Final Results
Herald Investment Trust PLC
09 February 2006
PRELIMINARY
STOCK EXCHANGE ANNOUNCEMENT
HERALD INVESTMENT TRUST plc
Results for the year to 31 December 2005
9 February 2006
BOARD STATEMENT
CHAIRMAN'S STATEMENT
2005 has been another mixed year. Following a year of exceptional earnings
growth in 2004 the share of earnings of the Trust's underlying investments, on
consensus earnings estimates, grew a further 49% in 2005. This was not reflected
in the rise in net assets, which was only 7.9%, so there has been another year
of significant derating in the Trust's investee companies. This takes some
explanation, and the Manager suggests that this may reflect a number of issues.
First, expectations at the start of the year were even higher. Even so generally
figures were outstandingly good. Second, a focus by brokers on new issues at the
expense of promoting smaller existing companies. It is noticeable that larger
small companies, which are more prominent on the radar screen, have higher
valuations. Third, the psychology of investors following the bursting of the TMT
bubble in 2004 is such that they are not inclined to ascribe a premium for
anticipated growth, and prefer dividends. Fourth, there is a fear that earnings
will not prove sustainable. Nevertheless, consensus earnings forecasts for 2006
suggest further growth of around 45%, which provides a confident background for
the coming year.
There has been a noticeable divergence in performance geographically. The
overseas portfolios overall rose 16.2%, and the UK, which accounts for 65% of
the portfolio, lagged disappointingly, with a return of only 6.4%. The US growth
was 7.5% and the Far East 23.9%, both enhanced by currency. The small European
portfolio grew 26.3% in sterling and 30.2% in local currencies. The UK
performance significantly lagged the Hoare Govett Smaller Companies index, which
grew 27.8% in total return terms. However, the sectors in which the fund invests
including AIM stocks also lagged the index with a weighted return of the Hoare
Govett Index including AIM of 13.4%.
Although many investments do not pay dividends the income from equities has
grown by 21.6%, which has been reflected in growth in the net income. Unusually
for a technology oriented fund we can therefore again continue the Trust's
custom of paying a modest dividend. The Board is proposing 0.60p in respect of
2005. Capital growth remains the prime focus.
The market for new issues has been almost overwhelming in the UK. Of the 519 AIM
issues in 2005, 122 were in Herald's target sectors, which collectively raised
in excess of £1bn. In addition there were 684 secondary issues raising a further
£358m. Whilst it has been a boom year in London for investment bankers, there
has been a conspicuously harsher climate in the US, and far fewer new issues.
This was reflected in the Russell 2000 Index declining by 2.5% in $ terms.
Sarbanes Oxley has proved a vicious cost for smaller quoted companies, and a
deterrent for flotations. The drag on earnings associated with that has now
worked through.
There continue to be exceptional opportunities and risks in the defined remit.
The risks relate to lack of pricing power for companies, in a world of efficient
communications and global sourcing, unless they have either a technological
differentiator or a strong market position. There are in particular structural
problems in the traditional media. On the other hand new technologies are
continuing to create new markets to which small companies can adapt readily.
Stronger corporate capital expenditure has been a notable driver of profits in
2005, and economists are forecasting strength again in 2006 following a year of
strong corporate cash flow in general. Whilst we are a little disappointed by
the performance in 2005 the derating makes the prospects all the more
encouraging for 2006.
Martin Boase
Chairman
8 February 2006
HERALD INVESTMENT TRUST plc
Statistics and Performance Report
At inception At At Performance Performance
16 February 1994 31 December 2004 31 December 2005 since since inception
31 December
2004
Net asset value per 98.7p 379.4p+ 409.2p 7.9% 314.6%
Ordinary share
Share price++ 90.9p 322.8p 379.8p 17.7% 317.8%
FTSE 100 Index 3,417.7 4,814.3 5,618.8 16.7% 64.4%
HGSC Index (ext. cap 1,750.0 2,752.2 3,423.2 24.4% 95.6%
gains ex investment
co's)
Russell 2000 (small 83.2* 65.1 71.0 9.1% (14.7%)
cap) Technology Index
(in sterling terms)
* At 9 April 1996, being the date funds were first available for international investment.
+ Restated, see note 1.
++ Mid
Past performance is no guarantee of future performance
Portfolio Performance for the 12 months to 31 December 2005
Equity markets Performance (total return)
UK 6.4%
Europe ex. UK 26.3%
Americas 7.5%
Japan (4.7%)
Asia Pacific ex. Japan 23.9%
- ends -
For further information please contact:
Ms Katie Potts, Manager
Herald Investment Trust plc 020 7553 6300
Baillie Gifford & Co.
Secretaries 0131 275 2000
The following is the unaudited preliminary statement for the year to 31 December
2005 which was approved by the Board on 8 February 2006. The Directors of
Herald Investment Trust plc are recommending to the Annual General Meeting of
the Company to be held on 12 April 2006 the payment of a final dividend of 0.60p
net (0.30p net last year) per Ordinary share for the year ended 31 December
2005.
