Final Results

Herald Investment Trust PLC 22 February 2007 PRELIMINARY STOCK EXCHANGE ANNOUNCEMENT HERALD INVESTMENT TRUST plc Results for the year to 31 December 2006 22 February 2007 BOARD STATEMENT CHAIRMAN'S STATEMENT Since inception the NAV per share has appreciated 341% in spite of the dilution from warrants which were issued on the launch of the Trust on a 1 for 5 basis. In contrast the FTSE-100 has appreciated by only 82% in this period and the HGSCI 119%. A further 21% has in aggregate been paid in dividends, which is unusual in technology focused funds. It is therefore disappointing to report that 2006 was a year when the total return of 6.4% lagged the FTSE-100 which grew 10.7% and the HGSCI plus AIM whose total return was 21.8%. Although fundamentals in the portfolio companies remained generally strong the performance failure reflected two principal factors. First continued underperformance of the sectors in which the fund is targeted and second, the adverse currency movements which depressed the overseas returns, particularly those that were $ related. The weighted average total return of the target technology, media and telecommunications sectors, in the HGSCI plus AIM was only 2.7%, and the Techmark return was 5.6%. Against these figures the UK total return of 12.5% was more impressive. Similarly the £ return of 3.1% (17.8% in $) in the US portfolio looks dull, but compares creditably with the Russell 2000 Technology benchmark which declined 0.7% in £ terms although it grew 13.3% in $; and Nasdaq's $ return was 9.5%. The £ 6.6% return of the small European portfolio was more than offset by the 12.6% decline on the Far East portfolio. The Manager has argued for a while that valuations had become attractive in the portfolio, so the single figure returns are a little disappointing. However, one of the stark features of the year has been the high level of bid activity in the portfolio indicating that corporates and private equity houses see value where equity investors' interest has been elsewhere. There were eleven bids in the UK portfolio with an aggregate value of £25m (c11% of the portfolio), while a further two stocks with a value of c£10m are 'in discussions'. The average return on these stocks during the year was 31%. In the US portfolio 13 stocks have been acquired with an aggregate value of $28m, which astonishingly accounted for c31% of the portfolio. The average $ return on these stocks during the year was 36.5%. In aggregate about half the capital return on the portfolio related to these bid situations, which contributed significantly to the outperformance relative to the target sectors. A high level of corporate activity is expected to continue. This is a mixed blessing because some of the most interesting companies have been acquired at values which the Manager does not feel satisfactory in relation to their growth prospects. The investment community seems content to sell out for modest premiums in the current environment. In the US the regulatory environment has raised the cost of public status to a very burdensome level, and the sector in general has a very strong balance sheet so there are obvious cost benefits to aggregation. In the UK there are too many quoted companies of sub critical size following the plethora of AIM issues, and as a result illiquidity should continue to drive consolidation. The only slightly negative fundamental feature of the year is that the average p/e of the portfolio has not fallen as expected. This reflects portfolio changes, many as a result of bids, which have lowered aggregate profits and a few downgrades based on disappointing trading. More anomalously the aggregate profits growth appears to have risen to 56.7% in 2006, and yet the p/e has risen too! This reflects a number of downgrades to 2005 numbers partially as companies have restated historic figures following accounting changes. The Manager identified two changes which were most likely to affect reported profits. First, the capitalisation of R&D and the second, the expensing of options through the profit and loss account. The adverse impact of the latter is conspicuously greater than the former, and at least it is not a cash cost. Investment income grew by 40%, but this figure is distorted by an exceptional special dividend from Amstrad of c£1.9m, which has led to an anomalously high dividend from the Trust in order to comply with the investment trust status. The introduction of gearing into the portfolio in the second half of last year, followed the belief that there was sound value in the portfolio. It was only the plethora of bids that prevented a higher level of gearing. The Manager is continuing to invest in suitable opportunities, which is intended to increase the level of gearing, and make income profits unlikely in 2007. The purpose remains capital growth. Overall global growth continues to exceed expectations, driven by emerging market growth, which includes investment in technology infrastructure, surprisingly resilient consumer spending, and the sectors of technology and media which the Trust targets. There continues to be many opportunities for commercial gain albeit not without risk. Judicious stock selection