Annual report & financial statements
31 December 2022
Herald Investment
Trust plc
2022
Herald Investment Trust’s
objective is to achieve
capitalappreciation through
investments in smaller
quotedcompanies in the
areas oftelecommunications,
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
1 Highlights
2 Company Summary
3 Year’s Summary
Investment Report
6 Company Overview
7 Geographical Analysis
8 Chairman’s Statement
10 Investment Manager’s Report
16 Classification of Investments
17 Top Twenty 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
50 Directors’ Remuneration Report
53 Statement of Directors’ Responsibilities
54 Independent Auditors’ Report
Financial Statements
62
Income Statement
63 Balance Sheet
64 Statement of Changes in Equity
65 Cash Flow Statement
66 Notes to the Financial Statements
General
78 Notice of Annual General Meeting
80 Further Shareholder Information
82 Alternative Performance Measures
01
Herald Investment Trust plc
Annual report & financial statements 2022
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
202220202018201620142012201020082006200420022000199819961994
14.2
5.9
5.5
5.4
5.1
–19.3
–16.3
–16.1
–16.0
–15.6
HIGHLIGHTS
NAV AT 31 DECEMBER 2021
£1,760.9m
NAV AT 31 DECEMBER 2022
£1,305.0m
TOTAL RETURN
IN 2022
–£405.6m –£50.3m
+ =
SHARE BUYBACKS
IN 2022
TOTAL RETURN SINCE INCEPTION
(FIGURES HAVE BEEN REBASED TO 100 AT 16 FEBRUARY 1994)
Source: Refinitiv
A Alternative Performance Measures - see page 82.
NET ASSET VALUE (NAV)
A
PER SHARE 31 DECEMBER 2022
£20.99
CHANGE IN NAV
A
PER SHARE IN 2022
–22.8%
Super Micro
Computer
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 2022
TOTAL GAIN/(LOSS) IN 2022 IN STERLING TERMS (MILLIONS)
Pegasystems
Esker
ITM Power
S4 Capital
Euromoney Institutional Investor
WANdisco
Telecom Plus
ZOO Digital
TOTAL NAV RETURN
SINCE INCEPTION
+2,190.8%
INTRODUCTORY HIGHLIGHTS
02
Herald Investment Trust plc
Annual report & financial statements 2022
COMPANY SUMMARY
Company data at 31 December 2022
OBJECTIVE AND POLICY
The objective of Herald Investment Trust plc (‘Herald’ or the ‘Company’) 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 Apex Listed Companies Services (UK) Limited (‘Apex’), formerly
Sanne Fund Services (UK) Limited.
CAPITAL STRUCTURE
As at 31 December 2022 the Company’s share capital consisted of 62,173,223 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 2,580,889 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 2022, shareholders voted in favour of the
Company continuing to operate as an investment trust. The next continuation vote
will be put to shareholders at the 2025 AGM 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 82 and 83.
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
£1,305m
MARKET CAPITALISATION
£1,108m
03
Annual report & financial statements 2022Herald Investment Trust plc
60
70
80
90
100
110
Dec 22Nov 22Oct 22Se
p
22Au
g
22Jul 22Jun 22Ma
y
22A
p
r 22Mar 22Feb 22Jan 2231 Dec 21
YEAR’S SUMMARY
1 YEAR CHART OF NAV, SHARE PRICE AND COMPARATIVE INDICES – CAPITAL RETURN
(FIGURES HAVE BEEN REBASED TO 100 AT 31 DECEMBER 2021)
Fully diluted NAV
Share price
Numis Smaller Companies plus AIM
(excluding investment companies)
Index
Russell 2000® Technology Index
(smallcap) (in sterling terms)
Source: Refinitiv
31 December 31 December
2022 2021 % change
Total net assets £1,305.0m £1,760.9m
Shareholders’ funds £1,305.0m £1,760.9m
Net asset value per ordinary share
A
2,099.1p 2,719.3p –22.8
Share price
A
1,782.0p 2,505.0p –28.9
Numis Smaller Companies plus AIM (ex. investment companies) Index (capital only) 5,406.8 7,116.5 –24.0
Russell 2000® Technology Index (small cap) (in sterling terms) (capital only)
B
3,814.1 5,340.9 –28.6
Dividend per ordinary share – –
Profit/(loss) per ordinary share (revenue) 0.21p (8.33p)
Ongoing charges
A
1.05% 1.02%
Discount to NAV
A
15.1% 7.9%
Year to 31 December 2022 2022 2021 2021
Year’s high and low High Low High Low
Share price 2,570.0p 1,560.0p 2,630.0p 2,045.0p
Net asset value
A
per ordinary share 2,719.0p 1,978.7p 2,849.1p 2,285.0p
Discount
A
25.2% 4.1% 16.8% 1.8%
At 31 December 2022 2021
(Loss)/profit per ordinary share
Revenue 0.21p (8.33p)
Capital (641.23p) 439.51p
Total (641.02p) 431.18p
A Alternative Performance Measure - see page 82.
B Investments and indices valued at USD/GBP exchange rate of 1.209 at 31 December 2022 (1.354 31 December 2021).
® Russell Investment Group.
INVESTMENT REPORT
04
Annual report & financial statements 2022
Herald Investment Trust plc
Investment
Report
6 Company Overview
7 Geographical Analysis
8 Chairman’s Statement
10 Investment Manager’s Report
16 Classification of Investments
17 Top Twenty Equity Holdings
21 Detailed List of Investments
29 Long-Term Performance
05
Herald Investment Trust plc
Annual report & financial statements 2022
Innovative technologies continue to
open up new markets, presenting
opportunities for small entrepreneurial
companies to exploit, investment
prospects continue to be exciting in
thelong term.
Katie Potts
WHAT WE DO
HISTORY
OF THE COMPANY
INVESTMENT REPORT
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Herald Investment Trust plc
Annual report & financial statements 2022
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 oce, 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 oer 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 £236m 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 11.4%.
07
Herald Investment Trust plc
Annual report & financial statements 2022
GEOGRAPHICAL RETURNS
TIME WEIGHTED RETURN BY GEOGRAPHY YEAR ENDED 31 DECEMBER 2022*
(STERLING, PERCENT)
GEOGRAPHICAL SPREAD OF EQUITY INVESTMENTS AT 31 DECEMBER 2022
†
–30% –24% –18% –12% –6% 0%
UK
North America
EMEA
Asia Pacific
–26.9
–19.5
–25.6
–27.0
–250 –200 –150 –100 –50 0
UK
North America
EMEA
A
sia Pacific
–54.7
–75.9
–212.3
–56.1
GEOGRAPHICAL ANALYSIS
* Costs including those of borrowing are accounted for at Company level.
† As a percentage of total assets.
NEGATIVE CONTRIBUTION TO EQUITY INVESTMENT RETURN YEAR ENDED 31 DECEMBER 2022*
(STERLING, MILLIONS)
NORTH
AMERICA
21.8%
2021: 22.3%
UK
44.1%
2021: 47.7%
EMEA
10.8%
2021: 11.4%
ASIA
11.2%
2021: 11.8%
INVESTMENT REPORT
08
Herald Investment Trust plc
Annual report & financial statements 2022
Company well placed in
uncertain times
Recent stock market declines have inevitably aected the
Company and it is disappointing to report a decline in net
asset value (‘NAV’) per share of 22.8% in 2022. The decline
was surprisingly uniform across all four of our regions (UK,
North America, Continental Europe and Asia). More
positively, we have seen profits growth in aggregate within
the portfolio and generally resilient trading in investee
companies. As clearly set out in the Manager’s report, price
to earnings (‘p/e’) valuations have been reverting to more
normal levels (17.8x) having been elevated in recent years as
we highlighted at the time. However, it should be noted that
share price declines often precede forecast downgrades.
Market-induced valuation volatility is one dimension to
performance. The more important one for the long term is
investing in successful growth companies. The aims of this
Company and its Manager are to achieve capital appreciation
by providing primary capital and being active in the
secondary market in smaller quoted companies in the
telecommunications, multimedia and technology sectors.
In2022, a further £21.4m was invested in primary capital
(both new issues and follow-on fundraisings by companies),
which takes the cumulative total to £645m since inception in
1994. That compares with just £95m of capital that the
Company itself has raised in total (1994: £65m and 1996:
£30m). Our belief is that good companies will grow whatever
the economic backdrop, and that technology will continue
to open up new markets. Early-stage capital is always scarce
and by ensuring that we identify and research good
companies ahead of others we can benefit from this.
Technology spend used to be mainly a capital expenditure
decision, and demand was vulnerable to economic cycles.
However, today businesses cannot run without information
systems which are increasingly provided as a service on a
rental basis, in eect outsourcing capital expenditure. This
also means that more technology spend, across datacentres
and communications infrastructure as well as software, has
become non-discretionary. Importantly it means many
technology companies are less exposed to cyclical demand
and have defensive characteristics like utilities. Furthermore,
businesses and governments alike are faced with other
inflating costs, and the UK and North America in particular
have very tight labour markets, so there is greater pressure
than ever to find eciencies, driving further demand for
technology investment. The consumer, although wedded to
the internet, is perhaps more fickle and may reduce
expenditure on content and consumer electronics in
uncertain times. Equally, inflationary pressures may squeeze
advertising demand which is showing signs of weakness, but
digital media continues to gain share. Business-facing
subscription content should be more resilient.
Companies manufacturing technology products such as
semiconductors ar
e mor
e exposed to softening demand than
software companies. They have suered from supply chain
issues associated with Covid and capacity constraints,
particularly in the semiconductor industry. This has left many
companies with record order backlogs so short-term
demand is assured, but for those higher up the supply chain
the inventory cycle could produce adverse impacts.
Takeovers have continued to be a strong feature this year.
There were thirty one takeovers of portfolio companies
completed or yet to be completed, with an aggregate value
of £161m. Of these, thirteen were in the United States (£73m)
and nine in the UK (£57m). In contrast, IPOs were few and far
between, with stock markets virtually closed to new entrants.
These takeovers, together with the Manager’s purposeful
rotation into lower-rated stocks over the last couple of years,
have helped oset the losses in the portfolio. In addition, the
Manager has adopted a defensive stance by holding a lower
proportion of early-stage loss-making stocks (12.0%) than in
the past, and by retaining high cash balances. At the end of
the year, cash and short-dated government bonds were
12.1% of net assets (£158.1m). This is a near record level and
provides plenty of ammunition to invest at lower valuations
in the coming year.
Current year losses in the portfolio have been mitigated by
the weakening of sterling, relative to the dollar in particular,
Market-induced valuation
volatility is one dimension to
performance. The more
important one for the long
term is investing in
successful growth
companies.
TOM BLACK, CHAIRMAN
CHAIRMAN’S STATEMENT
09
Herald Investment Trust plc
Annual report & financial statements 2022
which has reduced the losses on overseas holdings, and
(albeit on a delayed basis) will improve revenues and profits
for UK companies with exports and overseas subsidiaries. In
addition, the Company bought back more of its stock in
2022: some 2.6m shares, or 4.0% of the outstanding capital
at the start of the year, with an aggregate cost of £50m.
During the year, the discount widened from 7.9% on
31December 2021 to 15.1% at year end, but with such
dramatic market movements during the year, this is not
altogether surprising.
The income statement is showing a marginal profit after
several years of losses. This reflects a growth in dividends
received of 16%, increased interest income on cash and
government bonds, and reduced costs reflecting the lower
asset value.
Whilst we remain confident about the longer-term prospects
for the majority of the investee companies, we have
concerns about the state of financial markets particularly for
smaller companies. The UK smaller quoted companies
market is the most challenged with particularly poor liquidity.
This is an existential threat. It is very sad when over the life of
the Company the UK listed investments have delivered a
return in excess of £1bn including nearly £400m of profits on
AIM holdings. The returns from investing in smaller UK
technology companies have been first class over the longer
term, bettering those of the index of US smaller technology
companies (Russell 2000® Technology Index) by over
1,000% since 1 July 1996. The Company’s capital is much
needed in the UK. The entrepreneurial early-stage part of the
mark
et, which the Company addr
esses, is on the frontline in
the conflict between regulation and economic growth.
Whilst we respect the need for regulation, it appears to us
that the process of reducing risk from the markets seems
also to be reducing the available risk capital. This is surely an
unintended and undesirable outcome and a major factor in
our gradually decreasing exposure to the UK market.
As previously announced, after ten years I shall retire from
the board at the forthcoming AGM. It has been a great
honour to serve as Chairman of a company which has served
its shareholders so well and, at the same time, has made
such a significant contribution to the UK technology sector.
Iwould like to thank our excellent manager, Katie Potts, and
the entire team at HIML for their unstinting eorts on your
behalf. Equally, my fellow board members have made my
time at Herald very straightforward with their ever-ready
support and constructive contributions. Andrew Joy joined
the Board last October and will replace me as Chairman in
April. Andrew has already demonstrated that he will add
agreat deal and I am sure I am leaving you in good hands.
Whilst the current economic and geopolitical challenges
seem likely to continue for some time, I am very confident
that the Company is well-placed to benefit and even thrive in
such uncertain times. Your Board remains excited by the
investment opportunities in the sector and looks forward
with confidence.
TOM BLACK
CHAIRMAN
15 February 2023
0
500
1,000
1,500
2,000
2,500
3,000
2018 2019 2020 2021 2022
1,307.9
1,668.1
2,285.3
2,719.3
2,099.1
NET ASSET VALUE PER SHARE
(PENCE
0
10
20
30
40
50
60
2018 2019 2020 2021 2022
SHARE BUYBACKS
(STERLING, MILLIONS
INVESTMENT REPORT
10
Herald Investment Trust plc
Annual report & financial statements 2022
0
20
40
60
80
2018 2019 2020 2021 2022
PLACINGS AND IPOs
(STERLING, MILLIONS)
0
100
200
300
400
500
600
2018 2019 2020 2021 2022
A
IM HOLDINGS
(STERLING, MILLIONS)
0
20
40
60
80
100
120
2018 2019 2020 2021 2022
T
AKEOVERS
(STERLING, MILLIONS)
The factors behind the disappointing decline in the
Company’s NAV per share of 22.8% are multiple. Clearly the
biggest negative that had not been factored into valuations at
the start of the year was Russia’s invasion of Ukraine. It has
been a catalyst to end the era of virtually free money and
exposed the strains of the excess government debt
associated with Covid, welfare, health and defence
expenditure, and energy subsidies. The p/e compression
witnessed is a direct and inevitable by-product of rising bond
yields.