HERALD INVESTMENT TRUST plc
INCOME STATEMENT
(unaudited and incorporating the revenue account*)
for the year ended for the year ended
31 December 2005 31 December 2004
Revenue Capital Total Revenue Capital Total
Restated+ Restated+
£'000 £'000 £'000 £'000 £'000 £'000
Gains on investments - 27,708 27,708 - 14,645 14,645
Exchange difference on loans - (1,989) (1,989) - 1,813 1,813
Currency gains/(losses) - 70 70 - (29) (29)
Income (note 2) 5,368 - 5,368 4,776 - 4,776
Investment management fee (3,741) - (3,741) (3,671) - (3,671)
Other administrative expenses (275) - (275) (267) - (267)
Net return before finance costs
and taxation
1,352 25,789 27,141 838 16,429 17,267
Finance costs of borrowings (724) - (724) (501) - (501)
Return on ordinary activities
before taxation
628 25,789 26,417 337 16,429 16,766
Tax on ordinary activities (72) - (72) (36) - (36)
Return on ordinary activities
after taxation
556 25,789 26,345 301 16,429 16,730
Return per Ordinary share (note
4) 0.64p 29.45p 30.09p 0.34p 18.73p 19.07p
Dividend per Ordinary share 0.60p 0.30p
* The total column of this statement is the profit and loss account of the
Company.
All revenue and capital items in the above statement derive from continuing
operations.
A Statement of Total Recognised Gains and Losses is not required as all gains
and losses of the Company have been reflected in the above statement.
+ Various changes in accounting policies, as disclosed in note 1, have the
cumulative effect of reducing reported net assets by £4,359,000 for the year
ended 31 December 2004.
HERALD INVESTMENT TRUST plc
SUMMARISED BALANCE SHEET
at 31 December 2005
(unaudited)
31 December 2005 31 December 2004
Restated+
£'000 £'000
FIXED ASSETS
Investments 348,774 320,546
CURRENT ASSETS
Debtors 786 1,880
Cash and short term deposits 9,089 34,907
9,875 36,787
CREDITORS:
Amounts falling due within one year (note 5) (356) (25,122)
Net current assets 9,519 11,665
TOTAL NET ASSETS 358,293 332,211
CAPITAL AND RESERVES
Called-up share capital 21,889 21,889
Share premium 73,738 73,738
Capital redemption reserve 63 63
Capital reserve - realised 209,639 202,442
Capital reserve - unrealised 50,309 31,717
Revenue reserve 2,655 2,362
EQUITY SHAREHOLDERS' FUNDS 358,293 332,211
Net asset value per Ordinary share 409.22p 379.43p
Ordinary shares in issue (note 6) 87,556,010 87,556,010
+ See note 1.
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
for the year ended 31 December 2005
(unaudited)
31 December 31 December
2005 2004
£'000 £'000
Shareholders' funds at 1 January as previously stated 336,570 320,884
Prior year adjustments:
Revaluation of investments at bid prices (4,622) (4,660)
Reversal of provision of final dividend 263 263
Shareholders' funds at 1 January - restated 332,211 316,487
Total recognised gains for the year 26,345 16,730
Shares purchased for cancellation - (743)
Dividends appropriated in the year (note 2) (263) (263)
SHAREHOLDERS' FUNDS AT 31 DECEMBER 358,293 332,211
HERALD INVESTMENT TRUST plc
SUMMARISED CASH FLOW STATEMENT
(unaudited)
for the year ended for the year ended
31 December 2005 31 December 2004
£'000 £'000 £'000 £'000
NET CASH INFLOW FROM OPERATING ACTIVITIES 1,322 762
NET CASH OUTFLOW FROM SERVICING OF FINANCE (841) (495)
FINANCIAL INVESTMENT
Purchase of investments (75,037) (65,423)
Sale of investments 75,653 85,279
NET CASH INFLOW FROM FINANCIAL INVESTMENT 616 19,856
EQUITY DIVIDEND PAID (263) (263)
NET CASH INFLOW BEFORE FINANCING 834 19,860
FINANCING
Loans drawn down 24,771 25,769
Loans repaid (51,423) (28,618)
Shares repurchased - (743)
NET CASH OUTFLOW FROM FINANCING (26,652) (3,592)
(DECREASE)/INCREASE IN CASH (25,818) 16,268
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET (DEBT)/
FUNDS
(Decrease)/increase in cash in period (25,818) 16,268
Decrease in bank loans 26,652 2,849
Exchange movement on loans (1,989) 1,813
MOVEMENT IN NET/(DEBT) FUNDS IN PERIOD (1,155) 20,930
NET FUNDS/(DEBT) AT 1 JANUARY 10,244 (10,686)
NET FUNDS AT 31 DECEMBER 9,089 10,244
RECONCILIATION OF NET REVENUE BEFORE FINANCE COSTS AND
TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES
Net revenue before finance costs and taxation 27,141 17,267
Gains on investments (25,789) (16,429)
Changes in debtors and creditors (53) -
Realised currency profit/(loss) 70 (29)
Income tax repaid/(suffered) 25 (11)
Overseas tax suffered (72) (36)
NET CASH INFLOW FROM OPERATING ACTIVITIES 1,322 762
HERALD INVESTMENT TRUST plc
DISTRIBUTION OF ASSETS
at 31 December 2005
(unaudited)
31 December 2005 31 December 2004
Restated+
% %
Equities: United Kingdom 63.9 60.3
Continental Europe 7.0 6.6
Americas 15.6 15.1
Japan - 0.7
Asia Pacific 10.8 7.1
97.3 89.8
Net current assets 2.7 10.2
Total assets (before deduction of bank loans) 100.0 100.0
+ See note 1.
