Final Results
Herald Investment Trust PLC
20 February 2008
PRELIMINARY STOCK EXCHANGE ANNOUNCEMENT
HERALD INVESTMENT TRUST plc
Results for the year to 31 December 2007
20 February 2008
CHAIRMAN'S STATEMENT
Performance
The net asset value per share rose 8.6% in the first half, but the second half
proved difficult with a 16.5% decline leading to an overall 9.3% decline for the
year. Unfortunately the Manager was optimistic at the time of the interim,
reflecting strong trading across the portfolio, and valuations modest by
historic standards and relative to the cash generation in investee companies.
Thus the portfolio had £50m net debt which was invested. The suddenness of the
credit crunch had not been foreseen. However, the seriousness of the situation
was recognised quickly and from late August there was an immediate endeavour to
raise cash and sell positions perceived as potentially most vulnerable to the
changed economic environment. Initially there was a certain amount of liquidity
in the market enabling some repositioning of the portfolio. By October the UK
market in particular had become very illiquid, which meant a decline was
inevitable. November saw the worst of the decline with the NAV declining 9.7% in
that month alone. December saw some stabilisation.
In the first half of the year there were several notable takeover bids
announced, some of which were completed for cash in the second half. Two further
significant takeover bids were announced in the second half - Amstrad and
Northgate Information Systems - so that during the year three of the top ten
holdings at the start of the year were bid for cash. This helped achieve a
repositioning so that the fund moved from £50m debt to effectively £40m cash at
the year end, if the Northgate proceeds of the cash bid announced in December
and Government Bonds are included. Half of this £90m reversal has come from
bids. The strong positive message is that, apart from the coveted cash
realisation, significant premiums were generally attained highlighting solid
intrinsic value. The concern is first that the lack of investing cash flows in
the smaller companies market is a continuing feature leading to poor valuations
and smaller companies underperforming in all regions, and second that the degree
of shock to the financial system implies that a sharp economic slowdown or even
recession seems almost inevitable, and profit downgrades should be expected.
This has not yet been seen, but more cautious statements must be expected. This
is to some extent discounted in share prices and the unusually wide discount to
net assets for the Trust (21.0% at year end), while liquidity has returned to a
degree, albeit at lower valuations, balance sheets in investee companies are
generally strong, with the Trust's share of debt and cash in investee companies
amounting to around £20m net cash. Most importantly much of the portfolio still
has a growth profile in a slower economy with some very appealing valuations.
The UK portfolio was the worst area declining 9.9% over the year. In comparison
the total return of HGSC smaller companies index including AIM, rose 8.1% in the
first half but declined 5.6% by the year end, with the electronic equipment
sector declining 8.0%, the media sector declining 19.3%, the IT software sector
rising 2.9% and the IT hardware sector declining 9.7%. There was a particularly
painful period when large capitalisation technology companies in the US rose
while the UK portfolio was declining, but small capitalisation US stocks were
not much better than in the UK. The US portfolio declined 6.9% for the year, the
European portfolio declined 4.9% and the Far East portfolio alone rose by
2.4%.The overall decline has continued into 2008, but the UK has outperformed
all other territories and seems somewhat more stable.
The dividend related to 2006, which was paid in 2007, was boosted by a special
£1.9m dividend from Amstrad. In 2007, higher interest charges contributed to a
loss on the revenue account. The Board is proposing a dividend of 0.50p per
share payable out of reserves in respect of 2007. Capital appreciation is the
priority of the Company and there is no certainty that dividends will be paid in
future years.
Buybacks
During the year, a total of 585,000 shares were bought back at a cost of £2.4m.
The Board is seeking powers at the AGM to renew the authority to buy back
shares.
VAT
During the year, the European Court of Justice ruled that investment trust
management fees should be exempt from VAT, bringing them in line with open ended
funds. HM Revenue and Customs now accept this decision so the Company will be
able to recover some of the VAT suffered on management fees in the past. The
terms of, and procedure for, reclaim are still to be clarified. The amount of
the refund is still uncertain, but it will not be material. Consequently, no
provision has been made for any refund in this set of financial statements.
The Board
I am pleased to welcome Julian Cazalet to the Board. He has recently retired as
Managing Director - Corporate Finance at JP Morgan Cazenove having advised a
number of investment trusts in addition to working with industrial and
commercial companies. Shareholders will be asked to vote on his appointment at
the Annual General Meeting.
Outlook
Inevitably the macro environment remains an overriding concern, and a number of
economic indicators particularly in the UK are worrying. However, the valuations
are being driven by a lack of investors' liquidity not by fundamentals. Managers
of open ended funds envy the investment trust characteristic of not being a
forced seller. Herald capitalised on this in 2002 when leverage enabled a geared
return on the upswing when open ended funds were forced sellers. The £50m
borrowing facility remains in place, but is undrawn, and a further £40m in cash,
Government Bonds and potential proceeds from bids, should enable the fund to
exploit opportunities. The temptation is to buy, but the economic shock
currently being experienced makes a short term recovery improbable. The strategy
will be cautiously to invest when distressed sellers appear, and we remain
confident that there are many strong companies in the portfolio in a position to
weather the storm. The biggest fear is that there will be further takeovers at
prices which are fundamentally too low.
