Interim Results

Herald Investment Trust PLC 27 July 2000 HERALD INVESTMENT TRUST PLC Preliminary Results (Unaudited) for the six months to 30 June 2000 The Board of Herald Investment Trust plc is pleased to announce the results for the six months to 30 June 2000. The formal results which follow at the end of this Announcement are presented in the format recommended in the AITC's Statement of Recommended Practice for Accounts of Investment Trust companies as utilised in preparing the Annual Report for the year ended 31 December 1999. BOARD STATEMENT Investment performance The Board is pleased to report that further progress has been made. However, the period has proved a remarkable roller coaster ride, with the first ten weeks continuing the remarkable re-rating of technology stocks in the UK in particular, then mid-March through to May seeing a considerable correction. In early March the fund was +55% from the start of the year. In contrast Techmark was +52% and Russell2000 Technology Index was +60%. It is therefore somewhat disappointing that growth by the end of June in the Trust's basic NAV/share was only up 9.9%. However, this compared to the Techmark Index declining by 10%, and the FTSE-IT index falling 23% in the period. The gain was only retained by aggressive profit taking, in spite of limited liquidity in many cases, particularly in February and March when c£50m was realised from the UK portfolio, and c£7m from Europe. Overall £84m has been realised from the UK portfolio in the first half, and c£34m reinvested, with only May and June having a positive net investment. In spite of some net investment in the US and the Far East markets, which have proved more robust than the UK, cash levels remain high. The Manager believes that interim figures for many of the UK technology companies are unlikely to prove a pleasant surprise, and that better opportunities to invest the cash will emerge in the next few months. There is no doubt that traditional IT spend has not accelerated out of the Y2k doldrums, while the internet euphoria is evaporating fast as a number of dotcoms show the fragility of their business model, with alarming cash outflows sometimes proving terminal. The traditional media sector has enjoyed tangible benefits from the dotcom advertising binge. Although start-ups with heavy ad spends may diminish, traditional businesses will continue to develop their e-commerce, and internet activities and this should compensate for the fading start- ups. Capital Performance of the Trust from 31 December 1999 to 30 June 2000 UK Equities +2.8% European Equities +23.5% US Equities +29.7% Other Overseas Equities -4.9% Total Portfolio +11.0% Summary of At At At Performance Performance Performance Inception 31 December 30 June since since 16 February 1999 2000 31 December inception 1994 1999 Basic NAV per 98.7p 517.4p 568.6p* +9.9%** +476.1% share Fully diluted 98.9p 494.2p 547.6p* +10.8% +453.7% NAV per share Share price 90.9p 511.0p 575.0p +12.5% +532.6% Warrant price 45.5p 411.0p 476.0p +15.8% +946.1% FT-SE 100 Index 3,417.7 6,930.2 6,312.7 -8.9% +84.7% HGSC Index 1,750.0 2,762.9 2,701.7 -2.2% +54.4% (ext.cap gains ex IT) Russell 2000 - 322.0 355.3 +10.3% - Technology Index * The NAV figures are stated on a capital only basis, and do not include any income retention at that date. This is because the Company only pays one dividend per year and no provision has been made at this stage. However, the NAV figures given after the Balance Sheet do include the Revenue Reserve uplift for the period. The fully diluted NAV figures given after the Balance Sheet take into account the price of the ordinary shares at the period ends, as required by FRS14. ** Growth in basic NAV per share was depressed by 1.1% on the exercise of 911,913 warrants. This explains the somewhat anomalous higher return on the fully diluted NAV per share. Outlook Whilst volatile markets are in some ways unnerving, sensible profit taking and reinvestment at lower levels does provide opportunities to improve the long term performance of the fund. Valuations are now more forward looking than they used to be. This is likely to remain the case, while interest in the area remains strong. This will make performance more difficult, and stock selection more vital than ever. The US has performed better than the UK. There are many outstanding companies in this market, many of which are much more modestly valued than stocks in the UK. European stocks are generally even more expensive than the UK reflecting the interest in the Neuer Markt, and the Nouveau Marche by retail investors, and the shortage of stocks. Herald is unusual in being an Investment Trust which focuses on investing in smaller Companies only in growth sectors, which means that, over the years, a very high proportion of the fund has been invested as primary capital when