Price to Earnings and IRR
2016 2020 2021 2022
Year-end P/E Year-end P/E Year-end P/E Year-end P/E
UK 15.9 26.2 23.8 16.7
North America 20.7 45.0 29.4 17.9
EMEA 17.5 34.9 33.3 24.1
Asia 13.1 25.0 23.0 16.9
Total Company 16.7 30.7 25.9 17.8
1 year change 2 year change 1 year change 2 year change
P/E P/E IRR IRR
UK –29.8% –36.2% –25.9% –7.2%
North America –39.1% –60.2% –19.9% –10.4%
EMEA –27.7% –31.0% –27.5% 6.1%
Asia –26.4% –32.3% –27.4% –14.8%
Total Company –31.3% –42.1% –23.5% –8.5%
Source: Bloomberg. Analyst earnings estimates, where available, are aggregated using
theBloomberg weighted harmonic average calculation. This excludes loss-making
companies from the p/e calculation. A weighted harmonic average will normally be lower
than a geometric or arithmetic average. By way of comparison the 2022 Total Company
weighted average arithmetic p/e (47.8x) or median p/e (21.0x).
Although the regional returns are all down between 20% and
28% there are variations in the underlying drivers of these falls
between regions.
INVESTMENT MANAGER’S REPORT
Substantial valuation
compression –
underlying trading solid
11
Herald Investment Trust plc
Annual report & financial statements 2022
UK
The UK remains the largest region at 44.1% of net assets
(47.7% at 31 December 2021). It has delivered a disappointing
return of -25.9%, which is a little worse than the Numis
Smaller Companies plus AIM (ex. investment companies)
Index which returned -21.9% on a total return basis. In part
this reflects stocks that outperformed during Covid but are
now lagging. The Company’s UK portfolio returned 48.7%
total return over the five years encompassing the Covid
trauma, against the index returning only 1.1%. There are also
more stock-specific reasons to this year’s declines which are
discussed below.
Seven stocks returned an aggregate loss of £101.1m (each in
excess of £10m) which is nearly half the region’s loss for the
year. However, during our entire period of ownership, these
seven stocks have still delivered a positive return of £123.2m
notwithstanding this year’s setback. Losses would have been
much greater had we not already realised aggregate gains of
£90.0m, with some gains realised from each of the seven
investments. Historically, the pattern was to realise profits in
successful holdings as a source of cash to reinvest in smaller
companies. Due to liquidity it has become increasingly
challenging to reduce positions at the larger end, and we
realise there is now a structural issue exacerbated by MiFID
(Markets in Financial Instruments Directive) and other recent
regulation. I find that smaller company investing is now a
separate world from large company investing with dierent
brokers and dierent analysts, so companies can no longer
seamlessly transition their shareholder register to larger
investors as they grow. As successful small caps outperform,
they are left with overexposed shareholders, who struggle to
sell their holdings and are constrained from providing further
capital. It is therefore more dicult for companies to raise
additional capital.
0
1
2
3
4
5
6
IQEEuromoney
Institutional
Investor
WANdiscoTelecom
Plus
ZOO
Digital
TOP 5 WINNERS BY REGION UK
IN STERLING £M
The first of the significant lossmakers in the period is BATM
Advanced Communications, a UK-listed Israeli company
which soared in Covid supplying ventilators and tests. That
particular market has since disappeared. The second is
Future. I am delighted to say we contributed needed capital
of £250,000 in 2015 at 10p (or £1.50/share on a split-
adjusted basis), a further £2m at £12.75 in 2019, and made
other market purchases so the peak book value was £6.3m.
Fortunately in 2021 we sold £24.2m of stock at an average
price of £28.59 in 22 transactions realising gains of £21.0m.
The share price fell to end the year at £12.67. But, with a
prospective p/e of 8.1x on current market forecasts, the
company continues to deliver growth. The third is GB Group,
which has been a wonderful long-term investment, but
painful for the last two years following a dicult placing to
fund an acquisition. Additionally, results from the highly
valued acquisition have disappointed a little, mainly reflecting
reduced demand for identity solutions for the opening of
cryptocurrency accounts. Ilika, an early-stage company with
leading edge technology for solid-state batteries, soared on
the green bubble, and then plunged on manufacturing
challenges. ITM Power also soared on the green bubble in
2020. Fortunately, £20.2m gains had already been realised,
but again the business had execution challenges, so
delivered negative returns for a second year. Rapidly made
profits in S4 Capital evaporated, in part from self-inflicted
pain of book-keeping issues delaying the audit, but also an
economy-induced negative sentiment in the advertising
world. The seventh is YouGov, where again, £11.0m in gains
had been realised because we felt that the valuation had
become inflated. Trading is still fine, but the market
anticipates a slowdown in growth.
There were some successes in the year as well. ZOO Digital
has performed best. This is a particularly gratifying one
because we supported the business through a dicult
transition from DVDs to on-line streaming. When no other
investors would support, other than the chief executive, we
put in convertible loan stock and went to 20% of the equity,
making an unusual exception (which was sanctioned by the
board), when our general limit is 10% of outstanding capital.
We now have a total return over £20m since inception.
WANdisco has also done well this year. It is still loss-making
but has announced some encouraging orders.
The nine takeovers with an aggregate value of £57.2m have
also produced positive returns including Euromoney
Institutional Investor, Ideagen, Avast and EMIS. This pace of
takeovers in relation to a portfolio of £575.5m seems
anormal rate.
REGIONAL ALLOCATION CHANGES
(STERLING THOUSANDS)
Valuation at Net Valuation at
31 December acquisitions/ Appreciation/ 31 December
2021 (disposals) Amortisation (depreciation) 2022
Equities*
UK 839,466 (43,303) – (220,641) 575,522
North America 392,191 (30,660) – (77,081) 284,450
EMEA 201,244 (3,704) – (56,116) 141,424
Asia Pacific 208,333 (4,541) – (58,315) 145,477
Total equities 1,641,234 (82,208) – (412,153) 1,146,873
Government bonds 42,248 32,529 507 2,356 77,640
Total investments 1,683,482 (49,679) 507 (409,797) 1,224,513
Net liquid assets 77,395 (1,004) – 4,144 80,535
Total net assets
+
1,760,877 (50,683) 507 (405,653) 1,305,048
* Equities includes convertibles and warrants.
+ The total assets figure comprises assets less current liabilities.
INVESTMENT REPORT
12
Herald Investment Trust plc
Annual report & financial statements 2022
INVESTMENT MANAGER’S REPORT CONTINUED
YE market value Total return % of total
£m £m region 2022 IRR
Media 123.5 –78.5 21.5 –38.9%
Semiconductors 20.9 3.5 3.6 22.8%
Technology Hardware 61.2 –35.4 10.6 –36.4%
Software 173.7 –46.0 30.2 –19.5%
Technology Services 65.9 –5.2 11.5 –5.8%
Total main sectors 445.2 –161.6 77.4
Total UK region 575.5 –212.3 –25.9%
The sector performance in the table above highlights that the
media sector was the weakest, having reversed the stellar
performance of 66.1% in 2021. Fortunately, material profits
had been taken or the damage would have been greater.
Ialso observe that UK technology valuations have been more
resilient than those of other regions because they had lower
initial levels from which to fall. The table also shows a decline
in the value of the UK portfolio greater than the negative
returns because there were net sales from the UK portfolio of
£43.3m. This takes the cash withdrawal from the UK portfolio
to over £210m over the last six years, and more than £300m
since inception. The positive is that the portfolio of £575.5m
eectively has a negative book cost of £308.8m. It has been
our deliberate strategy to reduce the UK weighting due to
the risk of poor liquidity and lack of co-investors.
The UK has a creative and entrepreneurial spirit, with many
interesting investment opportunities. However, we feel the
risks of investing in early-stage loss makers in the quoted
market has risen. We have experienced situations where we
alone have provided follow-on funding, and others where we
would have provided funding but found there were
insucient co-investors. We expect to continue to support
existing investments, and remain open to new ones, but
Iexpect the UK to diminish as a percentage of the assets of
the Company unless there is a political will to redress the
regulatory burden and improve liquidity.
North America
For smaller technology companies, the North American
market has probably been the worst in 2022. However, due to
our well positioned portfolio, our North American holdings
have declined less than the other regions. The return of
-19.9% compares favourably with the Russell 2000®
Technology Index return of -28.4% in sterling terms. The
dollar decline in the index was -36.1%, and the sterling return
(for an unweighted basket of stocks between $100m and
$3bn market capitalisation in Bloomberg’s technology and
communication sector) was -40%. This makes the Company’s
NAV decline gratifyingly small. Superficially, the prospective
p/e of 17.9x would seem to make the North American market
cheap. However, we regard this as rather meaningless given
that forecast earnings are generally made on an adjusted basis
0
3
6
9
12
15
ResonantMandiantSailpoint
Technolo
g
ies
FabrinetSuper Micro
Com
p
uter
TOP 5 WINNERS BY REGION NORTH AMERICA
IN STERLING £M
versus GAAP (Generally Accepted Accounting Principles),
which excludes share-based payments. In the software sector
in particular it is not uncommon to see 5% or more of the
outstanding capital issued each year, the value of which is
often a material percentage of revenues, let alone profit, and
this inevitably dilutes shareholders substantially. In addition, it
has been a growing concern that valuations were ridiculously
high in the US and we have withdrawn capital from this
market to the tune of £31m in 2022 and £126m over six years.
In fact, like the UK, the US portfolio of £284.5m at the year
end has eectively a negative book value (£117m).
YE Market Value Total return % of total
£m £m region 2022 IRR
Media 8.5 –3.1 3.0 –27.8%
Semiconductors 40.6 –11.0 14.3 –21.3%
Technology Hardware 90.7 –2.8 31.9 –3.2%
Software 124.6 –51.8 43.8 –25.8%
Technology Services 7.4 –4.5 2.6 –32.0%
Total main sectors 271.8 –73.2 95.6
Total North America
region 284.5 –75.9 –19.9%
The outstanding sector in North America has been
technology hardware. Fabrinet, a Thailand-based but
Nasdaq-quoted contract manufacturer in the optical space
has done well. The star performer, not just in North America,
but the whole portfolio has been Super Micro Computer
which returned £14.2m. It is the largest North American
holding and was the second-best performing stock in the
Russell 2000® Technology Index (i.e. small and large
companies). It is also pleasing that we held Agilisys, the third
best performer in this 344 stock index. An element of the
market’s significant derating reflects the fact that lower rated
hardware companies have performed better than the
overvalued software companies. In contrast, long held
Pegasystems has been extremely disappointing, largely due
to the loss of a trade secrets misappropriation lawsuit for a
seemingly bizarre level of damages. They are appealing, but
in the meantime the investment was devalued by £16.3m.
The other obvious contributor to the good relative
performance has been takeovers. The thirteen takeovers in
the year, with an aggregate value of £73m, is a significant
proportion of the North American portfolio. Furthermore, the
aggregate value of takeovers is £191m over the last five years,
which is extraordinary compared to the market value of the
North American portfolio of only £207m at the end of 2017.
Over that time, takeovers have significantly contributed to
the region’s IRR of 130%, in contrast to the sterling return of
the index of 56%.
2020 and 2021 saw a deluge of IPOs and SPACs (Special
Purpose Acquisition Companies) at unattractive valuations,
osetting the wave of takeovers. The result is that a third of
the addressable market by number of companies is new to
the market since 2020. The average local currency return is
-38% for these technology IPOs, and SPAC returns are much
worse. The team has focused on meeting many of these
companies this year and expects interesting opportunities to
appear in adislocated market.
Along with a binge in share-based compensation, generally
with minimal vesting criteria, there has also been a US
obsession with valuing revenue growth rather than profits.
The US has been good at recognising the importance of
market dominance, and the required land grab, but it seems
companies had taken this way too far, to the point of
ignoring fundamentals like return on capital and profitability.
Retained losses in many software companies are often in
13
Herald Investment Trust plc
Annual report & financial statements 2022
excess of $1bn which is generally a red flag. We prefer
companies where founders retain worthwhile stakes because
they will not dilute themselves unnecessarily and are
motivated to control costs. The most exciting thing about
this bear market is that not only have valuations come down,
but business models are changing to include a greater focus
on cost control. This should also mean a less tight labour
market and returns actually going to shareholders rather than
only to directors and sta. The really successful mega-caps
such as Alphabet, Microsoft and Apple have been able to
generate huge revenues and margins per employee, and thus
been able to pay for key skills well. Smaller companies have
been caught between these scaled businesses and venture
capitalists oering equity. In order to compete, they have
doled out RSUs (restricted stock units) and over-rewarded
the workforce.
Europe Middle East and Africa
The EMEA return of -27.5% is disappointing, but must be
viewed in light of the three year return from the region which
is 60.3%, and the five year return of 79.6% despite the decline
in 2022. Furthermore, the positive and negative returns have
been dominated by the three biggest holdings Esker, BE
Semiconductor Industries (BESI) and Nordic Semiconductor.
Over time they have collectively delivered a total return of
£63.6m despite losing £33.0m in 2022, which was over 60%
of the overall EMEA decline. The Company benefited from
BESI and Nordic Semiconductor being two of the largest
semiconductor investments in the global portfolio.
Semiconductors had a good year in 2021, and there are few
ways to invest in this sub-sector in North America and the
UK, hence the overweight positions in Europe were retained.
YE Market Value Total return % of total
£m £m region 2022 IRR
Media 9.7 –5.0 6.9 –34.6%
Semiconductors 37.9 –18.1 26.8 –33.0%
Technology Hardware 14.6 2.0 10.3 14.4%
Software 49.0 –27.3 34.7 –34.2%
Technology Services 19.4 –1.0 13.7 –4.9%
Total main sectors 130.6 –49.4 92.4
Total EMEA region 141.4 –54.7 –27.5%
Demonstrating the power of clustering expertise, the
Netherlands has retained a strong semiconductor hub
spawned from Philips, led by ASML and NXP, with BESI as the
smaller player. Germany has Infineon Technologies and
STMicro is the other main European player. Sweden and
Finland have clusters around Ericsson and Nokia, but both
companies seem past their prime.
European governments are in general more strategic in
supporting industry than the UK, and demonstrably they want
0
1
2
3
4
Sword GroupADVA/Adtran B3 Consulting CAST
Ekinops
TOP 5 WINNERS BY REGION EMEA
IN STERLING £M
the public markets for smaller companies to prosper and to
provide capital. CAST, Generix and ADVA Optical Networking
(‘ADVA’) have all been taken over for an aggregate value of
£17.8m, albeit ADVA for US listed shares. Nevertheless,
takeovers are less prevalent, and stock-based compensation
is a non-issue in Europe. Although the European economy is
challenging, we expect to find stock specific opportunities as
we have in the past.
