Final Results

RNS Number : 4816X

Herald Investment Trust PLC

15 February 2012

 



Press Release

Herald Investment Trust plc

15 February 2012

Chairman's Statement

2011 was a year of macroeconomic uncertainty and volatile stock markets that saw widespread declines. Against this background I am pleased to report that the majority of portfolio companies made sound progress, albeit the net assets per share declined by 5.1%. The UK portion of our portfolio yielded a positive total return of 1.5%, which is significantly ahead of the main UK indices, as well as the overseas returns in the portfolio and market performances, justifying the overweight position in this region. The FTSE Small Cap Index returned (12.3%), the HGSC Index plus AIM (total return ex. investment companies) returned (13.1%) and the FTSE AIM Index returned (25.0%) on a total return basis. The Company's second heaviest weighting was in the US, where small technology companies had a poor year relative to large ones, and the Russell 2000 Technology Index declined 8.7% in $ (8.0% in £). The Company's US portfolio returned -1.8%. Unfortunately the overall return was dragged down by poor returns in the smaller Asian and European portfolios and a widening loss on the mark to market valuation of the interest rate swap, which was taken out to hedge interest rate volatility on the loan, to give a 5.1% overall decline in the NAV per share.

The dull returns reflect the difficult stock market environment, which has led to a virtually closed market for primary capital for the third year running in the UK, Europe and to a lesser extent in the US. In contrast there has continued to be a steady pace of takeovers. A total of fourteen investee companies were taken over during the year, where our stakes had an aggregate value of almost £42m. This takes the cumulative total value of takeovers within the portfolio over the last five years to £171m, and compares to a net value of just over £66m of external capital raised in the history of the Trust. Valuations and takeovers in the UK seem to be driven by a continued withdrawal of capital from equities by pension funds and insurance companies. From the micro perspective of Herald, it seems bizarre that actuaries appear to have such an influence on asset allocation decisions, with views that are so divergent from any reasoned investment judgment over the medium and long term.

The TMT sector, in which the Company's investments are focused, is never homogeneous, and as ever there have been parts of the universe structurally and cyclically challenged, while other parts have shown sparkling growth. New technologies open up new markets, which can grow significantly whatever the economic backdrop. The internet continues to have the most profound effect, both positively and negatively, and the mobile internet has again been a strong driver in 2011.

The best way of illustrating what a good year 2011 has been for the Company, in spite of the decline in the net asset value, is to quantify a few metrics in the portfolio. The share of revenues in portfolio companies exceeds £400m for the first time, the share of net income of profitable companies exceeds £30m for the first time, and the share of net cash continues to exceed £20m, against an equity value of £462m. Furthermore, although the prime motive for the fund is capital growth, dividend income growth has been particularly robust in the UK (+44%), which is masked by flat overseas dividend income and a decline in bond income. Some companies paying a dividend for the first time flatter the dividend growth rate. These valuation metrics provide considerable confidence for the year ahead, and appears to offer value versus cash and bonds.

Dividends have never been significant for the Company, reflecting the growth orientation of the portfolio, but 2010 was the first year in respect of which no dividend was paid by the Company. In light of the robust dividend growth during the year the Directors have decided to recommend a dividend of 1.00p in respect of 2011. 

It is rational to be apprehensive about the coming year reflecting the excessive Government leverage in the world and European instability in particular. Nevertheless, cash and bonds seem particularly unattractive, while there remains scope for growth in the technology sector, on very reasonable valuations, which appears attractive relative to appealing to alternative investment opportunities.

The Board

I am delighted to welcome Stewart Newton, who joined the Board in January. Stewart has very broad experience in the investment world. He is currently chairman and founder partner of an investment group focussed on real and absolute returns. He is also closely involved in technology in both the academic world, as a Council Member of Imperial College, and in the charitable sector as a member of the Investment Committee of The Wellcome Trust. We very much look forward to working with him.

Clay Brendish will leave the Board at the conclusion of the AGM. Clay's clear advice and wisdom over the past eleven years have been very much appreciated by both the Board and the Manager. We thank him most sincerely for his contribution to Herald during his time as a Director and wish him well for the future.

