Annual report & financial statements
31 December 2021
Herald Investment
Trust plc
2021
HeraldIT_AR21_Cover.qxp 22/02/2022 12:57 Page b
Herald Investment Trust’s
objective is to achieve
capitalappreciation through
investments in smaller
quotedcompanies in the
areas oftelecommunications,
multimedia and technology.
Investments may be made across the
world. The business activities of investee
companies will include information
technology, broadcasting, printing and
publishing and the supply of equipment
and services to these companies.
Introductory Highlights
01 Highlights
02 Company Summary
03 Year’s Summary
Investment Report
06 Company Overview
07 Geographical Analysis
08 Chairman’s Statement
10 Investment Manager’s Report
16 Classification of Investments
17 Top 20 Equity Holdings
21 Detailed List of Investments
29 Long-Term Performance
Governance
34
Strategic Report
41 Your Board of Directors
42 Corporate Governance Report
46 Audit Committee Report
48 Directors’ Report
51 Directors’ Remuneration Report
54 Statement of Directors’ Responsibilities
55 Independent Auditors’ Report
Financial Statements
64 Income Statement
65 Balance Sheet
66 Statement of Changes in Equity
67 Cash Flow Statement
68 Notes to the Financial Statements
80 Notice of Annual General Meeting
82 Appendix
84 Further Shareholder Information
86 Alternative Performance Measures
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01
Herald Investment Trust plc
Annual report & financial statements 2021
INTRODUCTORY HIGHLIGHTS
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
2,800
3,000
3,200
20212019201720152013201120092007200520032001199919971995
29.4
22.3
17.7
14.2
12.9
–8.9
–8.1
–8.0
–4.8
–4.4
HIGHLIGHTS
NAV AT 31 DECEMBER 2020
£1,503.4m
NAV AT 31 DECEMBER 2021
£1,760.9m
TOTAL RETURN
IN 2021
£280.4m –£22.9m
+ =
SHARE BUYBACKS
IN 2021
TOTAL RETURN SINCE INCEPTION
(FIGURES HAVE BEEN REBASED TO 100 AT 16 FEBRUARY 1994)
Source: Refinitiv
A Alternative Performance Measures - see page 86.
NET ASSET VALUE (NAV)
A
PER SHARE 31 DECEMBER 2021
£27.19
CHANGE IN NAV
A
PER SHARE IN 2021
+19.0%
TOTAL NAV RETURN
SINCE INCEPTION
+2,868.9%
Next Fifteen
Communications
Fully diluted NAV
Share price
Numis Smaller Companies plus AIM
(excluding investment companies)
Index
Russell 2000® Technology Index
(small cap) (in sterling terms)
GB Group
TOP 5 LOSERS TOP 5 WINNERS
TOP FIVE WINNERS AND LOSERS 2021
TOTAL GAIN/(LOSS) IN 2021 IN STERLING TERMS (MILLIONS)
LivePerson
Pegasystems
Bandwidth
IQE
Silicon Motion Technology
Esker
Nordic Semiconductor
Future
HeraldIT_AR21_pp01-31.qxp 22/02/2022 13:01 Page 01
INTRODUCTORY HIGHLIGHTS
02
Herald Investment Trust plc
Annual report & financial statements 2021
COMPANY SUMMARY
Company data at 31 December 2021
POLICY AND OBJECTIVE
Herald Investment Trust’s (Herald or the Company) objective is to achieve capital
appreciation through investments in smaller quoted companies in the areas of
telecommunications, multimedia and technology (‘TMT’). Investments may be made
across the world. The business activities of investee companies will include
information technology, broadcasting, printing and publishing and the supply of
equipment and services to these companies. The Company’s investment policy is
contained within the strategic report on page 34.
COMPARATIVE INDICES
The portfolio comparative indices are the Numis Smaller Companies plus AIM
(ex.investment companies) Index in the UK and the Russell 2000® Technology Index
(small cap) (in sterling terms) in the US. Though we consider these indices to provide
reasonable bases for measuring the Company’s performance, the portfolio is not
modelled on them and outcomes may diverge widely.
MANAGEMENT DETAILS
Herald Investment Management Limited (‘HIML or the manager’) is the appointed
investment manager to the Company. The management contract can be terminated
at 12 months’ notice. Administration of the Company and its investments is delegated
to The Bank of New York Mellon (International) Limited (BNYMIL) and company
secretarial duties to Sanne Fund Services (UK) Limited (Sanne) (formerly known as
PraxisIFM Fund Services (UK) Limited).
CAPITAL STRUCTURE
The Company’s share capital consisted at 31 December 2021 of 64,754,112 ordinary
shares of 25p each which are issued and fully paid. The Company has been granted
authority to buy back a limited number of its own ordinary shares for cancellation.
During the year 1,029,306 ordinary shares were bought back and cancelled. The
directors are seeking to renew this authority at the forthcoming annual general
meeting (‘AGM’).
MANAGEMENT FEE
HIML’s annual remuneration is 1.0% of the Company’s net asset value (excluding
current year revenue) based on middle market prices on the first £1.25bn and 0.8%
thereafter, calculated on a monthly basis, payable in arrears.
CONTINUATION VOTE
At the AGM of the Company held in April 2019, shareholders voted in favour of the
Company continuing to operate as an investment trust. The board will put the
continuation vote to shareholders at the forthcoming AGM on 19 April 2022 and every
third year thereafter.
AIC
The Company is a member of the Association of Investment Companies.
LEGAL ENTITY IDENTIFIER (‘LEI’)
An LEI is a 20-digit code which allows entities involved in financial transactions to be
identified. This is a global transparency measure endorsed by the G20. The Company’s
LEI is: 213800U7G1ROCTJYRR70
ALTERNATIVE PERFORMANCE
The alternative performance measures used in the annual report and financial
MEASURES
statements are described on pages 86-87.
None of the views expressed in this document should be construed as advice to buy or sell a particular investment.
Investment trusts are UK public listed companies and as such are required to comply with the listing rules of the UK Listing Authority, which is a division
of the Financial Conduct Authority.
SHAREHOLDERS’ FUNDS
£1,761m
MARKET CAPITALISATION
£1,622m
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03
Annual report & financial statements 2021Herald Investment Trust plc
90
95
100
105
110
115
120
125
Dec 21Nov 21Oct 21Sep 21Aug 21Jul 21Jun 21May 21Apr 21Mar 21Feb 21Jan 2131 Dec 20
YEAR’S SUMMARY
1 YEAR CHART OF NAV, SHARE PRICE AND COMPARATIVE INDICES – CAPITAL RETURN
(FIGURES HAVE BEEN REBASED TO 100 AT 31 DECEMBER 2020)
Fully diluted NAV
Share price
Numis Smaller Companies plus AIM
(excluding investment companies)
Index
Russell 2000® Technology Index
(small cap) (in sterling terms)
Source: Refinitiv
31 December 31 December
2021 2020 % change
Total net assets £1,760.9m £1,503.4m
Shareholders’ funds £1,760.9m £1,503.4m
Net asset value per ordinary share
A
2,719.3p 2,285.3p +19.0
Share price
A
2,505.0p 2,245.0p +11.6
Numis Smaller Companies plus AIM (ex. investment companies) Index (capital only) 7,116.5 6,040.0 +17.8
Russell 2000® Technology Index (small cap) (in sterling terms) (capital only)
B
5,340.9 4,637.0 +15.2
Dividend per ordinary share – –
Loss per ordinary share (revenue) (8.33p) (6.00p)
Ongoing charges
A
1.02% 1.08%
Discount to NAV
A
7.9% 1.8%
Year to 31 December 2021 2021 2020 2020
Year’s high and low High Low High Low
Share price 2,630.0p 2,045.0p 2,265.0p 897.0p
Net asset value
A
per ordinary share 2,849.1p 2,285.0p 2,288.6p 1,238.3p
Discount
A
16.8% 1.8% 28.8% 1.0%
At 31 December 2021 2020
(Loss)/profit per ordinary share
Revenue (8.33p) (6.00p)
Capital 439.51p 614.30p
Total 431.18p 608.30p
A Alternative Performance Measure - see page 86.
B Investments and indices valued at USD/GBP exchange rate of 1.354 at 31 December 2021 (1.368 at 31 December 2020).
® Russell Investment Group.
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INVESTMENT REPORT
04
Annual report & financial statements 2021Herald Investment Trust plc
Investment
Report
06 Company Overview
07 Geographical Analysis
08 Chairman’s Statement
10 Investment Manager’s Report
16 Classification of Investments
17 Top 20 Equity Holdings
21 Detailed List of Investments
29 Long-Term Performance
HeraldIT_AR21_pp01-31.qxp 22/02/2022 13:01 Page 04
KATIE POTTS
05
Herald Investment Trust plc
Annual report & financial statements 2021
On balance we remain confident that
the correction will prove a good
buyingopportunity, because we
expectthat end consumer demand
forthe products and services of the
Company’s investee companies is
likelyto remain robust.
HeraldIT_AR21_pp01-31.qxp 22/02/2022 13:01 Page 05
WHAT WE DO
HISTORY
OF THE COMPANY
INVESTMENT REPORT
06
Herald Investment Trust plc
Annual report & financial statements 2021
COMPANY OVERVIEW
Achieving
capital growth
Herald invests, generally on a long-term
basis, using fundamental analysis. The
telecommunications, multimedia and
technology sectors globally comprise over
5,000 quoted companies, and many more
unquoted.
The manager focuses on investment
within the telecommunications,
multimedia and technology sector.
Focus on the sector enables a
significant degree of cross-referencing
across competitors, customers and
suppliers globally. Using this
mosaic of information and industry
knowledge combined with strong
financial analysis, we endeavour to add
value. The evolving nature of
technology means there is a wide
divergence of performance between
winners and losers, but the winners can
be spectacular.
WHAT WE DO
Analysis entails a prolific number of
meetings with companies, either at
Herald’s office, virtually, through site
visits or at conferences globally, as well
as broker-hosted meetings. In addition,
Herald relies on independent industry
research and published company filings
statements, presentations, websites
and broker research.
The Company has consistently invested
in early stage companies, often
providing primary development capital,
then holding investments for long
periods, regularly providing further
capital when needed.
Many of these holdings have a high
stock specific risk and the Company
aims to offer investors a low risk way to
gain exposure to these exciting
opportunities through broad
diversification in the number of
holdings and the maturity of the
businesses.
HISTORY OF THE COMPANY
The Company was established in 1994
raising £65m to invest in UK and
European smaller TMT companies. In
1996 a further £30m was raised to
globalise the fund with the recognition
that TMT is a global sector and
cross-referencing across geographies is
a prerequisite for investing within the
sector. Since 1996 no further capital has
been raised, but share repurchases
totalling £186m have been made.
Over the history of the Company the
NAV per share, on a total return basis,
has compounded at an annualised rate
of 12.9%.
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Herald Investment Trust plc
Annual report & financial statements 2021
GEOGRAPHICAL RETURNS
TIME WEIGHTED RETURN BY GEOGRAPHY YEAR ENDED 31 DECEMBER 2021*
(STERLING, PERCENT)
GEOGRAPHICAL SPREAD OF EQUITY INVESTMENTS AT 31 DECEMBER 2021
†
UK
North America
EMEA
Asia Pacific
46.8
10.9
22.7
19.4
0% 10% 20% 40%30% 50%
UK
North America
EMEA
Asia Pacific
63.0
39.5
163.7
30.8
0 50 100 150 200
GEOGRAPHICAL ANALYSIS
* Costs including those of borrowing are accounted for at Company level.
† As a percentage of total assets.
CONTRIBUTION TO EQUITY INVESTMENT APPRECIATION YEAR ENDED 31 DECEMBER 2021*
(STERLING, MILLIONS)
NORTH
AMERICA
22.3%
2020: 24.4%
UK
47.7%
2020: 49.3%
EMEA
11.4%
2020: 8.6%
ASIA
11.8%
2020: 10.1%
HeraldIT_AR21_pp01-31.qxp 22/02/2022 13:02 Page 07
INVESTMENT REPORT
08
Herald Investment Trust plc
Annual report & financial statements 2021
Good progress in
amixed market
I am delighted to report another year of excellent progress
with the net asset value per share appreciating 19.0%. There
has been rotation in the performance of the portfolio, with
some of the star performers in 2020 ceding some of their
gains, and other holdings enhancing theirs. The media sector
accounted for only 13.3% of net assets at the start of the year
and contributed one third of the overall return, delivering
54.8% mainly in the UK; but the largest sector, software,
which accounted for 36.3% of the Company’s net assets at
the start of the year delivered a return of only 7.2%. Many
stocks in this sector had become too expensive and a
correction is wholesome and reduces the overall risk in the
portfolio. The semiconductor sector also had a very strong
year with well-publicised capacity shortages providing
unprecedented pricing power.
YE Market Value Total return % of total
2021 £m £m net assets 2021 IRR
Media 255.8 100.0 14.5% 54.8%
Semiconductors 153.5 51.3 8.7% 45.2%
Technology Hardware 219.8 44.8 12.5% 26.7%
Software 600.2 39.3 34.1% 7.2%
Technology Services 153.3 28.4 8.7% 23.7%
Total main sectors 1,382.6 263.8 78.5%
YE Market Value Total return Movement
2021 £m £m in NAV
Total Company 1,760.9 280.4 19.0%
The UK equity investments now account for 47.7% of net
assets (down from 49.3% at the end of 2020). The UK return of
23.3% was ahead of the Numis Smaller Companies plus AIM
(ex.investment companies) Index whose total return
was20.0%. The board considers this result to be satisfactory
given that the technology sectors lagged the index as a whole.
The North American equity portfolio now accounts for 22.3%
of net assets. It returned 11.0%, which lagged the Russell
2000® Technology Index by 4.2%. This small cap index itself
returned dramatically less than the Russell 1000® Technology
Index, which returned 38.3% in sterling terms. Furthermore,
companies too small to be included in the Russell 2000®
Technology Index have performed even more poorly.
There is a perception that it has been a bull market for
technology stocks. This is indeed true for the likes of
Microsoft, Apple and Alphabet and the semiconductor
companies, but there has been a bear market in software
companies with the Bloomberg Software Sector for small
cap stocks (between $100m and $3bn) delivering a median
return of –16.3% for North America. Unfortunately, software
was the heaviest weighting in our portfolio, although some
judicious profit-taking limited the damage. There had
evidently been unrealistic momentum in the software sector
and valuations had become too stretched, particularly in light
of the significant dilution in this sector from stock-based
compensation. Often, revenue growth has been favoured
over profitability and the outperformance we have delivered
in this sector and this year reflects the value the Manager
places on management teams who take a balanced view of
profits and growth.
The EMEA (Europe, Middle East and Africa) portfolio has
delivered an exceptional performance during 2021 returning
46.3% in sterling terms. The three largest holdings - Nordic
Semiconductor, Esker and BE Semiconductor - all performed
well. The weighting in this region has risen significantly to
11.4% from 8.6% at the end of 2020, usefully assisting us in
maintaining appropriate geographical diversification.
The Asian return was 19.0%. Whereas in the UK the return
was dominated by media stocks, in Asia the strong
performance resulted from technology hardware and
semiconductors, mainly in Taiwan. In fact, Taiwan delivered
aremarkable return of 89.8% due in large part to heavily
publicised supply-chain issues which clearly benefited some
companies in the portfolio. It is difficult to tell how much
inventory building has flattered demand and we might well
expect to see some unwinding of this outperformance in the
coming year. The Asian equity element of the portfolio has
grown to 11.8% from 10.1% of the Company’s net assets at
the end of 2020.
Much of the technology
sector has become
non-discretionary spend for
consumers, businesses and
governments alike, in spite
of geopolitical and
economic uncertainties we
believe demand is likely to
remain robust.
TOM BLACK, CHAIRMAN
CHAIRMAN’S STATEMENT
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Herald Investment Trust plc
Annual report & financial statements 2021
The portfolio is, of course, focused on growth companies,
and only a subset of the portfolio pays a dividend.
Nonetheless, such income is welcome, and I am pleased to
report that the net dividends received by the Company grew
by 41.3% from the previous year although, as noted last year,
they were heavily depressed in 2020 by lockdown
uncertainty. Nonetheless, dividends have still appreciated
14.8% from pre-Covid 2019.
We continue to buy back our own shares opportunistically
and 1,029,306 shares were bought back during the year for
cancellation at a cost of £22.9m which equates to 1.6% of the
outstanding capital as at 31 December 2020.
ESG (environmental, social and governance) has continued
to be a focus of attention during the year. Herald Investment
Management’s 2020 Stewardship Report was approved by
the Financial Reporting Council. This was a significant
achievement given that many higher profile names were not
awarded the same accolade. The renewable energy elements
of the portfolio had a very strong year in 2020 and ceded
some of those gains in 2021, but we remain interested in a
plethora of companies innovating to generate, store and save
renewable energy. In discussions with numerous investee
companies, we have learnt that their ESG efforts consume
considerable resources, and therefore represent amaterial
expense for shareholders, for the benefit of the wider society.
We remain concerned that the ever-increasing wave of
regulation in all its various forms has become a disincentive
for companies to raise new capital via the public markets,
whilst others are tempted by funds from private equity where
the r
egulatory burden is lighter.
The AGM will be held on the 19 April 2022 and we expect to
r
eturn to the normal practice of welcoming shareholders in
person. This is, of course, subject to government restrictions.
This will be my first AGM as chairman and it will be a great
pleasure to hold this meeting under more normal
circumstances. I would like to take this opportunity to
mention my predecessor as chairman, Ian Russell, and to
thank him sincerely for his contribution to the Company.
Thisparticular AGM provides shareholders with an
opportunity to vote on the continuation of the Company, as
the articles of association require every third year. The board
has also carried out a review of our articles to ensure that
they reflect current best practice and legislative changes and
a number of modifications are proposed as a result.
Yourboard strongly recommends that shareholders vote in
favour of both the continuation resolution and the changes
to the articles.
2021 has been a mixed year with an unusually small
proportion of the portfolio delivering the returns. More
positively we are pleased that the portfolio has proved
resilient through the second year of Covid. The Net Asset
Value per share has appreciated 63.0% over the two years
affected by the pandemic. Furthermore, Bloomberg
estimates of the P/E (price to earnings) of the portfolio has
only increased by atenth over the two years and has actually
declined a little over the last year. This NAV increase reflects
takeover premiums, earnings growth, and the highly rated
software sector being usefully rerated, while more modestly
rated stocks have appreciated as a proportion of the whole.
Thisprovides a more solid base from which to go forward.
The fact that we have managed to operate relatively normally
during the Covid period is due in large part to the dedication
of the Herald Investment Management team. There have
been many examples of team members going beyond what
could have been reasonably expected and I am immensely
grateful to them for their support during this difficult period.
As ever there is much to worry about geo-politically with
uncertainties in Russia/Ukraine, China/Taiwan/US and the
US/Iran of particular concern. Added to these, this year we
have the new challenge of soaring energy prices which,
when combined with supply-chain inflation, and inevitable
fiscal tightening, seems bound to put pressure on consumer
spending. However, much of the technology sector has
become non-discretionary spend for consumers, businesses
and governments alike and we still see strong growth
prospects in our chosen sector. This, combined with the
quality of the companies in the portfolio, means that your
board remains optimistic about our future prospects.
TOM BLACK
CHAIRMAN
21 February 2022
0
500
1,000
1,500
2,000
2,500
3,000
2017 2018 2019 2020 2021
1,374.9
1,307.9
1,668.1
2,285.3
2,719.3
NET ASSET VALUE PER SHARE
(PENCE)
0
5
10
15
20
25
30
2017 2018 2019 2020 2021
SHARE BUYBACKS
(STERLING, MILLIONS)
HeraldIT_AR21_pp01-31.qxp 22/02/2022 13:02 Page 09
INVESTMENT REPORT
10
Herald Investment Trust plc
Annual report & financial statements 2021
0
20
40
60
80
2017 2018 2019 2020 2021
PLACINGS AND IPOs
(STERLING, MILLIONS)
0
100
200
300
400
500
600
2017 2018 2019 2020 2021
AIM HOLDINGS
(STERLING, MILLIONS)
It is a relief to report another record year-end net asset value
after another challenging year. The more time goes by, the
more challenging the lack of interaction in person with
companies becomes. That said, video conferencing has been
a wonderful tool, which has proved satisfactory for providing
updates with management we know well, and I am sure it
will be heavily-used going forwards. During the year we had
c.1,200 video calls with investee and potential investee
companies. Nevertheless, without face-to-face meetings, it
is more challenging to get to know new companies, and to
integrate new members of staff. The informal spontaneous
dialogues over the desk in the office are much missed as
well. It is still unclear how much working habits will change
longer term, but it seems inevitable that hybrid working will
persist, which entails a permanently expanded IT
infrastructure.
The quantitative easing and loose fiscal policies across the
globe have helped keep economies buoyant this year while
supply chain issues and a tight labour market have been
recurring discussion points. In the technology sector wage
inflation and high stock compensation have been perennial
issues, but hardware inflation is a new challenge. It is difficult
to discern which companies will disappoint as a result of
supply-chain issues reducing the ability to deliver revenues,
and we do not know for sure which are actually benefiting
from new-found pricing power. Furthermore, by how much
is demand inflated by companies building inventory
throughout the supply-chain, implying only temporary extra
demand in 2021? Certainly, the semiconductor and
technology hardware stocks have delivered powerful returns
during the year in terms of share performance.
INVESTMENT MANAGER’S REPORT
It is a relief to report
another record year-end
net asset value after
another challenging year
of Covid, supply chain
issues and a tight labour
market
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11
Herald Investment Trust plc
Annual report & financial statements 2021
The renewable energy sector was a star performer in 2020
with total gains of £45.7m led by ITM Power, but there was
anegative return of £12.3m in 2021, which would have been
worse had substantial gains not been realised. The desire to
reduce carbon emissions, which is being progressively
enshrined in legislation at varying speeds in different
jurisdictions, is clearly of huge economic significance.
Thesector became too fashionable in 2020, and valuations
have corrected, but it continues to be a dynamic space. We
regularly see companies wishing to raise capital arguing they
have a unique innovation. Renewable energy generation,
principally wind and solar, has reached a mature stage, but
energy storage remains a problem to be solved.
The most disappointing sector has been software, which was
34.1% of net assets at the year end. Within the portfolio the
software companies only returned 7.2%, but the basket of
companies in the Bloomberg software sector with a market
capitalisation between $100m and $3bn at the year-end
delivered a median return of –1.2% in sterling terms. We have
felt uncomfortable with valuations in this subsector,
particularly those with a SAAS (software-as-a-service) model
which often had poor profitability but were being valued on
ever-increasing multiples of revenues. If last year the
frustration was that we had reduced positions too early, this
year’s frustration is that we should and could have taken
profits more aggressively. Nevertheless, it is reassuring that
there has been a useful correction as this gives us more
confidence that fundamentals will win out over time.
UK
0
5
10
15
20
25
30
35
Next Fifteen
Communications
Future Diploma YouGov Audioboom
TOP 5 WINNERS BY REGION – UK
(IN STERLING £M)
The UK return was 23.3% but with markedly divergent returns
between stocks and sub-sectors. Last year the UK
performance was enhanced by a return of 829.2% (£38.3m)
from the renewable energy sector, mainly ITM Power; this
year the renewable sector returned –29.6% (–£8.9m). This
was more than offset by a broadly-based return from the
media sector of 66.1% (£94.3m). The star performer was Next
Fifteen which appreciated 159.5% or £29.4m by value. Ithad
been the biggest loser in the portfolio in H1 2021 and
Iremember being relieved, during the uncertainty of Covid,
that if Next Fifteen was our biggest problem we have not had
too much damage. The best percentage return however
came from Audioboom +446.0% which equated to £10.1m.
They specialise in podcasts with advertising as the main
revenue source. Future and YouGov also contributed
strongly.
The worst performing stock in the UK and the whole
Company in sterling terms was GB Group. It has been a
wonderful long-term performer but had become expensive,
though we had already realised gains of £9.7m in 23 trades
over the last two years. The challenge of the UK market is
poor liquidity, and we can only manoeuvre with difficulty.
When GB Group attempted to undertake a large fundraising
to fund a major acquisition, the shareholder register was in
poor shape to support it. While we are supportive long-term
shareholders the scale was too large, given our heavy
weighting, to offer more than a gesture of support. In the
end £305m was raised at a heavily discounted rate. There is
clearly indigestion following this placing and the shares may
be dull for a while. Although there are many interesting
UKcompanies there are insufficient institutional investors in
the small market capitalisation arena and insufficient liquidity,
which means we have continued to gently reduce our
UKweighting. A further £57.5m of sales less purchases was
withdrawn during the year. It now means that the net cash
cost of the UK portfolio, which is valued at £839m is negative
£269m: i.e. We have withdrawn more cash from the
UKportfolio than has ever been invested, by a considerable
margin.
REGIONAL ALLOCATION CHANGES
(STERLING THOUSANDS)
Valuation at Net Valuation at
31 December acquisitions/ Appreciation/ 31 December
2020 (disposals) Amortisation (depreciation) 2021
Equities*
UK 740,637 (57,654) – 156,483 839,466
EMEA 128,872 10,742 – 61,630 201,244
North America 366,703 (13,036) – 38,524 392,191
Asia Pacific 151,945 27,403 – 28,985 208,333
Total equities 1,388,157 (32,545) – 285,622 1,641,234
Government bonds 42,426 87 2 (267) 42,248
Total investments 1,430,583 (32,458) 2 285,355 1,683,482
Net liquid assets 72,784 4,145 – 466 77,395
Total assets
+
1,503,367 (28,313) 2 285,821 1,760,877
* Equities includes convertibles and warrants.
+ The total assets figure comprises assets less current liabilities.
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Annual report & financial statements 2021
INVESTMENT MANAGER’S REPORT CONTINUED
The table below summarises the 2021 UK equity returns:
YE Market Value Total return % of total
£m £m region 2021 IRR
Media 211.1 94.3 25.1% 66.1%
Semiconductors 14.7 –4.5 1.8% –18.9%
Technology Hardware 96.9 18.1 11.5% 22.8%
Software 247.3 20.2 29.5% 9.2%
Technology Services 91.2 15.9 10.9% 20.7%
Total main sectors 661.2 144.0 78.8%
Total UK region 839.5 163.7 23.3%
In the technology sectors Seeing Machines, Kainos, Idox,
discoverIE and SDI all delivered good returns, and the overall
performance was solid.
There are c400,000 top-rate taxpayers in the UK who pay
c£60bn in tax. I have always believed that many economic
challenges would be alleviated if top-rate taxpayers paid
twice as much tax, but not by doubling the rate but by
doubling the number of top-rate tax payers. We are
confident that we have positively contributed by providing
£501m in primary capital to UK companies (including £38.2m
in 2021), which has generated well paid jobs and millionaires,
and simultaneously created value for shareholders.
The £164m total return in 2021 has increased the total return
cumulatively since inception in 1994 to £1.23bn from the
UKportfolio, with a further £798m from overseas markets.
Ifurther observe that since 1 July 1996, when the Company
globalised its investment remit, the total return of the
Company’s shares has been 1,734.5% whereas the total
return of the Russell 2000® Technology Index (small cap)
has been only 674%, so outperformance exceeds 1,000%.
Whilst the US has been good at scaling the exceptional
mega-caps, over the long term our UK returns have been
considerably higher than those in the US. Nevertheless, in
recent years the overseas markets have outperformed the
UK, in part because valuations have been rerated more,
which reflects the fact that capital has been sucked out of
the UK. We remain of the view that there remains an
entrepreneurial culture in the UK, but the smaller companies
market is suffering from a shortage of institutional capital and
hence liquidity.
We believe that, in part, this shortage stems from
over-regulation and that the UK regulatory environment
needs to balance the fact that it is in the country’s and
consumers’ interests to have a strong economy which
requires letting investors make higher-risk investments,
sometimes profitably and sometimes not.
North America
0
3
6
9
12
15
Silicon Motion
Technology
Radware Descartes
Systems
Fabrinet Mimecast
TOP 5 WINNERS BY REGION – NORTH AMERICA
(IN STERLING £M)
North America remains the second largest region, and again
we have purposefully withdrawn net cash - only £13m in
2021 but £79m over three years. This reflected our concerns
that valuations were unrealistically high, particularly in the
software sector. In fact, we have withdrawn net cash of
£38m from the software sector over two years. Nevertheless,
we could have done more. In the basket of software
companies with a market capitalisation between $100m and
$3bn at the year-end as defined by Bloomberg the North
American component performed worse than those from rest
of the globe with a median return of –16.3%, so at least profit
taking protected some returns, while our endeavours to
focus on better value has also contributed to a positive return
of 2.1%.
North America returned 11.0%. Performance is a little behind
the Russell 2000® Technology Index (small cap), the worst
performers by value being LivePerson (–£8.1m), Bandwidth
(–£4.8m) and Pegasystems (–£4.4m). These had been star
performers in 2020 but ceded half of last year’s returns. The
North American portfolio outperformed the Russell 2000®
Technology Index last year by c17%, and in hindsight we
should have banked more profit in some of the momentum
stocks. On the other hand, three stocks delivered returns of
over 100%, Everspin Technologies, Thryv and long held
Silicon Motion Technology.
The Bloomberg basket also delivered double figure negative
weighted average returns for media stocks and technology
services.
The table below summarises the 2021 North American equity
returns:
YE Market Value Total return % of total
£m £m region 2021 IRR
Media 11.2 3.8 2.9% 37.0%
Semiconductors 51.1 15.9 13.0% 44.2%
Technology Hardware 70.5 12.9 18.0% 23.5%
Software 214.3 4.4 54.6% 2.1%
Technology Services 15.1 –0.1 3.9% –0.9%
Total main sectors 362.2 36.9 92.4%
Total North America
region 392.2 39.5 11.0%
The semiconductor sector delivered the best returns for the
Company and for the Bloomberg basket. They were more
sensibly priced, they tend not to suffer such egregious
dilution from stock-based compensation as we see in
software companies, and widely publicised capacity
shortages have given pricing power.
The divergence between the performance of the Russell
1000® Technology Index and the Russell 2000® Technology
Index (large companies and small companies respectively)
has continued. Over the last 5 years the large market
capitalisation index has returned 269.5% and the small cap
index only 134.7%. The drivers have obviously been Microsoft,
Apple, Alphabet and Meta (formerly Facebook), which have
been exceptional. Nevertheless, over 5 years our North
American portfolio has delivered an IRR of 210.5% which
iswell ahead of the Russell 2000® Index (small cap) in
NorthAmerica.