Asia
The Asia return has been -27.4%. The significant distinct
markets are Taiwan, Japan, South Korea and Australia, as well
as other small ones. Taiwan has been the most successful
market for the Company. Taiwan benefitted from the cluster
eect from Taiwan Semiconductor Manufacturing Company,
which originally used Philips technology, but was also the
hub for US companies to manufacture PCs and servers. They
are therefore used to trading with listed US giants who have
high business standards and in consequence have
transparency and strong ESG credentials. South Korea has
Samsung and LG, but is much less transparent and has
weaker corporate governance. Australia is more analogous to
the UK as a market. Japan is a relatively new market for the
Company. For a number of years it seemed lacking in
entrepreneurialism, lost ground to Korea and China in
consumer electronics and to Taiwan and others in
semiconductors, and had limited software companies. More
recently there have been a large number of IPOs, and Japan
seems to have a dynamic smaller companies stock market.
Inconsequence our weighting there has increased, but it is
too early for us to see meaningful returns.
YE Market Value Total return % of total
£m £m region 2022 IRR
Media 14.8 –2.2 10.2 –12.0%
Semiconductors 20.5 –11.1 14.1 –33.1%
Technology Hardware 26.2 –3.0 18.0 –9.8%
Software 42.5 –19.1 29.2 –31.9%
Technology Services 18.3 –7.1 12.6 –28.4%
Total main sectors 122.3 –42.5 84.1
Total Asia region 145.5 –56.1 –27.4%
Australia had a poor year with a negative 43.1% return,
reflecting retail and institutional investors fleeing small
technology companies and weak business performance in
anumber of cases. Taiwan declined 24.8% but benefitted
from a strong performance from Lanner Electronics. Over
the last five years, the return in Taiwan has been an
exceptional 212.8%, which has been masked by less good
returns in newer Asian markets where investment has been
made more recently. We have increased the focus on the
Asian region because we feel that opportunities lie here.
0.0
0.5
1.0
1.5
2.0
AccreteE InkTerraSky51JobLanner
Electronics
TOP 5 WINNERS BY REGION ASIA
IN STERLING £M
INVESTMENT REPORT
14
Herald Investment Trust plc
Annual report & financial statements 2022
China is an important market for the sector’s supply chain.
However, we choose to have limited exposure, reflecting
political risk and the uncertainty of outside shareholders
seeing returns. The case of 51Job, which was a Chinese
holding taken over at an unpalatable price, is a good
illustrative example. The Chinese economy has challenges
including a fragile property market, a leadership which is
unsympathetic to business, a 17% urban unemployment rate
for 16-24 year olds and the US trying to make China’s move
to self-suciency in semiconductors as challenging as
possible. The threat of an invasion of Taiwan by China is the
scariest of all possible prospects.
Market Background
We are privileged to meet many management teams
throughout the world on a recurring basis and this gives us
an interesting perspective from which to assess our market
background. Everyone thinks their own economic problems
are worst. The UK has a particularly negative view of its own
position, perhaps driven by recent political turmoil and media
negativity on a wide range of problems. Thus far, profit
expectations for companies in the UK portfolio have been
particularly resilient, perhaps benefiting from sterling
weakness relative to the dollar, and more conservative
management of growth expectations. US businessmen are
depressed by their country’s social tensions and excessive
fiscal and trade deficits, which dwarf the UK’s. In contrast to
the UK, in North America expectations for revenue growth
are visibly weakening, and many companies have faced
currency headwinds on their overseas revenues. The Chinese
seem alarmed by their financial leverage, ageing population
and a leadership unsympathetic to business. The
manufacturing orientation of the sector in Asia means it is
visibly more exposed to a cyclical slowdown in demand.
Europe has the additional challenge of its proximity to
Russia/Ukraine, energy supply issues, and most significantly
the dierent countries in the Eurozone operating under one
central bank, but no fiscal union. It is hard to find optimism in
the current landscape.
As our home market, and still accounting for over 40% of the
portfolio, the UK is of prime importance to the Company
today. Despite the myriad problems, the UK has the
advantage of its own central bank, debt in its own currency,
domestic gas production to meet half of its need and a
significant capacity to generate electricity from wind with
huge further potential. Perhaps due to the high cost of land
and labour the UK has become a knowledge-based
economy which is a significant positive and produces a large
trading surplus in services, which are not energy-dependent.
In addition, in a world of conflict and increased tensions, the
UK does still have a defence industry which benefits a
number of companies in the supply chain.
Beyond our home market, there continue to be opportunities
for us in all of our markets. We have a strong focus on the
United States which has scaled some software companies
brilliantly, delivering high margins. As evidenced by the
takeover volumes the Company has experienced, the scale
of North American private equity activity has shrunk the size
of the addressable listed market, albeit in recent years oset
by a wave of speculative new issues. Whereas the AIM market
in London has had numerous IPOs and secondary placings to
raise development capital, US IPOs tend to have been exits
for venture capitalists and private equity. Furthermore, there
was a fashion for crossover funds or public company
investors participating in late-stage venture rounds. This
category of investor seems to have disappeared. As interest
rates normalise, the extent to which these trends continue,
and how they achieve exits, r
emains to be seen. Eur
ope as
aregion is perhaps less easy to categorise and will remain
astock-specific market for the Company. Asia is clearly the
primary region for new listings, with its technology sector
having emerged as a low-cost manufacturing location and
now progressively moving up the value chain.
There are key areas of change which always open up
opportunities for smaller companies. For many years there
was a trend for manufacturing to migrate to China, with its
lower labour costs. As salaries and skillsets in China rose and,
more recently, as political concerns about China’s direction
of travel have grown, other emerging economies such as
Vietnam and Mexico have become more important as
manufacturing hubs. Whilst this shift has been underway for
some years, 2022 has added a further dramatic twist. The
Ukraine war and the related supply chain issues have
magnified concerns about security of supply. ‘Just in time’
and lowest cost is no longer the buyer’s prime motivation.
‘Just in case’ has become the new mantra. In addition, the
increasing tensions between China and Taiwan are of great
concern and any conflict there would dwarf the Ukraine
impact on the technology sector given the central role
played by Taiwan in semiconductor manufacturing.
The major disruption of Covid has also led to a change in the
employment market. There has been a rise in working from
home as well as a significant reduction in the proportion of
working age people available to work in developed countries.
Despite the obvious attractions of avoiding the cost of oces
and employing people more cheaply from far corners of the
earth, we are unsure what long-run eect this will have.
Many of the companies in our portfolio are based in
knowledge clusters such as San Francisco, Seattle, Boston
and London, where knowledge feeds on itself. Can this be
sustained with working from home? Will centres of
excellence become less relevant? These remain unanswered
questions at this time. There is some evidence that the
tightness of the labour market is receding, and employees
are coming back to the oce so perhaps the working from
home trend may not be so acute as we once thought.
Outlook
There are many reasons to be anxious as we look forward.
Excess government leverage globally in an environment
where the cost of capital is normalising, geopolitical tensions
across the globe and energy market turmoil all play their part.
In this environment it is challenging to reduce risk in any
portfolio. However, against this background smaller
companies with genuine growth prospects and intellectual
property seem appealing. This is where the Company
operates, and the best returns have been made from
investments in 2002-3 post the internet boom and 2008-9 in
the financial crisis. We are optimistic there will be good
buying opportunities ahead.
KATIE POTTS
15 February 2023
INVESTMENT MANAGER’S REPORT CONTINUED
15
Herald Investment Trust plc
Annual report & financial statements 2022
SECTOR PERFORMANCE
(STERLING MILLIONS)
Market value % of Total return Total return
equity portfolio equity portfolio equity portfolio equity portfolio
31 Dec 2022 31 Dec 2022 31 Dec 2022 31 Dec 2021
Software . . –. .
Technology Hardware . . –. .
Semiconductors . . –. .
Technology Services . . –. .
Advertising & Marketing . . –. .
Internet Media & Services . . –. .
Industrial Intermediate Production . . –. .
Telecommunications . . –. .
Electrical Equipment . . –. .
Publishing & Broadcasting . . –. .
Other . . –. .
Total 1,146.9 100.0 –399.0 297.0
Source: BICS (Bloomberg Industry Classification Standard).
INVESTMENT REPORT
16
Herald Investment Trust plc
Annual report & financial statements 2022
CLASSIFICATION OF INVESTMENTS
North Japan & Asia 2022 2021
UK EMEA America Pacific Total Total
CLASSIFICATION* % % % % % %
COMMUNICATIONS . . . . . .
Advertising and Marketing . . . . . .
Entertainment Content . – – – . .
Internet, Media and Services . . . . . .
Publishing and Broadcasting . – . – . .
Telecommunications . . . . . .
CONSUMER DISCRETIONARY 0.2 – – 0.2 0.4 0.5
Automotive . – – – . –
E-Commerce Discretionary – – – . . .
Wholesale – Discretionary . – – – . .
CONSUMER STAPLES – – – – – .
Retail – Consumer Staples – – – – – .
ENERGY . – – – . .
Renewable Energy . – – – . .
FINANCIALS . – – . . .
Asset Management . – – – . .
Equity Investment Instruments . – – – . .
Specialty Finance . – – . . .
HEALTH CARE . . – – . .
Biotechnology and Pharmaceutical . – – – . .
Health Care Facilities and Services . – – – . .
Medical Equipment and Devices . . – – . .
INDUSTRIALS . . . . . .
Aerospace and Defence – – . – . .
Commercial Support Services . – – – . .
Electrical Equipment . . – . . .
Industrial Intermediate Production . – – . . .
MATERIALS . – – . . .
Chemicals . – – . . .
Forestry, Paper and Wood Products . – – – . .
TECHNOLOGY . . . . . .
Semiconductors . . . . . .
Software . . . . . .
Technology Hardware . . . . . .
Technology Services . . . . . .
UTILITIES . – – – . .
Electricity and Gas Marketing and Trading . – – – . –
Gas and Water Utilities . – – – . .
TOTAL EQUITIES (including convertibles and warrants) 44.1 10.8 21.8 11.2 87.9 –
Total equities – (including convertibles and warrants) . . . . – .
BONDS . – . – . .
NET LIQUID ASSETS** . . . . . .
TOTAL NET ASSETS . . . . . –
Total net assets – 2021 49.8 11.4 26.5 12.3 – 100.0
SHAREHOLDERS’ FUNDS 49.8 11.3 26.5 12.4 100.0 —
Shareholders’ Funds – . . . . — .
Number of equity investments (including convertibles and warrants) 144 36 77 88 345 356
* Source: Bloomberg Industry Classification Standard.
** Cash, current assets and liabilities.
17
Annual report & financial statements 2022Herald Investment Trust plc
TOP TWENTY EQUITY HOLDINGS AS AT 31 DECEMBER 2022
Next Fifteen Communications (‘Next 15’) is a group of businesses designed to help companies grow.
Next 15 perceive themselves as more than marketing consultants and as growth consultants. They
help their clients in four dierent 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 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.
Super Micro Computer (‘Supermicro’) is a leading provider of application-optimised, high-performance
server and storage solutions that address a broad range of computational-intensive workloads. With
over 20 years of hardware design experience, Supermicro’s server Building Block Solutions, coupled
with extensive in-house design and manufacturing, enables the Company to rapidly develop, build,
and test server and storage systems, subsystems, and accessories with unique configurations. This
capability gives customers an unparalleled breadth of choice in dynamic markets, including Edge/5G,
data centres, public/private cloud, and artificial intelligence; plus, Supermicro oers world-class
software and service.
Diploma is an international group supplying specialised products and services to a wide range of end
segments in three sectors of controls, seals and life sciences. 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 ca. 2,900 employees and its principal operating
businesses are located in the UK, Northern Europe, North America and Australia.
YouGov is an international online research data and analytics technology group. Their mission is to
supply a continuous stream of accurate data and insight into what the world thinks, so that
companies, governments and institutions can make informed decisions. YouGov’s innovative
solutions help the world’s most recognised brands, media owners and agencies to plan, activate and
track their marketing activities better. At the core of the platform is an ever-growing source of
consumer data that has been amassed over 20 years of operation. All products and services draw
upon this detailed understanding of 22 million registered panel members to deliver accurate,
actionable consumer insights. With operations in the UK, the Americas, Europe, the Middle East, India
and Asia Pacific, YouGov has one of the world’s largest research networks.
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 eciency and best practice.
£29.1m
VALUATION
2.2%
OF TOTAL ASSETS
3.0%
OF ISSUED SHARE
CAPITAL HELD
£2.4m
BOOK COST
£27.1m
VALUATION
2.1%
OF TOTAL ASSETS
0.8%
OF ISSUED SHARE
CAPITAL HELD
£7.8m
BOOK COST
£25.9m
VALUATION
2.0%
OF TOTAL ASSETS
0.7%
OF ISSUED SHARE
CAPITAL HELD
£0.7m
BOOK COST
£20.4m
VALUATION
1.6%
OF TOTAL ASSETS
1.8%
OF ISSUED SHARE
CAPITAL HELD
£2.0m
BOOK COST
£19.7m
VALUATION
1.5%
OF TOTAL ASSETS
6.8%
OF ISSUED SHARE
CAPITAL HELD
£5.1m
BOOK COST
INVESTMENT REPORT
18
Herald Investment Trust plc
Annual report & financial statements 2022
Silicon Motion Technology (‘Silicon Motion’) 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.
Silicon Motion 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. More NAND flash components, including current and up-
coming generations of 3D flash produced by Kioxia, Micron, Samsung, SK Hynix, Solidigm, Western
Digital and YMTC, are supported by Silicon Motion controllers than any other company. Customers
include NAND flash makers, module makers, hyperscalers and OEMs. Silicon Motion 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. Silicon Motion also supplies
custom-designed high-performance Open-Channel data centre SSDs to China’s leading hyperscalers
and customised small single-chip form factor SSDs for industrial, commercial and automotive
applications. Silicon Motion was founded in 1995 in San Jose, California and now operate from
corporate oces in Hong Kong, Taiwan and the US. In May 2022, MaxLinear announced a takeover
oer for Silicon Motion which has yet to close.
Nordic Semiconductor (‘Nordic’) is a Norwegian fabless semiconductor company specialising in
wireless communication technology that powers the Internet of Things (IoT). Nordic was established
in 1983 and has more than 1300 employees across the globe. Nordic’s Bluetooth Low Energy
solutions pioneered ultra-low power wireless, making them the global market leader. The technology
range was later supplemented by ANT+, Thread and Zigbee, and in 2018 they launched low power,
compact LTE-M/NB-IoT cellular IoT solutions to extend the penetration of the IoT. The Nordic
portfolio was further complemented by Wi-Fi technology from Imagination Technologies in 2021.