young emerging companies have been seeking additional capital. For the Manager it has been one of the most fulfilling aspects of their role to watch the companies that they have helped to fund flourish. We are very grateful to a range of smaller London based brokers who have so professionally helped to provide these opportunities in a sensibly regulated way. There is a similar, or even greater professionalism in the US, but conspicuously less so in Germany and other Continental countries. From our practical perspective we do not understand the reasoning behind the proposed Stock Exchange merger which will focus technology stocks on the currently primitive Neuer Markt in Frankfurt. As stated before the satisfactory performance relative to the FT-All Share Index further vindicates our chosen target market. We continue to believe that the area has more potentially exciting growth situations, and our long term confidence remains. Dividend The Trust targets capital growth, and not income. However, unlike pure technology funds, the Trust has always made a profit, and it is still hoped that a small dividend will be payable this year. However, as the income is the net result of much larger revenue and expenditure figures it is difficult to forecast. RESULTS (Unaudited) Statement of Total Return (unaudited) Six months to 30 June Six months to 30 June 2000 1999 Revenue Capital Total Revenue Capital Total (restated) £'000 £'000 £'000 £'000 £'000 £'000 Gains on - 46,792 46,792 - 55,796 55,796 investments Unrealised - (100) (100) - 109 109 loss/gain on loan Currency - 42 42 - (16) (16) gain/loss Income 3,308 - 3,308 1,737 - 1,737 Investment (2,795) - (2,795) (1,206) - (1,206) Management Fee Loan interest (44) - (44) (36) - (36) Other expenses (246) - (246) (95) - (95) Net return 223 46,734 46,957 400 55,889 56,289 before tax Taxation (20) - (20) (10) - (10) Return on ordinary activities 203 46,734 46,937 390 55,889 56,279 after taxation Return per Ordinary share - Basic 0.24p 56.12p 56.36p 0.47p 67.40p 67.87p - Fully-diluted 0.23p 53.71p 53.94p 0.46p 65.37p 65.83p The basic return per Ordinary share calculations are based on a weighted average number of shares in issue during each period. For the period to 30 June 2000, the weighted average number of Ordinary shares was 83,267,327 (1999: 82,921,642) . Comparative figures for 1999 have been restated following the publication of FRS16 - Current Tax. This results in a reduction to dividend income and tax charge amounts of £129,000 for the six months to 30th June 1999. The fully-diluted returns per Ordinary share have been calculated on the weighted average warrants in issue during the period adjusted by the difference between the average price of the Ordinary shares during the period and the Subscription price of £1.00, giving a weighted average of 87,015,024 (1999: 85,502,770) shares. The unadjusted fully- diluted number of shares at 30 June 2000 was 87,807,349 compared to 87,807,349 at 30 June 1999. There were 3,933,750 warrants in issue at 30 June 2000 (1999: 4,845,663). SUMMARISED BALANCE SHEET At 30 June 2000(Unaudited) 30 June 31 December 2000 1999 £'000 £'000 Investments 449,527 405,301 Net current assets 31,041 27,319 Currency loan (3,443) (3,343) Shareholders' funds 477,125 429,277 Capital and reserves: Share capital 20,968 20,740 Share premium account 68,999 67,900 Warrant reserve 1,790 2,204 Capital reserve - Realised 184,945 91,061 - Unrealised 198,573 245,725 Revenue reserve 1,850 1,647 477,125 429,277 Net Asset Value per Ordinary share - Basic 568.86p 517.44p - Fully diluted 547.64p 494.22p The Balance Sheet at 31 December 1999 is an abridged version of that contained in the full Accounts for that year, which received an unqualified audit report and which have been filed with the Registrar of Companies. CASH FLOW STATEMENT for the six months ended 30 June 2000 (Unaudited) Six months Six months to 30 June to 30 June 2000 1999 £'000 £'000 Operating activities Net cash inflow from operating activities (58) 516 Taxation Tax recovered (88) (7) Servicing of Finance Loan interest (40) (36) Capital expenditure and financial investment Purchase of investments (128,419) (29,239) Sale of investments 133,549 34,591 Currency movement 42 (16) Net cash inflow from capital expenditure and financial investment 5,172 5,336 Equity dividend paid (705) (746) Net cash inflow before financing 4,281 5,063 Financing Issue of Ordinary shares 912 60 Currency loan - 3,000 Net cash inflow from financing 912 3,060 Net cash inflow Decrease / (increase) in cash (2,807) 1,123 Increase in deposits 8,000 7,000 Increase in cash and deposits 5,193 8,123 ENQUIRIES Katie Potts James Ayling Herald Investment Management Stewart Ivory & Company Limited - Limited Secretaries Tel: 020 7553 6300 Tel: 0131 226 3271 26 July 2000

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