Interim Results
Herald Investment Trust PLC
26 July 2007
PRELIMINARY STOCK EXCHANGE ANNOUNCEMENT
HERALD INVESTMENT TRUST plc
Results for the six months ended 30 June 2007
26 July 2007
CHAIRMAN'S STATEMENT
The net asset value per share grew 8.6% in the first half against a background
of generally strong profits growth in the underlying investee companies and
further takeover activity. In particular, the UK bids have been; ICM at a
premium of 85% to the price at the end of 2006, Trace at a premium of 80% and
SurfControl at a premium of 33%. The last was the premium from the price the
shares had appreciated to after announcing that the company was in bid talks.
All these values reflect how much more a trade buyer values these shares to the
stock market. In the US, Kronos had a cash bid at $55 versus a year-end price of
$36.65. Earnings growth for the portfolio at the end of June is forecast to be
42.5% in 2007 and the 2007 p/e of profitable companies at 30 June 2007 was
16.9x.
Total return by geography from 31 December 2006 to 30 June 2007 was as follows:
UK Equities +10.1%
US Equities +1.3% (+3.9% in US$)
European Equities -0.4%
Far East Equities +29.3%
The performance benefited from solid returns of 10.1% in the UK versus the HGSCI
including AIM total return of 8.1%. The weighted return of the sectors targeted
was also ahead of the market in the period, having relatively performed very
poorly last year. It is noticeable that the pace of new issues has significantly
slowed. In Herald's sectors there were 17 new issues versus 53 in the previous
year. However, there has still been significant activity with numerous secondary
placings. This transfer of interest from primary to secondary placings has
helped performance, which stalled while all the attention of fund managers and
brokers alike was focused on the avalanche of new issues. Furthermore the number
of AIM delistings almost mirrors the new issues so the AIM market has moved to a
welcome period of consolidation. The Far East portfolio bounced by nearly 30%,
which represented a strong recovery from a difficult year in 2006. The US was
underweight versus our benchmark of 1/3rd of the portfolio and delivered minimal
sterling returns versus the Russell 2000 technology index return of 8.1% (in
sterling). Europe was flat. Overall the return benefited from leverage following
the introduction of gearing in October 2006. Since then the NAV has rallied 16%,
justifying the gearing so far.
There have been unusually divergent performances between stocks within the
portfolio. In particular Amstrad and Thomson Intermedia, which have been stellar
performers in previous years, lost £5.7m between them in the UK, while
Simpletech, which contributed very positively in the US last year, declined by
US$1.9m. In contrast SDL, which was highlighted as a poor performer this time
last year appreciated £9m, and Silicon Motion in the US offset Simpletech. South
Korea, which proved problematic last year, has rebounded 40% this year. In
particular Seoul Semiconductor appreciated 235%.
The discount widened a little during the period to 14% from 12% at the year end.
The Trust repurchased 585,000 shares at an average price of 404.8p. Whilst a
formal buy-back mechanism is inappropriate for a relatively illiquid portfolio
of smaller companies, the Manager may buy back shares opportunistically. The
cost of borrowing has been expensed and has led to the adverse return in the
revenue column of the Income Statement. As usual no interim dividend will be
paid. Historically a final dividend had been paid, but the cost of gearing puts
that in doubt this year. The principal goal of the Trust is capital
appreciation.
The portfolio remains on a p/e comparable to the wider market in spite of
significantly higher growth rates. In the absence of a further derating,
continued solid progress should be expected. The risk as ever is that
expectations prove too optimistic in an uncertain world. Contrary to a number of
pessimistic expectations the trading environment generally remains very positive
for the portfolio. The wider sector has been dull for the last five years. For
example the sterling increase in the Morgan Stanley IT index was 24% in the 5
years to the end of June 2007. Over that period NASDAQ appreciated by 35% and
the FTSE-All Share Index by 50.4%, while the Trust's net assets/share have
appreciated 86%. This reflects a global derating for the TMT sector more than
the absence of profit growth, albeit certain subsectors have been hit by price
deflation, while others face competition induced by technology changes. Such is
the sector. In a world of interest rates edging up, investor attention could
well refocus on growth, and the US derating seems unlikely to continue.
Martin Boase
Chairman
25 July 2007
Statistics and Performance Report
At inception At At Performance since Performance
16 February 31 December 30 June 31 December since inception
1994 2006 2007 2006
NAV per share 98.7p 435.4p 472.9p 8.6% 379.1%
Share price ++ 90.9p 383.5p 407.5p 6.3% 348.3%
FTSE 100 Index 3,417.7 6,220.8 6,607.9 6.2% 93.3%
HGSC Index plus AIM 1,750.0 3,838.3 4,112.2 7.1% 135.0%
(capital gains ex.
investment companies)
Russell 2000 (small cap) 83.2* 70.5 76.2 8.1% (8.4%)
Technology Index (in
sterling terms)
++ Mid market price.