Nordic’s Bluetooth LE solutions are used by the world’s leading brands in a variety of products,
including wireless PC peripherals, gaming, sports and fitness, mobile phone accessories, consumer
electronics, toys, healthcare and automation.
Telecom Plus, which owns and operates the Utility Warehouse brand, is the UK’s only fully integrated
provider of a wide range of competitively priced utility services spanning the energy, broadband,
mobile and insurance markets. Customers benefit from the convenience of a single monthly bill,
consistently good value across all their utilities and good levels of service. The business relies on
word of mouth recommendation by existing satisfied customers and partners in order to grow its
market share.
Descartes Systems (‘Descartes’) is a leader in providing on-demand, software-as-a-service solutions
focused on improving the productivity, performance and security of logistics-intensive businesses.
Customers use Descartes’ modular, software-as-a-service 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 oces and partners around the world.
ZOO Digital (‘ZOO’) supports major Hollywood studios and streaming services to globalise their
content and reach audiences everywhere, by providing world-leading, technology-enabled
localisation and media services. Founded in 2001, ZOO operates from hubs in Los Angeles, London,
Dubai, Turkey, South Korea, India and Denmark with a development and production centre in
Sheeld, UK. The Group provides media services through its platforms that include: ZOOsubs,
ZOOdubs and ZOOstudio. Its full-service proposition delivers the end-to-end services required to
prepare both original and catalogue content for digital distribution; these services include dubbing,
subtitling & captioning, metadata creation & localisation, mastering, artwork localisation and media
processing. Alongside this oering, ZOO also provides its customers with management platforms and
strategic solutions to support their own internal globalisation operations. ZOO helps its customers to
reduce time to market, lower costs and deliver high quality products to their global audiences. The
business has frameworks in place with all major Hollywood studios and streaming services. Its
customers include Disney, NBCUniversal, HBO and Paramount Global.
£18.7m
VALUATION
1.4%
OF TOTAL ASSETS
0.7%
OF ISSUED SHARE
CAPITAL HELD
£4.2m
BOOK COST
£17.9m
VALUATION
1.4%
OF TOTAL ASSETS
1.0%
OF ISSUED SHARE
CAPITAL HELD
£3.1m
BOOK COST
£19.2m
VALUATION
1.5%
OF TOTAL ASSETS
1.1%
OF ISSUED SHARE
CAPITAL HELD
£1.7m
BOOK COST
£17.9m
VALUATION
1.4%
OF TOTAL ASSETS
0.4%
OF ISSUED SHARE
CAPITAL HELD
£0.6m
BOOK COST
£17.8m
VALUATION
1.4%
OF TOTAL ASSETS
11.4%
OF ISSUED SHARE
CAPITAL HELD
£3.0m
BOOK COST
TOP TWENTY EQUITY HOLDINGS AS AT 31 DECEMBER 2022
CONTINUED
19
Herald Investment Trust plc
Annual report & financial statements 2022
Fabrinet is a leading provider of advanced optical packaging and precision optical, electro-
mechanical, and electronic manufacturing services to original equipment manufacturers of complex
products, such as optical communication components, modules and subsystems, industrial lasers
and sensors. Fabrinet oers a broad range of advanced optical and electro-mechanical capabilities
across the entire manufacturing process, including process design and engineering, supply chain
management, manufacturing, advanced packaging, integration, final assembly and test. Fabrinet
focuses on production of high complexity products in any mix and volume. Fabrinet maintains
engineering and manufacturing resources and facilities in Thailand, the United States, and the
People’s Republic of China.
BE Semiconductor Industries (‘Besi’) is a leading supplier of semiconductor assembly equipment for
the global semiconductor and electronics industries oering 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.
GB Group (‘GBG’) is a global leader in digital location, identity and managing fraud risk and
compliance. GBG helps organisations across the globe eliminate customer friction and fraud from
their digital experiences. GBG develop and deliver digital identity, address verification, fraud
prevention and compliance software to businesses globally. Through the combination of the latest
technology, the most accurate data and its expertise, GBG helps organisations ranging from start-ups
to the largest consumer and technology brands in the world deliver seamless experiences, so their
customers can transact online with greater confidence.
The world’s largest online merchants, including Amazon, Google, and Microsoft, use Bango
technology to acquire more paying users. Bango has developed unique purchase behaviour
technology that enables millions more users to buy the products and services they want, using
innovative payment methods, including carrier billing, digital wallets, and subscription bundling.
Bango harnesses this purchase activity into valuable marketing segments called Bango Audiences.
Merchants use these audiences to target their marketing at paying customers based on their
purchase behaviour. Better targeting increases spend through the Bango payments business, in turn
generating more data insights, creating a powerful virtuous circle that drives growth.
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’s strategy is focused on
developing and selling a cloud-based software platform for the automation of enterprise back-oce
processes. These solutions cover both the order-to-cash (from the customer order to invoice
collection) and procure-to-pay processes (from the selection of suppliers to the payment of
invoices). The Company is focused on accelerating organic growth largely through a direct sales
force. Over the past 38 years, Esker has grown into one of the leading document processing
automation solution providers, with more than 1,000 employees in 15 subsidiaries worldwide.
£17.0m
VALUATION
1.3%
OF TOTAL ASSETS
0.4%
OF ISSUED SHARE
CAPITAL HELD
£0.9m
BOOK COST
£17.6m
VALUATION
1.4%
OF TOTAL ASSETS
0.5%
OF ISSUED SHARE
CAPITAL HELD
£2.1m
BOOK COST
£14.3m
VALUATION
1.1%
OF TOTAL ASSETS
10.4%
OF ISSUED SHARE
CAPITAL HELD
£6.8m
BOOK COST
£14.5m
VALUATION
1.1%
OF TOTAL ASSETS
1.8%
OF ISSUED SHARE
CAPITAL HELD
£4.5m
BOOK COST
£13.9m
VALUATION
1.1%
OF TOTAL ASSETS
1.7%
OF ISSUED SHARE
CAPITAL HELD
£4.4m
BOOK COST
INVESTMENT REPORT
20
Herald Investment Trust plc
Annual report & financial statements 2022
TOP TWENTY EQUITY HOLDINGS AS AT 31 DECEMBER 2022
CONTINUED
Kainos is a UK-headquartered IT provider with expertise across three divisions - Digital Services,
Workday Services, and Workday Products. Kainos Digital Services division develops and supports
custom digital service platforms for public sector, commercial, and healthcare customers. The
Workday Services division specialises in the deployment of Workday Inc.’s Finance, HR and Planning
products to leading organisations across Europe and North America. Kainos are one of Workday’s
most respected partners, experienced in complex deployments. The Workday Products division
develops products that complement Workday. These include the Smart product suite, including
Smart Test (for automated testing), Smart Audit (for compliance monitoring), and Smart Shield (for
data masking), are used by more than 350 customers globally to safeguard their Workday systems.
Kainos employs more than 2,900 people in 22 countries across Europe and the Americas.
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 more than 12,500 enterprise and carrier
customers worldwide to adapt to market challenges quickly, maintain business continuity and
achieve maximum productivity while keeping costs down.
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
18manufacturing locations with a global workforce of over 6,900 employees across 22 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.
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, o-road and aviation. The company has oces in Australia,
the U.S., Europe and Asia, and supplies technology solutions and services to industry leaders in each
market vertical.
`
CentralNic is a Londonbased AIMlisted company which drives the growth of the global digital
economy by developing and managing software platforms allowing businesses globally to buy
subscriptions to domain names, used for their own websites and email, as well as for protecting their
brands online. These platforms can also be used for distributing domain name related software and
services, an opportunity that contributes significantly to CentralNic’s organic growth. The Company’s
inorganic growth strategy is identifying and acquiring cashgenerative businesses in its industry with
annuity revenue streams and exposure to growth markets and migrating them onto the CentralNic
software and operating platforms. CentralNic operates globally with customers in almost every
country in the world. It earns recurring revenues from the worldwide sales of internet domain names
and other services on an annual subscription basis.
£13.1m
VALUATION
1.0%
OF TOTAL ASSETS
0.7%
OF ISSUED SHARE
CAPITAL HELD
£1.5m
BOOK COST
£11.6m
VALUATION
0.9%
OF TOTAL ASSETS
2.6%
OF ISSUED SHARE
CAPITAL HELD
£3.5m
BOOK COST
£13.0m
VALUATION
1.0%
OF TOTAL ASSETS
1.8%
OF ISSUED SHARE
CAPITAL HELD
£6.0m
BOOK COST
£12.6m
VALUATION
1.0%
OF TOTAL ASSETS
3.2%
OF ISSUED SHARE
CAPITAL HELD
£5.4m
BOOK COST
£12.0m
VALUATION
0.9%
OF TOTAL ASSETS
4.8%
OF ISSUED SHARE
CAPITAL HELD
£8.6m
BOOK COST
21
Herald Investment Trust plc
Annual report & financial statements 2022
DETAILED LIST OF INVESTMENTS
AT 31 DECEMBER 2022
Ordinary or common shares unless otherwise stated.
Value
Classification Name £’000 %
UNITED KINGDOM
Advertising and Marketing Ebiquity 2,735
Next Fifteen Communications 29,076
S4 Capital 7,713
System1 812
The Mission Group 2,485
Time Out 2,323
Tremor 1,303
XLMedia 1,107
YouGov 20,375
67,929 5.2
Entertainment Content Frontier Developments 2,615
Team17 1,335
Zinc Media 7,126
11,076 0.8
Internet, Media and Services Dianomi 435
Eagle Eye Solutions 805
Future 8,985
OnTheMarket 1,448
Smoove 1,540
Sysgroup 895
Ten Lifestyle Group 2,064
Trustpilot 4,229
20,401 1.6
Publishing and Broadcasting Audioboom 3,534
Bloomsbury Publishing 8,370
Bonhill 734
Centaur Media 3,976
Quarto 2,102
Reach 3,008
21,724 1.7
Telecommunications Crimson Tide 744
Fonix Mobile 2,389
Gamma Communications 2,098
GlobalData 5,424
Maintel 1,528
12,183 0.9
Automotive Quartix Technologies 574
Saietta 841
1,415 0.1
Retail - Discretionary FireAngel Safety Technology 365 0.0
Wholesale - Discretionary Northamber 843 0.1
Renewable Energy AFC Energy 856
Invinity Energy Systems 713
ITM Power 5,114
SIMEC Atlantis Energy 138
Velocys 822
7,643 0.6
Asset Management Augmentum Fintech 450
Integrafin 1,237
Sivota 575
2,262 0.2
Equity Investment Instruments Gore Street Energy Storage Fund 2,562
HIML Holdings 5,558
KRM22 956
9,076 0.7
denotes AIM stock
denotes unlisted security
INVESTMENT REPORT
22
Annual report & financial statements 2022Herald Investment Trust plc
Value
Classification Name £’000 %
UNITED KINGDOM continued
Specialty Finance TruFin 1,168 0.1
Biotechnology and Pharmaceutical C4X Discovery 1,178 0.1
Health Care Facilities and Services Diaceutics 1,658
Feedback 387
2,045 0.2
Medical Equipment and Devices BATM Advanced Communications 4,923
Deltex Medical 250
Intelligent Ultrasound 916
6,089 0.5
Commercial Support Services MJ Hudson 438
Science Group 6,968
Wilmington 8,566
15,972 1.2
Electrical Equipment Oxford Instruments 5,051
Synectics 379
Volex 12,620
XP Power 1,680
19,730 1.5
Industrial Intermediate Production Diploma 25,869 2.0
Chemicals Applied Graphene Materials 440
Haydale Graphene Industries 802
1,242 0.1
Forestry, Paper and Wood Products Accsys Technologies 1,225 0.1
Semiconductors CML Microsystems 5,174
IQE 10,491
Kromek 2,061
Sondrel 2,182
19,908 1.5
Software 1Spatial 1,896
Access Intelligence 6,362
ActiveOps 379
Aptitude Software 8,066
Bango 14,271
Blackbird 1,658
Boku 4,094
BrandShield Systems 458
Celoxica 2,713
Checkit 1,832
Corero Network Security 3,113
Craneware 9,792
Dillistone 230
Dotdigital 6,429
Eckoh 6,420
Essensys 642
GB Group 14,511
GetBusy 1,767
Gresham Technologies 6,075
Idox 19,732
Immotion 316
i-nexus Global 121
Intercede 1,727
IQGeo 5,070
itim 1,054
Light Science T
echnologies
300
DETAILED LIST OF INVESTMENTS CONTINUED
AT 31 DECEMBER 2022
denotes AIM stock
denotes unlisted security
23
Annual report & financial statements 2022Herald Investment Trust plc
Value
Classification Name £’000 %
UNITED KINGDOM continued Location Sciences 51
LoopUp 264
Microlise 1,415
NCC 7,109
Osirium Technologies 273
Oxford Metrics 8,493
Pelatro 216
Quixant 1,356
SimiGon 251
SmartSpace Software 852
Sopheon 623
Spectra Systems 4,332
WANdisco 9,909
Windward 697
ZOO Digital 17,818
172,687 13.2
Technology Hardware Aferian 392
AMTE Power 403
Calnex Solutions 3,131
Concurrent Technologies 633
CyanConnode 2,214
discoverie 11,358
Focusrite 1,490
Global Invacom 268
Gooch & Housego 1,052
Ilika 1,930
MTI Wireless Edge 2,364
SDI 9,125
Seeing Machines 12,049
Solid State 1,077
Spirent Communications 10,400
Thruvision 3,311
Trackwise Designs 20
61,217 4.7
Technology Services Bytes Technology 1,661
CentralNic 11,607
Cerillion 3,612
Cohort 6,708
Computacenter 3,249
D4T4 Solutions 7,556
EMIS 5,610
Equals Group 163
FD Technologies 3,910
FDM 2,678
GRC 189
Kainos 13,067
Netcall 2,054
PCI-PAL 1,794
Silver Bullet Data Services 136
Tribal 1,881
65,875 5.0
Electricity and Gas Marketing and Trading Telecom Plus 17,900 1.4
Gas and Water Utilities Water Intelligence 4,112 0.3
TOTAL UNITED KINGDOM EQUITIES 571,134 43.8
INVESTMENT REPORT
24
Annual report & financial statements 2022Herald Investment Trust plc
DETAILED LIST OF INVESTMENTS CONTINUED
AT 31 DECEMBER 2022
Value
Classification Name £’000 %
EUROPE, MIDDLE EAST AND AFRICA (EMEA)
Advertising and Marketing Growens Italy 1,669 0.1
Internet, Media and Services EQS Germany 5,508
New Work SE Germany 1,337
North Media Denmark 1,222
8,067 0.6
Telecommunications Intred Italy 1,873 0.1
Medical Equipment and Devices LUMIBIRD France 5,426 0.4
Electrical Equipment Airthings Norway 520
Detection Technology Finland 2,957
3,477 0.3
Semiconductors BE Semiconductor Industries Netherlands 17,021
Kalray France 2,235
Nordic Semiconductor Norway 18,676
37,932 2.9
Software Atea Norway 1,925
Carasent Norway 199
Efecte Finland 2,655
Enea Sweden 1,708
Esker France 13,928
Exasol Germany 757
Invision Germany 454
Median Technologies France 1,926
Nexus Germany 5,865
NFON Germany 1,130
Nordhealth Finland 1,312
RaySearch Laboratories Sweden 2,422
Sidetrade France 7,232
Upsales Technology Sweden 4,650
WALLIX France 2,884
49,047 3.8
Technology Hardware Adtran Germany 4,660
ATEME France 2,491
Ekinops France 5,728
Napatech Norway 1,698
14,577 1.1
Technology Services Adesso Germany 5,844
Allgeier Germany 500
B3 Consulting Sweden 3,961
Datalex Ireland 1,841
OVH France 1,415
Sword Group France 5,795
19,356 1.5
TOTAL EMEA EQUITIES 141,424 10.8
NORTH AMERICA
Advertising and Marketing Inuvo 970 0.1
Internet, Media and Services HealthStream 3,591
Yelp 1,809
5,400 0.4
* American Depositary Receipts – certificates representing shares in the stock, issued by a US bank, denominated and paying dividends in US dollars.