Martin Boase
Chairman
19 February 2008
HERALD INVESTMENT TRUST plc
Statistics and Performance Report
Performance
At inception At At since Performance
16 February 1994 31 December 2006 31 December 31 December since inception
2007 2006
NAV per share 98.7p 435.4p 395.0p (9.3%) 300.2%
Share price ++ 90.9p 383.5p 312.0p (18.6%) 243.2%
FTSE 100 Index 3,417.7 6,220.8 6,456.9 3.8% 88.9%
HGSC Index plus AIM 1,750.0 3,838.3 3,562.9 (7.2%) 103.6%
(capital gains ex.
investment companies)
Russell 2000 (small 83.2* 70.5 72.1 2.3% (13.3%)
cap) Technology Index
(in sterling terms)
++ Mid market price.
* 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 2007
Performance
(total return)
Equity markets
UK (9.9%)
Europe ex. UK (4.9%)
Americas (6.9%)
Asia Pacific ex. Japan 2.4%
- 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
2007 which was approved by the Board on 19 February 2008. The Directors of
Herald Investment Trust plc are recommending to the Annual General Meeting of
the Company to be held on 22 April 2008 the payment of a final dividend of 0.50p
net (1.20p net last year) per Ordinary share for the year ended 31 December
2007.
HERALD INVESTMENT TRUST plc
INCOME STATEMENT
for the year ended for the year ended
31 December 2007 31 December 2006
(unaudited) (audited)
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments - (32,898) (32,898) - 21,779 21,779
Currency losses - (49) (49) - (241) (241)
Income (note 2) 5,167 - 5,167 6,492 - 6,492
Investment management fee (4,252) - (4,252) (3,927) - (3,927)
Other administrative expenses (268) - (268) (262) - (262)
Net return before finance costs
and taxation 647 (32,947) (32,300) 2,303 21,538 23,841
Finance costs of borrowings (1,883) - (1,883) (284) - (284)
Net return on ordinary activities
before taxation (1,236) (32,947) (34,183) 2,019 21,538 23,557
Tax on ordinary activities (134) - (134) (97) - (97)
Net return on ordinary activities
after taxation (1,370) (32,947) (34,317) 1,922 21,538 23,460
Net return per Ordinary share
(note 3) (1.57)p (37.82)p (39.39)p 2.19p 24.60p 26.79p
Dividend per Ordinary share
(note 4) 0.50p 1.20p
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 2007
31 December 2007 31 December 2006
(unaudited) (audited)
£'000 £'000
FIXED ASSETS
Investments held at fair value through profit or loss 330,833 387,345
CURRENT ASSETS
Debtors 839 2,776
Cash at bank and in hand 12,155 11,778
12,994 14,554
CREDITORS:
Amounts falling due within one year (note 5) (330) (20,671)
Net current assets/(liabilities) 12,664 (6,117)
TOTAL NET ASSETS 343,497 381,228
CAPITAL AND RESERVES
Called-up share capital 21,743 21,889
Share premium 73,738 73,738
Capital redemption reserve 209 63
Capital reserve 246,171 281,486
Revenue reserve 1,636 4,052
EQUITY SHAREHOLDERS' FUNDS 343,497 381,228
Net asset value per Ordinary share 394.96p 435.41p
Ordinary shares in issue (note 6) 86,971,010 87,556,010
HERALD INVESTMENT TRUST plc
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
For the year ended 31 December 2007 (unaudited)
Called-up Capital Total
share Share redemption Capital Revenue shareholders'
capital premium reserve reserve reserve funds
£'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds
at 1 January 2007 21,889 73,738 63 281,486 4,052 381,228
Net return on
ordinary activities
after taxation - - - (32,947) (1,370) (34,317)
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 73,738 209 246,171 1,636 343,497
For the year ended 31 December 2006 (audited)
Called-up Capital Total
share Share redemption Capital Revenue shareholders'
capital premium reserve reserve reserve funds
£'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds
at 1 January 2006 21,889 73,738 63 259,948 2,655 358,293
Net return on
ordinary activities
after taxation - - - 21,538 1,922 23,460
Dividends paid
during the year - - - - (525) (525)
Shareholders' funds
at 31 December 2006 21,889 73,738 63 281,486 4,052 381,228
HERALD INVESTMENT TRUST plc
CASH FLOW STATEMENT
for the year ended for the year ended
31 December 2007 31 December 2006
(unaudited) (audited)
£'000 £'000 £'000 £'000
NET CASH INFLOW FROM OPERATING ACTIVITIES 187 2,107
NET CASH OUTFLOW FROM SERVICING OF FINANCE (2,156) (10)
FINANCIAL INVESTMENT
Purchase of investments (82,697) (115,977)
Sale of investments 108,457 97,094
NET CASH INFLOW/(OUTFLOW) FROM FINANCIAL INVESTMENT 25,760 (18,883)
EQUITY DIVIDEND PAID (1,046) (525)
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING 22,745 (17,311)
FINANCING
Shares repurchased (2,368) -
Loans drawn down 60,000 20,000
Loans repaid (80,000) -
NET CASH (OUTFLOW)/INFLOW FROM FINANCING (22,368) 20,000
INCREASE IN CASH 377 2,689
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS/(DEBT)
Increase in cash in period 377 2,689
Decrease/(increase) in bank loans 20,000 (20,000)