Julian Cazalet

Chairman

14 February 2012

Manager's Report

The 5.1% decline in NAV is disappointing, and at odds with what has seemed a very good year. Throughout the year many days have started miserably with the deluge of grim political and economic news. Earthquakes and floods have added to the woes. Yet every day we have been cheered by meetings and results from companies with news flow that has been altogether more satisfactory. It seems that the TMT (technology, media and telecommunications) sector in which we invest has operated on a different cycle, not economically, but temperamentally. The sector's period of madness was in 2000, when excessive confidence led to insane valuations; over-exuberant growth plans; excessive investment; and unsound jargon became the order of the day: land grab, multiples of sales, salary inflation, excessive IPOs, acquisitions using overrated paper etc. The sector came down to earth with a bump in 2002. Since then, technology company managements are wiser, and sound business fundamentals have resumed with cash-generative, controlled growth the objective. The madness of the financial and property sector bubbles followed that of the TMT bubble, eventually extending to the consumer. I fear excessive leverage will take longer to repair than the TMT follies, but let us hope that there is a similarly effective grounding in other parts of the economy. Meanwhile we can enjoy the progress in the sector in which we invest.

UK

The UK declined marginally in capital terms, but yield raised the total return to 1.5%. This is some 15% ahead of the HGSC Index plus AIM (capital gains ex investment companies), but this is a general index, so a flattering comparator on this occasion. Nevertheless, since inception the internal rate of return of HIT's UK portfolio is nearly 15% in capital terms versus the HGSC Index rising just over 3% per annum, so 2011's outperformance is not so far ahead of the long-term average.

Eleven holdings appreciated by more than £1m over the year, and 19 fell by more than £1m, so performance was mixed. Phoenix IT and IQE proved the most expensive, each declining more than £5m, but neither are troubled businesses, and I remain confident about their potential. In contrast, both Alterian and Patsystems genuinely disappointed expectations and in consequence were both defenceless when approached for a takeover. Imagination, Telecom Plus and NCC were large holdings that performed well, offsetting the losers. There were five other UK takeovers which, including Alterian and Patsystems, yielded £29m cash. Collectively over time the stocks taken over increased the assets of the Company by £15.6m, of which Group NBT was the most significant. In recent years I have been disappointed by some takeovers occurring at too low a price. It has been frustrating to have invested pre-profits at a high risk stage to find the company is taken over at a much lower-risk stage, with profits potential remaining. I have been less anguished by this year's takeovers, because a number had management issues. As ever, the cash is helpful, and in particularly short supply when there are excellent opportunities arising from low, and sometimes anomalously low valuations associated with the perennial cash outflow from shrinking the UK equity market. The Bank of England helpfully quantified this in a recent report. Between 2003 and 2008, the average monthly net withdrawal (primary capital issues less take-over and buybacks) was £0.7bn. There was a brief respite in 2009-10 reflecting rescue rights issues, but outflows have resumed at a similar rate in 2011. The TMT space should be an area prolific for IPOs, but when fund managers have negative cash flows the resources are not available, which I find disturbing as a UK taxpayer. It is advantageous to be able to buy stocks inexpensively, but it is disappointing to have missed out on investable propositions, because there were insufficient other funds prepared to invest.

US

The Trust's US return was marginally negative at -2.5%, which was 6.2% ahead of the most relevant index, the Russell 2000 Technology Index. In contrast the large capitalisation index was virtually flat. As in the UK, performance was mixed. MIPS, Support.com and Anadigics all fell by $4m, but were offset by the star performer for the year, Silicon Motion. It increased by 341% ($14.3m). At the start of the year HIT was its largest institutional shareholder, but some quality names have built stakes this year. It provides controllers for flash memory, which is being widely used in Android mobile phones. Ceva and OCZ also contributed usefully, the first providing IP for the baseband in phones, and the second also in the flash memory market. The long term returns for HIT in the US have been materially inferior to the UK and European returns, albeit better than the relevant US indices. This may appear anomalous given the number of strong US companies, but reflects valuations that have often discounted too much growth at IPO. However, these have come down, and technology stocks no longer have a premium valuation to the S&P in p/e terms in spite of the S&P p/e also being low by historic standards. I am more tempted than at any stage to increase the US weighting because of improved relative valuations.