HERALD INVESTMENT TRUST plc
NOTES
1. A number of new UK Financial Reporting Standards have been introduced with which the Company must
comply this year. These standards are part of the UK convergence programme with International
Accounting Standards and as such have required most UK listed companies to restate prior year
figures to reflect the new accounting treatment. The financial statements for the year to 31
December 2005 have been prepared on the basis of the accounting policies set out in the Company's
Annual Financial Statements at 31 December 2004 except as detailed below:
(a) investments have been valued at fair value through profit and loss in accordance with
FRS 26 'Financial Instruments: Measurement'. The effect is to move from a mid to a bid basis of
valuation, resulting in a reduction in the value of investments and unrealised capital reserves
of £3,830,000 (31 December 2004 - £4,622,000);
(b) in compliance with FRS 21, 'Events after the Balance Sheet Date', dividends declared
after the period end are no longer treated as a liability at the period end. The effect is to
reduce creditors and increase revenue reserves by £525,000 (31 December 2004 - £263,000);
(c) the implementation of FRS21 and the 2005 SORP has resulted in changes in the
presentation of total returns. Previously dividends paid and payable in respect of a year were
disclosed on the face of the Statement of Total Return and the revenue column of that statement
was deemed to be the profit and loss account of the Company. We now present an Income Statement
which does not show on its face the distribution in respect of equity shares and whilst it still
shows information on capital and revenue returns it is the total return column which is regarded
as the profit and loss account of the Company.
The overall effect of the above changes is to decrease equity shareholders' funds by £3,305,000
(31 December 2004 - £4,359,000). The effect on the profit and loss account is an increase in
unrealised gains on investments of £31,000 (31 December 2004 - £38,000) which is shown in the
capital returns.
The amount recognised as a distribution in the year to 31 December 2005 was the final dividend
for the year ended 2004 of 0.30p (£263,000) which was paid on 19 April 2005 (year to 31 December
2004 was the final dividend for the year ended 2003 of 0.30p (£263,000) which was paid on 20
April 2004).
31 December 2005 31 December 2004
£'000 £'000
2. Income
Income from investments and interest receivable 5,366 4,759
Other income 2 17
31 December 31 December
2005 2004 2005 2004
Restated Restated
£'000 £'000
3. Ordinary dividend
Amounts recognised as distributions in the period
Previous year's final (paid 19 April 2005) 0.30p 0.30p 263 263
Current year's proposed final dividend 0.60p 0.30p 525 263
The current year's proposed dividend will be paid on 19 April 2006 to all shareholders on the
register at the close of business on 31 March 2006. The ex-dividend date is 29 March 2006.
HERALD INVESTMENT TRUST plc
NOTES (ctd)
31 December 2005 31 December 2004
Restated
£'000 £'000
4. Return per ordinary share
Revenue return 556 301
Capital return 25,789 16,429
Return per Ordinary share is based on the above totals of revenue and capital and on 87,556,010
Ordinary shares (2004 - 87,745,357) being the weighted average number of Ordinary shares in issue
during the year.
5. The Company had a 364 day US$47.35 million multi-currency loan facility with ING Bank N.V. which
expired on 25 October 2005.
At 31 December 2005 the Company had no borrowings (2004 - £24,663,000 (US$ 47,350,000)).
6. At the Annual General Meeting in April 2005 Shareholders granted the Company authority to purchase
shares in the market up to 13,124,645 Ordinary shares (equivalent to 14.99% of its issued share
capital at that date). No shares were bought back in the year to 31 December 2005 (2004 - a total
of 251,338 Ordinary shares with a nominal value of £62,835 were bought back at the total cost of
£742,567). At
31 December 2005 the Company had authority to buy back a further 13,124,645 Ordinary shares. Under
the provisions of the Company's Articles share buy-backs are funded from the realised capital
reserve. The nominal value of the share capital is maintained by the provision of a capital
redemption reserve.
7. The financial information set out above does not constitute the Company's statutory accounts for
the year ended 31 December 2005. The financial information for 2004 is derived from the statutory
accounts for 2004 and restated as disclosed in note 1 which have been delivered to the Registrar of
Companies. The Auditors have reported on the 2004 accounts, their report was unqualified and did
not contain a statement under section 237(2) or (3) of the Companies Act 1985. The statutory
accounts for 2005 will be finalised on the basis of the financial information presented in this
preliminary announcement and will be delivered to the Registrar of Companies following the
Company's Annual General Meeting.
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