Interim Results
Herald Investment Trust PLC
29 July 2005
PRELIMINARY STOCK EXCHANGE ANNOUNCEMENT
HERALD INVESTMENT TRUST plc
Results for the six months ended 30 June 2005
29 July 2005
BOARD STATEMENT
CHAIRMAN'S STATEMENT
The net assets per share have declined 3.5% in the first half. The trading
background has been strong for most companies, and in general they have
delivered strong earnings growth as expected. Shares have again not risen in
line with earnings and the handful that have disappointed have been punished. It
seems that the market continues to favour other sectors currently and is
ascribing little premium for growth. The UK portfolio, which accounts for two
thirds of the portfolio, returned -3.3%. In contrast the HGSC Index, which is 2/
3rds of our benchmark returned 7.7%, albeit the weighted average of the most
relevant sectors for our remit showed a return of only 2.0%. The IT sector,
which is important to Herald, was the worst performing sector in the FTSE
declining 2.4%, and by 3.5% in the HGSC smaller company benchmark. The media
sector was also disappointing with the HGSC benchmark index returning -1.0%. In
the US the Russell 2000 Technology index returned -11.7%, and the Trust's US
portfolio -7.4%, helped by a stronger $. The European and Far East returns were
satisfactory, 2.7% and 9.0% respectively.
Total return by geography from 31 December 2004 to 30 June 2005
UK Equities -3.3%
US Equities -7.4%
European Equities +2.7%
Far East Equities +9.0%
The most encouraging aspect of the first half is that the profit expectations
forecast by brokers at the start of the year for the stocks in the portfolio
have remained intact, which implies overall earnings growth this year above 60%
for the portfolio, and more importantly a p/e for 2005 of 15-17.5x. This
appears to offer sound value while profits momentum continues. The portfolio is
a microcosm of the global economy, and the consumer stocks which have been
strong for several years in the UK are finding trading more challenging, while
for the companies supplying corporate capital expenditure trading seems a little
easier. Traditional media is generally tough, but new media is coming of age and
showing substantial profitable growth. This year there have been three bids in
the UK portfolio - Marlborough Sterling, Attentiv, Scottish Radio Holdings and
more recently Moneybox. While interest remains low, and companies are generally
cash generative, we expect corporate activity to underpin valuations if
investors remain disinterested.
Other notable features of the market have been the stream of new issues on to
AIM, a relative absence of new issues in Europe and a modest flow in the US. AIM
is providing a flow of capital to emerging companies, of which we approve in
principle, albeit sometimes we question the quality. There are now in excess of
400 companies on AIM in Herald's target sector. It would be disappointing if a
handful did not break-out to become strong companies, because the UK suffers
from a shortage of long term success stories.
A number of new Financial Reporting Standards have been adopted for the first
time this year, which has required a restatement of prior year's figures. The
adoption of these Standards has changed the basis of valuation of investments
and the treatment of dividends. Note 1 to the accounts explains these changes
in accounting treatment and the impact upon prior year's reported figures in
more detail. As in previous years there will not be an interim dividend.
Dividend growth and increased interest income has led to income growth in the
first half.
There remain macro uncertainties with rising oil prices and terrorism, but we
believe that companies in our focus are in a strong position to withstand the
environment, and that equities in general offer sound value. In our sectors in
particular the market is not ascribing a premium for growth.
M Boase
Chairman
28 July 2005
Statistics and Performance Report
Performance
At inception At At since Performance
16 February 1994 31 December 30 June 31 December since inception
2004 2004
2004
NAV per share 98.7p 379.4p+ 366.3p (3.5%) 271.1%
Share price 90.9p 321.5p++ 316.0p++ (1.7%) 247.6%
FTSE 100 Index 3,417.7 4,814.3 5,113.2 6.2% 49.6%
HGSC Index (ext. cap 1,750.0 2,752.2 2,939.3 6.8% 68.0%
gains ex. investment
companies)
Russell 2000 (small 83.2* 65.1 61.6 (5.4%) (26.0%)
cap) Technology Index
(in sterling terms)
* At 9 April 1996 being the date funds were first available for international investment.
+ Restated, see note 1.
++ Bid.