Europe

Europe has had a dire year. This was reflected in very limited exposure to Europe, and the decline of 21.8% would have been worse but for the takeovers of Norkom (Ireland) and Infovista (France). The European exposure of £9.3m at the year-end, and only £12.3m at the start of the year is minimal. The trouble is that so much of Europe is so horribly uncommercial, with shareholders ranking low in the pecking order. It seems things can only get worse in the short term. We are privileged at Herald to have the chance to meet management around the globe. More than ever the UK and the US appear safer homes than raw economic data might suggest.

Far East

It has been a challenging year in Asia. We have previously commented that the manufacturing nature of the Far East, often with little pricing power, makes companies vulnerable to reduced demand. This has occurred this year, particularly in the second half. The biggest exposure is to South Korea, which seems to be moving up the value chain, and performance positively returned 1.5%, but Taiwan was poor. Overall the Far East declined 16.6%.

Swap

The fund continues to have a facility of £50m. Nearly four years ago interest rates seemed attractively low, and worth locking in at the available level. Neither the Board nor I anticipated the degree to which yields have continued to fall. The mark to market loss is now £20.4m, but need never be realised if we carry forward the position, as we currently plan to do.

Sector Background

The TMT space has the luxury and challenge of supplying multiple market sectors. It is wise to assume that consumer, Government and enterprise spending will be constrained in the coming year, so how will it affect the TMT sectors? By segment:

1.  Consumer

There are now over 2 billion connected consumers globally. This century has seen universal consumer adoption of the internet: Initially "narrow" band for e-mails, and search (Google), and progressively broadband, and the mobile internet. This has led to the emergence of social media (Facebook, Twitter et al), internet TV (Netflix now accounts for >40% of internet traffic in the US), e-Readers, online shopping and more. Can the indebted consumer in the Anglo-Saxon world, or the poor consumers in the emerging world afford to maintain, and even increase their expenditure? Increasingly the consumer cannot afford not to be "connected". Indeed for many users the cost of internet connection is actually negative, reflecting the sums saved on flights, holidays, insurance, on-line shopping etc. The savings are being created by disintermediation of middlemen (insurance brokers, travel agents, book shops, specialist retailers etc), by reduced administration costs and by the enablement of pricing comparisons and therefore suppliers' margin pressure. In addition for many products there is a profound disruption in the retail channel. There is evidently a diversion of consumer expenditure to fund internet access, the devices that enable it and the products and services available over it. As networks are upgraded, and users learn the enhanced capabilities usage will grow, and the thirst for upgraded devices will continue. Usage will have to become metred, and the days of unlimited access are numbered. In the emerging world, while expenditure and therefore savings are less, the communications leap is greater, and more basic markets such as banking are being opened up. There remains a strong following wind!

2.  Government

With fiscal deficits everywhere there will be pressures. However, large parts of Government are bureaucratic, and have been slow and inefficient about adopting cost-saving technology solutions. Furthermore, Governments have huge installed bases of legacy systems with viciously high maintenance costs. Some of the large legacy technology companies could well be challenged by an erosion of these lucrative maintenance charges when applications and databases are migrated to more efficient cloud architectures. Essentially 'the cloud' is not an application, but it enables existing applications to be delivered more cheaply, and enables new applications such as social media to exist. There has been a fashion for outsourcing services. While this has further to run, in the UK and US many long term contracts are firmly in renewal territory. These suppliers should be vulnerable to difficult headwinds.

Traditional defence expenditure looks particularly vulnerable, but as military headcount and weapons expenditure reduce, there simply must be a corresponding diversion of resources to cyber security. This has multiple facets. (i) protecting data against criminals (internally as well as externally). (ii) protecting data and infrastructure against terrorists or hostile states. (iii) it has become evident this year with the Arab Spring and riots in the UK, that social media poses new challenges that Governments will have to address.