For many years, the number of smaller quoted companies on
the US market has fallen with the burdensome costs of
Sarbanes-Oxley, and the growth of private capital. We are
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Annual report & financial statements 2021
delighted to see a reversal of this trend in 2021, albeit many
companies have listed through SPACs: Special Purpose
Acquisition Vehicles. We have avoided these at IPO, because
it is difficult to undertake appropriate due diligence, but no
doubt some of them will be interesting investments when we
have a chance to get to know them.
EMEA
EMEA has returned 46.3%, which is pleasing. The top three
long-held holdings returned £39.0m or 61.9% of the EMEA
return. However, all the other holdings, many of which are
new, collectively returned 26.4%. The European portfolio has
capitalised on the strong semiconductor market more than
any other region.
The table below summarises the 2021 EMEA equity returns:
YE Market Value Total return % of total
£m £m region 2021 IRR
Media 13.1 2.8 6.5% 29.4%
Semiconductors 55.0 26.1 27.3% 78.8%
Technology Hardware 14.6 2.4 7.3% 17.8%
Software 79.9 19.1 39.7% 34.2%
Technology Services 22.8 8.7 11.3% 69.7%
Total main sectors 185.4 59.1 92.1%
Total EMEA region 201.2 63.0 46.3%
Even the software sector performed well in Europe led by
Esker, which seemed much more sensibly valued than Coupa
– a US company in a similar market, whose share price has
more than halved from the peak levels seen in February
lastyear.
Asia
Asia delivered a solid performance of 19.0%, which follows
the exceptional 60.7% Asia return in 2020. Again, there have
been disparate performances by country and sector.
0
5
10
15
20
Nordic
Semiconductor
Esker BE
Semiconductor
Industries
Adesso ADVA Optical
Networking
TOP 5 WINNERS BY REGION – EMEA
(IN STERLING £M)
0
2
4
6
8
Momo Mainstream E Ink WiseTech
Global
Realtek
Semiconductor
TOP 5 WINNERS BY REGION – ASIA
(IN STERLING £M)
In 2020 Kingdee International Software in Hong Kong and
the Japanese holdings were the stars, with the latter rising
63.3%. Following such strong performance in Japan in 2020,
valuations had become stretched, particularly for
high-growth internet and software companies. This year has
seen a significant derating in Japan with the Japanese
portfolio falling 18.3% in sterling terms. The Yen’s weakness
was also a negative contributor to these Japanese returns
with a 9.4% fall in 2021 putting it close to a five year low
against sterling. The leading Japanese small cap index - the
Mothers Index - had a terrible year declining over 25% in
sterling terms. In contrast to Japan, the Taiwan portfolio has
again excelled with a return of 89.8% delivering the majority
of the region’s profits with the largest individual contributions
from Momo (£7.5m) and E Ink (£5.5m). Taiwan is obviously at
the centre of the hot semiconductor and technology
hardware sectors. Australia returned 19.3% with the dominant
contribution due to the takeover of Mainstream (£5.6m) at a
substantial premium.
Given the current excess of demand over supply for
technology hardware and semiconductors, companies
havebeen able to push through price increases to customers
to an almost unprecedented extent. This is a significant shift
from the generally deflationary environment of the past,
which many Asian hardware companies have faced.
Priceinflation can be transformative on the reported financial
profitability of such low margin, fixed asset and
working-capital-intensive businesses.
The prospect of increasing inflation and rising interest rates
has also caused investors to reassess the appropriate
valuation multiples of high multiple, long duration
investments across the globe. In combination these factors
have led to significant rotation away from high multiple
“growth” companies to those that are benefitting from rising
prices of hardware. This shift in perception was particularly
evident in Asian markets in the latter part of the year and the
pattern seems set to be maintained in the short term. The
longer-term outlook for inflation and interest rates is
uncertain.
The geopolitical “war” between China and the US continues,
with the finance and technology sectors remaining key fronts
in the “battle”. Governments globally have recognised the
strategic importance of their technology sectors and, in
particular, the role of semiconductors by supporting the
localisation of semiconductor fabrication plants. There are
hundreds of billions of dollars of capex planned over the next
few years to localise and increase the output of
semiconductors. Whether or not this capex will in time
reverse the current supply-demand imbalance will have
profound implications. The value of our holdings with direct
exposure to China/ Hong Kong is relatively low at less than
£20m, but the two largest holdings of Kingdee International
Software and 51job both detracted from performance in the
year. In general, the US-listed ADRs of Chinese companies
had a terrible year. The SEC (US regulator) is planning a new
law that mandates foreign companies to open their books to
US audit scrutiny or risk being delisted from the New York
Stock Exchange and Nasdaq within three years. The risks and
opacity of the VIE (Variable Interest Entity) structure used by
such ADRs has been reflected in lower share prices. 51job is
the only US-listed Chinese ADR holding within the portfolio
and in theory is being taken private by the founders with the
backing of Chinese private equity at a price of $79 per ADR,
this being a 61% premium to the price at the year end which
reflected the uncertainty of the takeover completing in
thecurrent environment.
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Annual report & financial statements 2021
We retain our caution about investing in Chinese companies,
due to the governance risks and political and regulatory
uncertainties. Political tensions are also increasing between
China and Taiwan with increased “sabre-rattling” evident. It is
somewhat surprising how well the Taiwanese market has
performed given this political backdrop.
Asia continues to lag the US and Europe in terms of
technology adoption. However, the small company stock
markets in the region remain dynamic and continue to
finance small quoted technology companies which can
benefit from increasing technology usage across the region.
The table below summarises the 2021 Asian equity returns:
YE Market Value Total return % of total
£m £m region 2021 IRR
Media 20.4 –0.9 9.8% –4.8%
Semiconductors 32.7 13.8 15.7% 65.8%
Technology Hardware 37.8 11.4 18.1% 54.8%
Software 58.7 –4.4 28.2% –7.9%
Technology Services 24.2 3.9 11.6% 23.3%
Total main sectors 173.8 23.8 83.4%
Total Asia region 208.3 30.8 19.0%
Takeovers
The takeover of a further 21 holdings were announced in
2021 with an aggregate value of c.£103m. This is a somewhat
lower percentage of the portfolio than usual, but Covid did
put the brakes on corporate activity, and it seems private
equity has only gradually recovered confidence. The largest
takeovers of Avast, Mimecast and Bottomline Technologies
have yet to complete. There have been three in Asia -
Mainstream, 51job and Rhipe. Private equity has continued to
acquire businesses such as Mimecast and Bottomline, where
they can use efficient capital structures and low-cost debt
and operate to a lower regulatory burden.
0
20
40
60
80
100
120
2017 2018 2019 2020 2021
TAKEOVERS
(STERLING, MILLIONS)
Economic Background
The market is watching inflation, and rationally envisaging
interest rate rises although it is for debate when rises will
occur. There has been media discussion that this is adverse
for the technology sector. Certainly, rising interest rates are
aheadwind for stock markets in general, but we do not
believe that the sector will be at the eye of the storm. In
public markets there is rarely financial leverage on the
balance sheets of TMT stocks, so no direct impact. Much
technology expenditure is effectively a rental model, with
capital expenditure undertaken by the large datacentre
companies like Microsoft Azure and Amazon web services,
making it less exposed to interest rate levels. Thirdly, the best
sectors in an inflationary environment are those with
negative working capital, such as food retailers, where the
customer pays at the till, and suppliers are paid 90 days later.
Much of the TMT sector has minimal exposure to heavy
working capital. Theone headwind is that future earnings
have to be discounted at a higher rate, and stocks with
ratings discounting high future growth have greater scope
for P/E compression. We have tended to be averse to
companies discounting too many years’ growth with or
without inflation.
Outlook
The technology sector has started 2022 with a sharp
correction although this has been skewed to the most
highly-rated stocks. There are evident headwinds to
corporate profitability from rising costs - wage inflation, tax
rises and ESG - but these issues will affect all sectors, and
rising interest rates will be a bigger headwind for the bond
market than they will for equities. On balance we remain
confident that the correction will prove a good buying
opportunity, because generally we expect that end consumer
demand for the products and services of the Company’s
investee companies is likely to remain robust.
INVESTMENT MANAGER’S REPORT CONTINUED
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Annual report & financial statements 2021
SECTOR PERFORMANCE*
(STERLING MILLIONS)
Market value % of Total return Total return
equity portfolio equity portfolio equity portfolio equity portfolio
31 Dec 2021 31 Dec 2021 31 Dec 2021 31 Dec 2020
Software 600.2 36.6 39.3 180.1
Technology Services 153.3 9.3 44.8 17.2
Semiconductors 153.5 9.4 51.2 43.3
Technology Hardware 219.8 13.4 28.4 40.9
Advertising and Marketing 125.5 7.6 57.2 15.6
Internet Media and Marketing Services 73.7 4.5 23.5 12.0
Electrical Equipment 49.4 3.0 7.1 14.4
Telecommunications 43.9 2.7 5.0 2.4
Publishing and Marketing Broadcasting 40.0 2.4 20.5 0.5
Industrial Intermediate Production 36.8 2.2 13.0 1.7
Renewable Energy 29.7 1.8 –12.3 45.8
Other 115.4 7.1 19.3 46.8
Total 1,641.2 100.0 297.0 420.7
*
Source: Bloomberg Industry Classification Standard (31 December 2020: Comparative figures have been restated).
KATIE POTTS
21 February 2022
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Annual report & financial statements 2021
CLASSIFICATION OF INVESTMENTS
North Japan & Asia 2021 2020
UK EMEA America Pacific Total Total
CLASSIFICATION* % % % % % %
COMMUNICATIONS 13.6 0.8 1.1 1.5 17.0 15.7
Advertising and Marketing 6.8 0.1 0.1 0.1 7.1 6.1
Cable and Satellite – – – – – 0.2
Entertainment Content 1.0 – – – 1.0 1.4
Internet, Media and Services 2.2 0.6 0.3 1.1 4.2 4.7
Publishing and Broadcasting 2.0 – 0.2 – 2.2 0.9
Telecommunications 1.6 0.1 0.5 0.3 2.5 2.4
CONSUMER DISCRETIONARY 0.1 – – 0.4 0.5 0.4
E-Commerce Discretionary – – – 0.4 0.4 0.3
Wholesale - Discretionary 0.1 – – – 0.1 0.1
CONSUMER STAPLES – – – 0.1 0.1 0.2
Retail - Consumer Staples – – – 0.1 0.1 0.2
ENERGY 1.4 – 0.3 – 1.7 3.2
Renewable Energy 1.4 – 0.3 – 1.7 3.2
FINANCIALS 0.8 – – 0.6 1.4 1.8
Asset Management 0.2 – – 0.1 0.3 0.5
Equity Investment Instruments 0.5 – – – 0.5 1.0
Specialty Finance 0.1 – – 0.5 0.6 0.3
HEALTH CARE 1.3 0.4 – – 1.7 2.0
Biotechnology and Pharmaceutical 0.9 – – – 0.9 1.2
Health Care Facilities and Services 0.2 – – – 0.2 0.3
Medical Equipment and Devices 0.2 0.4 – – 0.6 0.5
INDUSTRIALS 4.3 0.4 0.9 0.5 6.1 5.5
Aerospace and Defence – – 0.1 – 0.1 0.2
Commercial Support Services 0.8 – 0.1 0.1 1.0 0.8
Electrical Equipment 1.6 0.4 0.7 0.2 2.9 2.9
Industrial Intermediate Production 1.9 – – 0.2 2.1 1.6
MATERIALS 0.3 – – 0.1 0.4 0.5
Chemicals 0.1 – – 0.1 0.2 0.4
Forestry, Paper and Wood Products 0.2 – – – 0.2 0.1
TECHNOLOGY 25.5 9.8 20.0 8.6 63.9 62.9
Semiconductors 0.8 3.1 2.9 1.9 8.7 7.9
Software 14.0 4.6 12.2 3.3 34.1 36.3
Technology Hardware 5.5 0.8 4.0 2.1 12.4 11.0
Technology Services 5.2 1.3 0.9 1.3 8.7 7.7
UTILITIES 0.4 – – – 0.4 0.2
Gas and Water Utilities 0.4 – – – 0.4 0.2
TOTAL EQUITIES (including convertibles and warrants) 47.7 11.4 22.3 11.8 93.2 –
Total equities – 2020 (including convertibles and warrants) 49.3 8.6 24.4 10.1 – 92.4
BONDS 1.1 – 1.3 – 2.4 2.8
NET LIQUID ASSETS** 1.0 – 2.9 0.5 4.4 4.8
TOTAL ASSETS 49.8 11.4 26.5 12.3 100.0 –
Total assets – 2020 51.9 9.2 28.7 10.2 – 100.0
SHAREHOLDERS’ FUNDS 49.8 11.4 26.5 12.3 100.0
Shareholders’ Funds – 2020 51.9 9.2 28.7 10.2 – 100.0
Number of equity investments (including convertibles and warrants) 145 38 83 90 356 324
* Source: Bloomberg Industry Classification Standard (31 December 2020: Comparative figures have been restated).
** Cash, current assets and liabilities.
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Annual report & financial statements 2021Herald Investment Trust plc
TOP 20 EQUITY HOLDINGS AS AT 31 DECEMBER 2021
Next 15 is a group of businesses designed to help companies grow. Next 15 perceive themselves as
more than marketing consultants and growth consultants, they help their clients in four different
ways. Firstly, they use data to generate the insights that help businesses understand the opportunities
and challenges they face and arm them with the knowledge they need to make the best decisions.
Secondly, they help their customers optimise their brand reputation and build the mission-critical
digital assets that businesses need to engage with their audiences. Thirdly, they use creativity, data,
and analytics to create the connections with customers to drive sales and other forms of customer
interaction. Finally, Next 15 help customers redesign their business model or create new ventures to
maximise the value of their organisation.
GB Group (GBG) is a global leader in digital identity. GBG solutions help organisations quickly validate
and verify the identities and locations of their customers. GBG’s products combine an unparalleled
breadth of 350 data sets from partners across the world, that in aggregate, enable GBG to verify
billions of people in over 70 countries. GBG’s market-leading technology is used by over 20,000
customers including some of the best known organisations around the world – including US
e-commerce giants, Asia’s biggest banks and European household brands. With a rich heritage of
more than 30 years, offices across 15 countries and more than 1,000 employees globally, GBG helps
companies and governments to fight fraud and cybercrime, lower the cost of compliance and deliver
seamless experiences, so their customers can transact online with greater confidence.
Diploma is an international group supplying specialised products and services to a wide range of end
segments in three sectors of life sciences, seals and controls. Diploma’s businesses are focused on
supplying essential products and services which are critical to customers’ needs, providing recurring
income and stable revenue growth. By supplying essential solutions, Diploma builds strong long-term
relationships with customers and suppliers, which support attractive and sustainable margins.
Anentrepreneurial culture and decentralised management structure ensures that decisions are made
close to the customer and that the businesses are agile and responsive to changes in the market and
the competitive environment. The Group employs c.2,500 employees and its principal operating
businesses are located in the UK, Northern Europe, North America and Australia.
YouGov is an international research data and analytics group. Their data-led offering supports and
improves a wide spectrum of marketing activities for a customer base that includes media owners,
brands and media agencies. YouGov works with some of the world’s most recognised brands. Key
syndicated data solutions include the daily brand perception tracker, YouGov BrandIndex, and the
media planning and segmentation tool, YouGov Profiles. The YouGov Realtime service provides a fast
and cost-effective solution for reaching nationally representative and specialist samples. YouGov’s
Custom Research division offers a wide range of quantitative and qualitative research, tailored by
sector specialist teams to meet clients’ specific requirements. YouGov’s proprietary global panel of
over 17 million registered members across more than 40 markets provides thousands of data points
on consumer attitudes, opinions and behaviour on a daily basis.
Nordic Semiconductor is a fabless semiconductor company specialising in wireless technology for
the IoT. Nordic’s reputation is built on leading-edge technology and development tools that shield
designers from RF complexity. The company pioneered ultra-low power wireless and helped develop
Bluetooth LE. Its Bluetooth LE solutions made it the market leader, and are complemented by ANT+,
Thread and Zigbee products. Nordic’s low power, compact LTE-M/NB-IoT cellular IoT solutions
leverage cellular infrastructure to extend the IoT network. Complementing its short-range and
cellular IoT wireless technologies, Nordic’s technology portfolio includes the Wi-Fi development
team and IP assets acquired from Imagination Technologies in 2020.
£34.0m
VALUATION
1.9%
OF TOTAL ASSETS
1.8%
OF ISSUED SHARE
CAPITAL HELD
£4.5m
BOOK COST
£41.5m
VALUATION
2.4%
OF TOTAL ASSETS
3.4%
OF ISSUED SHARE
CAPITAL HELD
£1.9m
BOOK COST
£33.6m
VALUATION
1.9%
OF TOTAL ASSETS
0.8%
OF ISSUED SHARE
CAPITAL HELD
£0.7m
BOOK COST
£31.5m
VALUATION
1.8%
OF TOTAL ASSETS
1.8%
OF ISSUED SHARE
CAPITAL HELD
£2.0m
BOOK COST
£31.5m
VALUATION
1.8%
OF TOTAL ASSETS
0.7%
OF ISSUED SHARE
CAPITAL HELD
£3.0m
BOOK COST
HeraldIT_AR21_pp01-31.qxp 22/02/2022 13:02 Page 17
INVESTMENT REPORT
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Annual report & financial statements 2021
Esker helps organisations around the world streamline their business document processes. Esker was
founded as a software company in 1985 with a direct and simple vision in mind — to help businesses
deliver their paper documents electronically. Today, Esker is a global cloud platform built to unlock
strategic value for finance and customer service professionals, and strengthen collaboration between
companies by automating the cash conversion cycle. Esker’s solutions incorporate technologies like
Artificial Intelligence (AI) to drive increased productivity, enhanced visibility, reduced fraud risk, and
improved collaboration with customers, suppliers and internally. Over 600,000 users and 1,400
Software-as-a-service (SaaS) customers operating in 50+ countries use Esker’s automation solutions,
these customers are supported by more than 800 Esker employees in 14 countries worldwide with
global headquarters in Lyon, France, and U.S. headquarters in Madison, Wisconsin.
Silicon Motion Technology (SMT) is a global leader in developing NAND flash controllers for SSDs and
other solid state storage devices and has over 20 years of experience developing specialised
processor ICs that manage NAND components and deliver high-performance storage solutions
widely used in data centres, PCs, smartphones and commercial and industrial applications. SMT has
one of the broadest portfolios of NAND controller intellectual property enabling the design of unique,
highly optimised configurable IC plus related firmware controller platforms and complete turnkey
controller solutions. NAND flash components, including current and up-coming generations of 3D
flash produced by Intel, Kioxia, Micron, Samsung, SK Hynix, Western Digital and YMTC, are supported
by SMT controllers than any other company. Customers include NAND flash makers, module makers,
hyperscalers and OEMs. SMT are the world’s leading supplier of SSD controllers used in PCs and
other client devices and is a leading merchant supplier of eMMC/UFS controllers used in
smartphones and IoT devices. SMT also supplies custom-designed high-performance Open-Channel
data center SSDs to China’s leading hyperscalers and customised small single-chip form factor SSDs
for industrial, commercial and automotive applications. SMT was founded in 1995 in San Jose,
California and now operate from corporate offices in Hong Kong, Taiwan and the US.
Pegasystems (Pega) delivers innovative software that reduces business complexity. Pega’s adaptive,
cloud-architected solution empowers people to rapidly deploy and easily extend and change
applications to meet strategic business needs. From maximizing customer lifetime value and
streamlining service to boosting efficiency, Pega helps the world’s leading brands solve problems fast
and transform for tomorrow. Pega clients make better decisions and get work done with real-time
AIand intelligent automation. Since its founding in 1983, Pega has evolved its scalable architecture
and low-code platform to stay ahead of rapid change.
Future is a global platform business for specialist media with diversified revenue streams. Its content
reaches 1 in 2 adults online in the UK and 1 in 3 in the US. Future is organised into two divisions,
Media and Magazines. The Media division has demonstrated high-growth with complementary
revenue streams including eCommerce for products and services, events, and digital advertising
(including advertising within newsletters and video). It operates in a number of sectors including
technology, games and entertainment, music, home and gardens, sports, TV and film, real life,
knowledge, wealth and savings, women’s lifestyle and B2B. The Magazine division focuses on
publishing specialist content, with a combined global circulation of over 3 million delivered through
more than 131magazines and 735 bookazines published a year.
S4 Capital is a digital advertising and marketing services company established by Sir Martin Sorrell in
May 2018. The company’s strategy is to build a purely digital advertising and marketing services
business, initially by integrating leading businesses in three practice areas: content, data and digital
media and technology services. In August 2021, S4Capital launched its unitary brand by merging
MediaMonks and MightyHive into MediaMonks. The Company now has well over 7,500 people in
33countries across the Americas, Europe, Africa, the Middle East and Asia-Pacific.
£25.0m
VALUATION
1.4%
OF TOTAL ASSETS
1.0%
OF ISSUED SHARE
CAPITAL HELD
£1.7m
BOOK COST
£24.9m
VALUATION
1.4%
OF TOTAL ASSETS
0.4%
OF ISSUED SHARE
CAPITAL HELD
£1.5m
BOOK COST
£23.3m
VALUATION
1.3%
OF TOTAL ASSETS
0.5%
OF ISSUED SHARE
CAPITAL HELD
£2.3m
BOOK COST
£23.1m
VALUATION
1.3%
OF TOTAL ASSETS
0.7%
OF ISSUED SHARE
CAPITAL HELD
£4.5m
BOOK COST
£29.2m
VALUATION
1.7%
OF TOTAL ASSETS
1.6%
OF ISSUED SHARE
CAPITAL HELD
£3.9m
BOOK COST
TOP 20 EQUITY HOLDINGS AS AT 31 DECEMBER 2021 CONTINUED
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Annual report & financial statements 2021
Radware is a global leader of cyber security and application delivery solutions for physical, cloud, and
software defined data centres. Its award-winning solutions portfolio secures the digital experience by
providing infrastructure, application, and corporate IT protection and availability services to
enterprises globally. Radware’s solutions empower enterprise and carrier customers worldwide to
adapt to market challenges quickly, maintain business continuity and achieve maximum productivity
whilst keeping costs down.
Idox develops specialist software for government and industry, with an established track record
serving tightly regulated markets including local authorities, health, engineering, transport and
property. Built around the needs of the user and designed in collaboration with experts, the
company’s software delivers exceptional functionality and reliability to critical operations and embeds
workflows that drive efficiency and best practice.
BE Semiconductor Industries (Besi) is a leading supplier of semiconductor assembly equipment for
the global semiconductor and electronics industries, offering high levels of accuracy, productivity
and reliability at a low cost of ownership. Besi develops leading edge assembly processes and
equipment for leadframe, substrate and wafer level packaging applications in a wide range of
end-user markets including electronics, mobile internet, computer, automotive, industrial, LED and
solar energy. Customers are primarily leading semiconductor manufacturers, assembly
subcontractors and electronics and industrial companies.
Seeing Machines, a global company founded in 2000 and headquartered in Australia, is an industry
leader in vision-based monitoring technology that enable machines to see, understand and assist
people. Seeing Machines’ technology portfolio of AI algorithms, embedded processing and optics
power products that need to deliver reliable real-time understanding of vehicle operators. The
technology spans the critical measurement of where a driver is looking, through to classification of
their cognitive state as it applies to accident risk. Reliable “driver state” measurement is the end-goal
of driver monitoring systems (DMS) technology. Seeing Machines develops DMS technology to drive
safety for automotive, commercial fleet, off-road and aviation. The company has offices in Australia,
the US, Europe and Asia and supplies technology solutions and services to industry leaders in each
market vertical.
ITM Power designs electrolyser products which generate hydrogen gas, based on Proton Exchange
Membrane (PEM) technology. This technology uses electricity and water to generate hydrogen gas
on-site with oxygen as the only by-product. ITM Power manufactures integrated hydrogen energy
solutions for grid balancing, energy storage and the production of renewable hydrogen for transport,
renewable heat and chemicals. The shift away from carbon towards hydrogen is led by the drive for
improved air quality worldwide, the growth of renewable power generators in the energy mix and
aneed to de-carbonise industrial processes. To meet potential demand and help accelerate global
progress towards net-zero emissions, ITM Power have scaled up their manufacturing capability.
ITMPower operates from the world’s largest electrolyser factory in Sheffield, with the announced
intention to build a second UK Gigafactory in Sheffield expected to be fully operational by the end of
2023. The Group’s first international facility, is intended to be operational by the end of 2024.
Customers and partners include Sumitomo, Ørsted, Phillips 66, Scottish Power, Siemens Gamesa,
Cadent, Northern Gas Networks, Gasunie, RWE, Engie, GNVert, National Express, Toyota, Hyundai
and Anglo American among others.
£21.8m
VALUATION
1.2%
OF TOTAL ASSETS
7.1%
OF ISSUED SHARE
CAPITAL HELD
£5.2m
BOOK COST
£21.4m
VALUATION
1.2%
OF TOTAL ASSETS
0.4%
OF ISSUED SHARE
CAPITAL HELD
£0.9m
BOOK COST
£19.6m
VALUATION
1.1%
OF TOTAL ASSETS
4.6%
OF ISSUED SHARE
CAPITAL HELD
£8.0m
BOOK COST
£19.6m
VALUATION
1.1%
OF TOTAL ASSETS
0.8%
OF ISSUED SHARE
CAPITAL HELD
£4.3m
BOOK COST
£22.1m
VALUATION
1.3%
OF TOTAL ASSETS
1.6%
OF ISSUED SHARE
CAPITAL HELD
£4.5m
BOOK COST
HeraldIT_AR21_pp01-31.qxp 22/02/2022 13:02 Page 19
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Annual report & financial statements 2021
TOP 20 EQUITY HOLDINGS AS AT 31 DECEMBER 2021 CONTINUED
Descartes Systems (Descartes) is a leader in providing on-demand, SaaS solutions focused on
improving the productivity, performance and security of logistics-intensive businesses. Customers
use Descartes’ modular SaaS solutions to route, schedule, track and measure delivery resources; plan,
allocate and execute shipments; rate, audit and pay transportation invoices; access global trade data;
file customs and security documents for imports and exports; and complete numerous other logistics
processes by participating in the world’s largest, collaborative multimodal logistics community.
Descartes’ headquarters are in Waterloo, Ontario, Canada and they have offices and partners around
the world.
discoverIE Group is an international group of businesses that designs and manufactures innovative
components for electronic applications. The Group provides application-specific components to
original equipment manufacturers (“OEMs”) internationally, by designing components that meet
customers’ unique requirements. These are then manufactured and supplied throughout the life of
their production and a high level of repeating revenue is generated with long term customer
relationships. With a focus on key markets driven by structural growth and increasing electronic
content, namely renewable energy, medical, transportation and industrial and connectivity, the Group
aims to achieve organic growth that is well ahead of GDP and to supplement that with targeted
complementary acquisitions. The Group’s continuing operations employ c.4,500 people and its
principal operating units are located in Continental Europe, the UK, China, Sri Lanka, India and North
America.
Volex is a leader in integrated manufacturing for performance-critical applications and a supplier
ofpower products. The company serves a diverse range of markets and customers, with particular
expertise in cable assemblies, higher-level assemblies, data centre power and connectivity,
electricvehicles, and consumer electricals. Volex are headquartered in the UK and operate from
18manufacturing locations with a global workforce of over 6,400 employees across 21 countries.
Products are sold through internal locally based sales teams and via authorised distributor partners to
Original Equipment Manufacturers (‘OEMs’) and Electronic Manufacturing Services (‘EMS’) companies
worldwide. Volex products and services provide power and connectivity to a range of products, from
the most common household items to the most complex medical equipment.
Kainos is a UK-headquartered IT services provider, operating through two specialist business
divisions, Digital Services and Workday Practice. The Digital Services division helps customers to solve
their business problems by using technology. Working collaboratively with public, commercial and
healthcare customers around the world, Kainos offers innovative and transformative solutions which
are secure, accessible, cost-effective, and take a user-first approach. They leverage the benefits of
the public cloud and enable customers to utilise their data to drive decision making. Kainos Workday
Practice is closely linked to Workday Inc’s software suite, which includes cloud-based software for
Human Capital Management (“HCM”), Financial Management and Planning, enabling enterprises to
organise their staff efficiently and support their financial reporting requirements. Kainos provides
consulting, project management, integration and post-deployment services for Workday’s software
suite globally.
Mimecast was founded in 2003 with a focus on delivering relentless IT protection and are a leading
provider of next generation cloud security and risk management services for corporate information
and email. They aim to prevent cyber disruption for tens of thousands of corporate customers
around the globe. Mimecast has built an intentional and scalable design ideology that solves the
number one cyber attack vector – email. They integrate brand protection, security awareness
training, web security, compliance and other essential capabilities. Mimecast aims to protect large
and small organisations from malicious activity, human error and technology failure; and to lead the
movement toward building a more resilient world. In late 2021 Mimecast received a takeover offer
from Permira.
£17.3m
VALUATION
1.0%
OF TOTAL ASSETS
3.2%
OF ISSUED SHARE
CAPITAL HELD
£5.4m
BOOK COST
£18.0m
VALUATION
1.0%
OF TOTAL ASSETS
1.8%
OF ISSUED SHARE
CAPITAL HELD
£3.9m
BOOK COST
£16.6m
VALUATION
1.0%
OF TOTAL ASSETS
0.7%
OF ISSUED SHARE
CAPITAL HELD
£1.5m
BOOK COST
£15.9m
VALUATION
0.9%
OF TOTAL ASSETS
0.4%
OF ISSUED SHARE
CAPITAL HELD
£5.7m
BOOK COST
£18.9m
VALUATION
1.1%
OF TOTAL ASSETS
0.4%
OF ISSUED SHARE
CAPITAL HELD
£0.6m
BOOK COST
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Herald Investment Trust plc
Annual report & financial statements 2021
DETAILED LIST OF INVESTMENTS
AT 31 DECEMBER 2021
Ordinary or common shares unless otherwise stated.