25
Annual report & financial statements 2022Herald Investment Trust plc
Value
Classification Name £’000 %
NORTH AMERICA continued
Publishing and Broadcasting Thryv 2,115 0.2
Telecommunications Cogent Communications 5,900
Ooma 2,536
8,436 0.6
Renewable Energy Loop Energy 15 0.0
Aerospace and Defence Leonardo DRS 3,697 0.3
Electrical Equipment nLIGHT 209
Tecogen 332
541 0.0
Semiconductors AXT 541
CEVA 5,915
Chipmos Technologies* 1,476
FormFactor 1,378
Intellicheck 1,130
Pixelworks 393
Power Integrations 2,253
QuickLogic 1,391
Silicon Motion Technology* 19,185
Tower Semiconductor 4,395
Ultra Clean Holdings 959
Valens 1,561
40,577 3.1
Software Absolute Software 4,318
Alkami Technology 1,810
American Software 2,355
Amplitude 748
AvePoint 1,197
AVID Technology 6,593
Bandwidth 2,646
Brightcove 1,835
Cognyte Software 386
Couchbase 1,643
CyberArk Software 4,397
Cyren 14
Descartes Systems 17,860
Digital Turbine 2,520
FalconStor Software 118
Five9 2,245
ForgeRock 3,293
Issuer Direct 1,850
JFrog 2,647
Kinaxis 3,332
Kneat 734
LivePerson 3,567
N-able 2,548
OneSpan 1,848
PagerDuty 2,197
Pegasystems 8,515
Qualys 7,073
Radware 13,043
SPS Commerce 10,605
Streamline Health 1,271
Varonis Systems 8,804
Vertex 1,800
123,812 9.5
Technology Hardware Akoustis Technologies 1,466
Arlo Technologies 2,613
Aviat Networks 1,931
Blackline Safety 1,155
INVESTMENT REPORT
26
Annual report & financial statements 2022Herald Investment Trust plc
DETAILED LIST OF INVESTMENTS CONTINUED
AT 31 DECEMBER 2022
Value
Classification Name £’000 %
NORTH AMERICA continued CalAmp 1,109
Celestica 4,195
Credo Technology 3,023
Everspin Technologies 1,260
Fabrinet 17,598
Harmonic 5,414
Lantronix 2,678
Ondas 588
One Stop Systems 1,533
Quantum 680
RADCOM 1,841
Ribbon Communications 2,502
Ribbon Communications Restricted 754
Silicom 4,321
Super Micro Computer 27,148
ViaSat 2,617
Vicor 6,224
90,650 6.9
Technology Services Rimini Street 2,665
Telos 735
TTEC 4,010
7,410 0.6
TOTAL NORTH AMERICA EQUITIES 283,623 21.7
ASIA PACIFIC
Advertising and Marketing Pureprofile Australia 752 0.1
Internet, Media and Services Bengo4.com Japan 654
CrowdWorks Japan 1,054
DIGITAL Holdings Japan 688
Gabia South Korea 1,499
giftee Japan 1,962
GMO Internet Japan 1,865
Praemium Australia 2,809
PropTech Australia 1,115
Proto Japan 1,729
RMA Global Australia 328
13,703 1.1
Publishing and Broadcasting Hong Kong Economic Times Hong Kong 344 0.0
Telecommunications Accrete Japan 1,056
Kinx South Korea 2,786
3,842 0.3
E-Commerce Discretionary Momo.com Taiwan 2,308
PChome Online Taiwan 716
3,024 0.2
Retail - Consumer Staples Redbubble Australia 310 0.0
Specialty Finance Money Forward Japan 8,603 0.7
Medical Equipment and Devices Compumedics Australia 237 0.0
Commercial Support Services Freelancer Australia 438
Plus Alpha Consulting Japan 377
815 0.0
** H Shares – issued by companies incorporated in the People’s Republic of China and listed on the Hong Kong Stock Exchange.
27
Annual report & financial statements 2022Herald Investment Trust plc
Value
Classification Name £’000 %
ASIA PACIFIC continued
Electrical Equipment Catapult Australia 2,204 0.2
Industrial Intermediate Production Elite Material Taiwan 1,118
PI Advanced Materials South Korea 793
1,911 0.2
Chemicals Soulbrain South Korea 2,261 0.2
Semiconductors Andes Technology Taiwan 3,026
eMemory Technology Taiwan 2,389
Eugene Technology South Korea 429
Kulicke & Soa Industries Singapore 5,118
Phison Electronics Taiwan 1,695
PSK South Korea 1,829
Realtek Semiconductor Taiwan 4,122
Tokyo Seimitsu Japan 960
Wonik IPS South Korea 971
20,539 1.6
Software Audinate Australia 255
Bigtincan Australia 3,018
Bravura Solutions Australia 536
Chanjet Information Technology** China 1,241
CRESCO Japan 1,315
ELMO Software Australia 1,727
Family Zone Cyber Safety Australia 509
Fasoo South Korea 1,564
GMO GlobalSign Japan 1,556
Hatena Japan 499
HENNGE K.K. Japan 930
intelliHR Australia 145
Internetworking & Broadband Consulting Japan 422
Kaonavi Japan 2,020
Kingdee International Software** China 5,991
LiveTiles Australia 257
OBIC Business Consultants Japan 1,514
ORO Japan 572
PCA Japan 1,140
PKSHA Technology Japan 523
Property Data Bank Japan 1,420
Sansan Japan 466
SpiderPlus Japan 652
Symbio Australia 492
TeamSpirit Japan 761
TerraSky Japan 4,008
User Local Japan 1,046
WantedLab South Korea 772
Whispir Australia 592
WiseTech Global Australia 3,801
Xref Australia 948
Yappli Japan 142
Zuken Japan 1,629
42,463 3.2
Technology Hardware Advantech Taiwan 2,048
Chicony Electronics Taiwan 2,603
E Ink Taiwan 7,444
Innox Advanced Materials South Korea 1,204
INVESTMENT REPORT
28
Annual report & financial statements 2022Herald Investment Trust plc
DETAILED LIST OF INVESTMENTS CONTINUED
AT 31 DECEMBER 2022
Value
Classification Name £’000 %
ASIA PACIFIC continued Lanner Electronics Taiwan 4,410
Parade Technologies Taiwan 2,080
SOLUM South Korea 2,049
Tripod Technology Taiwan 4,380
26,218 2.0
Technology Services Ansarada Australia 3,720
Chinasoft Hong Kong 2,015
Cyber Security Cloud Japan 1,700
Cybertrust Japan Japan 1,178
EML Payments Australia 246
Infomart Japan 494
Net Protections Japan 755
Nitro Software Australia 750
Plaid Japan 142
RAKUS Japan 906
Senetas Australia 1,037
Uzabase Japan 2,198
WingArc1st Japan 3,110
18,251 1.4
TOTAL ASIA PACIFIC EQUITIES 145,477 11.2
CONVERTIBLE LOAN STOCKS HAVING AN
ELEMENT OF EQUITY
Cyren Convertible 5.75% 19 Mar 2024 Restricted 827
i-nexus Global 8% Convertible Loan Note 4 Nov 2023 600
i-nexus Global 8% Convertible Loan Note 29 Sep 2024 400
Kromek Convertible 8% 31 Jan 2024 1,000
Zinc Media Convertible 8% Loan 31 Dec 2024 959
Zinc Media Convertible Libor+4 Rate Bank Loan 31 Dec 2024 1,052
Zinc Media Convertible Variable Rate Loan 31 Dec 2024 377
TOTAL CONVERTIBLE LOAN STOCKS
HAVING AN ELEMENT OF EQUITY 5,215 0.4
Total Equity Investments 1,146,873 87.9
Fixed Interest UK Government Bond 0.125% 31 Jan 2023 29,923
UK Government Bond 2.25% 07 Sep 2023 14,886
US Treasury Stock 0.125% 31 Jan 2023 8,247
US Treasury Stock 1.625% 30 Apr 2023 24,584
TOTAL FIXED INTEREST 77,640 5.9
Total Investments 1,224,513 93.8
Net Liquid Assets
+
80,535 6.2
Total Assets At Market Value 1,305,048 100.0
+ Cash, current assets and liabilities
denotes unlisted security
29
Annual report & financial statements 2022Herald Investment Trust plc
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 has helped create value for shareholders. Since inception,
the Company has completed buybacks to the value of £236m which significantly exceeds the outside capital raised by the
Company. Over the history of the fund, net asset value per share on a total return basis has grown by 2,190.8% or 11.4% on an
annualised basis.
TOTAL RETURN SINCE
INCEPTION
+2,190.8%
ANNUALISED TOTAL RETURN
SINCE INCEPTION
+11.4%
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)
2022 1,305,048 – 1,305,048 62,173 2,099.05 1,782.00 (15.1)
* The diluted net asset value per ordinary share figures have been calculated in accordance with
FRS102 (2015-2022), FRS22 (2008-2014), FRS14 (1995-2007).
A Alternative Performance Measure - see page 82.
≠ 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.
INVESTMENT REPORT
30
Herald Investment Trust plc
Annual report & financial statements 2022
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
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
2022 15,326 135 0.21 – 1.05 88 100
¶ 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 69).
A Alternative Performance Measure - see page 82.
CUMULATIVE PERFORMANCE (TAKING 2012 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
2012 100 100 100 100 100 100
2013 127 134 128 138 103 (41)
2014 129 128 119 158 104 (201)
2015 139 145 125 168 106 (5)
2016 171 172 136 251 108 62
2017 217 228 162 270 113 72
2018 207 210 133 283 116 9
2019 264 288 158 366 118 5
2020 361 438 163 506 120 (638)
2021 430 488 192 582 129 (886)
2022 332 347 146 418 146 22
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 8.9% 8.8% –2.1% 9.1% 5.3%
10 year 12.7% 13.2% 3.9% 15.4% 3.9%
Past performance is not a reliable indicator to future performance.
NET LIQUID ASSETS AND FIXED
INTEREST AS PERCENT OF NAV
31DECEMBER 2022
12.1%
5 YEAR COMPOUND ANNUAL
GROWTH IN NAV PER SHARE
8.9%
10 YEAR COMPOUND ANNUAL
GROWTH IN NAV PER SHARE
12.7%
31
Herald Investment Trust plc
Annual report & financial statements 2022
–30
–20
–10
0
10
20
202220202018201620142012201020082006200420022000199819961994
0
500
1,000
1,500
2,000
2,500
3,000
202220202018201620142012201020082006200420022000199819961994
PREMIUM/(DISCOUNT) TO FULLY DILUTED NET ASSET VALUE
(PLOTTED ON A MONTHLY BASIS)
Source: Refinitiv
CAPITAL RETURN SINCE INCEPTION
Inception
31 December 16 February
2022 1994 % change
Net asset value per ordinary share (including
current year revenue)
A
2,099.05p 98.70p 2,026.70
Net asset value per ordinary share (excluding
current year revenue)
A
2,098.83p 98.70p 2,026.47
Share price 1,782.00p 90.90p 1,860.40
Numis Smaller Companies plus AIM (ex. investment
companies) Index 5,406.82 1,750.00 208.96
2000® Technology Index (small cap)
(in sterling terms)
†
3,814.11 688.70* 453.81
A Alternative Performance Measure – see page 82.
* 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 2022
15.1%
GOVERNANCE
32
Herald Investment Trust plc
Annual report & financial statements 2022
Governance
34 Strategic Report
41 Your Board of Directors
42 Corporate Governance Report
46 Audit Committee Report
48 Directors’ Report
50 Directors’ Remuneration Report
53 Statement of Directors’ Responsibilities
54 Independent Auditors’ Report
33
Herald Investment Trust plc Annual report & financial statements 2022
GOVERNANCE
34
Herald Investment Trust plc
Annual report & financial statements 2022
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 aairs in
compliance with s1158 since this approval was granted.
BUSINESS MODEL
The Company has appointed Herald Investment
Management Limited (‘HIML’) as the Alternative Investment
Fund Manager to provide all portfolio management and risk
management services. HIML is authorised and regulated by
the Financial Conduct Authority both for investment
management and as an Alternative Investment Fund Manager
(see the Directors’ Report, page49).
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 Apex Listed Companies
Services (UK) Limited (‘Apex’), formerly Sanne Fund Services
(UK) Limited.
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 oer 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
aremit to invest in smaller companies with market
capitalisation generally below $3bn at the point of purchase,
there tends to be a correlation with the performance of
smaller companies, as well as that 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.
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 r
ecognises the long-term advantages of
gearing and has a maximum gearing limit of 50% of net
assets. Borr
owings are invested primarily in equity markets
but the Manager is permitted 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 ecient 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 Investment 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 82 and 83.
SHARE CAPITAL
At 31 December 2022 the Company’s capital structure
consisted of 62,173,223 ordinary shares of 25p each (2021–
64,754,112 ordinary shares). During the year 2,580,889
(2021–1,029,306) 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 15 February 2023, 50,771 shares have
been bought-back for cancellation at an average price of
1829.36 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
anyform of credit facility but holds significant cash. The
requirement for a credit facility is kept under regular review,
taking into account the levels of cash held bythe Company,
and cost, general market conditions and the Manager’s view
of its potential use of any such facility.