IT spending looks set to rise overall, but almost certainly there will be incumbent losers, and newcomers addressing the new issues.

3.  Enterprise

Gartner is a leading IT research house which analyses the large enterprises' IT budgets. They have published interesting statistics stating that the average IT spend per employee for their customer base was $12,700 in 2011. Of this, 41% was spent on IT staff and a further 21% outsourced. 75% of total spend was operational expenditure versus 25% capital investment. Internal IT departments are facing huge challenges. Legacy systems are hugely expensive to maintain, and employees from 21 year old starters to the Chairman are increasingly IT literate, and expect consumer quality, which comes at a small fraction of the cost of business systems, whose development costs cannot be amortised over millions of units.  

Enterprises have to address the requirement for mobile internet, and they are having to respond to the social media phenomena in marketing, advertising and more sophisticated business intelligence applications. The majority of IT spend relates to legacy applications, and expenditure will be made to save costs. It seems probable that internal operational expenditure will fall as legacy applications are gradually replaced by cloud architecture, which may well be outsourced. This is akin to the food retailing chains' development of their buying power, which squeezed the food manufacturers. As companies migrate IT resources to third party data centres, with large buying power, it seems probable that there will be a similar squeeze on suppliers.

Again winners and losers are inevitable, but note that 75% of spend is virtually non-discretionary operational cost, which can only be reduced with investment.

The big trend to come has been described as "the internet of everything". The internet began as a network of computers, then phones, and next devices. A hyperconnected world is emerging where everything (physical and virtual) has its own URL (IP address) and can communicate information. Machine-to-machine communication, RFID chips, QR codes, GPS, NFC, IP video are innovations that have already begun to emerge, but there will be more.

Summary

The prospective p/e of the portfolio is c.12x on analysts' forecasts. It seems that forecasts may in aggregate fall to a lower rate of growth, but a couple of warnings on US holdings left the share prices relatively unscathed. I expect a more difficult year for profits growth, but a better year for share prices, because there is fundamental value. A resolution of the structural issues in Europe could see a dramatic upside, and a lower chance of a worsening. Currently the fund is fully invested reflecting confidence in the value in the portfolio, but it is reassuring to have the proceeds of the borrowing facility available if there is a material wobble, which could provide some outstanding opportunities.

Performance Attribution (in sterling terms) (unaudited)

	Comparative index allocation		Herald asset allocation		Performance*			Contribution attributable to:
							Contribution to relative return
Equity Markets	01.01.11	31.12.11	01.01.11	31.12.11	Herald	Comparative Index		Stock selection	Asset allocation†
	%	%	%	%	%	%	%	%	%
UK	66.7	66.7	65.4	68.6	1.5	(13.1)	11.2	11.4	(0.2)
Europe ex. UK	-	-	2.6	2.1	(21.8)	-	(0.3)	-	(0.3)
USA	33.3	33.3	25.5	25.0	(1.8)	(8.0)	1.0	1.6	(0.6)
Asia Pacific ex.   Japan	-	-	6.3	6.9	(16.6)	-	(0.4)	-	(0.4)
Emerging   Markets	-	-	0.4	0.4	5.1	-	0.1	-	0.1
Bonds	-	-	4.2	5.8	9.2	-	0.9	-	0.9
Cash	-	-	8.0	6.8	0.1	-	0.5	-	0.5
Swap	-	-	(1.9)	(4.5)	n/a	-	(3.3)	-	(3.3)
Loans	-	-	(10.5)	(11.1)	1.7	-	(1.5)	-	(1.5)
Total	100.0	100.0	100.0	100.0	(4.1)	(11.2)	8.0	13.2	(4.6)

Past performance is not a guide to future performance.

Source: HSBC

*   The above returns are calculated on a total return basis with net income reinvested.  Dividends and interest are reinvested on a cash basis, unlike the NAV calculation where income is recognised on an accruals basis.  Relative performance may differ as a result.

Contributions cannot be added together, as they are geometric; for example, to calculate how a return of (4.1%) against a comparative index return of (11.2%) translates into a relative return of 8.0%, divide the portfolio return of 95.9 by the comparative index return of 88.8 and subtract one.