Value
Classification Name £’000 %
UNITED KINGDOM
Advertising and Marketing l Ebiquity 2,084
l M&C Saatchi 8,912
l Next Fifteen Communications 41,515
S4 Capital 23,066
l System1 995
l The Mission Group 3,583
l Time Out 3,642
l Tremor 2,678
l XLMedia 2,628
l YouGov 31,470
120,573 6.8
Entertainment Content l Frontier Developments 4,858
l Sumo 2,645
l Team17 2,310
l Zinc Media 4,485
14,298 0.8
Internet, Media and Services l ATTRAQT 4,109
l Dianomi 1,982
Future 23,263
l OnTheMarket 2,678
l Sysgroup 1,068
l Ten Lifestyle Group 1,579
l ULS Technology 3,538
38,217 2.2
Publishing and Broadcasting l Audioboom 12,033
Bloomsbury Publishing 6,771
l Bonhill 623
Centaur Media 5,263
Quarto 1,993
Reach 8,919
35,602 2.0
Telecommunications l Crimson Tide 873
l Fonix Mobile 1,811
l Gamma Communications 3,191
l GlobalData 6,883
l Maintel 2,815
Telecom Plus 12,918
28,491 1.6
Automotive l Quartix Technologies 759 0.0
Retail - Discretionary l FireAngel Safety Technology 190 0.0
Wholesale - Discretionary l Northamber 1,441 0.1
Renewable Energy l AFC Energy 2,277
l Invinity Energy Systems 1,527
l ITM Power 19,563
l SIMEC Atlantis Energy 165
l Velocys 1,272
24,804 1.4
Asset Management Augmentum Fintech 632
Integrafin 2,297
2,929 0.2
Equity Investment Instruments Gore Street Energy Storage Fund 3,065
l Herald Venture II 17
l HIML Holdings 5,124
l KRM22 914
9,120 0.5
l denotes AIM stock
l denotes unlisted security
HeraldIT_AR21_pp01-31.qxp 22/02/2022 13:02 Page 21
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Annual report & financial statements 2021Herald Investment Trust plc
Value
Classification Name £’000 %
UNITED KINGDOM continued
Specialty Finance l TruFin 1,008 0.1
Biotechnology and Pharmaceutical BATM Advanced Communications 15,321 0.9
Health Care Facilities and Services l Diaceutics 2,261
l Feedback 692
2,953 0.2
Medical Equipment and Devices l C4X Discovery 2,576
l Deltex Medical 256
l Intelligent Ultrasound 1,422
4,254 0.2
Commercial Support Services l Science Group 8,252
Wilmington 5,272
13,524 0.8
Electrical Equipment Oxford Instruments 5,918
l Synectics 337
l Volex 17,306
XP Power 4,220
27,781 1.6
Industrial Intermediate Production Diploma 33,573 1.9
Chemicals l Applied Graphene Materials 1,291
l Haydale Graphene Industries 919
2,210 0.1
Forestry, Paper and Wood Products l Accsys Technologies 2,984 0.2
Semiconductors l CML Microsystems 4,204
l IQE 7,300
l Kromek 3,213
14,717 0.8
Software l 1Spatial 1,856
l Access Intelligence 13,647
l ActiveOps 802
Aptitude Software 12,428
Avast 10,874
l Bango 15,064
l Blackbird 3,493
l Boku 5,311
l Celoxica 1,218
l Checkit 3,950
l Cloudcall 3,161
l Corero Network Security 4,151
l Craneware 11,926
l Dillistone 353
l Dotdigital 15
,217
l Eckoh 8,345
l Essensys 3,342
l GB Group 33,997
l GetBusy 1,937
Gresham Technologies 5,867
l Ideagen 9,000
l Idox 21,782
l Immotion 671
l i-nexus Global 127
l Intercede 2,292
l IQGeo 1,909
l itim 1,609
l Light Science Technologies 1,700
DETAILED LIST OF INVESTMENTS CONTINUED
AT 31 DECEMBER 2021
l denotes AIM stock
l denotes unlisted security
HeraldIT_AR21_pp01-31.qxp 22/02/2022 13:02 Page 22
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Annual report & financial statements 2021Herald Investment Trust plc
Value
Classification Name £’000 %
UNITED KINGDOM continued l Location Sciences 211
l LoopUp 798
l Microlise 2,051
NCC 8,308
l Osirium Technologies 71
l Oxford Metrics 9,140
l Pelatro 579
l Quixant 1,052
l SimiGon 177
l SmartSpace Software 1,569
l Sopheon 959
l Spectra Systems 3,401
l Wandisco 5,792
l Windward 2,369
l ZOO Digital 13,776
246,282 14.0
Technology Hardware l Aferian 874
l AMTE Power 1,131
l Calnex Solutions 2,194
l Concurrent Technologies 585
l CyanConnode 3,506
discoverIE 18,015
l Focusrite 2,650
Global Invacom 330
l Gooch & Housego 2,249
l Ilika 14,617
l MTI Wireless Edge 3,345
l SDI 11,398
l Seeing Machines 19,596
Spirent Communications 11,040
l Thruvision 4,139
l T
rackwise Designs 1,210
96,879 5.5
Technology Services Bytes Technology 2,438
l CentralNic 13,407
l Cerillion 3,401
l Cohort 7,060
Computacenter 4,947
l D4T4 Solutions 10,561
l EMIS 4,080
l Equals Group 463
Euromoney Institutional Investor 7,816
l FD Technologies 5,770
FDM 4,554
l GRC International 315
Kainos 16,639
l Netcall 1,449
l PCI-PAL 2,005
l Silver Bullet Data Services 447
l T
ribal 4
,278
l Tungsten 1,600
91,230 5.2
Gas and Water Utilities l Water Intelligence 6,939 0.4
TOTAL UNITED KINGDOM EQUITIES 836,079 47.5
HeraldIT_AR21_pp01-31.qxp 22/02/2022 13:02 Page 23
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Annual report & financial statements 2021Herald Investment Trust plc
DETAILED LIST OF INVESTMENTS CONTINUED
AT 31 DECEMBER 2021
Value
Classification Name £’000 %
EUROPE, MIDDLE EAST AND AFRICA (EMEA)
Advertising and Marketing Growens Italy 1,870 0.1
Internet, Media and Services EQS Germany 8,142
New Work SE Germany 913
North Media Denmark 2,174
11,229 0.6
Telecommunications Intred Italy 2,353 0.1
Medical Equipment and Devices LUMIBIRD France 7,083 0.4
Electrical Equipment Airthings Norway 1,609
Detection Technology Finland 4,761
6,370 0.4
Semiconductors BE Semiconductor Industries Netherlands 21,386
Kalray France 2,106
Nordic Semiconductor Norway 31,457
54,949 3.1
Software Atea Norway 1,363
Carasent Norway 849
CAST France 3,880
Efecte Finland 3,215
Enea Sweden 4,687
Esker France 29,181
Exasol Germany 1,215
Generix France 2,152
Invision Germany 1,033
Median Technologies France 2,637
Nexus Germany 4,498
NFON Germany 2,657
Nordhealth Finland 2,261
RaySearch Laboratories Sweden 1,611
Sidetrade France 7,027
Upsales Technology Sweden 4,368
WALLIX France 7,308
79,942 4.6
Technology Hardware ADVA Optical Networking Germany 7,055
ATEME France 3,048
Ekinops France 3,022
Napatech Norway 1,482
14,607 0.8
Technology Services Adesso Germany 7,418
Allgeier Germany 932
B3 Consulting Sweden 2,168
Datalex Ireland 3,017
Indra Sistemas Spain 3,191
Sword Group France 6,115
22,841 1.3
TOTAL EMEA EQUITIES 201,244 11.4
NORTH AMERICA
Advertising and Marketing Inuvo 2,041 0.1
Internet, Media and Services HealthStream 2,916
Yelp 2,141
5,057 0.3
* American Depositary Receipts – certificates representing shares in the stock, issued by a US bank, denominated and paying dividends in US dollars.
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Value
Classification Name £’000 %
NORTH AMERICA continued
Publishing and Broadcasting Thryv 4,091 0.2
Telecommunications Cogent Communications 5,132
Ooma 3,399
8,531 0.5
Renewable Energy Ballard Power Systems 4,825
Loop Energy 61
4,886 0.3
Aerospace and Defence RADA Electronic Industries 2,431 0.1
Commercial Support Services Issuer Direct 1,936 0.1
Electrical Equipment nLIGHT 441
Tecogen 285
Vicor 11,445
12,171 0.7
Semiconductors AXT 977
CEVA 7,972
Chipmos Technologies* 2,162
FormFactor 2,530
Intellicheck 1,272
Neophotonics 2,270
Pixelworks 878
Power Integrations 2,605
QuickLogic 374
Silicon Motion Technology* 25,034
Tower Semiconductor 3,599
Ultra Clean Holdings 1,482
51,155 2.9
Software Absolute Software 1,734
Agilysys 2,529
American Software 3,743
AVID Technology 6,016
Bandwidth 5,689
Bottomline Technologies 7,000
Brightcove 3,209
ChannelAdvisor 1,819
Cognyte Software 1,736
Couchbase 1,199
CyberArk Software 5,248
Cyren 21
Descartes Systems 18,936
Digital Turbine 7,655
FalconStor Software 237
Five9 4,054
Kinaxis 3,721
LivePerson 11,223
Mandiant 4,419
Mimecast 15,868
Model N 2,463
N-able 2,460
OneSpan 2,499
PagerDuty 2,567
Pegasystems 24,866
Ping Identity 2,703
Qualys 8,841
Radware 22,123
Rapid7 3,910
SailPoint Technologies 5,533
SPS Commerce 10,504
Streamline Health 652
Tufin Software Technologies 1,635
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DETAILED LIST OF INVESTMENTS CONTINUED
AT 31 DECEMBER 2021
Value
Classification Name £’000 %
NORTH AMERICA continued Varonis Systems 15,028
Vertex 1,758
213,598 12.2
Technology Hardware Akoustis Technologies 3,098
Arlo Technologies 4,263
Blackline Safety 1,322
CalAmp 1,302
Celestica 2,467
DZS 1,198
Everspin Technologies 2,066
Fabrinet 14,533
Harmonic 3,614
Lantronix 4,374
Ondas 2,231
One Stop Systems 2,290
Quantum 1,832
RADCOM 1,513
Resonant 1,086
Ribbon Communications 4,863
Silicom 3,431
Super Micro Computer 11,722
ViaSat 3,288
70,493 4.0
Technology Services ManTech 1,965
Rimini Street 3,749
Telos 1,991
TTEC 7,357
15,062 0.9
TOTAL NORTH AMERICA EQUITIES 391,452 22.3
ASIA PACIFIC
Advertising and Marketing Pureprofile Australia 967 0.1
Internet, Media and Services 51job* China 3,109
Bengo4.com Japan 391
Coconala Japan 1,561
DIGITAL Holdings Japan 759
Gabia South Korea 1,913
giftee Japan 1,503
GMO Internet Japan 2,093
Praemium Australia 4,793
PropTech Australia 920
Proto Japan 1,953
RMA Global Australia 169
19,164 1.1
Publishing and Broadcasting Hong Kong Economic Times Hong Kong 333 0.0
Telecommunications Kinx South Korea 2,414
Symbio Holdings Australia 2,067
4,481 0.3
E-Commerce Discretionary Momo Taiwan 4,838
PChome Online Taiwan 1,709
6,547 0.4
* American Depositary Receipts – certificates representing shares in the stock, issued by a US bank, denominated and paying dividends in US dollars.
** H Shares – issued by companies incorporated in the People’s Republic of China and listed on the Hong Kong Stock Ex
change.
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Value
Classification Name £’000 %
ASIA PACIFIC continued
Retail - Consumer Staples Redbubble Australia 1,839 0.1
Asset Management WealthNavi Japan 1,968 0.1
Specialty Finance Money Forward Japan 8,862 0.5
Medical Equipment and Devices Compumedics Australia 418 0.0
Commercial Support Services Freelancer Australia 886
Plus Alpha Consulting Japan 448
1,334 0.1
Electrical Equipment Catapult Australia 3,099 0.2
Industrial Intermediate Production Elite Material Taiwan 1,804
PI Advanced Materials South Korea 1,436
3,240 0.2
Chemicals Soulbrain South Korea 2,747 0.1
Semiconductors Andes Technology Taiwan 4,380
Ardentec Taiwan 1,037
eMemory Technology Taiwan 3,880
Eugene Technology South Korea 1,904
Kulicke & Soffa Singapore 6,253
PSK South Korea 2,973
PSK Holdings South Korea 381
Realtek Semiconductor Taiwan 10,330
Wonik IPS South Korea 1,575
32,713 1.9
Software Audinate Australia 287
Bigtincan Australia 4,562
Bill Identity Australia 349
Bravura Solutions Australia 1,443
Chanjet Information Technology** China 1,892
CRESCO Japan 1,609
ELMO Software Australia 1,552
Family Zone Cyber Safety Australia 1,006
GMO GlobalSign Japan 1,613
Hatena Japan 671
HENNGE K.K. Japan 1,941
HEROZ Japan 117
intelliHR Australia 501
Internetworking & Broadband Consulting Japan 798
Kaonavi Japan 1,713
Kingdee International Software** China 7,672
Life360 Australia 4,762
LiveTiles Australia 876
PCA Japan 1,440
PKSHA Technology Japan 402
Property Data Bank Japan 1,157
SpiderPlus Japan 340
TeamSpirit Japan 746
TerraSky Japan 2,939
User Local Japan 1,520
Wanted Lab South Korea 2,176
Whispir Australia 2,813
WiseTech Global Australia 9,163
Xref Australia 2,143
Yappli Japan 475
58,678 3.3
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DETAILED LIST OF INVESTMENTS CONTINUED
AT 31 DECEMBER 2021
Value
Classification Name £’000 %
ASIA PACIFIC continued
Technology Hardware Advantech Taiwan 2,434
Chicony Electronics Taiwan 2,463
E Ink Taiwan 8,898
Innox Advanced Materials South Korea 1,742
Lanner Electronics Taiwan 2,647
Parade Technologies Taiwan 6,890
Phison Taiwan 2,729
Sercomm Taiwan 1,716
SOLUM South Korea 2,506
Tripod Technology Taiwan 5,740
37,765 2.1
Technology Services Ansarada Australia 5,089
Chinasoft Hong Kong 2,690
Cyber Security Cloud Japan 846
CyberTrust Japan Japan 1,222
Eltes Japan 467
EML Payments Australia 1,215
Infomart Japan 1,320
Net Protections Japan 2,486
Nitro Software Australia 771
Oro Japan 896
Plaid Japan 465
RAKUS Japan 1,796
Uzabase Japan 1,671
WingArc1st Japan 3,244
24,178 1.3
TOTAL ASIA PACIFIC EQUITIES 208,333 11.8
CONVERTIBLE LOAN STOCKS HAVING AN
ELEMENT OF EQUITY
l Cyren 5.75% USD Convertible 19 Mar 2024 Restricted 739
l i-nexus Global 8% Convertible Loan Note 4 Nov 2023 600
l i-nexus Global 8% Convertible Loan Note 29 Sep 2024 400
l Zinc Media Convertible Variable Rate Bank Loan 31 Dec 2022 1,052
l Zinc Media Convertible Variable Rate Loan 31 Dec 2022 377
l Zinc Media 8% Loan 31 Dec 2022 958
TOTAL CONVERTIBLE LOAN STOCKS
HAVING AN ELEMENT OF EQUITY 4,126 0.2
Total Equity Investments 1,641,234 93.2
Fixed Interest UK Government Bond 0.125% 31 Jan 2023 19,904
US Treasury Stock 1.375% 15 Oct 2022 22,344
TOTAL FIXED INTEREST 42,248 2.4
Total Investments 1,683,482 95.6
Net Liquid Assets
+
77,395 4.4
Total Assets At Market Value 1,760,877 100.0
+ Cash, current assets and liabilities
l denotes unlisted security
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LONG-TERM PERFORMANCE
Continued
steady growth
The Company, founded in 1994 by Katie Potts, raised an initial £65m to invest in the UK and continental European TMT sector.
Warrants were issued to initial investors on a 1 for 5 basis. In 1996 a further £30m was raised to globalise the fund, thus
bringing the total outside capital to £95m. Since 1996 no new capital has been raised, and the warrants have been
repurchased or converted into ordinary shares.
The Company has operated an opportunistic buyback policy, which helped to create value for existing shareholders. Since
inception, the Company has completed buybacks to the value of £186m, bringing the net negative outside capital to £91m. Over
the history of the fund, net asset value per share on a total return basis has grown by 2,868.9% or 12.9% on an annualised basis.
TOTAL RETURN SINCE
INCEPTION
+2,868.9%
ANNUALISED TOTAL RETURN
SINCE INCEPTION
+12.9%
CAPITAL SINCE INCEPTION
Number of Diluted net
Shareholders’ shares in asset value (Discount)/
At Total assets Bank loans funds issue per share*
A
Share price premium
A
31 December £’000 £’000 £’000 ’000 p p %
≠ Inception 64,107 – 64,107 65,000 98.70 90.90
◊
(7.9)
1994 60,823 – 60,823 65,000 93.57 94.60 1.1
±1995 89,689 – 89,689 65,000 132.36
§
127.00 (4.0)
1996 130,055 – 130,055 82,894 150.88
§
136.00 (9.9)
1997 147,424 – 147,424 82,896 171.80 136.15 (20.8)
1998 170,982 – 170,982 82,901 201.70 161.50 (19.9)
1999 432,620 (3,343) 429,277 82,961 494.22 511.10 3.4
2000 378,607 (3,233) 375,374 83,874 431.43 491.00 13.8
2001 275,624 (2,892) 272,732 84,454 314.53 306.00 (2.7)
2002 199,900 (22,310) 177,590 84,475 206.68 177.00 (14.4)
2003 350,209 (29,325) 320,884 87,807 365.44 325.25 (11.0)
#2004 356,874 (24,663) 332,211 87,556 379.43 322.75 (14.9)
2005 358,293 – 358,293 87,556 409.22 379.75 (7.2)
2006 401,228 (20,000) 381,228 87,556 435.41 383.50 (11.9)
2007 343,497 – 343,497 86,971 394.96 312.00 (21.0)
2008 275,789 (65,079)
‡
210,710 83,408 252.63 184.00 (27.2)
2009 397,194 (56,298)
‡
340,896 81,053 420.58 337.75 (19.7)
2010 533,499 (58,937)
‡
474,562 79,913 593.85 483.00 (18.7)
2011 519,656 (70,357)
‡
449,299 79,698 563.75 455.00 (19.3)
2012 572,243 (70,297)
‡
501,946 79,323 632.78 513.00 (18.9)
2013 662,538 (38,935)
‡
623,603 77,680 802.79 685.00 (14.7)
2014 667,450 (38,534)
‡
628,917 77,340 813.19 659.00 (19.0)
2015 709,139 (38,002)
‡
671,137 76,112 881.78 745.25 (15.5)
2016 816,414 (25,000) 791,414 73,062 1,083.21 882.50 (18.5)
2017 966,650 – 966,650 70,308 1,374.88 1,171.00 (14.8)
2018 901,154 – 901,154 68,902 1,307.89 1,075.00 (17.8)
2019 1,122,849 – 1,122,849 67,312 1,668.13 1,480.00 (11.3)
2020 1,503,367 – 1,503,367 65,783 2,285.33 2,245.00 (1.8)
2021 1,760,877 – 1,760,877 64,754 2,719.33 2,505.00 (7.9)
* The diluted net asset value per ordinary share figures have been calculated in accordance with FRS102 (2015-2021),
FRS22 (2008-2014), FRS14 (1995-2007).
A Alternative Performance Measure - see page 86.
≠ Inception date 16 February 1994, 100p was shareholders’ subscription price before launch costs of 1.3p.
◊ 90.9p is the capital gains tax (CGT) base subscription price for shareholders adjusting for warrants which were
issued on a 1 for 5 basis. The CGT base for the warrant is 45.5p.
± Restated for change in accounting policy to account for income on an ex-dividend basis.
§ The diluted net asset values at 31 December 1995 and 1996 have been restated with the adoption of FRS 14. The
previously reported fully diluted net asset values were 131.65p and 149.45p respectively.
# The figures prior to 2004 have not been restated for the changes in accounting policies implemented in 2005.
‡ Includes derivative financial instruments.
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INVESTMENT REPORT
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Herald Investment Trust plc
Annual report & financial statements 2021
LONG-TERM PERFORMANCE CONTINUED
REVENUE
Available Earnings Dividend
for ordinary per ordinary per ordinary Ongoing Net
At Income shareholders share net
share net charges
A§
gearing/ Gross
31 December £’000 £’000 p p % cash
A
gearing
A
2011 9,171 947 1.19 1.00 1.10 105 116
2012 9,164 750 0.94 1.00 1.08 104 114
2013 8,987 (307) (0.39) – 1.04 100 106
2014 8,245 (1,464) (1.89) – 1.07 101 106
2015 9,136 (36) (0.05) – 1.08 95 106
2016 9,541 430 0.58 – 1.09 92 103
2017 10,799 486 0.68 – 1.08 93 100
2018 11,250 58 0.08 – 1.07 87 100
2019 11,735 31 0.05 – 1.09 88 100
2020 9,361 (3,997) (6.00) – 1.08 92 100
2021 12,253 (5,417) (8.33) – 1.02 93 100
The calculation of earnings per ordinary share is based on the revenue from ordinary activities after taxation and the
weighted average number of ordinary shares in issue (see note 8, page 71).
§ From 2012, calculated by dividing total operating costs by average net asset value (with debt at fair value) in accordance
with AIC guidelines. Prior years have not been recalculated as the change in methodology is not considered to result in
amaterially different figure.
A Alternative Performance Measure - see page 86.
CUMULATIVE PERFORMANCE (TAKING 2011 AS 100)
Numis Russell
Diluted net Smaller Cos 2000®
At asset value Share price plus AIM Technology Retail price Earnings per
31 December per share p Index Index index ordinary share
2011 100 100 100 100 100 100
2012 112 113 119 104 103 79
2013 142 151 152 144 106 (33)
2014 144 145 142 165 108 (159)
2015 156 164 149 175 109 (4)
2016 192 194 163 262 112 49
2017 244 257 194 281 116 57
2018 232 236 159 295 119 7
2019 296 325 188 381 122 4
2020 405 493 195 527 123 (504)
2021 482 551 229 606 133 (700)
COMPOUND ANNUAL RETURNS
Numis Russell
Diluted net Smaller Cos 2000®
At asset value Share price plus AIM Technology Retail price
31 December per share p Index Index index
5 year 20.2% 23.2% 7.0% 18.3% 3.5%
10 year 17.0% 18.6% 8.6% 19.7% 2.9%
Past performance is not a reliable indicator to future performance.
NET LIQUID ASSETS AND FIXED
INTEREST AS PERCENT OF NAV
31DECEMBER 2021
6.8%
5 YEAR COMPOUND ANNUAL
GROWTH IN NAV PER SHARE
+20.2%
10 YEAR COMPOUND ANNUAL
GROWTH IN NAV PER SHARE
+17.0%
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Annual report & financial statements 2021
–30
–20
–10
0
10
20
202
1
2019201720152013201120092007200520032001199919971995
0
500
1,000
1,500
2,000
2,500
3,000
20212019201720152013201120092007200520032001199919971995
PREMIUM/(DISCOUNT) TO FULLY DILUTED NET ASSET VALUE
(PLOTTED ON A MONTHLY BASIS)
Source: Refinitiv
CAPITAL RETURN SINCE INCEPTION
Inception
31 December 16 February
2021 1994 % change
Net asset value per ordinary share (including
current year revenue)
A
2,719.33p 98.70p 2,655.15
Net asset value per ordinary share (excluding
current year revenue)
A
2,727.70p 98.70p 2,663.62
Share price 2,505.00p 90.90p 2,655.78
Numis Smaller Companies plus AIM (ex. investment
companies) Index 7,116.46 1,750.00 306.65
Russell 2000® Technology Index (small cap)
(in sterling terms)
†
5,340.93 688.70* 675.51
A Alternative Performance Measure – see page 86.
* At 9 April 1996 being the date funds were first available for international investment.
† The Russell 2000® Technology Index (small cap) was rebased during 2009 following some minor adjustments to its
constituents. The rebased index is used from 31 December 2008 onwards.
CAPITAL RETURNS SINCE INCEPTION
(FIGURES HAVE BEEN REBASED TO 100 AT 16 FEBRUARY 1994)
Source: Refinitiv
Fully diluted NAV
Share price
Numis Smaller Companies plus AIM
(excluding investment companies)
Index
Russell 2000® Technology Index
(small cap) (in sterling terms)
DISCOUNT TO NAV
31 DECEMBER 2021
7.9%
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GOVERNANCE
32
Herald Investment Trust plc
Annual report & financial statements 2021
Governance
34 Strategic Report
41 Your Board of Directors
42 Corporate Governance Report
46 Audit Committee Report
48 Directors’ Report
51 Directors’ Remuneration Report
54 Statement of Directors’ Responsibilities
55 Independent Auditors’ Report
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Annual report & financial statements 2021
STATUS
The Company is an investment company within the meaning
of s833 of the Companies Act 2006 and operates as an
investment trust in accordance with s1158 of the Corporation
Tax Act 2010 as amended (s1158). The Company is subject to
the Listing Rules of the Financial Conduct Authority and
governed by its articles of association, amendments to which
must be approved by shareholders by way of a special
resolution. The Company obtained approval from HM
Revenue and Customs of its status as an investment trust
under s1158 and the directors are of the opinion that the
Company has and continues to conduct its affairs in
compliance with s1158 since this approval was granted.
BUSINESS MODEL
The management of the Company and the implementation
of its investment strategy is contracted to HIML, which is
authorised and regulated by the Financial Conduct Authority
both for investment management and as an Alternative
Investment Fund Manager (see the Directors’ Report,
page49).
Administration of the Company and its investments has been
delegated by HIML to the Bank of New York Mellon
(International) Limited (BNYMIL) and company secretarial
duties have been delegated to Sanne Fund Services (UK)
Limited (Sanne).
BNYMIL is the depositary under a tripartite agreement
between HIML, the Company and BNYMIL. The depositary is
also responsible for custody activities.
OBJECTIVE
The Company’s objective is described on the inside front
cover.
INVESTMENT POLICY – STRATEGY
While the policy is global investment in smaller quoted
companies in TMT, the approach is to construct a diversified
portfolio through the identification of individual companies
which offer long-term growth potential, typically over a
five-year horizon or more. The portfolio is actively managed
and does not seek to track any comparative index. With
aremit to invest in smaller companies with market
capitalisation generally below $3bn, there tends to be a
correlation with the performance of smaller companies, as
well as those of the technology sector. A degree of volatility
relative to the overall market should be expected.
The risk associated with the illiquidity of smaller companies is
reduced by generally restricting the stake in any one
company to less than 10% of the shares in issue.
A number of investments are in early-stage companies,
which have a higher stock specific risk but the potential for
above average growth. Stock specific risk is reduced by
having a diversified portfolio of over 350 holdings.
In addition, to contain the risk of any one holding, the
manager generally takes profits when a holding reaches
more than 5% of the portfolio. The manager actively
manages the exposure within the constraint that illiquid
positions cannot be traded for short-term movements.
The Company has a policy not to invest more than 15% of
gross assets in other UK-listed investment companies.
From time to time, fixed interest holdings, non-equity or
unlisted investments may be held on an opportunistic basis.
The Company recognises the long-term advantages of
gearing and has a maximum gearing limit of 50% of net
assets. Borr
owings are invested primarily in equity mark
ets
but the manager is entitled to invest in other securities in the
companies in the target areas when it is considered that the
investment grounds merit the Company taking a geared
position. The board’s intention is to gear the portfolio when
appropriate. Gearing levels are monitored closely by the
manager and reviewed by directors at each board meeting.
The Company may use derivatives which will be principally,
but not exclusively, for the purpose of efficient portfolio
management (i.e. for the purpose of reducing, transferring or
eliminating investment risk in its investments, including
protection against currency risk).
A detailed analysis of the Company’s investment portfolio is
set out on pages 21 to 28 and in the manager’s report.
KEY PERFORMANCE INDICATORS (‘KPIS’)
At each board meeting, the directors consider a number of
performance measures to assess the Company’s success in
achieving its objectives.
The KPIs used to measure the progress and performance of
the Company over time are established industry measures
and are as follows:
— the movement in net asset value per ordinary share
compared to the comparative indices;
— the movement in the share price;
— the discount; and
— the ongoing charges.
A historical record of these measures is shown on pages 29
to31.
The Company makes reference in this annual report and
financial statements to a number of alternative performance
measures, as described on pages 86 and 87.
SHARE CAPITAL
At 31 December 2021 the Company’s capital structure
consisted of 64,754,112 ordinary shares of 25p each (2020–
65,783,418 ordinary shares). During the year 1,029,306
(2020–1,528,359) shares were bought back and cancelled.
There are no restrictions concerning the holding or transfer of
the Company’s ordinary shares and there are no special rights
attached to any of the shares. On a winding up, after meeting
the liabilities of the Company, the surplus assets would be paid
to ordinary shareholders in proportion to their shareholdings.
Since year end and up to 17 February 2022, 837,196 shares
have been bought-back for cancellation at an average price of
2348.93 pence per share (excluding costs).
DERIVATIVE INSTRUMENTS
The Company does not currently have any exposure to
derivative instruments.
BORROWINGS
The Company is not currently geared and does not have
anyform of credit facility but holds significant amounts of
cash. The requirement for a credit facility is kept under
regular review, taking into account the levels of cash held
bythe Company, general market conditions and any
associated costs.
STRATEGIC REPORT
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Annual report & financial statements 2021
REVIEW OF THE YEAR AND FUTURE DEVELOPMENTS
A review of the year and the investment outlook is contained
in the chairman’s statement and the manager’s report on
pages 8 to 15.
PRINCIPAL RISKS AND UNCERTAINTIES
The audit committee, on behalf of the board, regularly
undertakes a robust assessment of the principal, including
emerging, risks facing the Company. These include those that
would threaten its business model, future performance,
solvency or liquidity (see corporate governance report on
page 44 and the audit committee report on pages 46 and 47).
Principal risks are also considered as part of the board’s
annual strategy meeting. The principal risks that follow are
those identified by the board after taking account of
mitigating factors.
During 2021 the audit committee, supported by the board,
undertook a comprehensive bottom up and top down review
of the Company’s risk management framework and controls.
This resulted in enhanced risk documentation and reporting
to the board and the audit committee, with top risks – post
mitigation – clearly identified. All risks are documented on
arisk register and are grouped into six main categories:
strategic risk; market, economic and geopolitical risk;
investment management risk; operational risk; emerging/
external risk; and regulatory risk. Risks are rated by impact and
likelihood of occurrence, with the ratings charted on arisk
matrix. The risk register is reviewed on an ongoing basis, in an
attempt to capture all risks and ensure appropriate mitigation
is in place, and, to enable directors to concentrate on
principal risks whilst ensuring all risks are considered.