STRATEGIC REPORT
35
Herald Investment Trust plc
Annual report & financial statements 2022
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
pages 44 and 45 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.
All risks are documented on arisk 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 tworisk matrices: a pre-mitigation and a
post-mitigation one. Mitigation takes into account processes,
procedures and internal controls, and the post-mitigation
matrix is used to identify the Company’s principal risks. 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.
As part of the risk review, the board considered the
challenging global economic and geopolitical environment
including the impact of the Russian-Ukraine war, which has
magnified uncertainty in global financial markets, together
with the ongoing secondary eects of Covid including supply
chain issues and China’s now historic zero Covid policy.
Inflation and the resultant volatility that it created in the
global stock markets was a key risk during the financial year.
Tensions between the US and China were also considered by
the board.
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:
Risk level unchanged
Less risk
Heightened risk
Strategic Risk
Company risk as an investor in smaller companies
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
asmaller investible universe and orphan portfolio stocks. The
board and the Manager engage with external bodies in the
UK to influence government and regulatory policy to support
quoted smaller companies. Theportfolio is globally
diversified and also the Manager has the ability to move
capital to more favourable markets.
Market, Economic and Geopolitical Risks
Market risk including but not limited to liquidity, price,
valuation, TMT, small cap risks
The Company’s assets consist mainly of listed securities and
the success of the Company’s business model is therefore
market-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 robust assessment by the directors – and how
they are managed is contained in note 17 to the financial
statements on pages 72 to 77, and a description of the
internal controls operated by the Company is on pages 44
and 45. Asa 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 dicult for the Manager to achieve sales
of investments at marketprices. The board’s assessment of
risk remained unchanged from the previous year due to the
continuing uncertainty and volatility in the markets.
Economic risk
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 risk rating is unchanged
from last year, reflecting the continuing impact of higher
inflation, interest rates and costs, and likely recession in 2023.
Geopolitical risk
Political developments can create risks to the value of the
Company’s assets. For example the Russian war in Ukraine
has disrupted supply lines and intensified the rise in energy
prices and US-China-Taiwan trade tensions could disrupt
technology supply lines.
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. The risk rating remains consistent with last
year, being at a heightened level from that of more ‘normal’
times.
Investment Management Risk
Liquidity risk
There is a risk that the Manager is unable to realise profits on
significant positions in the portfolio and to redeploy them in
sucient 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 remains consistent with 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
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 as the Manager’s team grows in experience and
resources expand in both the investment management and
administration teams. This risk rating remains unchanged
from the previous year.
GOVERNANCE
36
Herald Investment Trust plc
Annual report & financial statements 2022
Third Party Service Provider Operational Risk
Information (including cyber) security and physical
security
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
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 suchmatters.
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
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 risk rating is
unchanged from the previous year.
Discount volatility
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
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
sixmonthly on custody matters, including the continued
safecustody of the Company’s assets.
Emerging/External Risk
Climate change risk
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 aected.
Incomparison to the broader economy, the portfolio has
arelatively 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 year. The risk rating
remains unchanged from the previous year.
Global pandemic risk
The pandemic remains an ongoing risk with both primary
and consequential negative eects, such as supply chain
disruption. Its impact has been reduced given the
introduction of vaccination programmes and the adaptability
of people and businesses to return to a normalised
environment although the position in China remains of
concern. 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.
Theboard 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
itcan continue to trade, meet its regulatory obligations, and
report and meet shareholder requirements. By their nature
the risks presented by possible future pandemics are
exceptionally dicult to assess. This risk rating has been
lowered given the lifting of government restrictions in most
countries and the adaptation of markets that has occurred
todate.
Regulatory Risk
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 aqualified 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. TheManager 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.
THE BOARD AND DIVERSITY
The board’s policy on diversity is set out on page42. The
board has decided that notwithstanding that disclosure of
the gender and ethnic diversity composition of the board is
not required by the FCA until next year’s annual report and
accounts, the Company is making a voluntary disclosure this
year. This is set out under the board diversity section on
pages 42 and 43.
STRATEGIC REPORT CONTINUED
37
Herald Investment Trust plc
Annual report & financial statements 2022
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.
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
inthe portfolio; the environment; and the wider economy.
Inthis context, 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 2022 with 99.99%
of shareholders voting for the continuation of the Company
and the next continuation vote will be proposed at the AGM
in 2025.
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.
At the Company’s most recent AGM held in April 2022,
shareholders had the opportunity to meet with the board and
the Manager and raise questions and concerns.
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, routine and ad hoc regulatory announcements,
monthly factsheets and other information placed on the
Manager’s website, including pre-investment information,
akey 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 sucient.
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 Securities Limited
and Peel Hunt LLP. 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. 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 in which the portfolio is
invested. 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.
Theboard 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.
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.
Agreenhouse gas emissions statement is included in the
Directors’ Report on page 48 and the Company has given
shareholders the option to receive electronic copies of
annual reports and other information.
GOVERNANCE
38
Herald Investment Trust plc
Annual report & financial statements 2022
STRATEGIC REPORT CONTINUED
However, the Company has indirect interests through its
investment portfolio. The Company’s long-term success
isderived 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 ecient work
processes and companies which produce power ecient
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 eorts in terms of the integration
of ESG factors into the investment process, 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
formalisation of the Manager’s Stewardship Approach and
Policy, which was discussed and approved by the board.
Inearly 2022, the Manager’s report on the Stewardship
activities it undertook during 2021 was submitted to the FRC
(Stewardship Code Report). In September 2022, 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 which set out
the reasons why the Manager has voted against investee
company management recommendations or against the
recommendations of third party proxy advisors.
TheStewardship Approach and Policy, the Stewardship Code
Report and a summary of the 2021 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 for them 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
aconservative 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
inter
ests of the Company and its stak
eholders.
• The nomination committee undertook a recruitment
exercise to appoint a chairman designate culminating in
the appointment of Andrew Joy as non-executive
director. He will succeed the current chairman of the
board, Tom Black, who is due to retire at the conclusion
of the AGM in April 2023.
• 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 ecient exercise of governance
responsibilities.
• During the year the directors decided to endorse the
Manager’s recommendation not to put in place any
borrowing facility, because of the increased cost of
borrowing, continued challenging liquidity and the
uncertain macroeconomic environment. Thedirectors
will continue to adopt leverage when market conditions
seem appropriate.
The directors are cognisant of their duty under s172 in their
deliberations 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
threeyears 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
athree-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. Inevitably, 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 as necessary to seek to deliver high
returns.
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
rising global tensions – for example between China and the
US over Taiwan and the war in Ukraine – 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 expectation that the majority of the Company’s
39
Herald Investment Trust plc
Annual report & financial statements 2022
investments comprise readily realisable securities as
substantiated by liquidity analysis of the portfolio; any
borrowing facilities in place – noting there were none at the
year end; and the fact that as aclosed ended investment
company the Company is not aected 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 2022, 99.99% of
votes cast were in favour of continuation. The next
continuation vote will be at the AGM to be held in 2025.
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 pages 44 and 45,
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
threefinancial years.
INVESTMENT MANAGEMENT
The management contract with HIML is subject to
12months’ 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 £1.25bn and 0.8%
thereafter, calculated using middle market prices.
Compensation fees would only be payable in respect of this
12-month period if termination were to occursooner.
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 apositive influence over the long-term performance. At
31December 2022, Katie Potts held 412,244 (2021 – 398,940)
of the Company’s shares.
At 31 December 2022, the Company was the beneficial
owner of 15.4% (2021:15.4%) of the ordinary share capital of
HIML Holdings Limited.
The board considers the investment management
arrangements for the Company on a continuing basis and
aformal 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 r
esponsible allocation, management and
oversight of capital to cr
eate 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 seeks to ensure that
HIML has a sensible and systematic approach to stewardship.
The board has adopted HIML’s suggested approach, after
considerable deliberations by the board with HIML. As well as
designing arobust framework, HIML regularly evidences to
the board that it has implemented its policies to act as a
responsible investor on an on-going basis.
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 the Company’s 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. It adopts a positive engagement approach whereby
matters are discussed with the management of portfolio
companies with the aim of sharing best practice,
improving the portfolio companies’ relevant policies and
management systems and enabling the Manager, HIML,
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 that in aggregate investee
companies assist in improving the world environmentally.
The largest component of the portfolio is software, which
provides eciencies for enterprises, governments and
consumers. Other sectors of the portfolio often provide
and improve the enabling supply chain. Technology also
provides energy ecient communications, entertainment
and more; and HIML firmly believes that capitalism and
technological innovation combined oer the best
prospects 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 portfolio 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.
GOVERNANCE
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Annual report & financial statements 2022
STRATEGIC REPORT CONTINUED
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
Code2020. 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 markets 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.
Asbottom-up fundamental investors, the team consider
the 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, although 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 sensible 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
15 February 2023
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Annual report & financial statements 2022
TOM BLACK
Tom Black was appointed to the board on 1 May 2013 and
became Chairman of the board and nomination committee
on 1 March 2021. He will retire from the board and the
Company at the conclusion of the AGM in April 2023. 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 and the
Edward Barnsley Educational Trust. 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.
ANDREW JOY
Andrew Joy was appointed to the board on 1 October 2022
as director and chairman designate. He will take over from
TomBlack when he retires at the conclusion of the AGM in
April 2023. Andrew was chairman of The Biotech Growth
Trust plc until July 2022. He is also a senior advisor of
Stonehage Fleming, a leading international multi-family
oce, chairman of the investment committee of FPE Capital
and is a trustee of several charities. For one of these charities,
he chairs the investment committee of a £300m
endowment.
Andrew was one of the founding partners of Cinven,
aleading private equity firm investing in Europe and U.S. and
has been chairman or director of numerous growth
companies over the past 30 years. He is former chairman of
the British Venture Capital and Private Equity Association and
a director of the European Venture Capital Association.
He is highly regarded for his extensive knowledge of the
financial sector and of the high-growth part of the smaller
company sector.
STEPHANIE EASTMENT
Stephanie Eastment was appointed to the board on
1December 2018 and is chair of the audit committee.
Afterleaving 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
FundsLimited.
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
amember of London Stock Exchange’s AIM Advisory Group.
She has direct experience and understanding of the
investment process required in the Company. She takes the
lead on the board in reviewing HIML’s stewardship approach.
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 ocer,
Europe & Asia Pacific. Karl is chairman of Monks Investment
Trust plc and a non-executive director of Clipstone Industrial
REIT 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.
Hewas 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 Asia Dragon Trust plc and
was, until recently, chairman of The Scottish Investment Trust
plc, and a non-executive director of JP Morgan Global
Growth & Income 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. He
has taken the lead in recruitment of the chairman’s successor
and ensuring the Company’s legal agreements are in line
with best practice.
YOUR BOARD OF DIRECTORS
All directors are, in the opinion of the board, independent of
the management company.
All directors are non-executive.
All directors are members of the audit committee except for
the chairman. All directors are members of the nomination
committee.
GOVERNANCE
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Annual report & financial statements 2022
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
aairs 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.
Aformal 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
pages 44 and 45. Full and timely information is provided to
the board to enable it to function eectively and to allow
directors to discharge their responsibilities.
CHAIRMAN
The chairman of the Company is responsible for organising
the business of the board, ensuring its eectiveness and
setting its agenda. Tom Black is the chairman of the
Company and Andrew Joy as chairman-designate will
succeed him at the conclusion of the AGM in April 2023.
SENIOR INDEPENDENT DIRECTOR (SID)
James Will was appointed SID on 20 April 2021. The SID
provides a sounding board for the chairman; is an
CORPORATE GOVERNANCE REPORT
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 currently comprises six directors although, as
explained elsewhere in this report, for the majority of the
year there were only five directors. All are non-executive. All
directors will retire at the AGM and oer themselves for
re-election, other than Tom Black, who is retiring, and
Andrew Joy, who will stand for election as a new director
having been appointed during the year.
The directors believe that the board has a balance of skills
and experience which enable it to provide eective
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.
Conflicts of interest are unusual but in the event of one
occurring, there is an established procedure to manage them.
BOARD DIVERSITY
Diversity policy
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.
Theaim of the policy is to identify those with the best range
of skills and experience to complement existing directors in
order to provide eective 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.
Implementation of the Board’s Diversity Policy
The board has taken note of the new targets set out in the
FCA’s Listing Rules 9.8.6R(9)(a) which requires that at least
40% of individuals on the board are women; at least one of
the senior board positions is held by a woman; and at least
one individual on the board is from a minority ethnic
background. Although the board is not required to report
against these targets until the 2023 annual report, the board
has resolved to do so on a voluntary basis for the year ended
31 December 2022.
At 31 December 2022 and at the date this Report and
Accounts was signed, the board comprised six non-executive
directors. Two are women and none are ethnically diverse.
With the forthcoming retirement of Tom Black, the board will
comprise five non-executive directors, of whom two (40%)
are women. The FCA’s Listing Rules also propose that one of
the senior board positions (as defined by the FCA) is held by
awoman. The board considers the chair of the audit
committee of an investment company to be a senior
position, and this is held by a woman. In addition, the
Managing Director of HIML, Katie Potts, is a woman and
attends all board meetings except where this is not
appropriate for governance reasons.
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Herald Investment Trust plc
Annual report & financial statements 2022
The Company is not in compliance with the Listing Rules
requirement for at least one board member to be from a
minority ethnic background. It intends, when further board
recruitment is undertaken, to require the appointed search
advisers to have particular regard to seeking ethnically
diverse candidates.
Board as at 31 December 2022
The following information has been provided by each
director. As the Company has no employees, no information
is included for executive management. The board has
resolved that the Company’s year end date be the most
appropriate date for disclosure purposes. There have been
no changes since 31 December 2022.
Number of
Number of Percentage of senior positions
board members the board on the board
Men 4 67% 2
1
Women 2 33% 1
2
1. The positions of chairman of the board and senior independent
director are held by men.
2. The position of chairman of the audit committee is held by a woman.
Number of
Number of Percentage of senior positions
board members the board on the board
White British or
other White
(including
minority-white
groups) 6 100% 3
Minority ethnic 0 0% 0
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, oer
themselves for re-election.
DIRECTORS’ MEETINGS
The board considers that it meets suciently regularly to
discharge its duties eectively. The table below shows the
attendance record for scheduled board and committee
meetings held during the year including the annual strategy
day. Additionally ad-hoc meetings are held as required for
administrative purposes.