†    Asset allocation includes the contribution attributable to currency movements.

Statistics and Performance Report

	At inception 16 February 1994	At 31 December 2010	At 31 December 2011	Performance since 31 December 2010	Performance since inception
NAV per share	98.7p	593.8p	563.7p	(5.1%)	471.1%
Share price	90.9p	483.0p	455.0p	(5.8%)	400.6%
FTSE 100 Index	3,417.7	5,899.9	5,572.3	(5.6%)	63.0%
Hoare Govett Smaller Companies Index plus AIM (capital gains ex. investment companies)	1,750.0	3,650.8	3,101.6	(15.0%)	77.2%
Russell 2000 (small cap) Technology Index (in sterling terms) †	688.7*	957.3	880.9	(8.0%)	27.9%

*       At 9 April 1996 being the date funds were first available for international investment.

†       The Russell 2000 (small cap) Technology Index was rebased during 2009 following some minor adjustments to its constituents.  The rebased index is used from 31 December 2008 onwards.

Comparative index: The portfolio comparative index against which performance is measured is 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 not a guide to future performance.

Portfolio Performance for the 12 months to 31 December 2011

Equity markets	Performance (total return) %
UK	1.5
Europe ex. UK	(21.8)
USA	(1.8)
Asia Pacific ex. Japan	(16.6)
Emerging Markets	5.1
Fixed Interest	9.2

For further information please contact:

Miss Katie Potts, Manager

Herald Investment Trust plc

Tel: [phone]

Baillie Gifford & Co

Secretary

Tel: [phone]

Income statement

The following is the unaudited preliminary statement for the year to 31 December 2011 which was approved by the Board on 14 February 2012. The Directors of Herald Investment Trust plc are recommending to the Annual General Meeting of the Company to be held on 17 April 2012 the payment of a final dividend of 1.00p (2010 - nil) per Ordinary share for the year ended 31 December 2011. 

	For the year ended 31 December 2011 (unaudited)			For the year ended 31 December 2010 (audited)
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
(Losses)/gains on investments	-	(25,012)	(25,012)	-	137,953	137,953
Currency (losses)/gains	-	(66)	(66)	-	347	347
Income (note 3)	9,171	-	9,171	7,277	-	7,277
Investment management fee	(4,752)	-	(4,752)	(3,966)	-	(3,966)
Other administrative expenses	(350)	-	(350)	(299)	-	(299)
Net return before finance costs and taxation	4,069	(25,078)	(21,009)	3,012	138,300	141,312
Finance costs of borrowings	(2,978)	-	(2,978)	(2,816)	-	(2,816)
Net return on ordinary activities before taxation	1,091	(25,078)	(23,987)	196	138,300	138,496
Tax on ordinary activities	(144)	-	(144)	(154)	-	(154)
Net return on ordinary activities after taxation	947	(25,078)	(24,131)	42	138,300	138,342
Net return per ordinary share (note 4)	1.19p	(31.43p)	(30.24p)	0.05p	171.87p	171.92p
Dividend per ordinary share (note 5)	1.00p			Nil

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. No operations were acquired or discontinued during the year.

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.

Balance sheet

	At 31 December 2011 (unaudited)		At 31 December 2010 (audited)
	£'000	£'000	£'000	£'000
Fixed assets
Investments held at fair value through profit or loss		488,689		495,401
Current assets
Debtors	1,947		1,316
Cash and short term deposits	30,021		39,497
	31,968		40,813
Creditors
Amounts falling due within one year (note 6)	(51,001)		(52,715)
Derivative financial instruments (note 6)	(20,357)		(8,937)
	(71,358)		(61,652)
Net current liabilities		(39,390)		(20,839)
Total net assets		449,299		474,562
Capital and reserves
Called up share capital		19,924		19,978
Share premium		73,738		73,738
Capital redemption reserve		2,028		1,974
Capital reserve		350,721		376,931
Revenue reserve		2,888		1,941
Shareholders' funds		449,299		474,562
Net asset value per ordinary share (including income)		563.75p		593.85p
Net asset value per ordinary share (excluding income)		562.56p		593.80p
Ordinary shares in issue (note 7)		79,698,283		79,913,283