Within this process the board considered the coronavirus
pandemic and its effects within the relevant risks – including
significant economic disruption, volatility of markets and
other consequent impacts. The impact of the UK having left
the EU was also considered and the board’s earlier belief that
this would not negatively impact the Company has to date
been borne out.
The top risks identified by this process (which correlate to the
principal risks of the Company) are set out below.
Risk trend from previous year: Û Risk level unchanged
Ú Less risk
Ò Heightened risk
Strategic Risk
Û
Company risk as an investor in smaller companies Û
There is a risk that public markets become unattractive to
investee companies due to a number of factors including
burdensome regulations and taxation and this could result in
asmaller investible universe and orphan portfolio stocks. The
board and the manager engage with external bodies such as
the Quoted Company Alliance (‘QCA’) in the UK to influence
government and regulatory policy to support quoted smaller
companies. Theportfolio is globally diversified and also the
manager has the ability to move capital to more favourable
markets.
Market, Economic and Geopolitical Risks
Ò
Market risk including but not limited to liquidity, price,
valuation, TMT, small cap risks Ò
The Company’s assets consist mainly of listed securities and
the success of the Company’s business model is ther
efore
mark
et-related and bear market risk (comprising currency
risk, interest rate risk and other price risk), liquidity risk and
credit risk. An explanation of those risks – which have been
subject to r
obust assessment by the directors – and how
they ar
e managed is contained in note 17 to the financial
statements on pages 74 to 79, and a description of the
internal controls operated by the Company is on page 44.
Asa specialist investor in TMT and small cap stocks, the
Company is exposed to more volatile share price movements
than those of the general market and, on occasion, it may be
difficult for the manager to achieve sales of investments at
marketprices. The board has increased the risk rating of
market risk from that of last year to reflect the possibility of
increased volatility.
Economic risk Ò
Interest rates, exchange rates, inflation, recession, taxes and
changes in supply and demand can all pose a threat to the
future of portfolio companies. The board has increased the
risk rating of market risk from that of last year to reflect the
possibility of increased interest rates and tax rises.
Geopolitical risk Ò
Political developments can create risks to the value of the
Company’s assets. For example US-China-Taiwan trade
tensions could disrupt technology supply lines. Energy prices
could be inflated by political developments in the Middle East
and Russia.
The manager considers the above three risks on an ongoing
basis and reports on a regular basis to the board, including
reporting on the composition and diversification of the
portfolio by geography, sectors and capitalisation along with
sales and purchases of investments. Individual investments
are discussed with the manager together with the investment
team’s general views on the various investment markets and
sectors. The board recognises that the potential for
mitigation is likely to be limited other than through
diversification and given the continuation or amplification of
various factors such as the shrinkage of the investee
universe, the uncertainty over interest rates and the
intervention by governments in markets has raised the risk
rating from that of last year.
Investment Management Risk
Ò
Liquidity risk Ò
There is a risk that the manager is unable to realise profits on
significant positions in the portfolio and to redeploy them in
sufficient sizes to new positions. The Company may also
invest in unquoted securities which generally have greater
valuation uncertainties and liquidity risks than securities listed
or traded on a regulated market. The board receives regular
reports from the manager, which is experienced in stock
selection. Investment risk is spread by having a diversified
portfolio of over 350 holdings. The holding in any one
company is generally restricted to less than 10% of the
portfolio company’s shares in issue and the manager would
usually start taking profits when a holding reaches 5% of the
portfolio. The risk rating has been raised from that of last year
to reflect the deteriorating liquidity in certain markets for
some stocks, albeit the Company’s closed end nature
reduces the risk of a forced disposal of illiquid investments.
Key person dependency Ú
There is a risk the lead investment manager (Katie Potts)
becomes incapacitated or otherwise unavailable. The lead
investment manager works with an investment management
team who are responsible for geographic sectors of the
portfolio and collaborate collectively to ensure there is
appropriate coverage of the portfolio. The risk has reduced
over time and is expected to continue to reduce as the
manager’s team grows in experience and resources expand
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Herald Investment Trust plc
Annual report & financial statements 2021
in both the investment management and administration
teams and consequently the board has lowered the risk
rating from that of last year.
Third Party Service Provider Operational Risk
Û
Information (including cyber) security and physical
security
Û
The failure or breach of information security could
potentially lead to breaches of confidentiality, data records
being compromised and the inability to make investment
decisions. The failure or breach of physical security could
lead to damage or loss of equipment, with consequential
negative results. Cyber security risks are considered and
continually monitored by the manager as these threats
evolve and become increasingly sophisticated. The integrity
of the Company’s information security is closely monitored
by the board, with each of the key service providers providing
a regular report through its internal audit function which
covers information technology security and provides comfort
to the board that appropriate safeguards are in place. All
physical locations have security in place and all third-party
service providers have disaster recovery plans.
Emerging/External Risk
Û
Emerging risk is a failure to have in place procedures that
assist in identifying new or familiar risks that become
apparent in new or unfamiliar conditions. The audit
committee reviews risk management and internal controls
twice a year and the board regularly considers industry
trends and forthcoming legislation/regulatory change with its
advisors, including the manager, the broker and company
secretary. It also reviews regular updates from the
Association of Investment Companies (‘AIC’) and the auditor
on suchmatters.
Global pandemic risk Û
The pandemic is an ongoing risk with both primary and
consequential negative effects, such as supply chain
disruption. Its impact has been significant with restrictions to
movement of people and disruption to business operations
affecting global portfolio company valuations positively and
negatively and potentially affecting the operational resilience
of the Company’s service providers. Market volatility has also
been heightened. During the year, the board continued to
monitor, together with the manager, the market and
operational risks associated with the Covid-19 pandemic and
the ongoing economic impact on the underlying investee
companies. The board is satisfied that the manager and the
key service providers have in place robust plans and
infrastructure to minimise the impact on the Company’s
operations so that it can continue to trade, meet its
regulatory obligations, and report and meet shareholder
requirements. The manager’s inability to meet management
teams in person, particularly overseas is an increasing
problem the longer the pandemic restricts activity.
OTHER RISKS
The following are risks identified by the audit committee as
potentially having a major impact on the Company but, after
mitigation, are not deemed to be principal risks.
Strategic Risk
Gearing risk Ú
The Company may borrow money for investment purposes.
If the investments fall in value, any borrowings will magnify
the extent of this loss for shareholders. If borrowing facilities
are not renewed, the Company may have to sell investments
to repay borrowings. All borrowings require the prior
approval of the board and gearing levels are discussed by the
board and manager at every meeting. The lowered risk rating
r
eflects the fact that the Company does not have any
borrowing at the year end. Themajority of the Company’s
investments ar
e in quoted securities.
Discount volatility Û
There is a risk that the discount at which the Company’s
shares trade may widen. The board monitors the level of
discount.
Operational Risk Û
Disruption to or failure of the manager’s or administrator’s
accounting systems or those of other third-party service
providers could lead to an inability to provide accurate
reporting and monitoring or a misappropriation of assets.
The Company uses third party service providers and,
consequently, is exposed to operational risk including
information security and physical security, as described
earlier. The manager, administrator and company secretary
each have comprehensive business continuity plans which
facilitate continued operation of the business in the event of
a service disruption or a major disruption event. The audit
committee receives the administrator’s report on internal
controls and the reports by other key third-party providers
are reviewed by the manager and company secretary on
behalf of the audit committee. The depositary reports
sixmonthly on custody matters, including the continued
safecustody of the Company’s assets.
Emerging/External Risk
Climate change risk Ò
The financial risks from climate change are typically classified
as physical or transitional risks. Physical risks are those arising
from specific weather events (such as wildfires) and
transitional risks are those arising from the changes to
regulations, such as the move to net-zero carbon. The
portfolio is well diversified to mitigate against physical risks.
Changes in climate change focused regulation, governing
both the Company and investee companies, will create some
uncertainty. A number of investments address the challenges
arising from climate change and may benefit. However, if
climate change has a significant adverse impact on the wider
economy, the Company could be negatively affected.
Incomparison to the broader economy, the portfolio has
arelatively low carbon footprint. The board encourages the
manager to consider environmental, social and governance
factors when selecting and retaining investments and this has
been a major topic of discussion in the past year. The
increase in the risk rating from last year reflects the
increasing challenges of addressing climate change.
Regulatory Risk
Û
The failure to comply with applicable legal and regulatory
requirements could lead to a suspension of the Company’s
Stock Exchange listing, financial penalties by the Financial
Conduct Authority (‘FCA’) or aqualified audit report. Breach
of s1158 could lead to the Company being subject to tax on
capital gains. The manager, depositary and administrator
provide regular reports to the audit committee on their
monitoring programmes. Themanager monitors investment
positions and the manager and administrator monitor the
level of forecast income and expenditure. Major regulatory
change could impose disproportionate compliance burdens
on the Company. In such circumstances representations
would be made to seek to ensure that the special
circumstances of investment trusts are recognised.
STRATEGIC REPORT CONTINUED
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Herald Investment Trust plc
Annual report & financial statements 2021
THE BOARD AND GENDER DIVERSITY
The board currently comprises of five non-executive
directors of which two are female thereby constituting
40%female representation and complies with the
Hampton-Alexander target of 33% female membership.
However, although the board has considered the
recommendations of the Davies and Hampton-Alexander
reviews as well as the Parker review, it does not consider it
appropriate to establish targets or quotas in these regards.
The Company has no employees. The board’s policy on
diversity is set out on page42.
BOARD’S DUTY TO PROMOTE THE SUCCESS OF THE
COMPANY (SECTION 172 STATEMENT)
The directors have a statutory duty to promote the success
of the Company for the benefit of shareholders, whilst having
regard to all stakeholders. They are also required to report
annually how they have had regard to such matters,
including identification of, and engagement with, key
stakeholders and how this has impacted their decision
making.
In this context, as an externally managed investment
company with no employees, the directors consider the
Company’s main stakeholders to be: its shareholders; the
manager; a small number of other key service providers;
investee companies in the portfolio; the environment; and
the wider economy. The directors are not responsible for
setting a “business culture” in the usual sense, but they do
meet regularly with representatives of the manager and the
company secretary and seek to understand the culture of
those businesses, and those of the Company’s key service
providers, and would raise any concerns in this regard
ifnecessary.
SHAREHOLDERS
A fundamental consideration of the board is whether the
investment objective of the Company is continuing to meet
shareholder expectations. The board’s strategy is validated on
a triennial basis – the last vote was in April 2019 with 99.88%
of shareholders voting for the continuation of the Company
and the next continuation vote will be proposed at the
forthcoming AGM.
The board places great importance on communication with
all its shareholders and maintaining an open dialogue with
them. The principal forum for this is the AGM. The
Company’s annual financial report is published in time to give
shareholders at least 20 working days’ notice of the AGM.
Details of the proxy voting position on each resolution are
published on the Company’s website shortly after the AGM.
Under normal circumstances, shareholders have the
opportunity to meet with the board and the manager at the
AGM and raise questions and concerns. Unfortunately, due to
the Covid-19 pandemic, the Company’s last two AGMs had
to be held as closed meetings. However, shareholders were
given the opportunity to vote by proxy, were invited to
submit questions electronically and the manager’s
presentation was published on the manager’s website. It is
hoped that shareholders will have the opportunity to attend
the Company’s AGM in person this yearto meet with the
directors and representatives of themanager.
The board regularly monitors the shareholder profile of the
Company. It aims to provide shareholders with a full
understanding of the Company’s activities and performance,
and it reports formally to shareholders twice a year by way of
the annual and half-yearly financial reports. This is
supplemented by the daily publication of the Company’s net
asset value, r
outine and ad hoc regulatory announcements,
monthly factsheets and other information placed on the
manager’s website, including pr
e-investment information,
akey information document (‘KID’), portfolio disclosures,
terms of reference and the Company’s share price.
One of the board’s objectives has been, along with the
manager, to ensure shareholder engagement is sufficient.
The board has endorsed the ongoing appointment of Marten
& Co, a provider of research notes on the Company, and
retains joint brokers, Singer Capital Markets and Peel Hunt.
The chairman and directors are available to meet on a
one-to-one basis with the institutional shareholders with or
without either brokers or the manager present. During the
year the Company’s brokers and manager held regular
discussions with larger shareholders and the current
chairman also had contact with several shareholders.
Feedback from shareholder engagement is reported to the
board. Shareholders wishing to contact the chairman or any
other member of the board may do so at any time by writing
to the company secretary.
THE MANAGER
The manager is the principal service provider and supplies
investment management and administration services to the
Company. The Company is, and has been for a number of
years, a beneficial owner of 15.4% of the ordinary share
capital of HIML Holdings Limited, the holding company of
the manager, and a number of directors and employees of
the manager have shareholdings in the Company, further
aligning the manager’s interests with those of the Company’s
shareholders.
The board seeks to engage with the manager in a
collaborative and collegiate manner, encouraging open and
constructive discussion and debate, whilst also ensuring that
there is appropriate and regular challenge. At all board
meetings there is a dialogue with the lead investment
manager, Katie Potts. In addition, other members of the
investment team attend board meetings to provide updates
on specific sectors or geographies that the portfolio is
invested in. A principal consideration of the board is whether
the manager is performing in accordance with the
Company’s investment objective and investment policies.
This consideration, as quantified by the KPIs described earlier
in the Strategic Report, is discussed at all board meetings and
at the board’s annual strategy meeting and explained to
shareholders in detail in the Managers’ Report.
The investment management section of the Strategic Report
sets out the key terms of the management agreement.
Theboard reviews the performance of the manager, its
remuneration and the discharge of its contractual obligations
at least annually.
OTHER SERVICE PROVIDERS
Other key service providers comprise the company secretary,
the administrator, the depositary, the custodian, the brokers,
the registrar and the auditor. The continuance, or otherwise,
of the engagement of these are reviewed by the board every
year to ensure that the Company continues to receive high
quality service at a competitive cost. Day to day dealings with
the other key service providers are, in general, conducted by
the manager with periodic reports being provided to the
board and an emphasis by both the manager and the
directors on constructive and transparent relationships.
Aswould be expected, there was also engagement with
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STRATEGIC REPORT CONTINUED
service providers in connection with the extended lockdown
conditions due to Covid-19.
In maintaining the Company’s reputation and high standards
of business conduct, the board is provided with regular
reports from the Company’s brokers and company secretary.
These alert the Board to recent changes in regulation and
market practice, as well as any likely reputational threats
which, in turn, influence the board’s decision-making
process. The board also seeks annual assurance from its
service providers as regards governance, including
whistleblowing, prevention of tax evasion and anti-bribery
policy and procedures.
INVESTEE COMPANIES, THE ENVIRONMENT AND WIDER
ECONOMY
As stated earlier, as an investment trust with no trading
activity or employees, the Company has little direct impact
on the social community or the environment. It is a low
energy user in relation to the carbon reporting regulations
and is exempt from the relevant disclosure requirements.
Agreenhouse gas emissions statement is included in the
Director’s Report on page 48 and the Company has given
shareholders the option to receive electronic copies of
annual reports and other information.
However, the Company has indirect interests through its
investment portfolio. The Company’s long-term success
isderived from the underlying success of the
telecommunications, multimedia and technology businesses
in which it is invested through the expertise of the manager.
The manager in turn is committed to being a long term and
responsible investor.
The directors believe that the Company is making a positive
contribution to addressing the challenges posed by climate
change through its investments in companies involved in, for
example, renewable energy and its supply chain, companies
which develop software which enables more efficient work
processes and companies which produce power efficient
components. In addition, the manager’s Stewardship Report
(further described below) sets out the manager’s approach to
encouraging investee companies to consider environmental
factors in a way that is proportionate to their size.
The manager is committed to being a responsible investor
and applies, and is a signatory to, the United Nations
Principles for Responsible Investment (PRI), which
demonstrates its extensive efforts in terms of ESG
integration, active ownership, investor collaboration and
transparency. Further details of responsible investing, ESG
and stewardship matters are dealt with on pages 39 and 40
of the Strategic Report.
All engagement with investee companies in the portfolio is
through the manager and, if strategically relevant, reported
to the board. Following the introduction of the UK
Stewardship Code 2020 by the Financial Reporting Council
(FRC), the manager refreshed the explanation of its approach
to the stewardship of its clients’ assets. This included the
presentation of the manager’s Stewardship Approach and
Policy, which was discussed and approved by the board. In
early 2021, the manager’s report on the Stewardship activities
it undertook during 2020 was submitted to the board and the
FRC (Stewardship Code Report). In September 2021, the FRC
confirmed that the manager had met the expected standard
of reporting and it was listed as a signatory to the UK
Stewardship Code 2020. In addition, the board regularly
reviews the governance engagement reports setting out the
r
easons why the manager has voted against investee
company management recommendations or against the
r
ecommendations of third party proxy advisors.
TheStewardship Approach and Policy, the Stewardship Code
Report and a summary of the 2020 Voting Record are
available on the manager’s website www.heralduk.com.
The Company has investments in early-stage companies –
frequently companies which have not reached profitability.
Secondary fund raisings are often required to reach
profitability while other companies seek more capital to
acquire businesses. The manager endeavours to support
these follow-on fund raisings as long as it is in the interests
of the Company’s shareholders. Bearing this in mind, as well
as several other factors including market conditions, the
economic cycle and liquidity, the directors have adopted
aconservative gearing policy. Borrowing facilities are a board
decision, but within this policy the manager decides on net
cash or gearing levels which are reported on and discussed
at every board meeting.
Key decisions and action taken by the board during the year
which required the directors to have regard to s172 factors,
included:
• Following the annual appraisal of the manager by the
board, the board resolved to continue the appointment
of the manager as it considers this to be in the best
interests of the Company and its stakeholders.
• After discussion between the manager and board, and
taking into account the increase in size of the fund, with
effect from 1 January 2021 the management fee was
reduced to 1.0% per annum of the Company’s net asset
value (excluding current year net revenue) based on
middle market prices up to £1.25 billion and 0.8% per
annum on amounts beyond this level. Previously it was
aflat annual fee of 1% of the Company’s net asset value.
• The nomination committee undertook an updated review
of succession planning and the composition of the board
following the resignation of Ian Russell as chairman.
Thistook into consideration the balance of skills,
knowledge, experience and diversity of the directors.
Asaresult the Nomination Committee recommended,
and the board approved, the appointment of Tom Black
as Chairman and James Will as Senior Independent
Director in March and April 2021 respectively.
• Stewardship Approach and Policy and the Stewardship
Code Report: As stated earlier, the board approved the
stewardship matters during the year and is pleased to
report that the manager is a signatory to the FRC
Stewardship Code 2020, which seeks to improve the
quality of engagement between institutional investors
and companies to help improve long-term returns to
shareholders and the efficient exercise of governance
responsibilities.
• Early in the year the manager documented its approach
to responsible investing and how it integrates the
consideration of ESG risks into the investment process.
This was endorsed by the board and is available on the
manager’s website www.heralduk.com.
• During the year the directors decided to endorse the
manager’s recommendation not to put in place any
borrowing facility, because valuations are reasonably high
by historic standards, liquidity challenging, and the Covid
environment leading to an uncertain economy.
TheDirectors will continue to adopt leverage when
market conditions seem appropriate.
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The directors are cognisant of their duty under s172 in their
deliberation as a board on all matters. Decisions made by the
board take into account the interests of all the Company’s
key stakeholders and reflect the board’s belief that the
long-term sustainable success of the Company is linked
directly to its key stakeholders.
VIABILITY STATEMENT
The directors’ view of the Company’s viability has not
changed since last year. The Company, as an investment
trust, is a collective investment vehicle designed and
managed for the long term. The directors consider that
threeyears is an appropriate forward-looking time period.
This recognises the Company’s current position, the
investment strategy, which includes investment in smaller
companies, some of which are early stage and for which
athree-year horizon is a meaningful period over which to
judge prospects, the board’s assessment of the main risks
that threaten the business model and the relatively
fast-moving nature of the sectors in which the Company
invests. By definition, investment in smaller and early-stage
companies carries higher risks, both in terms of stock
liquidity and longer-term business viability and this risk is
accepted by the board.
There are no current plans to amend the investment strategy,
which has delivered good investment performance for
shareholders over many years and, the directors believe,
should continue to do so. The investment strategy and its
associated risks are kept under constant review by the board.
The board undertook a robust assessment of the risks
pertaining to the Company, including risks to the Company’s
viability, and this is set out in the principal risks and
uncertainties section. This included emerging risks such as
the ongoing pandemic, with second order effects such as
supply train disruption, and climate change. As part of this,
the board considered several severe but plausible scenarios,
including the impact of significant market movements.
Other items relevant in the directors’ assessment of the
Company’s viability were: income and expenses projections
and the fact that the majority of the Company’s investments
comprise readily realisable securities as proven by liquidity
analysis of the portfolio; any borrowing facilities in place –
noting there were none at the year end; and the fact that as
aclosed ended investment company the Company is not
affected by the liquidity issues of open-ended companies
caused by large or unexpected redemptions. The board also
takes account of the triennial shareholder vote on whether
the Company should continue as an investment trust. At the
AGM in April 2019, 99.88% of votes cast were in favour of
continuation. The next continuation vote will be at the AGM
to be held on 19 April 2022. Given the performance of the
Company and feedback from stakeholders, including the
Company’s broker and major shareholders, the board have
no reason to believe that the continuation vote will not be
approved at the AGM in 2022.
The directors confirm that, based on the above and on
reviews conducted as part of the detailed internal controls
and risk management processes set out on page 44, they
have a reasonable expectation that the Company will
continue to maintain its status as an investment trust, to
implement its investment strategy and to operate and be able
to meet its liabilities as they fall due for at least the next three
financial years.
INVESTMENT MANAGEMENT
The management contract with HIML is subject to
12months’ notice by either party. The senior director of HIML
with prime responsibility for the management of the
Company’s portfolio is Katie Potts, who is also a substantial
shareholder of HIML Holdings Limited, the parent company
of HIML. For the year under review, HIML was remunerated at
an annual rate of 1.0% of the Company’s net asset value
(excluding current year net revenue) up to £1.25 billion and
0.8% thereafter, calculated using middle market prices. Prior
to 1 January 2021 fees were charged at 1% of the Company’s
net asset value. Compensation fees would only be payable in
respect of this 12-month period if termination were to
occursooner.
The reduction in the management fee was agreed between
the board and the manager at the start of the year. The board
considers that maintaining an appropriate level of ongoing
charges for a specialist trust is in the best interest of all
shareholders. The board is also of the view that calculating
the fee with reference to performance would be unlikely to
exert a positive influence over the long-term performance.
At31 December 2021, Katie Potts held 398,940 (2020:
393,430) of the Company’s shares.
At 31 December 2021, the Company was the beneficial
owner of 15.4% (2020: 15.4%) of the ordinary share capital of
HIML Holdings Limited.
The board considers the investment management
arrangements for the Company on a continuing basis and
aformal review is conducted annually. The board considers,
amongst others, the following topics in its review: investment
performance in relation to the investment policy and
strategy; the continuity of personnel managing the assets
and reporting to the board; the level of service provided in
terms of the accuracy and timeliness of reports to the board
and the frequency and quality of both verbal and written
communications with shareholders.
Following the most recent review the board is of the opinion
that the continued appointment of HIML as investment
manager, on the terms agreed, is in the interests of
shareholders due to the experience of the manager, the track
record of performance and the quality of service and
information provided to the board.
RESPONSIBLE INVESTING, ESG AND STEWARDSHIP
The United Nations Principles of Responsible Investing (PRI)
defines responsible investing as a strategy and practice to
incorporate environmental, social and governance factors in
investment decisions and active ownership. The Stewardship
Code 2020 sets out the principles of stewardship which it
defines as the responsible allocation, management and
oversight of capital to create long-term value for clients and
beneficiaries leading to sustainable benefits for the economy,
the environment and society.
The board has delegated the management of the Company’s
investments to the manager, HIML and this delegation
includes ensuring that HIML has a sensible and systematic
approach. The board has adopted HIML’s suggested
approach, after considerable deliberations by the board with
HIML. As well as designing arobust framework, HIML must
evidence to the board that it has implemented its policies to
act as a responsible investor.
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STRATEGIC REPORT CONTINUED
In relation to the portfolio, HIML has in turn documented its
approach to environmental, social and governance (ESG)
factors which sets out a number of objectives and criteria
that are considered in the context of its responsibility to
manage investments in the financial interests of
shareholders.
As an investment company with no employees, property or
activities outside investment, environmental policy has
limited direct application for the Company. Nevertheless, the
board is required to make a statement on carbon emissions
and this is included in the Directors’ Report on page 48.
HIML’s, and thus our, approach to responsible investing
follows.
1. HIML does not exclude companies from its investment
universe purely on the grounds of an ESG issue although
the telecommunications, multimedia and technology
focus of Herald implicitly limits investment in a number of
the most environmentally damaging sectors, such as coal
mining or generating energy by burning fossil fuels.
2. Rather, it adopts a positive engagement approach
whereby matters are discussed with management with
the aim of improving the relevant policies and
management systems and enabling the manager to
consider how ESG factors could impact long term
investment returns.
3. HIML’s focus on the newer sectors of the economy
means that it believes in aggregate that investee
companies assist in improving the world environmentally.
The largest component of the portfolio is software, which
provides efficiencies for enterprises, governments and
consumers. Other sectors of the portfolio often provide
and improve the enabling supply chain. Technology also
provides energy efficient communications, entertainment
and more; and HIML firmly believes that capitalism and
technological innovation combined are the central
requirements to address the environmental challenges
we face. This is in contrast to the environmental impact
of the older parts of the economy such as transport,
extractive industries or heavy industrial sectors where
HIML does not invest. The majority of investments in the
technology and multimedia sectors have a low carbon
footprint and the carbon emissions of the portfolios are
estimated to be a fraction of those relative to the large
companies’ indices in the UK and US. Furthermore, much
of the world’s most advanced technology and intellectual
property tends to reside in the wealthiest and most
advanced economies, which themselves have strict social
and environmental standards.
4. The manager is a signatory of the PRI, the globally
recognised accord for responsible investment. The
manager is also a signatory to the FRC Stewardship
Code2020. In addition, the manager is a supporter of the
Task Force for Climate-related Financial Disclosure
(TCFD). HIML contributes to the development of the rules
that govern smaller companies through its participation
in the QCA and its committees including the QCA
secondary mark
ets group and the QCA remuneration
committee which produces the guide outlining best
practice for UK small companies.
5. HIML’s investment team undertake in-depth company
research, seeking to identify sustainable competitive
advantages that enable businesses to generate excess
returns on capital and predictable cash flow.
Asbottom-up fundamental investors, the team consider
ESG risks that are material alongside other risks faced by
companies in the portfolio. They investigate and
incorporate any problematic issues into their assessment
and decision-making process; and portfolio holdings are
closely monitored throughout the time that the Company
are shareholders.
6. HIML actively encourage company management to think
about employees, customers and broader stakeholders
ahead of short-term shareholder returns, and firmly
believe that this leads to the best long-term outcomes for
shareholders. This includes engaging and interacting with
company management on strategy, performance,
governance, risk management and their treatment of
employees.
7. HIML vote the vast majority of the Company’s shares by
proxy using the ISS system, though in exceptional
circumstances the manager will attend meetings where
the Company has large holdings and there is a
contentious issue and where attendance in person rather
than voting by proxy is in the Company’s best interests.
Given the wide range of company sizes and variety of
governance and regulatory environments, the manager
does not believe that it is possible to enforce prescriptive
policies and rules. Furthermore, such an approach may
well prove to be damaging. Voting decisions made by
HIML’s investment team reflect all the knowledge they
have on the industry, company and management as well
as incorporating input from specialist information
sources.
Further details on Responsible Investing, ESG and
Stewardship can be found on HIML’s website at
www.heralduk.com.
DIVIDENDS
The ordinary shares carry a right to receive dividends. Interim
dividends are determined by the directors and final dividends
are subject to shareholder approval. The directors do not
recommend a dividend for the year under review.
On behalf of the board
TOM BLACK
CHAIRMAN
21 February 2022
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TOM BLACK
Tom Black was appointed to the board on 1 May 2013 and
succeeded Ian Russell as Chairman of the board and
nomination committee on 1 March 2021. He is chairman of
Thruvision Group plc, and has advisory roles with a number
of smaller unlisted businesses. He is chairman and trustee of
the Black Family Charitable Trust, which is focused on
supporting disadvantaged young people with their
educational needs. He was previously chief executive of
Detica Group Plc, a leading company in the field of
large-scale information collection and analysis for
intelligence and counter fraud applications.
As a successful entrepreneur he recognises the challenges of
starting and growing an early-stage technology company
and listing it on the London Stock Exchange. He understands
the smaller companies remit of the Company.
STEPHANIE EASTMENT
Stephanie Eastment was appointed to the board on
1December 2018 and is chair of the audit committee.
Afterleaving KPMG in 1990 she held various accounting and
compliance roles at Wardley and UBS before joining Invesco
Asset Management in 1996. There she held a variety of
increasingly senior roles, specialising in investment trusts.
She left Invesco in July 2018 to pursue a non-executive
career. Stephanie is currently a non-executive director and
audit chair of Murray Income Trust plc, Impax Environmental
Markets plc and Alternative Income REIT plc and a
non-executive director of RBS Collective Investment
FundsLimited.
She has extensive accounting, corporate governance and
investment trust sector experience. As a chartered
accountant and company secretary she has honed her
technical expertise, knowledge and contacts within the
industry and provides constructive oversight and challenge
not only as a director, but as the audit committee chair.
HENRIETTA MARSH
Henrietta Marsh was appointed to the board on 1 September
2019. She has a background in fund management, having
worked in UK small cap and private equity investment over
several decades, more recently pursuing a plural career. From
2005 until 2011, she was AIM fund manager at Living Bridge
Equity Partners. Prior to that, Henrietta spent 14 years at 3i in
several roles, including as fund manager of 3i Smaller Quoted
Companies Trust plc (1997–2002). Her earlier career was with
Morgan Stanley and Shell. She is currently a non-executive
director of Gamma Communications plc (AIM-listed), and
amember of London Stock Exchange’s AIM Advisory Group.
She has direct experience and understanding of the
investment process required in the Company.
KARL STERNBERG
Karl Sternberg was appointed to the board on 21 April 2015.
