have been delivered to the Registrar of Companies. The statutory financial statements for the year ended 31 March 2013 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:

The effective tax rate for the year is 20% (2012: 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. Profit/(Loss) per Share

Profit/(Loss) per share is calculated by dividing the profit/(loss) attributable to equity holders of Braveheart Investment Group plc of £66,607(2012: £(1,724,083)) by the weighted average number of ordinary shares in issue during the year ended 31 March 2013 of 22,463,876 (2012: 18,225,817).

5. Goodwill

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. During the year, the consideration was settled in full. The movement in goodwill in the year is due to a revised net asset value for Neon.

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

6. Intangible assets

Accumulated amortisation

Net Book Value

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.

7. Investments at Fair Value through Profit or Loss

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'.

8. Contingent consideration

Short term contingent consideration of £373,694 (2012: £360,599) comprises (i) £129,849 (2012: £76,062) being the fair value of the consideration due at 31 March 2013 in respect of the acquisition of Envestors, and will be satisfied by the issue of 1,207,903 ordinary shares of 2 pence each in the Company and (ii) £243,845 (2012: £284,537) being the sum due on future exit values of the CPR portfolio.

9. Events after the reporting date

No events to report.

10. Availability of statutory financial statements

Copies of the full statutory financial statements will be mailed to shareholders no later than 3 September 2013 from which date they will also be available from the Company's offices at Merlin House, Necessity Brae, 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.