Reconciliation of movements in shareholders' funds

For the year ended 31 December 2011 (unaudited)

	Called up share capital £'000	Share premium £000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2011	19,978	73,738	1,974	376,931	1,941	474,562
Net return on ordinary activities after taxation	-	-	-	(25,078)	947	(24,131)
Shares bought back	(54)	-	54	(1,132)	-	(1,132)
Shareholders' funds at 31 December 2011	19,924	73,738	2,028	350,721	2,888	449,299

* Capital reserve as at 31 December 2011 included investment holding gains of £72,225,000.

For the year ended 31 December 2010 (audited)

	Called up share capital £'000	Share premium £000	Capital redemption reserve £'000	Capital reserve* £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 January 2010	20,263	73,738	1,689	243,064	2,142	340,896
Net return on ordinary activities after taxation	-	-	-	138,300	42	138,342
Shares bought back	(285)	-	285	(4,433)	-	(4,433)
Dividends paid in the year	-	-	-	-	(243)	(243)
Shareholders' funds at 31 December 2010	19,978	73,738	1,974	376,931	1,941	474,562

* Capital reserve as at 31 December 2010 included investment holding gains of £119,429,000.

Summarised cash flow statement

	For the year ended  31 December 2011 (unaudited) £'000		For the year ended 31 December 2010 (audited) £'000
Net cash inflow from operating activities		3,547		3,580
Net cash outflow from servicing of finance		(2,935)		(2,823)
Financial investment
Purchase of investments	(89,449)		(77,590)
Sale of investments	80,493		102,455
Net cash (outflow)/inflow from financial investment		(8,956)		24,865
Equity dividend paid		-		(243)
Net cash (outflow)/inflow before financing		(8,344)		25,379
Financing
Bank loans drawn down	25,000		-
Bank loans repaid	(25,000)		-
Shares repurchased	(1,132)		(4,433)
Net cash outflow from financing		(1,132)		(4,433)
(Decrease)/increase in cash		(9,476)		20,946
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash for period		(9,476)		20,946
Movement in net (debt)/funds in period		(9,476)		20,946
Net debt at 1 January		(10,503)		(31,449)
Net debt at 31 December		(19,979)		(10,503)
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		(21,009)		141,312
Losses/(gains) on investments		25,012		(137,953)
Currency losses/(gains)		66		(347)
(Increase)/decrease in accrued income		(307)		279
Decrease/(increase) in other debtors		23		(2)
(Decrease)/increase in creditors		(7)		117
Amortisation of fixed interest book cost		(25)		(19)
Income tax repaid		4		-
Overseas tax suffered		(144)		(154)
Realised currency (loss)/profit		(66)		347
Net cash inflow from operating activities		3,547		3,580

Distribution of assets

	At 31 December 2011 % (unaudited)		At 31 December 2010 % (audited)
Equities:
United Kingdom	59.2		58.2
Continental Europe	1.8		2.3
USA	21.6		22.7
Asia Pacific	6.0		5.5
Emerging Markets	0.4		0.4
Total equities	89.0		89.1
Sterling denominated bonds	3.1		3.8
EUR denominated bonds	1.9		-
Net current assts	6.0		7.1
Total assets (before deduction of bank loans and derivative financial instruments)	100.0		100.0

Notes to the condensed financial statements (unaudited)