He was a founding partner of Oxford Investment Partners
Limited from 2006 until 2013, when it was acquired by
Towers Watson. Much of his earlier career was spent at
Morgan Grenfell (which became Deutsche Asset
Management), where he became chief investment officer,
Europe & Asia Pacific. Karl is a non-executive director of
Clipstone Industrial REIT plc, Monks Investment Trust plc,
JPMorgan Elect plc and Jupiter Fund Management plc.
He has significant investment trust experience and has good
insight in the investment industry and the macroeconomic
risks and influences.
JAMES WILL
James Will was appointed to the board on 21 April 2015 and
became senior independent director on 20 April 2021.
Hewas previously chairman and a senior corporate finance
partner of law firm Shepherd and Wedderburn LLP. He also
headed the law firm’s financial sector practice. As a lawyer,
he was for over 20 years involved in advising smaller quoted
technology companies on a range of corporate transactions,
including IPOs, secondary fundraisings and mergers and
acquisitions. James is chairman of both The Scottish
Investment Trust PLC and Asia Dragon Trust plc.
He has significant investment trust experience and in an
environment of increasingly complex legal and regulatory
framework, his legal counsel has a valued contribution.
YOUR BOARD OF DIRECTORS
All directors are, in the opinion of the board, independent
of the management company.
All directors are non-executive.
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Annual report & financial statements 2021
GOVERNANCE PRINCIPLES
The board is committed to achieving and demonstrating
high standards of corporate governance. This statement
outlines how governance principles were applied
throughout the financial year. The UK Corporate
Governance Code (UK Code) issued by the Financial
Reporting Council (FRC) in July 2018 and the AIC Code of
Corporate Governance (AIC Code) issued in February 2019
are the applicable governance codes in this regard.
The FRC has confirmed that by following the AIC Code,
investment company boards will meet their obligations in
relation to the UK Code and paragraph 9.8.6 of the Listing
Rules. The AIC Code is available on the AIC website at
www.theaic.co.uk, and the UK Code on the FRC website at
www.frc.org.uk.
STATEMENT OF COMPLIANCE
The directors believe that the Company has complied with
the AIC Code during the year and up to the date of this
report, and thereby the provisions of the UK Code except as
set out below.
The UK Code includes provisions relating to the role of the
chief executive; executive directors’ remuneration; and the
need for an internal audit function. As an investment
company which outsources its administration to third-party
providers, the Company has no chief executive or other
executives and therefore these provisions are not applicable.
It does not maintain an internal audit function. The audit
committee considers the need for such a function at least
annually and additional detail is provided later on in this
statement.
THE ROLE OF THE BOARD
The board has overall responsibility for the Company’s
affairs and for setting the Company’s purpose and strategy.
The s172 Statement on pages 37 and 38 sets out in detail the
parties, shareholders and other stakeholders, and factors the
directors consider as they perform their duties and the
board its role. There is an annual cycle of board meetings.
Aformal schedule of matters reserved for the board has
been established covering strategy; structure and capital;
investment objective, policy and limits; gearing; dividend
and corporate governance policy; performance; key
contracts; risk; financial reporting and board membership.
This is reviewed annually to ensure compliance with latest
regulatory requirements and best market practice.
The board is responsible for the approval of the annual and
half-yearly reports and board-published documents and for
ensuring that such documents provide a fair, balanced and
understandable assessment of the Company’s position and
prospects.
The board’s oversight of the Company’s risk management
and internal controls is set out in detail later in this report on
page 44. Full and timely information is provided to the board
to enable it to function effectively and to allow directors to
discharge their responsibilities.
CORPORATE GOVERNANCE REPORT
CHAIRMAN
The chairman of the Company is responsible for organising
the business of the board, ensuring its effectiveness and
setting its agenda. Ian Russell stepped down as director and
chairman on 1 March 2021. Tom Black succeeded Ian Russell
as chairman on the same date.
SENIOR INDEPENDENT DIRECTOR (SID)
Tom Black was the SID until the directorate changes
announced on 1 March 2021. James Will was appointed SID
from 20 April 2021. The SID provides a sounding board for the
chairman; is an intermediary for other directors if required; and
is an additional channel for shareholders if contact through
the chair or company secretary has failed to resolve an issue
or where that channel would not be appropriate.
BOARD COMPOSITION AND INDEPENDENCE OF
DIRECTORS
The board normally comprises six directors although as
explained elsewhere in this report five directors served
throughout the year, all of whom are non-executive and
were in office throughout the period under review.
Alldirectors will retire at the AGM and offer themselves for
re-election.
The directors believe that the board has a balance of skills
and experience which enable it to provide effective
leadership and proper governance of the Company.
All the directors are considered by the board to be
independent of the manager and free of any business or
other relationship which could interfere with the exercise of
their independent judgement.
There is an agreed procedure for directors to seek
independent professional advice if necessary at the
Company’s expense.
BOARD DIVERSITY
Appointments are based on merit with due regard to the
benefits of diversity. The board considers many factors,
including the balance of skills, knowledge, experience,
gender, ethnicity, cognitive and personal strengths when
reviewing its composition and appointing new directors.
Theaim of the policy is to identify those with the best range
of skills and experience to complement existing directors in
order to provide effective oversight of the Company and
constructive support and challenge to the manager.
Summary biographical details of the directors, including their
relevant experience, are set out on page 41.
TERMS OF APPOINTMENT
The terms and conditions of directors’ appointments are set
out in formal letters of appointment which are available for
inspection upon request.
Under the provisions of the Company’s articles of
association, a director appointed during the year is required
to retire and seek election by shareholders at the next AGM.
All directors retire annually and, if appropriate, offer
themselves for re-election.
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DIRECTORS’ MEETINGS
The board considers that it meets sufficiently regularly to
discharge its duties effectively. The table below shows the
attendance record for board and committee meetings held
during the year. Additionally ad-hoc meetings are held as
required for administrative purposes.
Number of Board Audit Nomination
scheduled meetings 4 3 2
Ian Russell
1,3
1 1 –
Tom Black
2,3
4 3 2
Stephanie
Eastment 4 3 2
Henrietta Marsh 4 3 2
Karl Sternberg 4 3 2
James Will 4 3 2
1. Ian Russell stepped down as director and chairman on 1March 2021. He attended
all meetings whilst he was a director of the Company.
2. Tom Black abstained from participation in the nomination committee meeting
which considered his appointment as chairman of the Company.
3. The chairman is not a member of the audit committee, but attends the committee
by invitation of the audit chair.
COMMITTEES OF THE BOARD
The board has two committees: the audit committee and the
nomination committee. The role, responsibilities and
activities during the year of the audit committee are detailed
in its report on page 46 and those for the nomination
committee are shown below.
The board has not formed a management engagement
committee and it remains the role of the board to regularly
review the terms of the management agreement between
the manager and the Company, as set out on page 39.
Aseparate remuneration committee has not been
established as all directors are non-executive and the board
as a whole considers directors’ remuneration in line with the
remuneration policy set out on page 51.
DIRECTORS RE-ELECTIONS
Ian Russell stepped down as director and Chairman on
1March 2021. All other directors of the Company served
throughout the year under review. Following a board
evaluation which determined that the board remained
effective, all directors will stand for re-election at the AGM to
be held on 19April 2022 in accordance with the AIC Code.
The biographies of the directors are set out on page 41 and
are incorporated into this report by reference. They include
the skills and experience that each director brings to the
board in order to contribute to the long-term sustainable
success of the Company. The attendance record of each
director at meetings of the board and its committees
throughout the year is shown above.
NOMINATION COMMITTEE
The nomination committee consists of all the directors and is
chaired by the chairman of the board. The committee meets
on an annual basis and at such other times as may be
required. The committee has written terms of reference
which include, identifying and nominating new candidates
for appointment to the board including engagement of
independent search consultants, board and director
appraisal, succession planning and training. The committee
also considers whether directors should be recommended
for re-election by shareholders. The committee is
responsible for considering directors’ potential conflicts of
interest and for making recommendations to the board on
whether or not the potential conflicts should be authorised.
The terms of reference are reviewed annually and are
available on request and at www.heralduk.com.
Appointments to the Board
Appointments to the board are made on merit. It operates in
accordance with the following standards:
— when seeking to recruit, the nomination committee will
evaluate the skills, experience, independence, knowledge
and diversity of the board and prepare a description of
the role and capabilities required to fulfil the appointment
and will normally appoint an independent agency to
assist in the recruitment process or use open
advertisements;
— it will ensure that a diverse group of candidates is
considered;
— candidates will be considered against objective criteria
having regards to the benefits of diversity – including
gender, social and ethnic background and personal
strengths, experience and knowledge; and
— the demands on each candidate’s time and consideration
of their other commitments.
During the year the committee met on two occasions.
Itundertook the following activities:
— considered and approved a successor to assume the
chairmanship of the Company;
— updated the Company’s succession planning;
— engaged Korn Ferry, an independent firm with no
connection to the Company, to assist in the search for
anew director;
— reviewed the board and its committees’ structures, size
and composition and considered the skills required of
current and future directors;
— undertook a board evaluation and reviewed the results of
the evaluation as detailed below;
— considered the independence of each director;
— considered each director’s time commitment;
— considered the skills matrix;
— reviewed and approved the Company’s diversity policy
statement; and
— reviewed and approved the Company’s tenure and
succession planning policy.
As the then senior independent director, Tom Black, was
acandidate to take over the chairmanship of the Company,
James Will chaired the nomination committee during this
period and he became senior independent director soon
after the appointment of Tom Black as Chairman.
As a result of the committee’s succession planning, the
committee determined that a new director should be
appointed to return the board to six members, a number
considered appropriate for the Company’s size and
complexity. The search is currently ongoing and an
announcement will be made in due course.
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Board and Chairman’s tenure
The nomination committee is responsible for considering the
policy on tenure of the chairman of the board and planning
for the chair’s succession. In line with the board’s policy on
director tenure, which meets the recommendations of the
AIC Code principles, the chairman’s appointment may extend
beyond nine years if required to provide flexibility and an
orderly succession during the handover period. This principle
is further extended to all members of the Board.
Performance evaluation
During the year, the nomination committee met to assess the
effectiveness of the chairman, each director, the board as
awhole, its committees and the manager. The evaluation
required the directors to complete a short questionnaire on
the operation of the board and its committees and the
individual contribution of directors and the performance of
the chairman. The appraisal of the chairman was led by
James Will. The appraisals and evaluations considered,
amongst other criteria, the balance of skills of the board,
training and development requirements, the contribution of
individual directors and the overall effectiveness of the board
and its committees.
The nomination committee reported to the board on each
director’s performance, the process for which is described on
page 43, and concluded that their performance continues to
be effective, they remain committed to the Company and
have sufficient time to fulfil their duties. The board therefore
recommends their re-election to shareholders.
Induction and training
Training for new directors is tailored to the particular
circumstances of the individual appointee. Regular briefings
are provided on changes in regulatory requirements that
could affect the Company and the directors. Directors
receive other relevant training as necessary.
RISK MANAGEMENT AND INTERNAL CONTROLS
The directors acknowledge their responsibility for the
Company’s risk management and internal controls systems
and for reviewing their effectiveness. The systems are
designed to manage rather than eliminate the risk of failure
to achieve business objectives and can only provide
reasonable but not absolute assurance against material
misstatement or loss.
The board confirms that there is a continuing process for
identifying, evaluating and managing the significant and
emerging risks faced by the Company, in accordance with
the guidance on risk management, internal control and
related financial and business reporting, published by the
FRC. This takes into account ongoing and emerging risks,
procedures and controls and, after mitigation, identifies the
significant risks as summarised on pages 35 and 36.
The directors confirm that they have reviewed the
effectiveness of the Company’s risk management and
internal control systems and they have procedures in place
to review their effectiveness on a regular basis. No significant
weaknesses were identified in the year under review and in
the period up to and including the date of this report.
The practical measures to ensure compliance with regulation
and company law, and to provide effective and efficient
operations and investment management, have been
delegated to HIML, Sanne (the company secretary) and
BNY
MIL.
The audit committee and board monitor performance of the
functions performed by HIML, the company secretary and
BNY
MIL through regular review. Since July 2014, when HIML
became the Company’s AIFM under the Alternative
Investment Fund Managers Directive (‘AIFMD’), the audit
committee and board also monitor the controls managed by
the AIFM.
The AIFM has a risk policy covering the risks associated with
its management of the portfolio and it has in place its own
risk management procedures, which are periodically
reviewed. Risk limits are set by the AIFM and approved by the
audit committee taking into account several factors,
including investment strategy and risk appetite. The
investment policy limits are described in the strategic report
and are monitored at each board meeting, taking account of
appropriate sensitivity analysis.
HIML has a compliance function in accordance with the
FCAregulations. The compliance function provides the
auditcommittee and board with a report on its monitoring
procedures on a regular basis. Compliance monitoring by
HIML includes risk-based internal monitoring as well as
external monitoring of services that have been delegated to
third parties – principally fund accounting and company
secretarial services.
For fund accounting, monitoring includes reviewing the
monthly net asset value produced by BNYMIL versus HIML’s
own system, reviewing BNYMIL’s client accounting
compliance reports and internal audit confirmations and
reviewing KPMG’s annual Service Organisation Control
(SOC1) and Centrally Managed Information Technology
Services (CMITS) reports on BNYMIL. The audit committee
also receives regular compliance reports from BNYMIL,
including performance against service level standards.
Under AIFMD, the Company has appointed a depositary,
BNYMIL, whose responsibilities include cash monitoring and
safekeeping of the Company’s assets. It also acts as the
custodian. The scope of the fund accounting services
includes reconciliations to custody records. Provision of
custody services by BNYMIL is covered by a SOC1 report,
acopy of which is available to audit committee members.
Finally, a detailed risk map is prepared by the company
secretary for the risks faced by the Company. These
procedures ensure that consideration is given regularly to the
nature and extent of the risks facing the Company and that
they are being actively monitored. Where changes in risk are
identified during the year, these procedures also provide a
mechanism to assess whether further action is required to
manage the changes identified. An example of changes in
risk is the ongoing effects of the pandemic which remained
an emerging risk and required the board to carefully consider
the continued operational resilience of each service provider
and the ongoing impact on the Company’s portfolio.
The board confirms that these procedures have been in
place throughout the year under review and that they
continue to be in place up to the date of approval of this
report.
CORPORATE GOVERNANCE REPORT CONTINUED
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ACCOUNTABILITY AND AUDIT
The respective responsibilities of the directors and the
auditor in connection with the financial statements are set
out on page 54.
DISCLOSURES REQUIRED BY UKLA LISTING RULE 9.8.4
The above rule requires listed companies to report certain
information in a single identifiable section of their annual
financial reports. None of the prescribed information is
applicable to the Company for the year under review.
RELATIONS WITH SHAREHOLDERS
The board places great importance on communication with
shareholders. The Company’s manager may meet with larger
shareholders and reports to the board. The chairman also
meets with shareholders both with the manager and on his
own. Shareholders wishing to communicate with the
chairman or any other director may do so by writing to the
company secretary at the registered office of the Company
which is shown on page 85.
Information is provided to all shareholders via the annual and
half-yearly accounts and also by the publication of daily
NAVs and monthly factsheets.
The Company’s AGM provides a forum for communication
with all shareholders. The level of proxies lodged for each
resolution is announced at the meeting and is published on
the manager’s website, www.heralduk.com, subsequent to
the meeting. Shareholders and potential investors may obtain
up-to-date information on the Company from the manager’s
website.
In line with governance recommendations, if 20% or more of
votes cast are against any resolution, the Company would
announce what action it intended to take to consult
shareholders views and would provide a summary of the
outcome and actions it intended to take within six months of
the date at which the vote was held. The board confirms that
none of the resolutions put to shareholders at the AGM in
2021 received 20% or more of the votes cast against.
PURCHASE OF OWN SHARES
At the AGM of the Company to be held on 19 April 2022, the
Company will as usual be seeking authority to make limited
purchases of the Company’s ordinary shares – see the notice
of AGM on page 80. Buy-backs are considered by the board
to be a useful tool, where cash is not being utilised for
investment, to assist in the maintenance of liquidity in the
Company’s shares. Shares will only be bought back at a time
when the Company’s shares are trading at a discount to its
prevailing net asset value.
AGM – DIGITAL PROXY VOTING
Shareholders are strongly encouraged to submit proxy
votesonline by visiting www.signalshares.com. There is
astraightforward registration process and a number of our
shareholders are using the site already. All you need is your
name, address and investor code, which can be found on
your share certificate. If you are having trouble locating
yourshare certificate or investor code, please call the
shareholder helpline on 0871 664 0300 (or from overseas
+44 (0)371 6640300).
Any shareholder who is unwilling or unable to vote digitally
can ‘
opt-in’ to receive a paper pr
oxy card by telephoning the
shareholder helpline.
AGM RECOMMENDATION
The directors unanimously recommend all holders to vote in
favour of all the resolutions to be proposed at the AGM as
they will be doing with their own holdings.
On behalf of the board
TOM BLACK
CHAIRMAN
21 February 2022
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AUDIT COMMITTEE REPORT
AUDIT COMMITTEE
The audit committee is made up of all the independent
non-executive directors, with the exception of the chairman,
although he joins by invitation. The committee believes that
it is in the best interests of Company for the chairman of the
board to attend. The committee is chaired by Stephanie
Eastment and the committee meets at least twice a year.
The committee considers that at least one of its members
has recent and relevant financial experience and that the
committee as a whole has competence relevant to the
sector in which the Company operates. Its authority and
duties are defined within its written terms of reference which
are available on request from the Company and on the
manager’s website: www.heralduk.com.
ROLE AND RESPONSIBILITIES
The committee’s responsibilities include:
— monitoring and reviewing the integrity of the half-yearly
and annual financial statements and any formal
announcements relating to the Company’s financial
performance including: ensuring compliance with
statutory and listing requirements; appropriateness of
accounting policies and any financial judgements and key
assumptions;
— at the request of the board, considering whether the
annual report, when taken as a whole, is fair, balanced
and understandable and provides the information
necessary for shareholders to assess the Company’s
position, performance, business model and strategy;
— reviewing the adequacy and effectiveness of internal
control and risk management systems and considering
the key risks and emerging risks facing the Company
which included the Covid-19 pandemic;
— making recommendations to the board in relation to the
appointment of the external auditor and approving the
remuneration and terms of its engagement;
— overseeing and managing the audit tender and selection
processes and making recommendations to the board
about the appointment, reappointment and removal of
the external auditor;
— developing and implementing policy on the engagement
of the external auditor to supply non-audit services;
— management of the relationship with the external auditor
including: the scope, nature and planning of the audit;
discussion of matters of audit focus; evaluation of
external auditor’s results; and review and monitoring the
independence, objectivity and effectiveness of the
external auditor taking into consideration relevant UK
professional and regulatory requirements;
— reviewing whistleblowing arrangements in place within
HIML; and
— considering annually whether there is a need for the
Company to have its own internal audit function.
The committee fulfilled all the above roles and
r
esponsibilities for the year under review
, with the exception
of audit tendering as this was undertaken in 2019.
RISK MANAGEMENT AND INTERNAL CONTROL
The extensive array of internal controls adopted by the
Company are set out in the corporate governance report.
The board as a whole is responsible for the effectiveness of
internal control mechanisms but it is informed by more
specific work carried out by the audit committee. In addition
to the committee’s normal work, the committee also
undertook a detailed review of the committee’s risk reporting
and methodology, which resulted in an enhanced risk
register and the introduction of a risk matrix.
INTERNAL AUDIT
The audit committee carried out its annual review of the
need for an internal audit function. The committee continues
to believe that the compliance and internal control systems
and the internal audit function in place within the manager
and the administrator provide sufficient assurance that
asound system of internal control, which safeguards
shareholders’ investment and the Company’s assets, is
maintained. An internal audit function, specific to the
Company, is therefore not considered necessary.
EXTERNAL AUDITOR
The committee reviewed the independence and objectivity
of the auditor, its performance and effectiveness by meeting
with the audit partner to discuss the year’s audit. Part of that
process required the auditor to give the committee an
assessment of how the audit team identified and managed
threats to its independence. The committee received
confirmation from the auditor that it has complied with the
relevant UK professional and regulatory requirements on
independence. It also took into account the findings in the
most recent FRC audit quality inspection report on
PricewaterhouseCoopers LLP (‘PwC’). The committee does
not believe that there has been any impairment to the
auditor’s independence.
The committee examined in detail the scope of the audit,
ensuring that the auditor’s objectives have met the
committee’s expectations, along with key audit and
accounting matters considered. The principal findings of the
audit were discussed and challenged, particularly in areas
where management judgement had been required.
Thecommittee gave the auditor an opportunity to comment
privately on the quality and standard of the manager’s and
administrator’s performance generally and during the audit.
Similarly, the committee sought the views of the manager
and administrator on the effectiveness and performance of
the audit team. No issues were raised.
This year’s audit was the third performed by PwC, and by
Allan McGrath as engagement partner, since PwC was
appointed on 21 October 2019 following an audit tender
process. As set out above, the committee reviewed the
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Annual report & financial statements 2021
performance and effectiveness, independence and
objectivity of the auditor for the year under review. This also
included consideration of the experience of the audit partner
and staff, the quality of service, review of the audit plan,
execution and reporting, and attendance of the audit
committee chair in additional meetings with the auditor as
part of the annual and half-yearly reporting process.
Allresults were satisfactory. Accordingly, the committee has
recommended that PwC be reappointed at the forthcoming
AGM.
NON-AUDIT SERVICES
The committee’s policy is that non-audit work should be
limited to those matters where the external auditor is most
appropriately placed to carry out the work, unless there is a
conflict of interest. All non-audit services must be approved
in advance. PwC did not provide any non-audit services to
the Company in this or the previous accounting year.
SIGNIFICANT FINANCIAL ISSUES RELATING TO THE 2021
FINANCIAL STATEMENTS
The UK Corporate Governance Code requires us to describe
any significant issues considered in relation to the financial
statements and how those issues were addressed.
Whilethere were no significant issues, two matters of risk of
particular focus at the balance sheet date are the risks that
investments might not have been correctly valued or
beneficially owned. The committee receives bi-annual
reports from the depositary confirming the valuation,
existence and ownership of the Company’s investments as
well as the year end auditor’s report on these items.
Noissues were discovered.
FINANCIAL REPORTING COUNCIL (FRC) REVIEW OF
HALF-YEARLY FINANCIAL REPORT 2021
In 2021 the FRC reviewed the Company’s 2021 Half-Yearly
Financial Report. The review did not benefit from detailed
knowledge of the Company’s business or an understanding
of the underlying transactions entered into. However, it was
conducted by staff of the FRC who have an understanding of
the relevant legal and accounting framework. It was pleasing
to note that the FRC has written to the Chairman of the
Board to confirm that it has no matters to raise in respect of
the Company’s compliance with corporate reporting
requirements.
STEPHANIE EASTMENT
CHAIR, AUDIT COMMITTEE
21 February 2022
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Should a decision need to be taken by the board in relation
to these investments, the relevant director would abstain
themselves from any such discussion and decision.
BRIBERY ACT 2010 AND CRIMINAL FINANCES ACT 2017
The board has a zero tolerance policy towards bribery and
the criminal facilitation of tax evasion. It is committed to
carrying out business fairly, honestly and openly.
Themanager, administrator and company secretary also
adopt a zero tolerance approach and have policies and
procedures in place to prevent both bribery and the
facilitation of tax evasion.
GREENHOUSE GAS EMISSIONS
The Company has no employees, physical assets, property or
operations of its own, does not provide goods or services
and does not have its own customers. It follows that the
Company has little to no direct environmental impact. In
consequence, the Company has limited greenhouse gas
emissions to report from its operations aside from travel to
board meetings, nor does it have responsibility for any other
sources of emissions under the Companies Act 2006
(Strategic Report and Directors’ Reports) Regulations 2013.
The Company consumed less than 40,000 kWh of energy
during the year.
DIRECTOR INDEMNIFICATION AND INSURANCE
The Company has entered into deeds of indemnity in favour
of each of the directors. The deeds cover any liabilities that
may arise to a third party, other than the Company, for
negligence, default or breach of trust or duty. The directors
are not indemnified in respect of liabilities to the Company,
any regulatory or criminal fines, any costs incurred in
connection with criminal proceedings in which the director
isconvicted or civil proceedings brought by the Company
inwhich judgement is given against him. In addition, the
indemnity does not apply to any liability to the extent that it
isrecovered from another person.
The Company maintains Directors’ and Officers’ liability
insurance.
PRINCIPAL RISKS AND UNCERTAINTIES
These are set out as part of the Strategic Report.
SHARE CAPITAL
Details of the Company’s share capital and changes thereto
are disclosed in the Strategic Report on page 34 and note 12
of the financial statements.
ARTICLES OF ASSOCIATION
Any amendments to the Company’s Articles must be made
by special resolution at a general or annual general meeting
of the Company. Resolution 12 proposes that the Company’s
New Articles of Association be approved and adopted in
substitution for, and to the exclusion of, the Existing Articles
of Association. Further details are provided on page 49 of the
Director’s Report and in the appendix to the AGM Notice on
pages 82 and 83.
The directors present their directors’ report for the year
ended 31 December 2021. The strategic r
eport and the
corporate governance report on pages 34 to 45 form a part
of the Dir
ectors’ Report.
RESULTS AND DIVIDEND
The net asset value (NAV) of the Company as at 31 December
2021 was 2,719.3p per ordinary share (2020 – 2,285.3p). This
represented an increase of 19.0% during the year, compared
to an increase in the comparative total return indices of 17.8%
(Numis Smaller Companies plus AIM (ex. investment
companies) Index) and an increase of 15.2% (Russell 2000®
Technology Index (small cap) (in sterling terms)). The
discount at year end was 7.9% (2020 – 1.8%).
The directors do not recommend a dividend for the year
ended 31 December 2021 (2020 – nil).
DIRECTORS
The directors are listed on page 41.
GOING CONCERN
The directors have undertaken a review of the Company’s
financial position and its ability to continue as a going
concern. This review took account of the ongoing impact of
the Covid-19 pandemic. The Company’s principal risks are
market-related and include market risk, liquidity risk and
credit risk. An explanation of these risks and how they are
managed is contained in note 17 to the financial statements.
The Company’s assets, the majority of which are investments
in quoted securities, exceed its liabilities significantly.
Allborrowings require the prior approval of the board.
TheCompany had no borrowings as at 31 December 2021.
Inaccordance with the Company’s articles of association,
shareholders have the right to vote on the continuation of
the Company as an investment trust every three years and
aresolution to that effect will be proposed at the AGM on
19April 2022. The directors have no reason to believe that
the resolution will not be passed.
The financial statements have been prepared on the going
concern basis. There are no material uncertainties that call
into question the Company’s ability to continue to be a going
concern for at least 12 months from the date of approval of
these financial statements and the board is confident that the
Company will be able to continue in operation and meet its
liabilities as they fall due.
CONFLICTS OF INTEREST
Each director submits a list of potential conflicts of interest to
the nomination committee on an annual basis, or as they
arise. The committee considers these carefully, taking into
account the circumstances surrounding them, and makes
arecommendation to the board on whether or not the
potential conflicts should be authorised. Board authorisation
is for a period of one year. Having considered the lists of
potential conflicts there were no situations which gave rise to
a direct or indirect interest of a director which conflicted with
the interests of the Company.
The board have recorded within its conflicts register that
Tom Black and Henrietta Marsh are both directors of entities
in which the Company is invested and have concluded that
as the management of the investment portfolio is delegated
to HIML, there is no conflict arising from these appointments.
DIRECTORS’ REPORT
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NOTIFIABLE INTERESTS IN THE COMPANY’S SHARES
At year end the following had declared a notifiable interest in
the Company’s voting rights:
% of issued share
capital as notified
to the Company
Rathbone Investment Management 13.1%
Allspring Global Investments, LLC 7.0%
Lazard Asset Management LLC 5.7%
Hargreaves Lansdown Stockbrokers 5.5%
Interactive Investor Services Limited 5.2%
Investec Wealth & Investment Limited 4.8%
JM Finn & Co Ltd 4.5%
Brewin Dolphin Securities 3.9%
Charles Stanley & Co 3.4%
Since year end and up to the date of this report there had
been no notifiable interests declared to the Company.
REGULATORY COMPLIANCE
THE ALTERNATIVE INVESTMENT FUND MANAGERS
(“AIFM”) DIRECTIVE
The AIFM is required to provide portfolio management and
risk management. In accordance with the AIFM’s agreement
it is also required to provide administration, accounting and
company secretarial services to the Company. The Company
has appointed HIML as its AIFM, to undertake these functions
on its behalf.
AIFMs are obliged to publish certain information for investors
and prospective investors, which may be found either in this
annual report or on the Company’s website. Any information
on remuneration not already disclosed in the remuneration
report will be provided to investors on request.
The AIFMD requires an annual disclosure of ‘leverage’.
Ona‘gross’ basis, this is 0.96 against a maximum of 2.00
(2020 – 0.95: 2.00) and on a ‘commitment’ basis, 1.00
against amaximum of 2.00 (2020 – 1.00: 2.00).
THE MODERN SLAVERY ACT 2015
The Company falls outside the scope of the Modern Slavery
Act and is therefore not required to make a slavery and
human trafficking statement.
PAYMENT TO SUPPLIERS
The Company is a signatory to the Prompt Payment Code,
which enshrines a 30-day payment term as a norm.
DISCLOSURE OF INFORMATION TO THE AUDITOR
The directors confirm that so far as each of them is aware,
there is no relevant audit information of which the
Company’s auditor is unaware and the directors have taken
all the steps that they ought to have taken as directors in
order to make themselves aware of any relevant audit
information and to establish that the Company’s auditor is
aware of that information.
INDEPENDENT AUDITOR
The auditor, PricewaterhouseCoopers LLP, is willing to
continue in office. Resolutions proposing the reappointment
of PricewaterhouseCoopers LLP and authorising the Audit
Committee to determine its remuneration for the ensuing
year will be proposed at the AGM.
ANNUAL GENERAL MEETING (AGM)
The following information to be discussed at the
forthcoming AGM is important and requires your immediate
attention. If you are in any doubt about the action you should
take, you should seek advice from your stockbroker, bank
manager, solicitor, accountant or other financial adviser
authorised under the Financial Services and Markets
Act2000 (as amended). If you have sold or transferred all of
your ordinary shares in the Company, you should pass this
document, together with any other accompanying
documents as soon as possible to the purchaser or
transferee, or to the stockbroker, bank or other agent
through whom the sale or transfer was effected, for onward
transmission to the purchaser or transferee.