Number of Board Audit Nomination
scheduled meetings 5 2 1
Tom Black
1
5 2 1
Stephanie
Eastment 5 2 1
Andrew Joy
2
2 – 1
Henrietta Marsh 5 2 1
Karl Sternberg 5 2 1
James Will 5 2 1
1. The chairman is not a member of the audit committee, but attends the
committee by invitation of the audit chair.
2. Andrew Joy attended all meetings following his appointment on
1October 2022.
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.
Aseparate 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 50.
DIRECTORS: ELECTION AND RE-ELECTIONS
Andrew Joy was appointed as a director on 1 October 2022
and will stand for election at the AGM to be held on 18 April
2023.
All other directors of the Company served throughout the
year under review. Following a board evaluation which
determined that the board remained eective, all directors,
except Tom Black who will retire at the conclusion of the
AGM, will stand for re-election at the AGM to be held on
18April 2023 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 in the previous section.
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. They are
assessed 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
GOVERNANCE
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Annual report & financial statements 2022
— the demands on each candidate’s time and consideration
of their other commitments.
During the year the committee held one scheduled and two
ad hoc meetings. Itundertook the following activities:
— completed its search for a chairman-designate and
recommended his appointment to the board. Korn Ferry,
an independent firm with no connection to the Company,
was used to assist in the search for this new director;
— updated the Company’s succession planning;
— 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 voluntary disclosure on diversity targets;
and
— reviewed and approved the Company’s tenure and
succession planning policy.
As a result of the committee’s succession planning, the
committee determined that a new chairman-designate
should be appointed taking the board to six members.
Asmentioned elsewhere in the annual report, the current
chairman excused himself from the committee when it
considered his successor and Andrew Joy wasappointed as
director and chairman-designate with eect from 1 October
2022.
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
eectiveness of the chairman, each director, the board as
awhole, 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 eectiveness of the board
and its committees.
The nomination committee reported to the board on each
director’s performance, the process for which is described
above, and concluded that their performance continues to
be eective, they remain committed to the Company and
have sucient time to fulfil their duties. The board therefore
recommends the re-election of Stephanie Eastment,
Henrietta Marsh, Karl Sternberg and James Will, and the
election of Andrew Joy at the forthcoming AGM in April
2023.
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 aect 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 eectiveness. 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
eectiveness of the Company’s risk management and
internal control systems and they have procedures in place
to review their eectiveness 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 eective and ecient
operations and investment management, have been
delegated to HIML, Apex (the company secretary) and
BNYMIL.
The audit committee and board monitor performance of the
functions performed by HIML, the company secretary and
BNYMIL 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
FCAregulations. The compliance function provides the
auditcommittee 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
CORPORATE GOVERNANCE REPORT CONTINUED
45
Herald Investment Trust plc
Annual report & financial statements 2022
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,
acopy of which is available to audit committee members.
As set out in the Strategic Report, the board, using the
detailed risk and control review work of the audit committee,
undertakes a robust and ongoing assessment of the
Company’s risk management and controls. This active
monitoring ensures consideration is given regularly to the
nature and extent of the risks facing the Company. Where
new risks, or 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.
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.
ACCOUNTABILITY AND AUDIT
The respective responsibilities of the directors and the
auditor in connection with the financial statements are set
out on page 53.
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 oce of the Company
which is shown on page 81.
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
shar
eholders views and would pr
ovide 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
2022 received 20% or more of the votes cast against.
PURCHASE OF OWN SHARES
At the AGM of the Company to be held on 18 April 2023, 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 78. 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
votesonline by visiting www.signalshares.com. There is
astraightforward 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
yourshare certificate or investor code, please call the
shareholder helpline on 0371 664 0300 (or from overseas
+44 (0)371 6640300).
Any shareholder who is unwilling or unable to vote digitally
can ‘opt-in’ to receive a paper proxy 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
15 February 2023
GOVERNANCE
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Herald Investment Trust plc
Annual report & financial statements 2022
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 eectiveness of internal
control and risk management systems and considering
the key risks and emerging risks facing the Company;
— 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 eectiveness 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.
COMMITTEE ACTIVITY FOR THE YEAR
The committee fulfilled all the above roles and
responsibilities for the year under review, with the exception
of audit tendering as this was undertaken in 2019.
The Company’s external auditor is PricewaterhouseCoopers
LLP (‘PwC’). As part of the year end audit process, the
committee reviewed the audit plan at an early stage. This
review covered the scope of the audit, materiality, ensuring
that the auditor’s objectives would meet the committee’s
expectations and the key audit and accounting matters to be
considered. During the audit the committee chairman liaised
with both the company secretary and PwC to receive
progress updates and reviewed the auditor’s draft audit
results report prior to the year end committee meeting at
which the annual financial report was reviewed.
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 eectiveness of
internal control mechanisms but it is informed by more
specific work carried out by the audit committee.
SIGNIFICANT ISSUES RELATING TO THE 2022 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.
Whilethere 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.
Noissues were discovered.
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 sucient assurance that
asound 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 eectiveness 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
47
Herald Investment Trust plc
Annual report & financial statements 2022
independence. It also took into account the findings in the
most recent FRC audit quality inspection report on PwC. The
committee does not believe that there has been any
impairment to the auditor’s independence.
This year’s audit was the fourth performed by PwC, and by
Allan McGrath as engagement partner, since PwC was
appointed on 21 October 2019 following an audit tender
process. As part of the year end committee meeting, the
committee sought the views of the Manager and
administrator on the eectiveness and performance of the
audit team. No issues were raised. As set out above, the
committee reviewed the performance and eectiveness,
independence and objectivity of the auditor for the year
under review. This also included consideration of the
experience of the audit partner and sta, 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. Allresults were satisfactory.
Accordingly, the committee has recommended that PwC be
reappointed at the forthcoming AGM.
PwC have indicated their willingness to continue in oce and
resolutions proposing the reappointment of PwC and
authorising the committee to determine their remuneration
for the ensuing year will be proposed 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.
STEPHANIE EASTMENT
CHAIR, AUDIT COMMITTEE
15 February 2023
GOVERNANCE
48
Herald Investment Trust plc
Annual report & financial statements 2022
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.
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.
TheManager, 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, or any costs incurred in
connection with criminal proceedings in which the director
isconvicted or civil proceedings brought by the Company
inwhich judgement is given against him. In addition, the
indemnity does not apply to any liability to the extent that it
isrecovered from another person.
The Company maintains Directors’ and Ocers’ 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.
The directors present their directors’ report for the year
ended 31 December 2022. The strategic r
eport and the
corporate governance r
eport on pages 42 to 45 form a part
of the Directors’ Report.
RESULTS AND DIVIDEND
The net asset value (NAV) of the Company as at 31 December
2022 was 2,099.1p per ordinary share (2021 – 2,719.3p). This
represented a decrease of 22.8% during the year, compared
to a decrease in the comparative total return indices of 21.9%
(Numis Smaller Companies plus AIM (ex. investment
companies) Index) and a decrease of 28.4% Russell 2000®
Technology Index (small cap) (in sterling terms)). The
discount at year end was 15.1% (2021 – 7.9%).
The directors do not recommend a dividend for the year
ended 31 December 2022 (2021 – nil).
DIRECTORS
The directors of the Company who were in oce during the
year and up to the date of signing the financial statements
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 rising global tensions –
for example between China and the US over Taiwan and the
war in Ukraine and climate change. These uncertainties have
created supply chain disruption and exacerbated inflationary
pressures worldwide. The Company’s principal risks are
market-related and the current market conditions have
demonstrated the resilience of the Company and its
investment objective and policy. Anexplanation of the
market, liquidity and credit 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.
Allborrowings require the prior approval of the board.
TheCompany had no borrowings as at 31 December 2022.
Inaccordance 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
aresolution to that eect was last approved at the AGM in
April 2022. The next continuation vote will be at the AGM to
be held in 2025.
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
The Company maintains a register of directors’ interests
which is reviewed prior to each board or committee meeting.
The board is able to authorise conflicts if appropriate.
Directors are expected to notify the board if they become
aware of any actual or potential conflict of interest for
themselves or their connected parties, whether on an
ongoing basis or in relation to a particular transaction.
DIRECTORS’ REPORT
49
Herald Investment Trust plc
Annual report & financial statements 2022
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.
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 12.0%
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’.
Ona‘gross’ basis, this is 0.98 against a maximum of 2.00
(2021 – 0.96: 2.00) and on a ‘commitment’ basis, 1.00 against
amaximum of 2.00 (2021 – 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 tracking 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 oce. 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
Act2000 (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 eected, for onward
transmission to the purchaser or transferee.
The AGM will be held at 11.30am on 18 April 2023 at the
Company’s registered oce, 10-11 Charterhouse Square,
London, EC1M6EE. The information below is an explanation
of the special business to be proposed at the 2023 AGM.
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 9,312,155 ordinary shares as at
15February 2023). The Authority will expire at the conclusion
of the AGM to be held in 2024. 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 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
15 February 2023
GOVERNANCE
50
Herald Investment Trust plc
Annual report & financial statements 2022
1. CHAIRMAN’S ANNUAL STATEMENT
Dear Shareholder
I present below the Company’s remuneration report for the year ended 31 December 2022.
Our remuneration policy was last approved by shareholders at the 2020 AGM. The policy is set out on page 51 in the
Company’s 2021 annual report. In accordance with statute, the remuneration policy must be put to shareholders for approval
every three years accordingly a resolution for its approval will be put to shareholders at the forthcoming AGM.
There are two changes to the remuneration policy from that voted on by shareholders in 2020.
Firstly, the amount of the aggregate limit for fees set out in the Company’s articles of association is increased from £200,000
to £250,000. This increase was approved by shareholders at the last AGM.
Secondly, the removal of the following section: ‘If the board concludes that it is appropriate to increase fees during the
threeyear 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.’
During the board’s annual review of fee rates it was identified that the level of fees generally are at the low end of comparable
market fee levels, particularly for directors with additional responsibilities such as the chairman and the audit chairman. It is
therefore the board’s proposal to remove this clause which directly contradicts other parts of the policy requiring fee levels to
attract and retain directors and for fee levels to be fair and comparable to that of other trusts of the same size. The board will
continue to review fees as set out in the revised policy, and shareholders have an annual opportunity to vote on the directors’
remuneration report.
I confirm that the board has complied with the 2020 policy during the year ended 31 December 2022. 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 2022 1 July 2021 Increase for the year
Role £ £ %
Chairman 42,900 39,590 8.4%
Audit Committee Chair 33,000 32,100 2.8%
Senior Independent Director 30,800 29,750 3.5%
Director 28,000 26,250 6.7%
In reviewing the level of fees in July 2022 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 law requires the Company’s auditor to audit certain of the disclosures provided. Where disclosures have been audited,
they are indicated as such. The independent auditor’s opinion is included in their report on pages 54 to 59.
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 oce. No element of directors’ remuneration is attributable to
share price growth.
SCOPE AND RESPONSIBILITY
As the Company has no employees and no executive directors, the policy relates only to the non-executive directors.
2. COMPANY’S REMUNERATION POLICY
The 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 £250,000 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.
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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Annual report & financial statements 2022
3. ANNUAL DIRECTORS’ REMUNERATION REPORT FOR THE YEARS ENDING 31 DECEMBER 2022, 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 2022 and the prior
two years is as follows:
2022 2021 2022 2021 2020
Taxable Taxable Percentage change of
Fees expenses
6
Total Fees expenses
6
Total basic fees
7
Notes £ £ £ £ £ £ % % %
Ian Russell 1 – – – 6,167 – 6,167 n/a –83.0
15.6
Tom Black 2 41,245 969 42,214 36,236 – 36,236 13.8 47.9
5.4
Stephanie Eastment 32,550 – 32,550 31,050 – 31,050 4.8 8.0 8.5
Andrew Joy 3 7,000 – 7,000 n/a n/a n/a n/a n/a n/a
Henrietta Marsh 4 27,125 – 27,125 25,625 – 25,625 5.9 4.6 206.7
Karl Sternberg 27,125 – 27,125 25,625 – 25,625 5.9 4.6 5.4
James Will 5 30,275 1,176 31,451 27,375 – 27,375 10.6 11.7
5.4
Total 165,320 2,145 167,465 152,078 – 152,078
Notes:
1. Ian Russell resigned on 1 March 2021 and the 2021 annual % change decrease in his reflects this.
2. The 47.9% increase in 2021 for Tom Black arose mainly from his appointment as chairman on 1 March 2021.
3. Andrew Joy was appointed as a director on 1 October 2022. No percentage increases are therefore shown.
4. The 206.7% increase in 2020 for Henrietta Marsh reflects her appointment as a non-executive director in 2019.
5. The 11.7% increase in 2021 for James Will arose mainly from his appointment as SID on 20 April 2021 and introduction of a higher fee for the SID role
on 1 July 2021 to reflect the extra responsibility and work of this role. The 10.6% increase in 2022 reflects his appointment as SID in the previous year
as well as an increase in fees in 2022 of 3.5% as previously reported.
6. Taxable expenses incurred by the board in carrying out their duties as directors of the Company normally travel costs to attend board meetings.
However, no travel costs were incurred in 2021 because all meetings were held remotely due to Covid-19 restrictions.
7. The Companies (Directors Remuneration Policy and Directors Remuneration Report) Regulations 2019 require the annual percentage change to be
shown for five years in respect of each Director from the introduction of the regulations, but not before 2019. These fees exclude taxable benefits
which could vary substantially as they reflect expenses incurred whilst carrying out the boards duties.
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 oce, 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:
2022 2021
Interest as at 31 December £’000 £’000
Tom Black 6,900 6,900
Stephanie Eastment* 3,200 2,900
Andrew Joy 6,000 –
Henrietta Marsh 1,000 –
Karl Sternberg 10,826 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 2023 to the date of this report.
GOVERNANCE
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DIRECTORS’ REMUNERATION REPORT CONTINUED
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.
2022 2021
£’000 £’000
Total spend – directors’ fees 165 152
Total distributed to shareholders – dividends – –
– share buybacks 50,302 22,885
VOTING ON REMUNERATION MATTERS
At the AGM on 19 April 2022 the resolution to receive and approve the directors’ remuneration report for the year ended
31December 2021 received the following votes: for – 99.87% (23,255,725 votes); against – 0.13% (29,311 votes). 11,477 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 15 February
2023 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 2012
Share Price* MSCI World Index (in sterlin
g
terms)
100
150
200
250
300
350
400
450
500
20222021202020192018201720162015201420132012
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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
15 FEBRUARY 2023
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 aairs 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 sucient 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 dier 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
GOVERNANCE
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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 aairs as at 31 December 2022 and of its loss and cash flows
for the year then ended;
— have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards, including 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 2022; 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 sucient 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
CONTEXT
The Company is a standalone Investment Trust Company and engages Herald Investment Management Limited (the
‘AIFM’) to manage its assets.