1.	The financial statements for the year to 31 December 2011 have been prepared on the basis of accounting policies which are consistent with those set out in the Company's Annual Report and Financial Statements at 31 December 2010. 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.
2.	Related party transactions The Directors' fees for the year are detailed in the Directors' Remuneration Report contained within the Annual Report. No Director has a contract of service with the Company. During the year no Director was interested in any contract or other matter requiring disclosure under the Companies Act 2006. Herald Investment Management Limited is appointed as investment manager under a management agreement which is terminable on twelve months' notice. Their fee is calculated on a monthly rate of 0.08333% of the Company's net asset value based on middle market prices. The management fee is levied on all assets except the holding in Herald Ventures II Limited Partnership managed by Herald Investment Management Limited.
3.	Income			31 December 2011 £'000				31 December  2010 £'000
	Income from investments
	Income from investments and interest receivable			9,171				7,243
	Other income			-				34
				9,171				7,277
4.	Net Return per ordinary share	31 December 2011			31 December 2010
	Revenue return	947			42
	Capital return	(25,078)			138,300
	Total return	(24,131)			138,342
	Net return per Ordinary share is based on the above totals of revenue and capital and on 79,799,598 Ordinary shares (2010 - 80,465,858) being the weighted average number of Ordinary shares in issue during the year. There are no dilutive or potentially dilutive shares in issue.
5.	Ordinary dividends		2011			2010	2011 £'000		2010 £'000
	Amounts recognised as distributions in the year:
	Previous year's final		-			0.30p	-		243
	Set out below are the total dividends payable in respect of the financial year, which is the basis on which the requirements of Section 1158 of the Corporation Tax Act 2010 are considered.  The revenue available for distribution by way of dividend for the year ended 31 December 2011 is £947,000 (2010 - £42,000).
			2011			2010	2011 £'000		2010 £'000
	Amounts paid and proposed in the period:
	Proposed final dividend per ordinary share		1.00p			-	797		-
	If approved, the current year's proposed dividend will be paid on 3 May 2012 to all shareholders on the register at the close of business on 10 April 2012.  The ex-dividend date is 4 April 2012.

6.	The Company has a £50 million multi-currency variable rate loan facility with The Royal Bank of Scotland plc, which comprises two £25 million tranches expiring in May 2013. On 31 May 2011, a £25 million tranche expired and was replaced with a two year £25 million multi-currency variable rate loan facility with The Royal Bank of Scotland plc expiring 30 May 2013. The arrangement fee on this replacement facility was £62,500 which has been written off through finance costs of borrowings. At 31 December 2011, there were outstanding drawings of £50 million (2010 - £50 million). Interest on the loans is payable in quarterly instalments in January, April, July and October. The estimated repayment value of the loan at 31 December 2011 was £50 million. The indicative costs of repaying the loan as at 31 December 2011 were not material in the context of the above figures. The interest on £50 million of this facility has been fixed for the long term through a 30 year interest rate swap but may vary on periodic renewals of the debt facility to the extent that the mark up over LIBOR charged by a lending bank varies. The fair value of the interest rate swap contract at 31 December 2011 was an estimated liability of £20.4 million (2010 - £8.9 million) which was based on the marked to market value.
7.	At the Annual General Meeting in April 2011, Shareholders granted the Company authority to purchase shares in the market up to 11,979,001 Ordinary shares (equivalent to 14.99% of its issued share capital at that date). In the year to 31 December 2011, a total of 215,000 (2010 - 1,140,000) Ordinary shares with a nominal value of £53,750 (2010 - £285,000) were bought back at a total cost of £1,132,000 (2010 - £4,433,000). At 31 December 2011 the Company had authority to buy back a further 11,764,001 Ordinary shares. Under the provisions of the Company's Articles share buy-backs are funded from the capital reserve. The Company does not have any externally imposed capital requirements.
8.	During the period transaction costs on purchases amounted to £424,000 (2010 - £422,000) and transaction costs on sales amounted to £198,000 (2010 - £368,000).
9.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2011.  The financial information for 2010 is derived from the statutory accounts for 2010 which have been delivered to the Registrar of Companies.  The Auditors have reported on the 2010 accounts; their report was unqualified and it did not contain a statement under sections 495 to 497 of the Companies Act 2006.  The audit report for the financial statements for the year ended 31 December 2011 has yet to be signed but it is expected that the statutory accounts for 2011 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.
10.	The Annual Report and Financial Statements will be available on the Managers' website www.heralduk.com† on or around 8 March 2012. None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

†    Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

- ends -

 

END

 

 

FR SFAFEIFESEFE