The AGM will be held at 11.30am on 19 April 2022 at the
Company’s registered office. The information below is an
explanation of the special business to be proposed at the
2022 AGM.
ORDINARY RESOLUTION 10: CONTINUATION VOTE
In accordance with the Company’s articles of association,
shareholders have the right to vote on the continuation of
the Company every three years, the next triennial vote to be
proposed at the forthcoming AGM on 19 April 2022 – see
resolution 10 of the AGM notice on page 80. Your board
strongly recommends that shareholders vote in favour of the
resolution. The directors intend to vote their own
shareholdings in favour.
SPECIAL RESOLUTION 11: BUY BACK OF THE COMPANY’S
ORDINARY SHARES
Resolution 11 is to renew the authority for the Company to
purchase its own shares up to 14.99% of the Company’s
issued share capital as at the date of the AGM for
cancellation, subject to the restrictions referred to in the
notice of AGM (equivalent to 9,581,145 ordinary shares as at
18February 2022). The Authority will expire at the conclusion
of the AGM to be held in 2023. The board will only utilise this
authority when they believe it to be in the interest of
shareholders to do so and as a means of narrowing any
discount at which the Company’s shares are trading against
its then prevailing net asset value, providing market
conditions are favourable to such a transaction.
SPECIAL RESOLUTION 12: ARTICLES OF ASSOCIATION
Resolution 12, is to adopt new Articles of Association (the
“New Articles”) in order to update the Company's current
Articles of Association (the “Existing Articles”). The proposed
amendments being introduced in the New Articles will allow
the Company to hold wholly virtual shareholder meetings
using electronic means (as well as physical shareholder
meetings and hybrid meetings). In addition, it is proposed to
amend the articles to increase the cap on the aggregate of all
fees which may be paid to directors from £200,000 to
£250,000 per annum in order to allow for headroom for
additional directors and to remain in line with market
practice. Other amendments primarily relate to changes in
law and regulation and developments in market practice
since the Existing Articles were adopted.
A summary of the principal amendments being introduced in
the New Articles is set out in the appendix to the AGM Notice
(on pages 82 and 83 of this document).
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While the New Articles (if adopted) would permit shareholder
meetings to be conducted using electronic means, the
directors have no present intention of holding a virtual-only
meeting. These provisions will only be used where the
directors consider it is in the best interests of shareholders,
for hybrid or virtual-only meetings to be held. Nothing in the
New Articles will prevent the Company from holding physical
shareholder meetings.
The full terms of the proposed amendments to the
Company’s articles of association are available on the
Company’s website, www.heralduk.com/funds/herald-
investment-trust from the date of the AGM Notice until the
close of the AGM, and will also be available for inspection at
the venue of the AGM from 15 minutes before and during the
AGM.
SPECIAL RESOLUTION 13 GENERAL MEETING NOTICE
PERIOD
The Companies Act 2006 and the Company’s Articles of
Association provide that all General Meetings, other than
AGMs, can be called on 14 days’ notice. One of the
requirements of the Shareholder Rights Directive is that all
General Meetings are to be held on 21 clear days’ notice,
unless shareholders agree otherwise. The board are therefore
seeking authority at the forthcoming AGM to seek authority
to call general meetings, other than an annual general
meeting, on clear 14 days’ notice. This authority would only
be used if the board believes it is in the best interests of
shareholders as a whole to convene a general meeting
quickly in exceptional circumstances.
The directors believe that the resolutions to be proposed at
the AGM are in the best interests of the Company and its
shareholders as a whole, and recommend that shareholders
vote in favour of the resolutions. The directors intend to vote
their own shareholdings in favour.
On behalf of the board
TOM BLACK
CHAIRMAN
21 February 2022
DIRECTORS’ REPORT CONTINUED
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1. CHAIRMAN’S ANNUAL STATEMENT
Dear Shareholder
I present below the Company’s remuneration report for the year ended 31 December 2021.
Our remuneration policy (see section 2 below) was approved by shareholders at the 2020 AGM. In accordance with statute,
the policy must be put to shareholders for approval every three years and the board must only operate in accordance with the
approved policy during the three-year cycle, unless shareholder approval is sought to amend the policy. Accordingly, the
remuneration policy is due to be put to shareholders at the AGM to be held in 2023.
I confirm that the board has complied with the policy during the year ended 31 December 2021. The current annual fee rate
paid to directors, and the amounts to be used to determine the maximum total increase allowable under the policy on
directors’ fees, are detailed in the table below :
Fee Rate from Fee Rate from Percentage
1 July 2021 1 July 2020 Increase for the year
Role £ £ %
Chairman 39,590 37,000 7.0%
Audit Committee Chair 32,100 30,000 7.0%
Senior Independent Director 29,750 – –
Director 26,250 25,000 5.0%
In reviewing the level of fees in July 2021 the board took into consideration market data on the level of fees paid to investment
trust non-executive directors, with particular focus on other trusts within its peer group and the technology sector, and agreed
that it was appropriate to increase fees to bring them more into line with the median level paid in the sector. The slightly larger
percentage increase for the chairman and the audit committee chair was awarded in recognition of the increasing
responsibility and time required by those roles. A new fee rate for the Senior Independent Director was introduced from 1 July
2021 to reflect the extra responsibility and work undertaken for this role.
The law requires the Company’s auditor to audit certain of the disclosures provided. Where disclosures have been audited,
they are indicated as such. The auditor’s opinion is included in their report on pages 55 to 61.
When considering directors’ fees, the board did not appoint an external adviser during the year. No payments were made to
former directors during the year, or to any director for loss of office. No element of directors’ remuneration is attributable to
share price growth.
The directors propose that the aggregate maximum limit in the Company’s articles of association be increased from £200,000 to
£250,000 per annum. The Company’s remuneration policy states remuneration of directors should be set at a reasonable level that
is commensurate with the duties and responsibilities of the role and consistent with the requirement to attract and retain directors
ofappropriate quality and experience. The proposed increase to the aggregate maximum also allows for an additional director to
berecruited to the board and for the Company to remain in line with market practice. The above amendment will be put to
shareholders as part of the articles resolution at the AGM. The full text of the resolution is set out in the AGM Notice on page 82.
SCOPE AND RESPONSIBILITY
As the Company has no employees and no executive directors, the policy relates only to the non-executive directors.
2. POLICY ON DIRECTORS’ FEES
The board’s policy is that the remuneration of directors should be set at a reasonable level that is commensurate with the
duties and responsibilities of the role and consistent with the requirement to attract and retain directors of appropriate quality
and experience. It should also reflect the experience of the board as a whole and be fair and comparable to that of other
investment trusts that are similar in size. The policy will continue in force (subject to shareholder approval) until the AGM in
2023. The board will take account of any views expressed by shareholders in formulating this policy.
The board may amend the levels of remuneration paid to individual directors within the parameters of this policy.
Component Commentary
Basic fee arrangement
Benefits None
Pension arrangements
None
Bonus arrangements None
Fees paid to directors are determined within an aggregate limit set out in the Company’s articles of association which
currently stands at £200,000 per annum.
There is no separate remuneration committee and the board as a whole considers changes to directors’ fees from time to time.
The company secretary provides advice and comparative information when the board considers the level of directors’ fees.
If the board concludes that it is appropriate to increase fees during the three year period that the policy is in force, such increase
(orincreases) will be limited to amaximum total increase of 20% of the amounts payable when the policy was approved. Any new
directors will be paid at the same rates as existing directors.
Under the terms of the directors’ appointment letters, there is no notice period and no provision for compensation upon early
termination of appointment.
DIRECTORS’ REMUNERATION REPORT
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DIRECTORS’ REMUNERATION REPORT CONTINUED
3. ANNUAL DIRECTORS’ REMUNERATION REPORT FOR THE YEARS ENDING 31 DECEMBER 2021 AND 31 DECEMBER 2020
(AUDITED)
The single total figure of remuneration for each director who served during the year ended 31 December 2021 and the prior
year is as follows:
31 December 31 December
31 December 2021 31 December 2020 2021 2020
Taxable Taxable Percentage change of
Fees expenses
3
Total Fees expenses
3
Totals basic fees
4
£ £ £ £ £ £ % %
Ian Russell
1
6,167 – 6,167 36,375 2,592 38,967 –83.0
7
15.6
5
Tom Black
1
36,236 – 36,236 24,500 – 24,500 47.9
7
5.4
Stephanie Eastment 31,050 – 31,050 28,750 – 28,750 8.0 8.5
Henrietta Marsh 25,625 – 25,625 24,500 – 24,500 4.6 206.7
6
Karl Sternberg 25,625 – 25,625 24,500 – 24,500 4.6 5.4
James Will
2
27,375 – 27,375 24,500 353 24,853 11.7
8
5.4
Total 152,078 – 152,078 163,125 2,945 166,070
Notes:
1. Ian Russell resigned on 1 March 2021, and Tom Black was appointed chairman.
2. James Will became senior independent director on 20 April 2021.
3. Taxable expenses incurred by the board in carrying out their duties as Directors of the Company.
4. In accordance with The Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019, this column has been included to show the annual
percentage change over the preceding financial year by comparison to the current financial year in respect of each Director. The board will publish this annual percentage
change cumulatively each year going forward until there is an annual percentage change over the five financial years preceding the relevant financial year in accordance with
the new regulation. These fees exclude taxable benefits which could vary substantially as they reflect expenses incurred whilst carrying out the board’s duties.
5. The 2020 annual % change for Ian Russell reflects his appointment as a non-executive director in 2018 and in 2019 his appointment as chairman.
6. The 2020 annual % change for Henrietta Marsh reflects her appointment as a non-executive director in 2019.
7. The 2021 annual % change decrease in Ian Russell’s fee arises following his resignation on 1 March 2021, and the increase for Tom Black reflects his becoming chairman on
that date.
8. The 2021 annual % change increase in James Will’s fee arises following his becoming the SID and, as explained earlier, the board introduction of a higher fee for the SID role on
1 July 2021 to reflect the extra responsibility and work.
The table above omits other columns set out in the relevant regulations as the Company does not make payments of other
types, such as pension related-benefits or performance-related pay.
Board meetings are normally held at the Company’s registered office, however, during the pandemic they were held remotely.
Directors are entitled to claim travel expenses and other reasonable expenses in carrying out their duties as Directors of the
Company. The Company has entered into a PAYE settlement agreement with HMRC under which the grossed up expenses
detailed above are accounted for directly with HMRC.
DIRECTORS’ INTERESTS (AUDITED)
Directors’ shareholdings and interests (beneficial unless stated) at the year end were as follows:
2021 2020
Interest as at 31 December £'000 £'000
Tom Black 6,900 6,900
Stephanie Eastment* 2,900 2,500
Henrietta Marsh – –
Karl Sternberg 7,826 7,826
James Will 6,000 6,000
* 1,500 held non-beneficially; shares held by connected person.
There have been no changes to any of the directors’ share interests in the period from 1 January 2022 to the date of this report.
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COMPANY PERFORMANCE
The graph below compares the total return (assuming all dividends are reinvested) to ordinary shareholders compared to the
total shareholder return on a notional investment made up of shares in the component parts of the MSCI World Index (in
sterling terms). This index was chosen for comparison purposes as it is the most widely used global equity index.
Source: Refinitiv
* Total return (assuming all dividends are reinvested).
RELATIVE SPEND ON FEES
The following table shows the total amount spent on payments to directors with a comparator to last year, along with total
distributions to shareholders by way of dividend or (where applicable) share buy-back or other distributions. There are no
other significant distributions, payments or other uses of the Company’s profit or cash flow that the board feels are relevant to
assist the understanding of the relating spend on fees.
2021 2020
£’000 £’000
Total spend – directors’ fees 152 166
Total distributed to shareholders – dividends – –
– share buybacks 22,885 24,844
VOTING ON REMUNERATION MATTERS AT THE 2021 AGM AND IN RESPECT OF REMUNERATION POLICY
At the AGM on 20 April 2021 the resolution to receive and approve the directors’ remuneration report for the year ended
31December 2020 received the following votes: for – 99.90% (33,430,087 votes); against – 0.10% (34,490 votes). 6,486 votes
were withheld.
The remuneration policy was last approved by shareholders on 17 April 2020 with 99.95% of votes in favour (35,853,928 votes);
0.05% votes against (19,055 votes). 12,643 votes were withheld.
The directors’ annual remuneration report set out above (section 3) was approved by the board of directors on 21 February
2022 and signed on its behalf by
TOM BLACK
CHAIRMAN
HERALD’S SHARE PRICE AND MSCI WORLD INDEX (IN STERLING TERMS)*
(FIGURES HAVE BEEN REBASED TO 100 AT 31 DECEMBER 2011)
Share Price* MSCI World Index (in sterling terms)
100
150
200
250
300
350
400
450
500
550
600
20212020201920182017201620152014201320122011
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Each of the directors, whose names and functions are listed
on page 41 confirm that, to the best of their knowledge:
— the financial statements, which have been prepared in
accordance with applicable law and United Kingdom
Accounting Standards (United Kingdom Generally
Accepted Accounting Practice), give a true and fair view
of the assets, liabilities, financial position and loss of the
Company;
— the annual report and financial statements includes a fair
review of the development and performance of the
business and the position of the Company, together with
a description of the principal risks and uncertainties that it
faces and the directors’ report contains those matters
required to be disclosed by applicable law; and
— they consider that the annual report and financial
statements, taken as a whole, is fair, balanced and
understandable and provides the information necessary
for shareholders to assess the Company’s position,
performance, business model and strategy.
On behalf of the board
TOM BLACK
21 FEBRUARY 2022
The directors are responsible for preparing the annual report
and the financial statements in accordance with applicable
law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the
directors have elected to prepare the financial statements in
accordance with applicable law and United Kingdom
Accounting Standards (United Kingdom Generally Accepted
Accounting Practice), including FRS 102 “The Financial
Reporting Standard applicable in the UK and Republic of
Ireland”. Under company law the directors must not approve
the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that
period. In preparing these financial statements, the directors
are required to:
— select suitable accounting policies and then apply them
consistently;
— make judgements and accounting estimates that are
reasonable and prudent;
— state whether applicable UK Accounting Standards have
been followed, subject to any material departures
disclosed and explained in the financial statements; and
— prepare the financial statements on the going concern
basis, unless it is inappropriate to assume that the
Company will continue in business.
The directors are responsible for the keeping of adequate
accounting records that are sufficient to show and explain
the Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Company
and enable them to ensure that the financial statements and
the directors’ remuneration report comply with the
Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
The directors have delegated responsibility to the manager
for the maintenance and integrity of the Company’s page of
the manager’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The work carried out by the auditor does not involve any
consideration of these matters and, accordingly, the auditor
accepts no responsibility for any changes that may have
occurred to the financial statements since they were initially
presented on the website.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
IN RESPECT OF THE FINANCIAL STATEMENTS
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INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF HERALD INVESTMENT TRUST PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
OPINION
In our opinion, Herald Investment Trust plc’s financial statements:
— give a true and fair view of the state of the Company’s affairs as at 31 December 2021 and of its profit and cash
flows for the year then ended; and
— have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard applicable in the UK and
Republic of Ireland”, and applicable law); and
— have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual report & financial statements (the “Annual
Report”), which comprise: the Balance Sheet as at 31 December 2021; the Income Statement, the Statement of
Changes in Equity and the Cash Flow Statement for the year then ended; and the notes to the financial statements,
which include adescription of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial
statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
INDEPENDENCE
We remained independent of the company in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard
were not provided.
We have provided no non-audit services to the company in the period under audit.
OUR AUDIT APPROACH
OVERVIEW
Audit scope
— The Company is a standalone Investment Trust Company and engages Herald Investment Management Limited (the
‘AIFM’) to manage its assets.
— We conducted our audit of the financial statements using information from the AIFM, Sanne Fund Services (UK)
Limited (the ‘Company Secretary’) and The Bank of New York Mellon (International) Limited with whom the AIFM has
engaged to provide certain administrative functions.
— We tailored the scope of our audit taking into account the types of investments within the Company, the
involvement of the third parties referred to above, the accounting processes and controls, and the industry in which
the Company operates.
Key audit matters
— Valuation and existence of investments.
— Income from investments.
— Ability to continue as a going concern – Continuation Vote.
Materiality
— Overall materiality: £17,600,000 (2020: £15,000,000) based on 1% of net assets.
— Performance materiality: £13,200,000 (2020: £11,250,000).
THE SCOPE OF OUR AUDIT
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the
financial statements.
In planning our audit, we made enquiries of the Directors and Investment Manager to understand the extent of the
potential impact of climate change risk on the Company’s financial statements.
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The Directors and Investment Manager concluded that there was no material impact on the financial statements.
Ourevaluation of this conclusion included challenging key judgements and estimates in areas where we considered
that there was greatest potential for climate change impact. This was principally in relation to the valuation of certain
hard to value investments as explained in our key audit matter on Valuation and existence of investments.
We also considered the consistency of the climate change disclosures included in the Strategic Report with the
financial statements and our knowledge from our audit.
KEY AUDIT MATTERS
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit
of the financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of
our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
This is not a complete list of all risks identified by our audit.
Ability to continue as a going concern – Continuation Vote is a new key audit matter this year. Consideration of the
impacts of Covid-19, which was a key audit matter last year, is no longer included because of the reduced uncertainty
of the impact of Covid-19 in the current y
ear as markets and economies continue to recover. Otherwise, the key audit
matters below are consistent with last year.
KEY AUDIT MATTER HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
Valuation and existence of
investments
Refer to Audit Committee Report,
Accounting Policies and Notes to
the Financial Statements.
The investment portfolio at
31December 2021 comprised of
listed investments of £1,673.0 million
and £10.5 million of unlisted
investments. We focused on the
valuation and existence of
investments because investments
represent the principal element of
the net asset value as disclosed in
the Balance Sheet in the financial
statements.
W
e tested the valuation of the listed investments by agreeing the prices used
in the valuation to independent third-party sources.
For a sample of unlisted investments, we assessed management’s
methodology for determining the fair value of the investments is consistent
with the International Private Equity and Venture Capital Guidelines, agreed
the inputs into the valuation to third party sources (such as financial
statements of the issuer, investor reports and the instrument terms) and
re-performed calculations to confirm their arithmetical accuracy. We also
considered the potential impact of climate change on the valuation of the
unlisted investments.
We tested the existence of all investments by agreeing the holdings of all
investments to an independent confirmation from the Depositary, The Bank
of New York Mellon (International) Limited as at 31 December 2021.
No material misstatements were identified from this testing.
INDEPENDENT AUDITORS’ REPORT CONTINUED
TO THE MEMBERS OF HERALD INVESTMENT TRUST PLC
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KEY AUDIT MATTER HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
Income from investments
Refer to Accounting Policies and
Notes to the Financial Statements.
ISAs (UK) presume there is a risk of
fraud in income recognition. We
considered this risk to specifically
relate to the risk of overstating
investment gains and the
misclassification of dividend income
as capital rather than revenue due to
the pressure management may feel
to achieve capital growth in line with
the objective of the Company.
We focused on the valuation of
investments with respect to gains on
investments and the accuracy and
completeness of dividend income
recognition and its presentation in
the Income Statement as set out in
the requirements of The Association
of Investment Companies’ Statement
of Recommended Practice (the “AIC
SORP”).
W
e assessed the accounting policy for income recognition for compliance
with accounting standards and the AIC SORP and performed testing to check
that income had been accounted for in accordance with this stated
accounting policy.
We understood and assessed the design and implementation of key controls
surrounding income recognition.
The gains and losses on investments held at fair value comprise realised and
unrealised gains and losses. For unrealised gains and losses, we tested the
valuation of the portfolio at the year-end (see Valuation and Existence Key
Audit Matter), together with testing of the reconciliation of opening and
closing investments and agreeing the year end holdings to independent
confirmation. For realised gains and losses, we tested a sample of disposal
proceeds by agreeing the proceeds to bank statements and we re-performed
the calculation of a sample of realised gains and losses.
In addition, we tested dividend receipts by agreeing the dividend rates from all
investments to independent third party sources.
We tested the allocation and presentation of dividend income, including
special dividends, between income and capital by agreeing treatments to third
party sources.
To test for completeness, we tested that the appropriate dividends had been
received in the year by reference to independent data of dividends declared
for all dividends during the year.
No material misstatements were identified from this testing.
W
e have reviewed the Dir
ectors’ assessment of going concern in relation to
the passing of the continuation vote. In challenging the reasonableness of the
Directors’ assessment and arriving at our conclusions, we have considered
aspects which include, but are not limited to, the following:
• The stability and diversity of the Company’s shareholder register and
number of shareholders with significant voting power on the register;
• The Company has a positive performance track record since the last
continuation vote;
• The demand for the Company’s shares over the last three years
represented by its share price discount to net asset value, which we
determined to be within a reasonable range; and
• The feedback that the Manager has received with regards to shareholders
voting intentions.
We have concluded that there were no material uncertainties relating to the
continuation vote that may cast significant doubt on the entities ability to
continue as a going concern for a period of at least 12 months from when
thefinancial statements are authorised for issue. Our conclusions relating to
going concern overall are set out in the ‘Going Concern’ section below.
Ability to continue as a going
concern- Continuation V
ote
Refer to Viability Statement in the
Strategic Report, Going Concern
statement of the Directors’ Report,
Audit Committee Report, Basis of
Preparation as set out in the Notes
to the Financial Statements.
A continuation vote is due to take
place at the 2022 AGM, which, if
passed, will allow the Company to
continue as an investment trust for
afurther three years. The Directors
have considered and assessed the
potential impact of the continuation
vote on the ability of the Company
to continue as a going concern.
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INDEPENDENT AUDITORS’ REPORT CONTINUED
TO THE MEMBERS OF HERALD INVESTMENT TRUST PLC
HOW WE TAILORED THE AUDIT SCOPE
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the
financial statements as a whole, taking into account the structure of the company, the accounting processes and
controls, and the industry in which it operates.
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the
financial statements. In particular, we looked at where the directors made subjective judgements, for example in
respect of significant accounting estimates that involved making assumptions and considering future events that are
inherently uncertain.
MATERIALITY
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the
nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in
evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall Company materiality £17,600,000 (2020: £15,000,000).
How we determined it 1% of net assets.
Rationale for benchmark applied
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in
determining the scope of our audit and the nature and extent of our testing of account balances, classes of
transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2020:
75%) of overall materiality, amounting to £13,200,000 (2020: £11,250,000) for the company financial statements.
In determining the performance materiality, we considered a number of factors – the history of misstatements, risk
assessment and aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of
our normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
£880,000 (2020: £750,000) as well as misstatements below that amount that, in our view, warranted reporting for
qualitative reasons.
CONCLUSIONS RELATING TO GOING CONCERN
Our evaluation of the directors’ assessment of the Company’s ability to continue to adopt the going concern basis of
accounting included:
— evaluating the Directors’ updated risk assessment and considering whether it addressed relevant threats, including
those presented by Covid-19 and the continuation vote;
— evaluating the Directors’ assessment of potential operational impacts, considering their consistency with other
available information and our understanding of the business and assessed the potential impact on the financial
statements;
— reviewing the Directors’ assessment of the Company’s financial position in the context of its ability to meet future
expected operating expenses and debt repayments, their assessment of liquidity as well as their review of the
operational resilience of the Company and oversight of key third-party service providers; and
— assessing the implication of significant reductions in NAV as a result of market performance on the ongoing ability
of the Company to operate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or
conditions that, individually or collectively, may cast significant doubt on the company’s ability to continue as a going
concern for a period of at least 12 months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate.
We have applied this benchmark, a generally accepted auditing practice for
investment trust audits, in the absence of indicators that an alternative benchmark
would be appropriate and because we believe this provides an appropriate and
consistent year-on-year basis for our audit.
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However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the
Company’s ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing
material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the
directors considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant
sections of this report.
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial
statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the
extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency
or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement
of the financial statements or a material misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are required to report that
fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the
UK Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain
opinions and matters as described below.
STRATEGIC REPORT AND THE DIRECTORS’ REPORT
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report
and Directors’ Report for the year ended 31 December 2021 is consistent with the financial statements and has been
prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the Company and its environment obtained in the course of the audit,
we did not identify any material misstatements in the Strategic Report and Directors’ Report.
DIRECTORS’ REMUNERATION
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance
with the Companies Act 2006.
CORPORATE GOVERNANCE STATEMENT
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and
that part of the corporate governance statement relating to the company’s compliance with the provisions of the
UKCorporate Governance Code specified for our review. Our additional responsibilities with respect to the corporate
governance statement as other information are described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the
corporate governance statement is materially consistent with the financial statements and our knowledge obtained
during the audit, and we have nothing material to add or draw attention to in relation to:
— The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
— The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify
emerging risks and an explanation of how these are being managed or mitigated;
— The directors’ statement in the financial statements about whether they considered it appropriate to adopt the
going concern basis of accounting in preparing them, and their identification of any material uncertainties to the
company’s ability to continue to do so over a period of at least 12 months from the date of approval of the financial
statements;
— The directors’ explanation as to their assessment of the company’s prospects, the period this assessment covers and
why the period is appropriate; and
— The directors’ statement as to whether they have a reasonable expectation that the company will be able to
continue in operation and meet its liabilities as they fall due over the period of its assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
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Our review of the directors’ statement regarding the longer-term viability of the group was substantially less in scope
than an audit and only consisted of making inquiries and considering the directors’ process supporting their statement;
checking that the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and
considering whether the statement is consistent with the financial statements and our knowledge and understanding of
the company and its environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements
of the corporate governance statement is materially consistent with the financial statements and our knowledge
obtained during the audit:
— The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and
understandable, and provides the information necessary for the members to assess the company’s position,
performance, business model and strategy;
— The section of the Annual Report that describes the review of effectiveness of risk management and internal control
systems; and
— The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the
company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code
specified under the Listing Rules for review by the auditors.
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
RESPONSIBILITIES OF THE DIRECTORS FOR THE FINANCIAL STATEMENTS
As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the preparation
of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and
fair view. The directors are also responsible for such internal control as they determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as
agoing concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic
alternative but to do so.
AUDITORS’ RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line
with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud.
The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the Company and industry, we identified that the principal risks of non-compliance with
laws and regulations related to breaches of section 1158 of the Corporation Tax Act 2010, and we considered the extent
to which non-compliance might have a material effect on the financial statements. We also considered those laws and
regulations that have a direct impact on the financial statements such as the Companies Act 2006. We evaluated
management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk
of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to
increase revenue (investment income and capital gains) or to increase net asset value. Audit procedures performed by
the engagement team included:
— discussions with the AIFM and the audit committee, including specific enquiry of known or suspected instances of
non-compliance with laws and regulation and fraud where applicable;
— reviewing relevant meeting minutes, including those of the Audit Committee;
— assessment of the Company’s compliance with the requirements of section 1158 of the Corporation Tax Act 2010,
including recalculation of numerical aspects of the eligibility conditions;
— identifying and testing journal entries, in particular manual year end journal entries posted during the preparation of
the financial statements; and
— designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing.
INDEPENDENT AUDITORS’ REPORT CONTINUED
TO THE MEMBERS OF HERALD INVESTMENT TRUST PLC
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There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances
of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the
financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional
misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data
auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing
complete populations. We will often seek to target particular items for testing based on their size or risk characteristics.
In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the
sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
USE OF THIS REPORT
This report, including the opinions, has been prepared for and only for the Company’s members as a body in
accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these
opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or
into whose hands it may come save where expressly agreed by our prior consent in writing.
OTHER REQUIRED REPORTING
COMPANIES ACT 2006 EXCEPTION REPORTING
Under the Companies Act 2006 we are required to report to you if, in our opinion:
— we have not obtained all the information and explanations we require for our audit; or
— adequate accounting records have not been kept by the company, or returns adequate for our audit have not been
received from branches not visited by us; or
— certain disclosures of directors’ remuneration specified by law are not made; or
— the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with
the accounting records and returns.
We have no exceptions to report arising from this responsibility.
APPOINTMENT
Following the recommendation of the Audit Committee, we were appointed by the directors on 1 November 2019 to
audit the financial statements for the year ended 31 December 2019 and subsequent financial periods. The period of
total uninterrupted engagement is 3 years, covering the years ended 31 December 2019 to 31 December 2021.
Allan McGrath (Senior Statutory Auditors)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Edinburgh
21 February 2022
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Financial Statements
64 Income Statement
65 Balance Sheet
66 Statement of Changes in Equity
67 Cash Flow Statement
68 Notes to the Financial Statements
80 Notice of Annual General Meeting
82 Appendix
84 Further Shareholder Information
86 Alternative Performance Measures
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2021 2021 2021 2020 2020 2020
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
Gains on investments 9 – 285,355 285,355 – 412,632 412,632
Gains/(losses) on foreign exchange – 466 466 – (3,173) (3,173)
Income 2 12,253 – 12,253 9,361 – 9,361
Investment management fee 3 (16,102) – (16,102) (12,223) – (12,223)
Other administrative expenses 4 (1,065) (9) (1,074) (837) (100) (937)
(Loss)/profit before taxation (4,914) 285,812 280,898 (3,699) 409,359 405,660
Taxation 6 (503) – (503) (298) – (298)
(Loss)/profit after taxation (5,417) 285,812 280,395 (3,997) 409,359 405,362
(Loss)/profit per ordinary shares
(basic and diluted) 8 (8.33p) 439.51p 431.18p (6.00p) 614.30p 608.30p
There is no final dividend proposed (2020 – nil). More information on dividend distributions can be found in
note7 on page 71.
The total column of this statement is the profit and loss account of the Company, prepared in accordance with
UK Accounting Standards.
The (loss)/profit after taxation is the total comprehensive income and therefore no additional statement of
comprehensive income is presented. The supplementary revenue and capital columns are presented for
information purposes in accordance with the Statement of Recommended Practice issued by the Association of
Investment Companies. All items in the above statement derive from continuing operations of the Company. No
operations were acquired or discontinued in the year.
The accompanying notes on pages 68 to 79 are an integral part of this statement.