should yield above average return, particularly if the environment of asset price inflation in other sectors abates. The Company's Articles of Association first gave shareholders the right to vote at the Annual General Meeting (AGM) on 14 April 2004 (and at AGMs to be held in every third year thereafter) as to whether the Company should continue to operate as an investment trust. Accordingly, an ordinary resolution, Resolution 8 in the Notice of Annual General Meeting, is being proposed at the AGM of the Company to be held on 25 April 2007 to the effect that the Company should continue as an investment trust. Herald Investment Trust is the largest investment trust specialising in information technology, communications and multi-media and is one of the best performing investment trusts since its launch in February 1994. The Herald Board believes that the focus of the Trust on smaller capitalisation companies provides exposure to some of the most rapidly growing companies within the Trust's target sectors and should provide attractive long-term investment opportunities and the Directors intend to vote their own shareholdings in favour of the resolution for the Company to continue as an investment trust. I encourage shareholders to give due consideration to this important matter and the Directors believe that the prospects for investment in the IT and multi-media sectors remain positive and the company is managed by one of the leading managers in the space. Your Board strongly recommends that shareholders vote in favour of the resolution. Martin Boase Chairman 21 February 2007 HERALD INVESTMENT TRUST plc Statistics and Performance Report Performance At inception At At since Performance 16 February 31 December 31 December 31 December since 1994 2005 2006 2005 inception NAV per share 98.7p 409.2p 435.4p 6.4% 341.1% Share price ++ 90.9p 379.8p 383.5p 1.0% 321.9% FTSE 100 Index 3,417.7 5,618.8 6,220.8 10.7% 82.0% HGSC Index plus AIM 1,750.0 3,218.7+ 3,838.3 19.3% 119.3% (capital gains ex. investment companies) Russell 2000 (small 83.2* 71.0 70.5 (0.7%) (15.3%) cap) Technology Index (in sterling terms) ++ Mid market price. + From 1 January 2006 the benchmark was changed from 2/3 Hoare Govett Smaller Companies Index (extended capital gains ex. investment companies) and 1/3 Russell 2000 (small cap) Technology Index (in sterling terms) to 2/3 Hoare Govett Smaller Companies Index plus AIM (capital gains ex. investment companies) and 1/ 3 Russell 2000 (small cap) Technology Index (in sterling terms). * At 9 April 1996 being the date funds were first available for international investment. Past performance is no guarantee of future performance. Portfolio Performance for the 12 months to 31 December 2006 Performance (total return) Equity markets UK 12.5% Europe ex. UK 6.6% Americas 3.1% Asia Pacific ex. Japan (12.6%) - 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 2006 which was approved by the Board on 21 February 2007. The Directors of Herald Investment Trust plc are recommending to the Annual General Meeting of the Company to be held on 25 April 2007 the payment of a final dividend of 1.20p net (0.60p net last year) per Ordinary share for the year ended 31 December 2006. HERALD INVESTMENT TRUST plc INCOME STATEMENT for the year ended for the year ended 31 December 2006 31 December 2005 (unaudited) (audited) Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Gains on investments - 21,779 21,779 - 27,708 27,708 Exchange difference on loans - - - - (1,989) (1,989) Currency (losses)/gains - (241) (241) - 70 70 Income (note 2) 6,492 - 6,492 5,368 - 5,368 Investment management fee (3,927) - (3,927) (3,741) - (3,741) Other administrative expenses (262) - (262) (275) - (275) Net return before finance costs and taxation 2,303 21,538 23,841 1,352 25,789 27,141 Finance costs of borrowings (284) - (284) (724) - (724) Return on ordinary activities before taxation 2,019 21,538 23,557 628 25,789 26,417 Tax on ordinary activities (97) - (97) (72) - (72) Return on ordinary activities after taxation 1,922 21,538 23,460 556 25,789 26,345 Return per Ordinary share (note 3) 2.19p 24.60p 26.79p 0.64p 29.45p 30.09p Dividend per Ordinary share (note 4) 1.20p 0.60p 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. HERALD INVESTMENT TRUST plc BALANCE SHEET at 31 December 2006 31 December 2006 31 December 2005 (unaudited) (audited) £'000 £'000 FIXED ASSETS Investments at fair value through profit or loss 387,345 348,774 CURRENT ASSETS Debtors 2,776 786 Cash and short term deposits 11,778 9,089 14,554 9,875 CREDITORS: Amounts falling due within one year (note 5) (20,671) (356) Net current (liabilities)/assets (6,117) 9,519 TOTAL NET ASSETS 381,228 358,293 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 233,361 209,639 Capital reserve - unrealised 48,125 50,309 Revenue reserve 4,052 2,655 EQUITY SHAREHOLDERS' FUNDS 381,228 358,293 Net asset value per Ordinary share 435.41p 409.22p Ordinary shares in issue (note 6) 87,556,010 87,556,010 HERALD INVESTMENT TRUST plc RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS For the year ended 31 December 2006 (unaudited) Called-up Share Capital Capital Capital Total share premium redemption reserve - reserve - shareholders' capital reserve realised unrealised Revenue funds reserve £'000 £'000 £'000 £'000 £'000 £'000 £'000 Shareholders' funds at 1 January 2006 21,889 73,738 63 209,639 50,309 2,655 358,293 Return on ordinary activities after taxation - - - 23,722 (2,184) 1,922 23,460 Dividends paid during the year# - - - - - (525) (525) Shareholders' funds at 31 December 2006 21,889 73,738 63 233,361 48,125 4,052 381,228 # See note 4. For the year ended 31 December 2005 (audited) Called-up Share Capital Capital Capital Total share premium redemption reserve - reserve - shareholders' capital reserve realised unrealised Revenue funds reserve £'000 £'000 £'000 £'000 £'000 £'000 £'000 Shareholders' funds at 1 January 2005 21,889 73,738 63 202,442 31,717 2,362 332,211 Return on ordinary activities after taxation - - - 7,197 18,592 556 26,345 Dividends paid during the year# - - - - - (263) (263) Shareholders' funds at 31 December 2005 21,889 73,738 63 209,639 50,309 2,655 358,293 # See note 4. HERALD INVESTMENT TRUST plc CASH FLOW STATEMENT for the year ended for the year ended 31 December 2006 31 December 2005 (unaudited) (audited) £'000 £'000 £'000 £'000 NET CASH INFLOW FROM OPERATING ACTIVITIES 2,107 1,322 NET CASH OUTFLOW FROM SERVICING OF FINANCE (10) (841) FINANCIAL INVESTMENT Purchase of investments (115,977) (75,037) Sale of investments 97,094 75,653 NET CASH (OUTFLOW)/INFLOW FROM FINANCIAL INVESTMENT (18,883) 616 EQUITY DIVIDEND PAID (525) (263) NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING (17,311) 834 FINANCING Loans drawn down 20,000 24,771 Loans repaid - (51,423) NET CASH INFLOW/(OUTFLOW) FROM FINANCING 20,000 (26,652) INCREASE/(DECREASE) IN CASH 2,689 (25,818) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET (DEBT)/FUNDS Increase/(decrease) in cash in period 2,689 (25,818) (Increase)/decrease in bank loans (20,000) 26,652 Exchange movement on loans - (1,989) MOVEMENT IN NET (DEBT)/FUNDS IN PERIOD (17,311) (1,155) NET FUNDS AT 1 JANUARY 9,089 10,244 NET (DEBT)/FUNDS AT 31 DECEMBER (8,222) 9,089 RECONCILIATION OF NET REVENUE BEFORE FINANCE COSTS AND TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES Net revenue on ordinary activities before finance costs and taxation 23,841 27,141 Gains on investments - securities (21,779) (27,708) Currency losses 241 1,919 Changes in debtors and creditors 142 (53) Income tax repaid - 25 Overseas tax suffered (97) (72) Realised currency (loss)/profit (241) 70 NET CASH INFLOW FROM OPERATING ACTIVITIES 2,107 1,322 HERALD INVESTMENT TRUST plc DISTRIBUTION OF ASSETS at 31 December 2006 (unaudited) 31 December 2006 31 December 2005 % % Equities: United Kingdom 66.0 63.9 Continental Europe 6.2 7.0 Americas 16.4 15.6 Asia Pacific 7.9 10.8 96.5 97.3 Net current assets 3.5 2.7 Total assets (before deduction of bank loans) 100.0 100.0 HERALD INVESTMENT TRUST plc NOTES 1. The financial statements for the year to 31 December 2006 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements at 31 December 2005. 31 December 2006 31 December 2005 £'000 £'000 2. Income Income from investments and interest receivable 6,487 5,366 Other income 5 2 31 December 2006 31 December 2005 £'000 £'000 3. Return per ordinary share Revenue return 1,922 556 Capital return 21,538 25,789 Return per Ordinary share is based on the above totals of revenue and capital and on 87,556,010 Ordinary shares being the number of Ordinary shares in issue during each year. 31 December 31 December 2006 2005 2006 2005 £'000 £'000 4. Ordinary dividend Amounts recognised as distributions in the period Previous year's final (paid 19 April 2006) 0.60p 0.30p 525 263 We also set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 842 of the Income and Corporation Taxes Act 1988 are considered. The revenue available for distribution by way of dividend for the year is £1,922,000 (2005 - £556,000). Current year's proposed final dividend 1.20p 0.60p 1,051 525 The current year's proposed dividend will be paid on 3 May 2007 to all shareholders on the register at the close of business on 13 April 2007. The ex-dividend date is 11 April 2007. 5. The Company has a 364 day £50 million multi-currency loan facility with The Royal Bank of Scotland plc which expires on 4 October 2007. At 31 December 2006 there were outstanding drawings of £20 million. The Company had no borrowings at 31 December 2005. 6. At the Annual General Meeting in April 2006 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 2006 (2005 - Nil). At 31 December 2006 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. HERALD INVESTMENT TRUST plc (NOTES (ctd) 7. During the period transaction costs on purchases amounted to £687,000 (2005 - £241,000) and transaction costs on sales amounted to £376,000 (2005 - £153,000). 8. The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2006. The financial information for 2005 is derived from the statutory accounts for 2005 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2005 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 2006 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. This information is provided by RNS The company news service from the London Stock Exchange

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