* At 9 April 1996 being the date funds were first available for international
investment.
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).
Past performance is no guarantee of future performance.
- ends -
For further information please contact:
Ms Katie Potts, Manager
Herald Investment Trust plc 020 7553 6300
Baillie Gifford & Co
Secretaries 0131 275 2000
HERALD INVESTMENT TRUST plc
The following is the interim statement for the six months ended 30 June 2007
which has been neither reviewed nor audited by the auditors. This statement is
being printed and will be sent to all shareholders on 6 August 2007. Copies
will be available for inspection at the Registered Office of the Company or may
be obtained on request from the Manager or Secretary after that date.
INCOME STATEMENT
(unaudited)
For the six months ended For the six months ended For the year ended
30 June 2006 30 June 2006 31 December 2006
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on - 34,540 34,540 - (20,134) (20,134) - 21,779 21,779
investments
Currency losses - (62) (62) - (181) (181) - (241) (241)
Income 2,352 - 2,352 2,128 - 2,128 6,492 - 6,492
Investment management fee (2,201) - (2,201) (1,985) - (1,985) (3,927) - (3,927)
Other administrative (132) - (132) (127) - (127) (262) - (262)
expenses
Net return before finance
costs and taxation 19 34,478 34,497 16 (20,315) (20,299) 2,303 21,538 23,841
Finance costs of borrowings (983) - (983) - - - (284) - (284)
Return on ordinary
activities before taxation (964) 34,478 33,514 16 (20,315) (20,299) 2,019 21,538 23,557
Tax on ordinary activities (51) - (51) (31) - (31) (97) - (97)
Return on ordinary
activities after taxation (1,015) 34,478 33,463 (15) (20,315) (20,330) 1,922 21,538 23,460
Return per ordinary share (1.16p) 39.51p 38.35p (0.02p) (23.20p) (23.22p) 2.19p 24.60p 26.79p
(note 2)
Weighted average number
of ordinary shares in
issue during
each period 87,261,341 87,556,010 87,556,010
The total column of this statement is the profit and loss account of the
Company.
All revenue and capital items in this 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
(unaudited)
At 30 June At 30 June At 31 December
2007 2006 2006
£'000 £'000 £'000
Fixed assets
Investments at fair value through profit or 439,185 313,620 387,345
loss
Current assets
Debtors 472 13,059 2,776
Cash and short term deposits 23,549 11,859 11,778
24,021 24,918 14,554
Creditors: Amounts falling due within 1 year
(note 3) (51,929) (1,100) (20,671)
Net current (liabilities)/assets (27,908) 23,818 (6,117)
Total net assets 411,277 337,438 381,228
Capital and Reserves
Called-up share capital 21,743 21,889 21,889
Share premium 73,738 73,738 73,738
Capital redemption reserve 209 63 63
Capital reserve - realised 235,506 226,923 233,361
Capital reserve - unrealised 78,090 12,710 48,125
Revenue reserve 1,991 2,115 4,052
Equity Shareholders' Funds 411,277 337,438 381,228
Net asset value per ordinary share 472.89p 385.40p 435.41p
Ordinary shares in issue (note 4) 86,971,010 87,556,010 87,556,010
HERALD INVESTMENT TRUST plc
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
(unaudited)
For the six months ended 30 June 2007
Called-up Capital Capital Capital Total
share Share redemption reserve - reserve - Revenue shareholders'
capital premium reserve realised unrealised reserve funds
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds
at 1 January 2007 21,889 73,738 63 233,361 48,125 4,052 381,228
Return on ordinary
activities after
taxation - - - 4,513 29,965 (1,015) 33,463
Shares bought back+ (146) - 146 (2,368) - - (2,368)
Dividends paid during
the year# - - - - - (1,046) (1,046)
Shareholders'
funds at
31 December 2007 21,743 73,738 209 235,506 78,090 1,991 411,277
For the six months ended 30 June 2006
Called-up Capital Capital Capital Total
share Share redemption reserve - reserve - Revenue shareholders'
capital premium reserve realised unrealised reserve funds
£'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 - - - 17,284 (37,599) (15) (20,330)
Dividends paid during
the year# - - - - - (525) (525)
Shareholders'
funds at
30 June 2006 21,889 73,738 63 226,923 12,710 2,115 337,438
For the year ended 31 December 2006
Called-up Capital Capital Capital Total
share Share redemption reserve - reserve - Revenue shareholders'
capital premium reserve realised unrealised reserve funds
£'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. # See note5.