INCOME STATEMENT
For the year ended 31 December 2021
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2021 2020
Notes £’000 £’000
Fixed assets
Investments held at fair value through profit or loss 9 1,683,482 1,430,583
Current assets
Cash and cash equivalents 74,551 72,929
Other receivables 10 4,374 1,460
78,925 74,389
Current liabilities
Other payables 11 (1,530) (1,605)
(1,530) (1,605)
Net current assets 77,395 72,784
TOTAL NET ASSETS 1,760,877 1,503,367
Capital and reserves
Called up share capital 12 16,189 16,446
Share premium 13 73,738 73,738
Capital redemption reserve 13 5,763 5,506
Capital reserve 13 1,673,351 1,410,424
Revenue reserve 13 (8,164) (2,747)
TOTAL SHAREHOLDERS’ FUNDS 1,760,877 1,503,367
NET ASSET VALUE PER ORDINARY SHARE
(including current year revenue) 14 2,719.33p 2,285.33p
NET ASSET VALUE PER ORDINARY SHARE
(excluding current year revenue) 14 2,727.70p 2,291.41p
The financial statements of Herald Investment Trust plc (company registration number 02879728) were approved
by the board of directors and authorised for issue on 21 February 2022 and signed on its behalf by
TOM BLACK
CHAIRMAN
The accompanying notes on pages 68 to 79 are an integral part of this statement.
BALANCE SHEET
At 31 December
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Called up Capital
Share Share Redemption Capital Revenue Shareholders’
Capital Premium Reserve Reserve Reserve funds
Notes £’000 £’000 £’000 £’000 £’000 £’000
Shareholders’ funds at 1 January 2021 16,446 73,738 5,506 1,410,424 (2,747) 1,503,367
Profit/(loss) after taxation – – – 285,812 (5,417) 280,395
Shares purchased for cancellation 12 (257) – 257 (22,885) – (22,885)
Shareholders’ funds at 31 December 2021 16,189 73,738 5,763 1,673,351 (8,164) 1,760,877
For the year ended 31 December 2020
Called up Capital
Share Share Redemption Capital Revenue Shareholders’
Capital Premium Reserve Reserve Reserve funds
Notes £’000 £’000 £’000 £’000 £’000 £’000
Shareholders’ funds at 1 January 2020 16,828 73,738 5,124 1,025,909 1,250 1,122,849
Profit/(loss) after taxation – – – 409,359 (3,997) 405,362
Shares purchased for cancellation 12 (382) – 382 (24,844) – (24,844)
Shareholders’ funds at 31 December 2020 16,446 73,738 5,506 1,410,424 (2,747) 1,503,367
The accompanying notes on pages 68 to 79 are an integral part of this statement.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
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2021 2021 2020 2020
Notes £’000 £’000 £’000 £’000
Cash flow from operating activities
Profit before finance costs and taxation 280,898 405,660
Adjustments for gains on investments (285,355) (412,632)
Purchase of investments (206,289) (186,269)
Sale of investments 235,293 202,369
Adjustment for other movements in investment gains – (657)
Decrease in receivables 358 548
Increase in payables 128 226
Amortisation of fixed income book cost (2) 35
Effect of foreign exchange rate changes (466) 3,173
Overseas tax on overseas income (524) (311)
Net cash inflow from operating activities 24,041 12,142
Cash flow from financing activities
Undrawn facility fee paid 5 – (39)
Shares purchased for cancellation 12 (22,885) (24,844)
Net cash outflow from financing activities (22,885) (24,883)
Net increase/(decrease) in cash and cash equivalents 1,156 (12,741)
Cash and cash equivalents at start of the year 72,929 88,843
Effect of foreign exchange rate changes 466 (3,173)
Cash and cash equivalents at the end of the year 74,551 72,929
Comprised of:
Cash and cash equivalents 74,551 72,929
Cash flow from operating activities includes interest received of £777,000 (2020 – £1,333,000) and dividends
received of £11,269,000 (2020 – £7,391,000).
As the Company did not have any long term debt at both the current and prior year ends, no reconciliation of the
net debt position is presented.
The accompanying notes on pages 68 to 79 are an integral part of this statement.
CASH FLOW STATEMENT
For the year ended 31 December 2021
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1. SIGNIFICANT ACCOUNTING POLICIES
The financial statements for the year to 31 December 2021 have been prepared on the basis of the accounting policies set
outbelow. The Company has applied ‘FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland’
(FRS102), which forms part of Generally Accepted Accounting Practice (‘UK GAAP’) issued by the Financial Reporting Council.
(A) ACCOUNTING CONVENTION
The financial statements are prepared on the assumption that approval as an investment trust will be retained.
The financial statements are presented in sterling, which is the Company’s functional and presentational currency and the
currency in which the Company’s share capital and expenses, as well the majority of its assets and liabilities, are denominated.
The financial statements have been prepared in accordance with The Companies Act 2006, FRS 102 and with the Statement
ofRecommended Practice ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ issued by the
Association of Investment Companies (AIC) in April 2021.
In order to better reflect the activities of the Company and in accordance with guidance issued by the AIC, supplementary
information which analyses the profit and loss account between items of a revenue and capital nature has been presented
inthe income statement.
Based on the information available to the Directors at the time of this report, including the results of stress tests, the
Company’s cash balances, and the liquidity of the Company’s investments, the Directors are satisfied that the Company has
adequate financial resources to continue in operation for at least the next 12 months and that, accordingly, it is appropriate to
adopt the going concern basis in preparing these financial statements.
(B) FINANCIAL INSTRUMENTS
The Company recognises financial assets and financial liabilities when the Company becomes a party to the contractual
provisions of the instrument. The Company will offset financial assets and financial liabilities if the Company has a legally
enforceable right to set off the recognised amounts and interests and intends to settle on a net basis.
The Company has chosen to apply the provisions of sections 11 and 12 of FRS 102 in full in respect of the financial instruments.
(C) INVESTMENTS
Purchases and sales of investments are accounted for on a trade date basis.
All investments are at fair value through profit or loss upon initial recognition and are measured at subsequent reporting
datesat fair value. The fair value of listed security investments is bid value. Investments on the Alternative Investment Market
are included at their bid value. The fair value of unlisted investments uses valuation techniques determined by the directors
onthe basis of latest information in line with the relevant principles of the International Private Equity and Venture Capital
Valuation Guidelines.
Gains and losses arising from changes in the unrealised fair value and on the sale of investments are taken to capital reserve
through the income statement.
(D) CASH AND CASH EQUIVALENTS
Cash and cash equivalents may comprise cash as well as cash equivalents (including short-term deposits and money market
funds which are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value).
Investments are regarded as cash equivalents if they meet all of the following criteria: highly liquid investments held in the
Company’s base currency that are readily convertible to a known amount of cash, are subject to an insignificant risk of change
in value and provide a return no greater than the rate of a three-month high quality government bond.
(E) INCOME
Dividend income is accounted for when the entitlement to the income is established (normally on the ex-dividend date).
Franked income is stated net of tax credits. Foreign dividends that suffer withholding tax at source are shown gross, with the
corresponding tax charge in the income statement. Unfranked investment income includes the taxes deducted at source.
Interest from fixed interest securities is recognised on an effective yield basis. Underwriting commission and interest receivable
on deposits are recognised on an accruals basis.
(F) EXPENSES
All expenses are accounted for on an accruals basis and are charged through the revenue column of the income statement
except where they relate directly to the acquisition or disposal of an investment (transaction costs) and are taken to the
income statement as a capital item.
(G) FINANCE COSTS
Finance costs are accounted for on an effective interest basis and are charged through the revenue column of the income
statement.
(H) DEFERRED TAXATION
Deferred taxation is provided on all timing differences which have originated but not reversed at the balance sheet date,
calculated on an undiscounted basis, and based on enacted tax rates relevant to the benefit or liability. Deferred tax assets are
recognised only to the extent that it is more likely than not that there will be taxable profits from which underlying timing
differences can be deducted.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended 31 December 2021
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(I) FOREIGN CURRENCY
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Assets and liabilities
denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Exchange differences
of a revenue or capital nature are taken to the revenue or capital reserves respectively through the income statement.
(J) USE OF JUDGEMENTS AND ESTIMATES
The preparation of financial statements requires the Company to make judgements, estimates and assumptions that affect
amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses
during the year. In the course of preparing the financial statements, no judgements have been made in the process of
applying the Company’s accounting policies, that have had a significant effect on the amounts recognised in the financial
statements, other than those involving estimations in the valuations of unquoted investments. The nature of estimation
means that the actual outcomes could differ from those estimates, possibly significantly. The estimates relate to the
investments where there is no appropriate market price i.e. the unquoted investments. Whilst the board considers the
methodologies and assumptions adopted in the valuation are supportable, reasonable and robust, because of the inherent
uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had
aready market for the investment existed.
As at 31 December 2021, the Company does not have any single key assumption concerning the future, or other key sources
of estimation uncertainty, that, in the Directors’ opinion has a significant risk of causing a material adjustment to the carrying
values of assets and liabilities within the next financial year.
2. INCOME
2021 2020
£’000 £’000
Dividend income from investments
UK dividends from listed investments 3,407 2,468
UK dividends from unlisted investments (inc AIM) 3,093 2,475
Overseas dividends from UK-listed and AIM companies 439 328
Overseas dividend income 4,670 2,887
11,609 8,158
Interest income from equity investments
Income from unlisted (inc AIM) UK convertible bonds 269 595
Income from unlisted US convertible bonds 44 33
313 628
Fixed interest
UK interest from government securities (16) 4
Overseas interest from government securities 361 581
345 585
Other income
Deposit interest (20) (10)
Underwriting commission 6 –
(14) (10)
Total income 12,253 9,361
Included within dividend income are special dividends of £706,000 (2020 – £445,000). Included within deposit interest is
interest received of £nil (2020 – £31,000), and interest paid of £20,000 (2020 – 41,000).
3. INVESTMENT MANAGEMENT FEE
2021 2020
£’000 £’000
Investment management fee 16,102 12,223
Herald Investment Management Limited is appointed investment manager under a management agreement which is
terminable on 12 months’ notice. From 1 January 2021 the management fee was reduced to 1.0% per annum of the
Company’s net asset value (excluding current year net revenue) based on middle market prices up to £1.25 billion and 0.8% per
annum on amounts beyond this level. Prior to 1 January 2021, the fee was a flat annual rate of 1.0% of the Company’s net asset
value. The management fee is levied on all assets.
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4. OTHER ADMINISTRATIVE EXPENSES
2021 2020
£’000 £’000
Custodian’s fees 126 81
Registrar’s fees 33 36
Directors’ fees 152 163
Auditor’s fees – statutory audit* 36 35
Depositary’s fees 293 205
Miscellaneous expenses 425 317
1,065 837
* Auditor’s fees excludes VAT. The VAT is included in miscellaneous expenses.
Other capital administration expenses of £9,000 (2020 – £100,000) includes legal fees of £nil (2020 – £93,000) in relation to
the action disclosed in note 15 of the 2020 annual report and financial statements.
5. FINANCE COSTS OF BORROWING
There were no finance costs of borrowing during the year (2020 – £nil).
6. TAXATION
2021 2020
£’000 £’000
Analysis of charge in year
Overseas taxation 503 298
Factors affecting tax charge for year
The tax charge for the year is lower (2020 – lower) than the standard rate of corporation tax in the UK
of 19.0% (2020 – 19.0%). The differences are explained below:
Profit before taxation 280,898 405,660
Profit multiplied by the standard rate of corporation tax in the UK of 19.0% (2020 – 19.0%) 53,371 77,075
Effects of:
Capital gains not taxable (54,218) (78,400)
UK dividends not subject to UK tax (1,227) (920)
Overseas dividends not subject to UK tax (980) (629)
Capital (gains)/losses on foreign exchange movements not subject to tax (87) 602
Disallowable expenses 2 2
Overseas withholding tax 503 298
Movement in excess management expenses 3,139 2,270
Total tax charge for the year 503 298
As an investment trust, the Company’s capital gains are not taxable.
There is no UK corporation tax charge at 31 December 2021 or 31 December 2020 as the Company has unrelieved
management expenses which are available to be carried forward. The tax charge for 31 December 2021 and 2020 comprises
overseas withholding taxes incurred.
At 31 December 2021, the Company had a potential deferred tax asset of £33 million (2020 – £22 million) on taxable losses of
£132 million (2020 – £116 million) which are available to be carried forward and offset against future taxable profits. A deferred
tax asset has not been provided on these losses as it is considered unlikely that the Company will make taxable revenue profits
in the future and it is not liable to tax on its capital gains. The potential deferred tax asset has been calculated using a
corporation tax rate of 25% (2020 – 19%).
The Finance Act 2021 increases the UK corporation tax rate from 19% to 25% effective 1 April 2023. The rate was substantively
enacted on 24 May 2021. Deferred tax assets and liabilities on balance sheets prepared after the substantive enactment of the
new tax rate must therefore be re-measured accordingly, so as a result the deferred tax asset has been calculated at 25%.
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the Year Ended 31 December 2021
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7. DIVIDENDS ON ORDINARY SHARES
2021 2020
2021 2020 £’000 £’000
Amounts recognised as distributions in the year:
Previous year’s final nil nil nil nil
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 2021 is £nil (2020 – £nil).
2021 2020
2021 2020 £’000 £’000
Amounts paid and proposed per ordinary share in respect of the year:
Proposed final dividend nil nil nil nil
8. NET RETURN PER ORDINARY SHARE
2021 2021 2021 2020 2020 2020
Revenue Capital Total Revenue Capital Total
(8.33p) 439.51p 431.18p (6.00p) 614.30p 608.30p
Revenue, capital and total return per ordinary share is based on each of the returns on ordinary activities after taxation
respectively, revenue loss of £5,417,000 (2020 – revenue loss of £3,997,000), capital profit of £285,812,000 (2020 – capital
profit of £409,359,000) and total profit of £280,395,000 (2020 – total profit of £405,362,000) and on 65,029,043 ordinary
shares (2020 – 66,638,083) being the weighted average number of ordinary shares in issue during the year.
There are no dilutive or potentially dilutive shares in issue.
9. FIXED ASSET INVESTMENTS
2021 2020
£’000 £’000
Financial assets designated at fair value through profit or loss on initial recognition
Listed UK – equity investments – London Stock Exchange 255,747 215,784
– AIM 573,973 506,279
Listed overseas – equity investments 801,029 646,515
Unquoted 10,485 19,579
Total equity investments 1,641,234 1,388,157
Government debt securities 42,248 42,426
Total investments in financial assets at fair value through profit or loss 1,683,482 1,430,583
See Detailed List of Investments on pages 21 to 28.
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9. FIXED ASSET INVESTMENTS CONTINUED
Listed in Listed 2021 2020
UK overseas AIM Unquoted Total Total
£’000 £’000 £’000 £’000 £’000 £’000
Cost of investments at 1 January 91,601 320,080 254,121 19,667 685,469 581,676
Unrealised investment holding gains/(losses) 1 January 144,187 348,857 252,158 (88) 745,114 451,550
Fair value of investments at 1 January 235,788 668,937 506,279 19,579 1,430,583 1,033,226
Movements in the year:
Purchases at cost 29,812 132,971 42,803 500 206,086 186,472
Sales proceeds (53,825) (107,861) (67,478) (7,136) (236,300) (202,369)
Gains on investments 66,056 129,269 88,610 1,420 285,355 413,289
Amortisation of fixed income book cost (57) 59 – – 2 (35)
Transferred from listed to AIM (2,123) – 2,123 – – –
Transferred from unquoted to AIM – – 2,115 (2,115) – –
Return of capital – (2) (479) (1,763) (2,244) –
Fair value of investments at 31 December 275,651 823,373 573,973 10,485 1,683,482 1,430,583
Cost of investments at 31 December 91,936 411,753 271,996 14,866 790,551 685,469
Unrealised investment holding gains/(losses) 31 December 183,715 411,620 301,977 (4,381) 892,931 745,114
Fair value of investments at 31 December 275,651 823,373 573,973 10,485 1,683,482 1,430,583
Cost of investments sales 27,297 41,355 28,687 1,423 98,762 82,644
Gains/(losses) on investments
Net realised gains on sales 26,528 66,506 38,791 5,713 137,538 119,725
Unrealised investment holding gains/(losses) 39,528 62,763 49,819 (4,293) 147,817 293,564
Other movements in investment gains – – – – – (657)
66,056 129,269 88,610 1,420 285,355 412,632
The Company received £236,300,000 (2020 – £202,369,000) from investments sold in the year. The book cost of these
investments when they were purchased was £98,762,000 (2020 – £82,644,000). These investments have been revalued over
time and until they were sold any unrealised gains/losses were included in the fair value of the investments.
The investments in the equity and fixed interest stocks of unlisted companies that the Company holds are not traded and as
such the prices are more uncertain than those of more widely traded securities. The fair value of unlisted investments uses
valuation techniques determined by the directors on the basis of latest information in line with the relevant principles of the
International Private Equity and Venture Capital Valuation Guidelines as described in note 1(c). The fair value of unlisted
investments at 31 December 2021 was £10,485,000 (2020 – £19,579,000) and this amount is not considered material in the
context of these financial statements.
At 31 December 2021 the Company was the beneficial owner of 15.4% (2020 – 15.4%) of the ordinary share capital of HIML
Holdings Limited. HIML Holdings Limited is incorporated in the United Kingdom and is the parent company of the Company’s
manager.
2021 2020
£’000 £’000
Transaction costs
Commission costs:
Purchases 372 319
Sales 491 398
Total commission costs 863 717
Custody transaction costs 9 7
Other transaction costs 74 45
946 769
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the Year Ended 31 December 2021
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10. OTHER RECEIVABLES
2021 2020
£’000 £’000
Due within one year:
Prepayments and accrued income 1,015 1,380
Other receivables 7 –
Sales for subsequent settlement 3,251 –
Taxation recoverable 101 80
4,374 1,460
The carrying amount of other receivables is a reasonable approximation of fair value.
11. OTHER PAYABLES
2021 2020
£’000 £’000
Amounts falling due within one year:
Purchases for subsequent settlement – 203
Other payables 1,530 1,402
1,530 1,605
Included in other payables and accruals is £1,393,000 (2020 – £1,264,000) in respect of the investment management fee.
12. CALLED UP SHARE CAPITAL
2021 2021 2020 2020
Number £’000 Number £’000
Allotted, called up and fully paid ordinary shares of 25p:
Brought forward 65,783,418 16,446 67,311,777 16,828
Shares bought back and cancelled (1,029,306) (257) (1,528,359) (382)
Carried forward 64,754,112 16,189 65,783,418 16,446
At the AGM held on 20 April 2021 the Company’s authority to buy back up to 14.99% of its issued share capital at that date was
renewed. During the year to 31 December 2021 a total of 1,029,306 (2020 – 1,528,359) ordinary shares of 25p each with
anominal value of £257,327 (2020 – £382,090) were bought back and cancelled at a total cost of £22,885,044 (2020 –
£24,843,652). At 31 December 2021 the Company had authority to buy back a further 9,466,567 ordinary shares. Under the
provisions of the Company’s articles share buy-backs are funded from the capital reserve.
13. CAPITAL AND RESERVES
Capital
Share Redemption Capital Revenue
Premium Reserve Reserve Reserve
£’000 £’000 £’000 £’000
At 1 January 2021 73,738 5,506 1,410,424 (2,747)
Shares purchased for cancellation – 257 (22,885) –
Gains on sales – – 137,538 –
Changes in unrealised investment holding gains – – 147,817 –
Other exchange differences – – 466 –
Custody transaction and capital legal costs – – (9) –
Losses after taxation – – – (5,417)
Balance at 31 December 2021 73,738 5,763 1,673,351 (8,164)
At 1 January 2020 73,738 5,124 1,025,909 1,250
Shares purchased for cancellation – 382 (24,844) –
Gains on sales – – 119,725 –
Changes in unrealised investment holding gains – – 293,564 –
Other movements in investment gains – – (657) –
Other exchange differences – – (3,173) –
Custody transaction and capital legal costs – – (100) –
Losses after taxation – – – (3,997)
Balance at 31 December 2020 73,738 5,506 1,410,424 (2,747)
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13. CAPITAL AND RESERVES CONTINUED
The share premium represents the premium above nominal value received by the Company on issuing shares net of cost. The
share premium is non-distributable.
The capital redemption reserve represents the nominal value of shares bought back and cancelled and is non-distributable.
The capital reserve includes investment holding gains of £892,931,000 (2020 – gains of £745,114,000) as disclosed in note 9.
The capital reserve is non-distributable except for the buy-back of shares.
The revenue reserve represents net revenue retained after payment of any dividends and is the only reserve from which
dividends can be funded, subject to being a positive balance.
14. NET ASSET VALUE PER ORDINARY SHARE
The net asset value per ordinary share and the net assets attributable to the ordinary shareholders at the year end calculated in
accordance with the articles of association were as follows:
2021 2020
per share per share 2021 2020
(pence) (pence) £’000 £’000
Total net assets (including current year revenue) 2,719.33 2,285.33 1,760,877 1,503,367
Less net revenue loss after taxation 8.37 6.08 5,417 3,997
Total net assets (excluding current year revenue) 2,727.70 2,291.41 1,766,294 1,507,364
Net asset value per ordinary share is based on net assets as shown above and on 64,754,112 (2020 – 65,783,418) ordinary
shares, being the number of ordinary shares in issue at each balance sheet date.
15. CONTINGENT LIABILITIES, GUARANTEES AND FINANCIAL COMMITMENTS
There were no contingent liabilities, guarantees or financial commitments at 31 December 2021 (2020 – nil).
16. CAPITAL MANAGEMENT
The Company does not have any externally imposed capital requirements. The capital of the Company is the ordinary share
capital and reserves as detailed in notes 12 and 13. It is managed in accordance with its investment policy in pursuit of its
investment objective, both of which are detailed on page 2, and shares may be repurchased as explained on page 45.
17. FINANCIAL INSTRUMENTS
In accordance with the corporate objective of maximising capital appreciation the Company invests in securities on a
worldwide basis. The Company can use gearing although no gearing was employed during the year. The Company’s other
financial instruments consist of cash and cash equivalents, short-term debtors and creditors.
The main risks arising from the Company’s financial instruments are:
A. MARKET RISK
(i) Other price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices
caused by factors other than interest rate or currency rate movement;
(ii) Interest rate risk, being the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in market interest rates; and
(iii) Foreign currency risk, being the risk that the fair value or future cash flows of a financial instrument will fluctuate because
of changes in foreign exchange rates.
B. CREDIT RISK
Being the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an
obligation.
The Company is exposed to counterparty credit risk from the parties with which it trades and will bear the risk of settlement
default. Counterparty credit risk to the Company arises from transactions to purchase or sell investments held within the
portfolio.
There were no past due nor impaired assets as of 31 December 2021 (2020 – nil).
The counterparties engaged with the Company are regulated entities and of high credit quality.
C. LIQUIDITY RISK
Being the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.
These risks and the policies for managing them have been applied throughout the year and are summarised below. Further
detail is contained in the strategic report on page 35.
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the Year Ended 31 December 2021
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A. MARKET RISK
(i) Other Price Risk
The Company’s investment portfolio is exposed to market price fluctuations which are monitored by the manager in
pursuance of the corporate objective. Listed securities held by the Company are valued at bid prices, whereas material unlisted
investments are valued by the directors on the basis of the latest information in line with the relevant principles of the
International Private Equity and Venture Capital Valuation Guidelines (Accounting Policy 1(c)). These valuations represent the
fair value of the investments, see note 9 on pages 71 and 72.
A full list of the Company’s investments is given on pages 21 to 28. In addition, a geographical analysis of the portfolio, an
analysis of the investment portfolio by broad industrial or commercial sector and a review of the 20 largest equity investments
by their aggregate market value, are shown on pages 17 to 20.
Other Price Risk Sensitivity
15.6% of the Company’s total equity investments at 31 December 2021 (2020 – 15.5%) were listed on the main list of the
LondonStock Exchange and a further 35.0% (2020 – 36.5%) on AIM. The NASDAQ Stock Exchange accounts for 20.9% (2020
– 23.5%), New York Stock Exchange for 3.2% (2020 – 3.0%) and other stock exchanges or unlisted 25.3% (2020 – 21.5%).
A10% increase in equity investment prices at 31 December 2021 would have increased total net assets and profit and loss after
taxation by £164,123,000 (2020 – £138,816,000). A decrease of 10% would have the exact opposite effect. The portfolio does
not target any exchange as a comparative index, and the performance of the portfolio has a low correlation to generally used
indices.
The shares of Herald Investment Trust plc have an underlying NAV per share. The NAV per share of Herald Investment Trust plc
fluctuates on a daily basis. In addition, there is volatility in the discount/premium the share price has to NAV.
(ii) Interest Rate Risk
The majority of the Company’s assets are equity shares and other investments which neither pay interest nor have a maturity
date. However, the Company does hold convertible bonds and government bonds, the interest rate and maturity dates of
which are detailed below. Interest is accrued on cash balances at a rate linked to the UK base rate.
The interest rate risk profile of the financial assets and financial liabilities at 31 December was:
FINANCIAL ASSETS
2021 2020
2021 Weighted 2020 Weighted
Weighted average Weighted average
average period average period
interest until interest until
2021 rate/ maturity/ 2020 rate/ maturity/
Fair value interest maturity Fair value interest maturity
£’000 rate date £’000 rate date
Fixed rate:
US bonds 22,344 1.4% 0.8 Years 22,422 1.3% 1.8 Years
UK bonds 19,904 0.1% 1.1 Years 20,004 1.5% 0.1 Years
Overseas convertible bonds 739 5.7% 2.2 Years 1,005 4.2% 3.2 Years
UK convertible bonds 1,000 10.0% 2.2 Years 3,693 6.8% 1.5 Years
Floating rate cash:
Non-sterling 56,529 0.0% 53,155 0.0%
Sterling 18,022 0.0% 19,774 0.0%
74,551 72,929
The benchmark rate which determines the interest payments received on cash balances is the Bank of England base rate.
Interest rate risk sensitivity
(a) Cash
An increase of 100 basis points in interest rates as at 31 December 2021 would have a direct effect on net assets. Based on the
position at 31 December 2021, over a full year, an increase of 100 basis points would have increased the profit and loss after
taxation by £746,000 (2020 – £729,000) and would have increased the net asset value per share by 1.15p (2020 – 1.11p).
Thecalculations are based on the cash balances as at the respective balance sheet dates and are not representative of the year
asawhole.
(b) Fixed rate bonds
An increase of 100 basis points in bond yields as at 31 December 2021 would have decreased total net assets and profit and
loss after taxation by £388,000 (2020 – £412,000) and would have decreased the net asset value per share by 0.60p (2020 –
0.63p). Adecrease in bond yields would have had an equal and opposite effect. The convertible loan stocks having an element
of equity are not included in this analysis as given the nature of the businesses and the risk profile of their balance sheets; they
are considered to have more equity like characteristics.
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17. FINANCIAL INSTRUMENTS CONTINUED
(iii) Foreign Currency Risk
The Company’s reporting currency is sterling, but investments are made in overseas markets as well as the United Kingdom
and the asset value can be affected by movements in foreign currency exchange rates.
Furthermore many companies trade internationally both through foreign subsidiaries, and through exports. The greatest
foreign currency risk occurs when companies have a divergence in currencies for costs and revenues. A much less risky
exposure to currency is straight translation of sales and profits. The list of investments on pages 21 to 28 breaks down the
portfolio by geographic listing. However the location of the stock market quote only has a limited correlation to the costs,
revenues and even activities of those companies, and so this note should not be regarded as a reliable guide to the sensitivity
of the portfolio to currency movements. For example, the holdings in the portfolio that have suffered most from US$
weakness are UK companies with dollar revenues and sterling costs.
The Company does not hedge the sterling value of investments that are priced in other currencies. Overseas income is subject
to currency fluctuations. The Company does not hedge these currency fluctuations because it is impossible to quantify the
effect for the reasons stated above. However, from time to time the manager takes a view by holding financial assets or
liabilities in overseas currencies.
Exposure to currency risk through asset allocation by currency of listing is indicated below:
At 31 December 2021
Other
receivables
Cash and and Net
Investments deposits payables exposure
£’000 £’000 £’000 £’000
US dollar 418,793 48,271 3,348 470,412
Euro 147,215 41 91 147,347
Taiwan dollar 61,495 8,217 48 69,760
Australian dollar 51,690 – – 51,690
Japanese yen 51,432 – 41 51,473
Norwegian krone 39,021 – – 39,021
Korean won 21,767 – 103 21,870
Other overseas currencies 33,030 – 17 33,047
Exposure to currency risk on translation of valuations of securities listed in
overseas currencies 824,443 56,529 3,648 884,620
Sterling 859,039 18,022 (804) 876,257
1,683,482 74,551 2,844 1,760,877
At 31 December 2020
Other
receivables
Cash and and Net
Investments deposits payables exposure
£’000 £’000 £’000 £’000
US dollar 391,663 43,078 92 434,833
Euro 96,657 8,742 74 105,473
Australian dollar 46,095 – 17 46,112
Taiwan dollar 33,387 1,335 – 34,722
Japanese yen 30,229 – 27 30,256
Norwegian krone 19,987 – – 19,987
Korean won 16,058 – 62 16,120
Other overseas currencies 36,226 – 5 36,231
Exposure to currency risk on translation of valuations of securities listed in
overseas currencies 670,302 53,155 277 723,734
Sterling 760,281 19,774 (422) 779,633
1,430,583 72,929 (145) 1,503,367
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the Year Ended 31 December 2021
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Foreign currency risk sensitivity
At 31 December 2021, had sterling strengthened by 10% (2020 – 10%) in relation to all currencies, with all other variables held
constant, total net assets and profit and loss after taxation would have decreased by the amounts shown below based on the
balances denominated in foreign currency. A 10% (2020 – 10%) weakening of sterling against all currencies, with all other
variables held constant, would have had the exact opposite effect on the financial statement amounts. However, companies
whose cost base diverges in currency terms from its sales will in the longer term have a significantly greater effect on valuation
than simple translation. In the short term investee companies generally cover their currency exposure to varying degrees.
There is insufficient publicly disclosed information to quantify this, but in the long term this effect is expected to dwarf simple
translation of foreign listings in terms of both risk and reward, because many investee companies trade globally. Furthermore,
the country of listing is not necessarily an indication of the geography of some or even any operational activities for investee
companies. The Manager does not use financial instruments to protect against currency movements. From time to time
financial leverage has been made using debt in overseas currencies.
2021 2020
£’000 £’000
US dollar 47,041 43,483
Euro 14,735 10,547
Taiwan dollar 6,976 3,472
Australian dollar 5,169 4,611
Japanese yen 5,147 3,026
Norwegian krone 3,902 1,999
Korean won 2,187 1,612
Other overseas currencies 3,305 3,623
88,462 72,373
B. Credit Risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment which it
has entered into with the Company. The manager monitors counterparty risk on an ongoing basis.
The Company has investments in convertible loan stocks that have an element of equity. These securities are viewed as having
a risk profile similar to the equity holdings. This is because the convertibles held are in nascent technology companies that
may be loss-making and may have weak balance sheets. For this reason these stocks are categorised as equity holdings and
for risk management purposes excluded from the credit risk analysis.