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 unaudited preliminary statement for the six months to 30
June 2005 which has been neither reviewed nor audited by the auditors. This
statement is being printed and will be sent to all shareholders on 8 August
2005. 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.
STATEMENT OF TOTAL RETURN
(unaudited and incorporating the revenue account*)
For the six months ended For the six months ended For the year ended
30 June 2005 30 June 2004 31 December 2004
Capital Total Capital Total
Revenue Capital Total Revenue Restated+ Restated+ Revenue Restated +Restated+
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on - (9,946) (9,946) - 17,534 17,534 - 14,645 14,645
investments
Unrealised (losses)/gains on - (1,753) (1,753) - 215 215 - 1,813 1,813
loans
Currency (losses)/gains - (7) (7) - 174 174 - (29) (29)
Income 2,839 - 2,839 2,375 - 2,375 4,776 - 4,776
Investment management fee (1,828) - (1,828) (1,905) - (1,905) (3,671) - (3,671)
Other administrative (118) - (118) (129) - (129) (267) - (267)
expenses
Net return before finance
costs and taxation 893 (11,706) (10,813) 341 17,923 18,264 838 16,429 17,267
Finance costs of borrowings (392) - (392) (232) - (232) (501) - (501)
Return on ordinary
activities before taxation 501 (11,706) (11,205) 109 17,923 18,032 337 16,429 16,766
Tax on ordinary activities (40) - (40) (30) - (30) (36) - (36)
Return on ordinary
activities after taxation 461 (11,706) (11,245) 79 17,923 18,002 301 16,429 16,730
Return per Ordinary share 0.53p (13.37p) (12.84p) 0.09p 20.41p 20.50p 0.34p 18.73p 19.07p
(note 3)
Weighted average number of
ordinary shares in issue
during each period 87,556,010 87,807,348 87,745,357
* The total column of this statement is the profit and loss account of the
Company.
+ Restated, see note 1.
All revenue and capital items in this statement derive from continuing
operations.
HERALD INVESTMENT TRUST plc
SUMMARISED BALANCE SHEET
(unaudited)
Restated+ Restated+
at 30 June at 30 June at 31 December
2005 2004 2004
£'000 £'000 £'000
Fixed assets
Investments 317,723 329,462 320,546
Current assets
Debtors 1,225 2,192 1,880
Cash and short term deposits 29,887 29,498 34,907
31,112 31,690 36,787
Creditors: Amounts falling due within 1 year
(excluding short-term borrowings) (1,716) (816) (459)
Total assets (before deduction of bank loans) 347,119 360,336 356,874
Bank loans (note 4) (26,416) (26,110) (24,663)
Total net assets 320,703 334,226 332,211
Capital and Reserves
Called-up share capital 21,889 21,952 21,889
Share premium 73,738 73,738 73,738
Capital redemption reserve 63 - 63
Capital reserve - realised 209,754 195,895 202,442
Capital reserve - unrealised 12,699 40,501 31,717
Revenue reserve 2,560 2,140 2,362
Equity Shareholders' Funds 320,703 334,226 332,211
Net asset value per ordinary share 366.28p 380.64p 379.43p
Ordinary shares in issue (note 5) 87,556,010 87,807,348 87,556,010
DISTRIBUTION OF ASSETS
(unaudited)
Restated+
Restated+at at 31 December
at 30 June 30 June 2004
2005 2004 %
% %
Equities: United Kingdom 61.3 63.5 60.3
Continental Europe 6.2 6.2 6.6
Americas 15.7 14.3 15.1
Japan - 1.0 0.7
Asia Pacific 8.3 6.4 7.1
91.5 91.4 89.8
Net liquid assets 8.5 8.6 10.2
Total assets (before deduction of bank loans) 100.0 100.00 100.0
+ Restated, see note 1.