MOVEMENT IN NET FUNDS/(DEBT) IN PERIOD 20,377 (17,311)
NET (DEBT)/FUNDS AT 1 JANUARY (8,222) 9,089
NET FUNDS/(DEBT) AT 31 DECEMBER 12,155 (8,222)
RECONCILIATION OF NET RETURN BEFORE FINANCE COSTS AND TAXATION TO NET
CASH INFLOW FROM OPERATING ACTIVITIES
Net return on ordinary activities before finance costs and taxation (32,300) 23,841
(Losses)/gains on investments 32,898 (21,779)
Currency losses 49 241
Changes in debtors and creditors (283) 142
Income tax repaid 6 -
Overseas tax suffered (134) (97)
Realised currency loss (49) (241)
NET CASH INFLOW FROM OPERATING ACTIVITIES 187 2,107
HERALD INVESTMENT TRUST plc
DISTRIBUTION OF ASSETS
at 31 December 2007
(unaudited)
31 December 2007 31 December 2006
% %
Equities: United Kingdom 62.3 66.0
Continental Europe 5.0 6.2
Americas 17.5 16.4
Asia Pacific 7.8 7.9
Total equities 92.6 96.5
EUR denominated bonds 2.2 -
US$ denominated bonds 1.5 -
Net current assets 3.7 3.5
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 2007 have been prepared on the basis of
accounting policies which are consistent with those set out in the Company's Annual Financial
Statements at 31 December 2006.
The Directors consider the Company's functional currency to be sterling as the Company's
shareholders are predominantly based in the UK and the Company is subject to the UK's regulatory
environment.
31 December 2007 31 December 2006
£'000 £'000
2. Income
Income from investments and interest receivable 5,167 6,487
Other income - 5
5,167 6,492
31 December 2007 31 December 2006
£'000 £'000
3. Net return per ordinary share
Revenue return (1,370) 1,922
Capital return (32,947) 21,538
Return per Ordinary share is based on the above totals of revenue and capital and on 87,114,983
Ordinary shares (2006 - 87,556,010) being the weighted average number of Ordinary shares in issue
during the year.
There are no dilutive or potentially dilutive shares in issue.
31 December 31 December
2007 2006 2007 2006
£'000 £'000
4. Ordinary dividend
Amounts recognised as distributions in the period
Previous year's final (paid 3 May 2007) 1.20p 0.60p 1,046 525
We also set out below the total dividends payable 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 £Nil (2006 - £1,922,000).
2007 2006 2007 2006
£'000 £'000
Dividends paid and proposed in the period:
Proposed final dividend per Ordinary share 0.50p 1.20p 435 1,051
Adjustment to provision for 2006 final dividend
re shares bought back - (5)
435 1,046
The current year's proposed dividend will be paid on 1 May 2008 to all shareholders on the register
at the close of business on 11 April 2008. The ex-dividend date is 9 April 2008.
5. The Company has a 364 day £50 million multi-currency loan facility with The Royal Bank of Scotland
plc which expires on 21 September 2008. At 31 December 2007 there were no outstanding drawings (2006
- £20,000,000 at a rate of 5.811%).
Interest on the multi-currency loan was payable in half yearly instalments in April and October. The
loan was repaid in November 2007. The estimated repayment value of the loan at 31 December 2006 was
£20,000,000.
HERALD INVESTMENT TRUST plc
NOTES (ctd)
6. At the Annual General Meeting in April 2007 Shareholders granted the Company authority to purchase shares
in the market up to 13,058,690 Ordinary shares (equivalent to 14.99% of its issued share capital at that
date). In the year to 31 December 2007, a total of 585,000 (2006 - Nil) Ordinary shares with a nominal
value of £146,000 (2006 - Nil) were bought back at a total cost of £2,368,000 (2006 - Nil). At 31
December 2007 the Company had authority to buy back a further 12,913,689 Ordinary shares. Under the
provisions of the Company's Articles share buy-backs are funded from the realised capital reserve. The
Company does not have any externally imposed capital requirements.
7. During the period transaction costs on purchases amounted to £387,000 (2006 - £687,000) and transaction
costs on sales amounted to £354,000 (2006 - £376,000).
8. The financial information set out above does not constitute the Company's statutory accounts for the year
ended 31 December 2007. The financial information for 2006 is derived from the statutory accounts for
2006 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2006
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 2007 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.
9. The Report and Accounts will be available on the Managers' website www.heralduk.com on or around
13 March 2008.
10. None of the views expressed in this document should be construed as advice to buy or sell a particular
investment.
This information is provided by RNS
The company news service from the London Stock Exchange
Tuesday, 14th May 2024
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