HERALD INVESTMENT TRUST plc
SUMMARISED CASH FLOW STATEMENT
(unaudited)
For six For six For year
months months ended
ended ended 31 December
30 June 2007 30 June 2006 2006
£'000 £'000 £'000
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 173 (136) 2,107
NET CASH OUTFLOW FROM SERVICING OF FINANCE (576) - (10)
FINANCIAL INVESTMENT
Purchase of investments (47,162) (47,141) (115,977)
Sale of investments 32,564 50,572 97,094
NET CASH (OUTFLOW)/INFLOW FROM FINANCIAL INVESTMENT (14,598) 3,431 (18,883)
EQUITY DIVIDEND PAID (note 5) (1,046) (525) (525)
NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING (16,047) 2,770 (17,311)
FINANCING
Shares bought back (2,182) - -
Loans drawn down 30,000 - 20,000
NET CASH INFLOW FROM FINANCING 27,815 - 20,000
INCREASE IN CASH 11,771 2,770 2,689
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET
(DEBT)/FUNDS
Increase in cash in period 11,771 2,770 2,689
Increase in bank loans (30,000) - (20,000)
MOVEMENT IN NET (DEBT)/FUNDS IN PERIOD (18,229) 2,770 (17,311)
NET (DEBT)/FUNDS AT 1 JANUARY (8,222) 9,089 9,089
NET (DEBT)/FUNDS AT 30 JUNE/31 DECEMBER (26,451) 11,859 (8,222)
RECONCILIATION OF NET REVENUE BEFORE FINANCE COSTS AND
TAXATION TO NET CASH (OUTFLOW)/INFLOW FROM OPERATING
ACTIVITIES
Net return on ordinary activities before finance costs
and taxation 34,497 (20,299) 23,841
(Gains)/losses on investments - securities (34,540) 20,134 (21,779)
Currency losses 62 181 241
Changes in debtors and creditors 257 60 142
Income tax repaid 9 - -
Overseas tax suffered (50) (31) (97)
Realised currency loss (62) (181) (241)
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 173 (136) 2,107
HERALD INVESTMENT TRUST plc
DISTRIBUTION OF ASSETS
(unaudited)
At 30 June At 30 June At 31 December
2007 2006 2006
% % %
Equities: United Kingdom 65.7 60.1 66.0
Continental Europe 5.6 7.1 6.2
Americas 16.1 16.0 16.4
Asia Pacific 7.8 9.7 7.9
95.2 92.9 96.5
Net liquid assets 4.8 7.1 3.5
Total assets (before deduction of bank loans) 100.0 100.0 100.0
HERALD INVESTMENT TRUST plc
NOTES
1. The financial statements for the six months to 30 June 2007 have been
prepared on the basis of the accounting policies set out in the Company's
Annual Financial Statements at 31 December 2006.
The Interim Report was approved by the Board on 25 July 2007.
None of the views expressed in this document should be construed as advice
to buy or sell a particular investment.
2. Return per ordinary share Six months ended Six months ended Year ended
30 June 2007 30 June 2006 31 December 2006
£'000 £'000 £'000
Revenue return (1,015) (15) 1,922
Capital return 34,478 (20,315) 21,538
The return per ordinary share is based on the above totals of revenue and
capital and on 87,261,341 (30 June 2006 and 31 December 2006 - 87,556,010)
ordinary shares being the weighted average number of ordinary shares in
issue during each period.
3. The Company has a 364 day £50 million multi-currency loan facility with The
Royal Bank of Scotland which expires on 4 October 2007. At 30 June 2007
there were outstanding drawings of £50 million (30 June 2006 - nil and
31 December 2006 - £20 million)
4. At the AGM held on 25 April 2007 the Company's authority to buy back shares
was renewed in respect of 13,058,689 Ordinary shares (equivalent to 14.99%
of its issued share capital at that date). In the six months to 30 June
2007 a total of 585,000 ordinary shares with a nominal value of £146,000
were bought back at a total cost of £2,368,000. At 30 June the Company had
authority to buy back a further 12,913,689 ordinary shares.
5. Dividends Six months ended Six months ended Year ended
30 June 2007 30 June 2006 31 December 2006
£'000 £'000 £'000
Amounts recognised as
distributions in the period:
Final dividend for the year ended
31 December 2006 of 1.20p (2005 -
0.60p) paid 3 May 2007 1,046 525 525
No interim dividend will be declared.
6. Transaction costs incurred on the purchase and sale of investments are
added to the purchase cost or deducted from the sale proceeds, as
appropriate. During the period transaction costs on purchases amounted to
£239,000 (30 June 2006 - £251,000; 31 December 2006 - £687,000) and
transaction costs on sales amounted to £114,000 (30 June 2006 - £267,000;
31 December 2006 - £376,000).
HERALD INVESTMENT TRUST plc
NOTES (Ctd)
7. The financial information contained within this interim report does not
constitute statutory accounts as defined in section 240 of the Companies
Act 1985. The financial information for the year ended 31 December 2006
has been extracted from the statutory accounts which have been filed with
the Registrar of Companies and which contain an unqualified Auditors'
Report and do not contain a statement under sections 237 (2) or (3) of the
Companies Act 1985.
8. The Interim Report will be available on the Managers' website
www.heralduk.com on or around 6 August 2007.
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