HERALD INVESTMENT TRUST plc
SUMMARISED CASH FLOW STATEMENT
(unaudited)
For the six For the six For the year
months ended months ended ended
30 June 2005 30 June 2004 31 December 2004
£'000 £'000 £'000
NET CASH INFLOW FROM OPERATING ACTIVITIES
828 263 762
NET CASH OUTFLOW FROM SERVICING OF FINANCE
(328) (265) (495)
FINANCIAL INVESTMENT
Purchase of investments (31,889) (39,020) (65,423)
Sale of investments 26,632 52,993 85,279
NET CASH (OUTFLOW)/INFLOW FROM FINANCIAL INVESTMENT
(5,257) 13,973 19,856
EQUITY DIVIDEND PAID (263) (263) (263)
NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING
(5,020) 13,708 19,860
FINANCING
Loans drawn down 24,771 - 25,769
Loans repaid (24,771) (2,849) (28,618)
Shares repurchased - - (743)
NET CASH OUTFLOW FROM FINANCING - (2,849) (3,592)
(DECREASE)/INCREASE IN CASH (5,020) 10,859 16,268
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET
(DEBT)/FUNDS
(Decrease)/increase in cash in period (5,020) 10,859 16,268
Increase in bank loans 997 2,849 2,849
Exchange movement on loans (2,750) 366 1,813
MOVEMENT IN NET (DEBT)/FUNDS IN PERIOD (6,773) 14,074 20,930
NET FUNDS/(DEBT) AT 1 JANUARY 10,244 (10,686) (10,686)
NET FUNDS AT 30 JUNE/31 DECEMBER 3,471 3,388 10,244
RECONCILLIATION OF NET REVENUE BEFORE FINANCE COSTS AND
TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES
Net revenue before finance costs and taxation 893 341 838
Changes in debtors and creditors (14) (69) -
Income tax suffered (4) (2) (11)
Realised currency (loss)/gain (7) 23 (29)
Overseas tax suffered (40) (30) (36)
NET CASH INFLOW FROM OPERATING ACTIVITIES
828 263 762
HERALD INVESTMENT TRUST plc
NOTES
1. A number of new UK Financial Reporting Standards have been introduced with which the Company must
comply by its 31 December 2005 financial year end. These standards are part of the UK convergence
programme with International Accounting Standards and have required restatement of prior year figures
to reflect the new accounting treatment. The Financial Statements for the six months to 30 June 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 bid basis of valuation,
resulting in a reduction in the value of investments and unrealised capital reserves of £4,155,000
(30 June 2004 - £4,626,000; 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 £263,000 as at 31 December 2004.
c) Changes in Company Law prohibit the disclosure of dividends on the face of the Statement of
Total Return. As a result, dividends paid and proposed have been included in the notes to the
accounts.
The overall effect of the above changes is to decrease equity shareholders funds by £4,155,000 (30
June 2004 - £4,626,000; 31 December 2004 - £4,359,000). The effect on the profit and loss account is
an increase in unrealised gains on investments of £467,000 (30 June 2004 - £34,000; 31 December 2004
- £38,000) which is shown in the capital returns.
2. The amount recognised as a distribution in the six months to 30 June 2005 was the final dividend for
the year ended 2004 of 0.30p (£263,000) which was paid on 19 April 2005 (six months to June 2004 and
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).
No interim dividend will be declared.
3. Return per ordinary share Six months ended Six months ended Year ended
30 June 2005 30 June 2004 31 December 2004
£'000 £'000 £'000
Revenue return 461 79 301
Capital return (11,706) 17,923+ 16,429+
The return per Ordinary share is based on the above totals of revenue and capital and on 87,556,010
ordinary shares (30 June 2004 - 87,807,348; 31 December 2004 - 87,745,357) being the weighted average
number of Ordinary shares in issue during each period.
+ Restated, see note 1.
4. The Company has arranged a multi-currency loan facility with ING Bank N.V. which comprises a 364 day
£30 million facility which expires on 25 October 2005. At 30 June 2005 there were outstanding
drawings of US$47.35 million (30 June 2004 and 31 December 2004 - US$47.35 million).
HERALD INVESTMENT TRUST plc
NOTES
5. At the AGM held on 13 April 2005 the Company's authority to buy back shares was renewed in respect of
13,124,645 Ordinary shares (equivalent to 14.99% of its issued share capital at that date). No shares
have been bought back during the period and therefore at 30 June 2005 the Company's authority to buy back
shares remains unchanged at 13,124,645.
6. 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 2004 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.
7. The Interim Report was approved by the Board on 28 July 2005.
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