Credit Risk Exposure
The exposure to credit risk at 31 December was:
2021 2020
£’000 £’000
Fixed interest investments 42,248 42,426
Cash and cash equivalents 74,551 72,929
Other receivables 4,374 1,460
121,173 116,815
During the year the maximum exposure in fixed interest investments was £42,722,000 (2020 – £48,953,000) and the
minimum £41,518,000 (2020 – £42,426,000). The maximum exposure in cash was £85,096,498 (2020 – £112,654,000) and
the minimum £58,031,270 (2020 – £72,929,000).
C. Liquidity Risk
The Company’s policy with regard to liquidity is to provide a degree of flexibility so that the portfolio can be repositioned when
appropriate and that most of the assets can be realised without an excessive discount to the market price.
Equity Securities
The Company’s unlisted investments are not readily realisable, but these only amount to 0.6% of the Company’s total assets at
31 December 2021 (2020 – 1.3%).
In practice, liquidity in investee companies is imperfect, particularly those with a market value of less than £100 million.
Toreduce this liquidity risk it is the policy to diversify the holdings and generally to restrict the holding in any one company to
less than 10% of the share capital of that company. Furthermore the guideline is for no single investment to account for more
than 5% of the assets of the Company.
The market valuation of each underlying security gives an indication of value, but the price at which an investment can be made
or realised can diverge materially from the bid or offer price depending on market conditions generally and particularly to each
investment. 9.0% (£147 million) (2020 – 12.0% (£165 million)) of the listed equities in the portfolio are invested in stocks with
amarket capitalisation below £100 million, where liquidity is expected to be more limited. If these stocks had onaverage
arealisable value 20% below the bid price the value of the total fund would be adversely affected by 1.7% (2020–2.2%).
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the Year Ended 31 December 2021
17. FINANCIAL INSTRUMENTS CONTINUED
Liquidity Risk Exposure
Contractual maturities of the financial liabilities at the year end, based on the earliest date on which payment can be required
are as follows:
2021 2020
One year One year
or less or less
£’000 £’000
Other payables 1,530 1,605
1,530 1,605
Fair Value of Financial Instruments
The Company’s investments, as disclosed in the Company’s balance sheet, are valued at fair value.
Nearly all of the Company’s portfolio of investments are disclosed in the Level 1 category as defined in FRS 102. Categorisation
is based on the lowest level input that is significant to the fair value measure in its entirety.
The three levels set out in FRS102 follow:
Level 1 – The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the
measurement date.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the
asset or liability, either directly or indirectly.
Level 3 – Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.
The investment manager considers observable data to be that market data that is readily available, regularly distributed or
updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant
market.
The analysis of the valuation basis for the financial instruments based on the hierarchy as at 31 December is as follows:
At 31 December 2021
Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Financial assets
Equity investments 1,630,749 – 6,359 1,637,108
Government debt securities 42,248 – – 42,248
Convertible loan stocks – – 4,126 4,126
Total investments 1,672,997 – 10,485 1,683,482
At 31 December 2020
Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Financial assets
Equity investments 1,368,578 – 12,494 1,381,072
Government debt securities 42,426 – – 42,426
Convertible loan stocks – – 7,085 7,085
Total investments 1,411,004 – 19,579 1,430,583
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A reconciliation of fair value measurements in Level 3 is set out below:
At 31 December 2021
£’000
Opening balance at 1 January 2021 19,579
Purchases 500
Sales (7,136)
Total gains or (losses)
– on assets sold during the year 5,713
– on assets held at 31 December 2021 (4,293)
Assets transferred during the year (2,115)
Return of capital (1,763)
Closing balance at 31 December 2021 10,485
18. RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH THE MANAGER
Under UK GAAP, the Company has identified the directors as related parties. The directors’ emoluments and interests have
been disclosed within the Directors’ Remuneration Report on page 52 with additional disclosure in note 4. No other related
parties have been identified.
The Company has agreements with HIML for the provision of management, accounting and administration services and
promotional activities as disclosed in the strategic report on page 39. Details of transactions during the year are disclosed in
note 3 and 11.
19. POST BALANCE SHEET EVENTS
Subsequent to the year end, the net asset value per share of the Company has decreased by 13.5% from 2719p to 2351p and
the Company’s share price has decreased by 20.2% from 2505p to 1998p as at 17 February 2022.
Since 31 December 2021, equity markets have fallen significantly, with the share prices of many technology companies being
particularly affected. There are a number of investor concerns impacting on stock market valuations; these include:
uncertainty around the intentions of Russian troops near the Ukrainian border, the continuing disruption caused by Covid and
the impact that rising inflation and interest rates may have on the outlook for the global economy. The board and the Manager
continue to monitor investment performance in line with the Company’s investment objectives.
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NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the annual general meeting of Herald Investment Trust plc will be held at 10–11 Charterhouse
Square, London EC1M 6EE on 19 April 2022 at 11.30 am for the following purposes:
To consider and, if thought fit, approve resolutions 1 to 10 as ordinary resolutions and resolutions 11 to 13 as special
resolutions.
ORDINARY BUSINESS
1. To receive and adopt the Directors’ Report, the Strategic Report and the Financial Statements and the Auditor’s Report in
respect of the year ended 31 December 2021.
2. To approve the Directors’ Remuneration Report for the year ended 31 December 2021.
3. To re-elect Tom Black as a director of the Company.
4. To re-elect Stephanie Eastment as a director of the Company.
5. To re-elect Henrietta Marsh as a director of the Company.
6. To re-elect Karl Sternberg as a director of the Company.
7. To re-elect James Will as a director of the Company.
8. To re-appoint PricewaterhouseCoopers LLP as independent auditor to the Company to hold office until the conclusion of
the next annual general meeting at which financial statements are laid before the Company.
9. To authorise the audit committee to determine the remuneration of the independent auditor.
SPECIAL BUSINESS
10. That, pursuant to article 174 of the Company’s articles of association, the Company will continue to operate as an
investment trust company until the conclusion of the annual general meeting of the Company to be held in 2025.
11. That, the Company be generally and subject as hereinafter appears unconditionally authorised in accordance with Section
701 of the Companies Act 2006 (the ‘Act’) to make market purchases (within the meaning of Section 693(4) of the Act) of
its issued shares of 25p each in the capital of the Company in substitution for any existing authority under section 701 of
the Act but without prejudice to any exercise of any such authority prior to the date hereof.
PROVIDED ALWAYS THAT
(i) the maximum number of shares hereby authorised to be purchased shall be 14.99% of the issued share capital on the date
on which this resolution is passed;
(ii) the minimum price which may be paid for a share shall be 25p;
(iii) the maximum price (exclusive of expenses) which may be paid for a share shall not be more than the higher of (a) 5%
above the average mid closing price (as derived from the Daily Official List of the London Stock Exchange) for the shares
for the five business days immediately preceding the date of purchase and (b) the higher of the last independent trade and
the highest current independent bid on the London Stock Exchange;
(iv) any purchase of shares will be made in the market for cash at prices below the prevailing net asset value per share
(asdetermined by the directors);
(v) unless previously varied, revoked or renewed, the authority hereby conferred shall expire on the earlier of the date falling
15months after the passing of this resolution and the conclusion of the annual general meeting of the Company to be
held in 2023; and
(vi) the Company may make a contract to purchase shares under the authority hereby conferred prior to the expiry of such
authority and may make a purchase of shares pursuant to any such contract notwithstanding such expiry.
12. That the New Articles of Association produced to the meeting and signed by the chairman of the meeting for the purposes
of identification be approved and adopted as the Articles of Association of the Company in substitution for, and to the
exclusion of, the Existing Articles of Association with effect from the conclusion of the meeting.
13. That a general meeting other than an annual general meeting may be called on not less than 14 clear days’ notice, such
authority to expire at the conclusion of the annual general meeting in 2023.
On behalf of the board
Sanne Fund Services (UK) Limited
Company Secretary
Registered Office:
10–11 Charterhouse Square London EC1M 6EE
21 February 2022
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NOTES
1. As a member you are entitled to appoint a proxy or proxies to exercise
all or any of your rights to attend, speak and vote at the AGM. A proxy
need not be a member of the Company but must attend the AGM to
represent you. You may appoint more than one proxy provided each
proxy is appointed to exercise rights attached to different shares. You
can only appoint a proxy using the procedure set out in these notes.
You may not use any electronic address provided either in this notice
or any related documents to communicate with the Company for any
purpose other than those expressly stated.
2. If you wish to appoint a proxy, you may do so either:
• by logging on to www.signalshares.com and following the
instructions; or
• in the case of CREST members, by utilising the CREST electronic
proxy appointment service in accordance with the procedures set
out in note 5 below.
You may request a hard copy form of proxy directly from the registrars,
Link Group, on Tel: 0371 664 0300. Calls are charged at the standard
geographic rate and will vary by provider. Calls outside the United
Kingdom will be charged at the applicable international rate. Lines are
open between 9.00am and 5.30pm Monday to Friday (excluding public
holidays in England and Wales). In each case, the proxy appointment
must be received by the Company as soon as possible and, in any
event, so as to arrive by no later than 11.30am on 13 April 2022.
If you are an institutional investor you may be able to appoint a proxy
electronically via the Proxymity platform, a process which has been
agreed by the Company and approved by the Registrar. For further
information regarding Proxymity, please go towww.proxymity.io. Your
proxy must be lodged by 11.30am on 13 April 2022 in order to be
considered valid. Before you can appoint a proxy via this process, you
will need to have agreed to Proxymity’s associated terms and
conditions. It is important that you read these carefully as you will be
bound by them and they will govern the electronic appointment of
your proxy.
3. To be valid any hard copy proxy form or other instrument appointing
aproxy, together with any power of attorney or other authority under
which it is signed or a certified copy thereof, must be received by post
or (during normal business hours only) by hand at the Registrars of
theCompany at Link Group, Link Group, Unit 10, Central Square,
29Wellington Street, Leeds LS1 4DL no later than 48 hours (excluding
non-working days) before the time of the meeting or any adjourned
meeting.
4. CREST members who wish to appoint a proxy or proxies through the
CREST electronic proxy appointment service may do so by using the
procedures described in the CREST Manual and/or by logging on to the
website www.euroclear.com/CREST. CREST personal members or
other CREST sponsored members, and those CREST members who
have appointed a voting service provider(s), should refer to their CREST
sponsor or voting service provider(s), who will be able to take the
appropriate action on their behalf.
5. In order for a proxy appointment or instruction made using the CREST
service to be valid, the appropriate CREST message (a ‘CREST Proxy
Instruction’) must be properly authenticated in accordance with
Euroclear UK and Ireland Limited’s specifications, and must contain the
information required for such instruction, as described in the CREST
Manual. The message, regardless of whether it constitutes the
appointment of a proxy or is an amendment to the instruction given to
a previously appointed proxy must, in order to be valid, be transmitted
so as to be received by the Company’s registrar (ID RA10) no later than
48 hours (excluding non-working days) before the time of the meeting
or any adjournment. For this purpose, the time of receipt will be taken
to be the time (as determined by the timestamp applied to the message
by the CREST Application Host) from which the Company’s registrar is
able to retrieve the message by enquiry to CREST in the manner
prescribed by CREST. After this time any change of instructions to
proxies appointed through CREST should be communicated to the
appointee through other means.
6. CREST members and, where applicable, their CREST sponsors, or
voting service providers should note that Euroclear UK and Ireland
Limited does not make available special procedures in CREST for any
particular message. Normal system timings and limitations will,
therefore, apply in relation to the input of CREST Proxy Instructions.
Itis the responsibility of the CREST member concerned to take (or, if
the CREST member is a CREST personal member, or sponsored
member, or has appointed a voting service provider(s), to procure that
his CREST sponsor or voting service provider(s) take(s)) such action as
shall be necessary to ensure that a message is transmitted by means of
the CREST system by any particular time. In this connection, CREST
members and, where applicable, their CREST sponsors or voting
system providers are referred, in particular, to those sections of the
CREST Manual concerning practical limitations of the CREST system
and timings.
7. The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated
Securities Regulations 2001.
8. The submission of a completed proxy form or other instrument of
proxy will not prevent you attending the AGM and voting in person if
you wish.
9. Pursuant to Regulation 41 of the Uncertificated Securities Regulations
2001 and Section 311 of the Companies Act 2006 the Company
specifies that to be entitled to attend and vote at the AGM (and for the
purpose of the determination by the Company of the votes they may
cast), shareholders must be registered in the Register of Members of
the Company no later than 48 hours (excluding non-working days)
prior to the commencement of the AGM or any adjourned meeting.
Changes to the Register of Members after the relevant deadline shall be
disregarded in determining the rights of any person to attend and vote
at the meeting.
10. Any person to whom this notice is sent who is a person nominated
under Section 146 of the Companies Act 2006 to enjoy information
rights (a ‘Nominated Person’) may, under an agreement between him/
her and the shareholder by whom he/she was nominated, have a right
to be appointed (or to have someone else appointed) as a proxy for the
AGM. If a Nominated Person has no such proxy appointment right or
does not wish to exercise it, he/she may, under any such agreement,
have a right to give instructions to the shareholder as to the exercise of
voting rights.
11. The statement of the rights of shareholders in relation to the
appointment of proxies in notes 1 and 3 above does not apply to
Nominated Persons. The rights described in those notes can only be
exercised by shareholders of the Company.
12. The members of the Company may require the Company to publish,
on its website, (without payment) a statement (which is also passed to
the auditor) setting out any matter relating to the audit of the
Company’s accounts, including the auditor’s report and the conduct of
the audit. The Company will be required to do so once it has received
such requests from either members representing at least 5% of the total
voting rights of the Company or at least 100 members who have a
relevant right to vote and hold shares in the Company on which there
has been paid up an average sum per member of at least £100. Such
requests must be made in writing and must state your full name and
address and be sent to the Company at 10–11 Charterhouse Square,
London, EC1M 6EE.
13. Information regarding the AGM, including information required by
Section 311A of the Companies Act 2006, is available from the
Company’s page of the manager’s website at www.heralduk.com.
14. Under section 319A of the Companies Act 2006, the Company must
answer any question relating to the business being dealt with at the
meeting put by a member unless:
(a) answer the question would interfere unduly with the preparation for
the meeting or involve the disclosure of confidential information;
(b) the answer has already been given on a website in the form of an
answer to a question; or
(c) it is undesirable in the interests of the Company or the good order
of the meeting that the question be answered.
15 As at 18 February 2022 (being the last practicable date prior to the
publication of this notice) the Company’s issued share capital consisted
of 63,916,916 ordinary shares, carrying one vote each. Therefore, the
total voting rights in the Company as at 18 February 2022 were
63,916,916 votes.
16. Any person holding 3% or more of the total voting rights of the
Company who appoints a person other than the Chairman of the
meeting as his proxy will need to ensure that both he and his proxy
complies with their respective disclosure obligations under the
UKDisclosure and Transparency Rules.
17. No director has a contract of service with the Company.
18. The full terms of the proposed amendments to the Company's articles
of association are available at the registered office of the Company
between the hours of 9am and 5pm (Saturdays, Sundays and public
holidays excepted) and on the Company’s website,
www.heralduk.com/funds/herald-investment-trust, from the date of
the AGM Notice until the close of the AGM, and will also be available
for inspection at the venue of the AGM from 15 minutes before and
during the AGM.
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APPENDIX
SUMMARY OF THE PRINCIPAL AMENDMENTS TO THE COMPANY’S ARTICLES OF ASSOCIATION
Set out below is a summary of the principal amendments which will be made to the Company’s Existing Articles through the
adoption of the New Articles if resolution 12 to be proposed at the AGM is approved by shareholders.
This summary is intended only to highlight the principal amendments which are likely to be of interest to shareholders. It is not
intended to be comprehensive and cannot be relied upon to identify amendments or issues which may be of interest to all
shareholders. This summary is not a substitute for reviewing the full terms of the New Articles which will be available for
inspection at the registered office of the Company between the hours of 9am and 5pm (Saturdays, Sundays and public
holidays excepted), and on the Company’s website, www.heralduk.com/funds/herald-investment-trust, from the date of the
AGM Notice until the close of the AGM, and will also be available for inspection at the venue of the AGM from 15 minutes
before and during the AGM.
HYBRID/VIRTUAL-ONLY SHAREHOLDER MEETINGS
The New Articles permit the Company to hold shareholder meetings on a virtual basis, whereby shareholders are not required
to attend the meeting in person at a physical location but may instead attend and participate using electronic means.
Ashareholder meeting may be virtual-only if attendees participate only by way of electronic means, or may be held on a
hybrid basis whereby some attendees attend in person at a physical location and others attend remotely using electronic
means. This should make it easier for the Company’s shareholders to attend shareholder meetings if the board elects to
conduct meetings using electronic means. Amendments have been made throughout the New Articles to facilitate the holding
of hybrid or virtual-only shareholder meetings.
While the New Articles (if adopted) would permit shareholder meetings to be conducted using electronic means, the directors
have no present intention of holding a virtual-only meeting. These provisions will only be used where the directors consider it
is in the best interests of shareholders for a hybrid or virtual-only meeting to be held. Nothing in the New Articles will prevent
the Company from holding physical shareholder meetings.
AIFM REGULATIONS
The Alternative Investment Fund Managers Directive (2011/61/EU) (“AIFMD”) as incorporated into UK law by the European
Union (Withdrawal) Act 2018 and the Alternative Investment Fund Managers Regulations 2013 (SI 2013/1773) (the “AIFM
Regulations”). The board is proposing to take this opportunity to make amendments to the Existing Articles in response to the
AIFM Regulations and all applicable rules and regulations implementing the AIFMD. The proposed new provisions are as
follows:
(i) the Existing Articles will be amended to provide that the net asset value per share of the Company shall be calculated at
least annually and be disclosed to shareholders from time to time in such manner as may be determined by the board.
The amendment will have no bearing on current practice and simply articulates the minimum requirements of the AIFM
Regulations.
(ii) the New Articles stipulate that the valuation of the Company’s assets will be performed in accordance with prevailing
accounting standards, the AIFM Rules, or such other accounting standards, bases, policies and procedures as the board
may determine from time to time. This reflects best practice and has no bearing on current practice and simply articulates
the minimum requirements of the AIFM Regulations.
INTERNATIONAL TAX REGIMES REQUIRING THE EXCHANGE OF INFORMATION
The board is proposing to include provisions in the New Articles to provide the Company with the ability to require
shareholders to co-operate in respect of the exchange of information in order to comply with the Company’s international tax
reporting obligations, including, without limitation, under or in relation to FATCA, the Common Reporting Standard and the
European Union’s Directive on Administrative Cooperation (“Tax Reporting Requirements”).
The Existing Articles are being amended to provide the Company with the ability to require shareholders to co-operate with it
in ensuring that the Company is able to comply with its Tax Reporting Requirements. The Existing Articles will also be
amended to provide that (i) where any member fails to supply the relevant information to the Company within the relevant
time period, the member will be deemed to have forfeited their shares and (ii) the Company will not be liable for any monies
that become subject to a deduction or withholding relating to FATCA, the Common Reporting Standard or any similar laws as
such liability would be to the detriment of shareholders as a whole.
DIRECTORS’ REMUNERATION
The board is proposing to amend the Existing Articles to increase the cap on the aggregate of all fees paid to directors from
£200,000 per annum to £250,000 per annum. The proposed increase would provide additional headroom given the size of
the board has increased from four to six directors since the last increase in 2018 and is consistent with market practice.
Both the Existing Articles and the New Articles allow for a higher amount to be approved from time to time by ordinary
resolution of the Company.
MINOR AMENDMENTS
The board is also taking the opportunity to make some additional minor or technical amendments to the Existing Articles,
including:
i. simplifying the procedure in respect of untraced shareholders by removing the requirement for the Company to publish
newspaper advertisements;
ii. provisions regarding how the Company may purchase its own shares and reduce its share capital;
iii. provisions to enable the Company to hold shareholder meetings across two (or more) physical locations in the event that
all shareholders cannot be accommodated in a single physical location on the day of a meeting;
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iv. expanding the circumstances under which the chair of a shareholder meeting may adjourn the meeting without the
consent of the meeting, including where the health, safety or wellbeing of those entitled to attend would be put at risk by
their attendance at the meeting;
v. provisions which require all directors to retire at each AGM (and, if they wish, to offer themselves for re-election) in line
with the recommended corporate governance regime in the UK, and provisions dealing with the potential situation
whereby no directors are re-elected at an AGM;
vi. a provision which would enable a director to be removed from office if all of the other directors so resolve;
vii. updating the payment provisions for dividends to include the use of any approved funds transfer system and to enable the
Company to specify which payment method(s) will be used by the Company in respect of any dividend; and
viii. providing the board with the flexibility to change the Company’s name by way of board resolution.
These changes generally reflect modern best practice and should assist in relieving certain administrative burdens on the
Company.
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FURTHER SHAREHOLDER INFORMATION
HERALD INVESTMENT TRUST PLC
The Company is an investment trust. Investment trusts offer
investors the following:
— Participation in a diversified portfolio of shares.
— Constant supervision by experienced professional
managers.
— The Company is free from capital gains tax on capital
profits realised within the portfolio.
— The opportunity to achieve improved performance for
shareholders’ funds in rising markets by the borrowing of
additional money.
HOW TO INVEST
The Company’s shares are traded on the London Stock
Exchange. They can be bought by placing an order with a
stockbroker or an online share dealing platform or by asking
a professional adviser to do so.
SOURCES OF FURTHER INFORMATION ON THE COMPANY
The price of shares is quoted daily in the Financial Times,
TheDaily Telegraph and The Times. The NAV per share is
calculated and released daily to the London Stock Exchange
and monthly to the Association of Investment Companies.
KEY DATES
If a dividend is declared in respect of a financial year, it is
normally paid late April/early May. The AGM is normally held
in April.
TAXATION
The price of the ordinary shares (adjusted for the price of
attributable warrants) on 21 February 1994, which was the
first day of trading, was 90.9p. The amount attributable to the
warrants for the purpose of capital gains tax is 9.1p per share
issued (1994 Annual Report). Any shareholder uncertain of his
or her position is recommended to seek expert advice.
ISAS
The ordinary shares of the Company are qualifying
investments for individual saving accounts.
ELECTRONIC PROXY VOTING
If you hold stock in your own name you should vote by
returning proxies electronically at www.signalshares.com.
Ifyou have any questions about this service please contact
Link Group on 0371 664 0300. Calls are charged at the
standard geographic rate and will vary by provider. Calls
outside the United Kingdom will be charged at the applicable
international rate. Lines are open between 9.00am and
5.30pm Monday to Friday (excluding public holidays in
England and Wales). Shareholders who wish to do so can
obtain a hard copy proxy form by calling the above number or
writing to the registrar at: Link Group, Unit 10, Central Square,
29 Wellington Street, Leeds LS1 4DL.
MAINSTREAM INVESTMENT
The Company conducts its affairs so that its ordinary shares
are capable of being recommended by independent financial
advisors to ordinary retail investors in accordance with
relevant FCA rules. Our ordinary shares are, we consider,
mainstream investment products because they are shares in
an investment trust. The Company intends to continue
conducting its affairs for the foreseeable future so that the
ordinary shares can continue to be categorised as
mainstream.
KEY INFORMATION DOCUMENT (“KID”)
Since 1 January 2018 there is a requirement to make a KID
available to retail investors in the Company. The KID provides
key information about the Company’s shares as an
investment product. The information is required by law to
help potential shareholders understand the nature, risks,
costs, potential gains and losses of the Company’s shares
and to help them compare it with other products. The KID
can be viewed at https://www.heralduk.com/the-
packaged-retail-and-insurance-based-investment-products-
regulation-priips/
ALTERNATIVE INVESTMENT FUND MANAGERS
DIRECTIVE (AIFMD)
The UK version of the AIFMD, an European Union Directive
which came into force on 22 July 2013 and which is part
ofUK law by virtue of the European Union (Withdrawal)
Act2018, as amended by The Alternative Investment Fund
Managers (Amendment etc.) (EU Exit) Regulations 2019 and
any further equivalent UK legislation replacing or superseding
the AIFMD. The UK AIFMD regulates fund managers that
manage alternative investment funds (this includes
investment trusts).
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COMPANY SECRETARY
Sanne Fund Services (UK) Limited
6th Floor
125 London Wall
London
EC2Y 5AS
REGISTERED OFFICE
10–11 Charterhouse Square
London
EC1M 6EE
ADMINISTRATOR
The Bank of New York Mellon (International) Limited
1 Canada Square
London
E14 5AL
COMPANY NUMBER
02879728
(England and Wales)
ALTERNATIVE INVESTMENT FUND MANAGER AND
PORTFOLIO MANAGER
Herald Investment Management Limited
10–11 Charterhouse Square
London EC1M 6EE
Tel: 020 7553 6300
Fax: 020 7490 8026
Website: www.heralduk.com
Email: info@heralduk.com
INDEPENDENT AUDITOR
PricewaterhouseCoopers LLP
Atria One
144 Morrison Street
Edinburgh
EH3 8EX
SOLICITORS
Macfarlanes LLP
20 Cursitor Street
London
EC4A 1LT
STOCKBROKERS
Singer Capital Markets Securities Limited
One Bartholomew Lane
London
EC2N 2AX
Peel Hunt LLP
Moor House
120 London Wall
London
EC2Y 5ET
DEPOSITARY AND CUSTODIAN
The Bank of New York Mellon (International) Limited
1 Canada Square
London
E14 5AL
REGISTRARS
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Tel: 0371 664 0300
Calls are charged at the standard geographic rate and will
vary by provider. Calls outside the United Kingdom will be
charged at the applicable international rate. Lines are open
between 9.00am and 5.30pm Monday to Friday (excluding
public holidays in England and Wales).
Website: www.signalshares.com
Email: enquiries@linkgroup.com
ASSOCIATION OF INVESTMENT COMPANIES (‘AIC’)
24 Chiswell Street
London
EC1Y 4YY
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ALTERNATIVE PERFORMANCE MEASURE
An APM is a numerical measure of the Company’s current,
historical or future performance, financial position or cash
flows other than a financial measure defined or specified in
the applicable financial framework. The following APMs are
typically used within the investment trust sector to provide
additional useful information to shareholders and others and
to help assess an investment trust’s performance and
position against its peers and the market generally. The
Company’s directors have therefore chosen the following
APMs as useful measures, however, make the important
distinction for the discount APM that the Company does not
target or attempt to control the discount (or premium) given
that this is a function of the stock market’s view of the
Company’s share price.
GEARING
The gearing ratio reflects the degree to which the Company
is exposed to movements on its investment portfolio. The
gearing ratio indicates the extra amount by which
shareholders’ funds would move if the Company’s
investments were to rise or fall. A gearing ratio higher than
100 indicates the extent to which shareholders’ funds are
geared; a gearing ratio of 100 shows the Company is
ungeared and fully invested; and a gearing ratio lower than
100 indicates that the Company is not fully invested. There
are several ways to calculate gearing, and the following
methods are used in this report.
Gross gearing
This reflects the amount of borrowings in use by the
Company and takes no account of any cash balances or
amounts invested in government debt securities which the
directors deem to be equivalent to cash for the purpose of
the net gearing/net cash calculation.
Net gearing or net cash
This reflects the amount of borrowings actively invested,
i.e.investments (excluding amounts invested in government
debt securities) divided by shareholders’ funds. A net cash
position arises when cash and cash equivalents and
government debt securities held are greater than borrowings.
31 December 31 December
2021 2020
PAGE £,000 £,000
Cash and cash equivalents 65 A 74,551 72,929
Add : Government debt
securities 71 B 42,248 42,426
Total cash and cash
equivalents and
government debt securities C=A+B 116,799 115,355
Net assets 65 D 1,760,877 1,503,367
Add : borrowings E – –
Net assets plus borrowings F=D+E 1,760,877 1,503,367
Less: Total cash and
cash equivalents and
government debt securities C (116,799) (115,355)
Total assets (excluding total
cash and cash equivalents and
government debt
securities) G=F-C 1,644,078 1,388,012
Gross gearing F/D 100 100
Net gearing G/D n/a n/a
Net cash G/D 93 92
NET ASSET VALUE (NAV) PER ORDINARY SHARE
The value of the Company’s assets less any liabilities for
which the Company is responsible, divided by the number of
shares in issue. See note 14 on page 74. The NAV per
ordinary share is published daily.
The NAV per ordinary share is shown both including and
excluding current year revenue.
The change in NAV per share (see total return below) during
2021, as shown on page 1, is calculated by taking 2021 total
return and dividing by the opening NAV for the year (that is,
the NAV disclosed for 31 December 2020).
ALTERNATIVE PERFORMANCE MEASURES
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ONGOING CHARGES
The ongoing charges figure has been calculated in
accordance with AIC guidelines: annualised charges (total
expenses), excluding non-recurring expenses and interest,
incurred by the Company, divided by the average daily net
asset values throughout the year.
The ongoing charges are derived in accordance with the
following table:
2021 2020
PAGE £,000 £,000
Investment management fee 64 A 16,102 12,223
Other administrative
expenses 64 B 1,074 937
Less: costs in relation
to custody dealing and
non-recurring expenses C (14) (110)
Ongoing charges D=A+B+C 17,162 13,050
Average net assets E 1,683,345 1,203,930
Ongoing charges figure D/E 1.02% 1.08%
TOTAL RETURN
Share price and NAV total returns show how the NAV and
share price have performed over a period of time in
percentage terms, taking into account both the movement
inshare price/NAV and any dividends paid to shareholders.
Share
PAGE Price NAV
Opening at 1 January 2021 3 A 2,245.0p 2,285.3p
Closing at 31 December 2021 3 B 2,505.0p 2,719.3p
Price movements C=(B-A)/A 11.6% 19.0%
Dividend reinvestment* D – –
Total return C+D 11.6% 19.0%
* No dividend has been declared for the year (2020 – nil).
DISCOUNT OR PREMIUM
The amount by which the share price of an investment trust
is either higher (premium) or lower (discount) than the NAV
per share, expressed as a percentage of the NAV per share.
31 December 31 December
DISCOUNT OR PREMIUM PAGE 2021 2020
Share Price (p) 3 A 2,505.0 2,245.0
Net Asset Value per share (p) 3 B 2,719.3 2,285.3
Discount 3 (A-B)/B 7.9% 1.8%
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Herald Investment Trust plc
10–11 Charterhouse Square
London EC1M 6EE
020 7553 6300
www.heralduk.com
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