OVERVIEW
Audit scope
— We conducted our audit of the financial statements using information from the AIFM, Apex Listed Companies
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 AIFM referred to above, and the industry in which the Company operates.
Key audit matters
— Valuation and existence of investments
— Income from investments
Materiality
— Overall materiality: £13,000,000 (2021
– £17,600,000) based on approximately 1% of Net Assets.
— Performance materiality: £9,750,000 (2021
– £13,200,000).
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.
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
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misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest eect on:
the overall audit strategy; the allocation of resources in the audit; and directing the eorts 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, which was a key audit matter last year, is no longer
included because of the absence of a Continuation Vote within the next 12 months. 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
31December 2022 comprised of
listed investments of £1,210.8m and
£13.7m 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 2022.
No material misstatements were identified from this testing.
We assessed the accounting policy for income r
ecognition 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 of
Investments 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
thirdparty 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.
Income from investments
Refer to Accounting Policies and
Notes to the Financial Statements.
ISAs (UK) pr
esume 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”).
GOVERNANCE
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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.
THE IMPACT OF CLIMATE RISK ON OUR AUDIT
In planning our audit, we made enquiries of the Directors and the Investment Manager to understand the extent of the
potential impact of climate change risk on the Company’s financial statements. The Directors and Investment Manager
concluded that the impact on the measurement and disclosures within the financial statements is not material because
the Company’s investment portfolio is mainly made up of level 1 quoted securities which are valued at fair value based
on market prices along with some unlisted securities. We found this to be consistent with our understanding of the
Company’s investment activities.
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 eect 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 £13,000,000 (2021 – £17,600,000).
How we determined it Approximately 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%
(2021
–75%) of overall materiality, amounting to £9,750,000 (2021 – £13,200,000) 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 eectiveness 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
£650,000 (2021
– £880,000) 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
the ongoing impact of Covid-19, rising inflation, Russia’s invasion of Ukraine, and the subsequent economic
uncertainty;
— 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 Net Asset Value (NAV) as a result of market performance on the
ongoing ability of the Company to operate.
We believe that net assets is the primary measure used by the shareholders in
assessing the performance of the entity, and is a generally accepted auditing
benchmark. This benchmark provides an appropriate and consistent year on year
basis for our audit.
INDEPENDENT AUDITORS’ REPORT CONTINUED
TO THE MEMBERS OF HERALD INVESTMENT TRUST PLC
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Annual report & financial statements 2022
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.
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 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 2022 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
UKCorporate 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;
GOVERNANCE
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INDEPENDENT AUDITORS’ REPORT CONTINUED
TO THE MEMBERS OF HERALD INVESTMENT TRUST PLC
— 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.
Our review of the directors’ statement regarding the longer-term viability of the company 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 eectiveness 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
agoing 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 eect 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;
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Annual report & financial statements 2022
— 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.
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 four years, covering the years ended 31 December 2019 to 31 December 2022.
Allan McGrath (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Edinburgh
15 February 2023
FINANCIAL STATEMENTS
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Financial Statements
62 Income Statement
63 Balance Sheet
64 Statement of Changes in Equity
65 Cash Flow Statement
66 Notes to the Financial Statements
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FINANCIAL STATEMENTS
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2022 2022 2022 2021 2021 2021
Revenue Capital Total Revenue Capital Total
Notes £’000 £’000 £’000 £’000 £’000 £’000
(Losses)/gains on investments 9 – (409,797) (409,797) – 285,355 285,355
Gains on foreign exchange – 4,144 4,144 – 466 466
Income 2 15,326 – 15,326 12,253 – 12,253
Investment management fee 3 (13,653) – (13,653) (16,102) – (16,102)
Other administrative expenses 4 (996) (9) (1,005) (1,065) (9) (1,074)
Profit/(loss) before taxation 677 (405,662) (404,985) (4,914) 285,812 280,898
Taxation 6 (542) – (542) (503) – (503)
Profit/(loss) after taxation 135 (405,662) (405,527) (5,417) 285,812 280,395
Profit/(loss) per ordinary shares
(basic and diluted) 8 0.21p (641.23)p (641.02)p (8.33p) 439.51p 431.18p
There is no final dividend proposed (2021 – nil). More information on dividend distributions can be found in
note7 on page 69.
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.
Nooperations were acquired or discontinued in the year.
The accompanying notes on pages 66 to 77 are an integral part of this statement.
INCOME STATEMENT
For the year ended 31 December 2022
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2022 2021
Notes £’000 £’000
Fixed assets
Investments held at fair value through profit or loss 9 1,224,513 1,683,482
Current assets
Cash and cash equivalents 80,442 74,551
Other receivables 10 1,308 4,374
81,750 78,925
Current liabilities
Other payables 11 (1,215) (1,530)
(1,215) (1,530)
Net current assets 80,535 77,395
TOTAL NET ASSETS 1,305,048 1,760,877
Capital and reserves
Called up share capital 12 15,543 16,189
Share premium 13 73,738 73,738
Capital redemption reserve 13 6,409 5,763
Capital reserve 13 1,217,387 1,673,351
Revenue reserve 13 (8,029) (8,164)
TOTAL SHAREHOLDERS’ FUNDS 1,305,048 1,760,877
NET ASSET VALUE PER ORDINARY SHARE
(including current year income) 14 2,099.05p 2,719.33p
NET ASSET VALUE PER ORDINARY SHARE
(excluding current year income) 14 2,098.83p 2,727.70p
The financial statements of Herald Investment Trust plc (company registration number 02879728) were approved
by the board of directors and authorised for issue on 15 February 2023 and signed on its behalf by
TOM BLACK
CHAIRMAN
The accompanying notes on pages 66 to 77 are an integral part of this statement.
BALANCE SHEET
At 31 December
FINANCIAL STATEMENTS
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Called up Capital Total
Share Share Redemption Capital Revenue Shareholders’
Capital Premium Reserve Reserve Reserve funds
Notes £’000 £’000 £’000 £’000 £’000 £’000
Shareholders’ funds at 1 January 2022 16,189 73,738 5,763 1,673,351 (8,164) 1,760,877
(Loss)/profit after taxation – – – (405,662) 135 (405,527)
Shares purchased for cancellation 12 (646) – 646 (50,302) – (50,302)
Shareholders’ funds at 31 December 2022 15,543 73,738 6,409 1,217,387 (8,029) 1,305,048
For the year ended 31 December 2021
Called up Capital Total
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
The accompanying notes on pages 66 to 77 are an integral part of this statement.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2022
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2022 2022 2021 2021
Notes £’000 £’000 £’000 £’000
Cash flow from operating activities
(Loss)/profit before finance costs and taxation (404,985) 280,898
Adjustments for losses/(gains) on investments 409,797 (285,355)
Purchase of investments (191,478) (206,289)
Sale of investments 244,408 235,293
(Increase)/decrease in receivables (144) 358
(Decrease)/increase in payables (315) 128
Amortisation of fixed income book cost (507) (2)
Eect of foreign exchange rate changes (4,144) (466)
Overseas tax on overseas income (583) (524)
Net cash inflow from operating activities 52,049 24,041
Cash flow from financing activities
Shares purchased for cancellation 12 (50,302) (22,885)
Net cash outflow from financing activities (50,302) (22,885)
Net increase in cash and cash equivalents 1,747 1,156
Cash and cash equivalents at start of the year 74,551 72,929
Eect of foreign exchange rate changes 4,144 466
Cash and cash equivalents at the end of the year 80,442 74,551
Comprised of:
Cash and cash equivalents 80,442 74,551
Cash flow from operating activities includes interest received of £1,078,000 (2021 – £777,000) and dividends
received of £12,924,000 (2021 – £11,269,000).
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 66 to 77 are an integral part of this statement.
CASH FLOW STATEMENT
For the year ended 31 December 2022
FINANCIAL STATEMENTS
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1. SIGNIFICANT ACCOUNTING POLICIES
The financial statements for the year to 31 December 2022 have been prepared on the basis of the accounting policies set
outbelow. The Company has applied ‘FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland’
(FRS102), 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
ofRecommended Practice ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ issued by the
Association of Investment Companies (AIC) in July 2022.
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
inthe 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.
The Directors are of the opinion that the Company is engaged in a single segment of business activity, being investment
business. Consequently, no business segmental reporting is required.
(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 oset financial assets and financial liabilities if the Company has a legally
enforceable right to set o 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
datesat 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
onthe 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 suer 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 eective 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 eective interest basis and are charged through the revenue column of the income
statement.
(H) DEFERRED TAXATION
Deferred taxation is provided on all timing dierences 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
dierences can be deducted.
NOTES TO THE FINANCIAL STATEMENTS
For the Year Ended 31 December 2022
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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 dierences
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 aect
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 eect 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 dier 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 dier significantly from the values that would have been used had
aready market for the investment existed.
As at 31 December 2022, 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
2022 2021
£’000 £’000
Dividend income from investments
UK dividends from listed investments 3,499 3,407
UK dividends from unlisted investments (inc AIM) 4,173 3,093
Overseas dividends from UK-listed and AIM companies 384 439
Overseas dividend income 5,375 4,670
13,431 11,609
Interest income from equity investments
Income from unlisted (inc AIM) UK convertible bonds 363 269
Income from unlisted US convertible bonds 49 44
412 313
Fixed interest
UK interest from government securities 391 (16)
Overseas interest from government securities 648 361
1,039 345
Other income
Deposit interest 444 (20)
Underwriting commission – 6
444 (14)
Total income 15,326 12,253
Included within dividend income are special dividends of £655,000 (2021 – £706,000). Included within deposit interest is
interest received of £449,000 (2021 – £nil), and interest paid of £5,000 (2021 – 20,000).
3. INVESTMENT MANAGEMENT FEE
2022 2021
£’000 £’000
Investment management fee 13,653 16,102
Herald Investment Management Limited is appointed investment manager under a management agreement which is
terminable on 12 months’ notice. The management fee is 1.0% per annum of the Company’s net asset value (excluding current
year net revenue) based on middle market prices up to £1.25bn and 0.8% per annum on amounts beyond this level. The
management fee is levied on all assets.
FINANCIAL STATEMENTS
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4. OTHER ADMINISTRATIVE EXPENSES
2022 2021
£’000 £’000
Custodian’s fees 105 126
Registrar’s fees 34 33
Directors’ fees 165 152
Auditor’s fees – statutory audit* 44 38
Depositary’s fees 261 293
Miscellaneous expenses 387 423
996 1,065
* Auditor’s fees excludes VAT. The VAT is included in miscellaneous expenses.
Other capital administration expenses of £9,000 (2021 – £9,000) consist of custodian transaction charges.
5. FINANCE COSTS OF BORROWING
There were no finance costs of borrowing during the year (2021 – £nil).
6. TAXATION
2022 2021
£’000 £’000
Analysis of charge in year
Overseas taxation 542 503
Factors aecting tax charge for year
The tax charge for the year is higher (2021 – lower) than the standard rate of corporation tax in the UK
of 19.00% (2021 – 19.00%). The dierences are explained below:
(Loss)/profit before taxation (404,985) 280,898
(Loss)/profit multiplied by the standard rate of corporation tax in the UK of 19.00% (2021 – 19.00%) (76,947) 53,371
Eects of:
Capital (losses)/gains not taxable 77,862 (54,218)
UK dividends not subject to UK tax (1,458) (1,227)
Overseas dividends not subject to UK tax (1,093) (980)
Capital gains on foreign exchange movements not subject to tax (789) (87)
Disallowable expenses 2 2
Overseas withholding tax 542 503
Movement in excess management expenses 2,423 3,139
Total tax charge for the year 542 503
As an investment trust, the Company’s capital gains are not taxable.
There is no UK corporation tax charge for the year ended 31 December 2022 or 31 December 2021 as the Company has
unrelieved management expenses which are available to be carried forward. The tax charge for the year to 31 December 2022
and 2021 comprises overseas withholding taxes incurred.
At 31 December 2022, the Company had a potential deferred tax asset of £36m (2021 – £33m) on taxable losses of £145m
(2021 – £132m) which are available to be carried forward and oset 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 acorporation tax rate of
25% (2021 – 25%).
The Finance Act 2021 increases the UK corporation tax rate from 19% to 25% eective 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 2022
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7. DIVIDENDS ON ORDINARY SHARES
2022 2021
2022 2021 £’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. As the revenue reserve is in deficit, there is no revenue available
for distribution for the year ended 31 December 2022 (2021 – £nil).
2022 2021
2022 2021 £’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
2022 2022 2022 2021 2021 2021
Revenue Capital Total Revenue Capital Total
0.21p (641.23p) (641.02p) (8.33p) 439.51p 431.18p
Revenue, capital and total return per ordinary share is based on each of the returns on ordinary activities after taxation
respectively, revenue profit of £135,000 (2021 – revenue loss of £5,417,000), capital loss of £405,662,000 (2021 – capital profit
of £285,812,000) and total loss of £405,527,000 (2021 – total profit of £280,395,000) and on 63,262,344 ordinary shares (2021
– 65,029,043) 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
2022 2021
£’000 £’000
Financial assets designated at fair value through profit or loss on initial recognition
Listed UK – equity investments – London Stock Exchange 171,127 255,747
– AIM 391,485 573,973
Listed overseas – equity investments 570,524 801,029
Unquoted 13,737 10,485
Total equity investments 1,146,873 1,641,234
Government debt securities 77,640 42,248
Total investments in financial assets at fair value through profit or loss 1,224,513 1,683,482
See Detailed List of Investments on pages 21 to 28.
FINANCIAL STATEMENTS
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9. FIXED ASSET INVESTMENTS CONTINUED
Listed in Listed 2022 2021
UK overseas AIM Unquoted Total Total
£’000 £’000 £’000 £’000 £’000 £’000
Cost of investments at 1 January 91,936 411,753 271,996 14,866 790,551 685,469
Investment holding gains/(losses) 1 January 183,715 411,620 301,977 (4,381) 892,931 745,114
Fair value of investments at 1 January 275,651 823,373 573,973 10,485 1,683,482 1,430,583
Movements in the year:
Purchases at cost 57,352 111,150 21,976 1,000 191,478 206,086
Sales proceeds (51,312) (140,994) (47,342) (69) (239,717) (236,300)
(Losses)/gains on investments (66,002) (189,052) (156,606) 1,863 (409,797) 285,355
Amortisation of fixed income book cost 247 260 – – 507 2
Transferred from AIM to unquoted – – (516) 516 – –
Return of capital/capital special dividends – (1,382) – (58) (1,440) (2,244)
Fair value of investments at 31 December 215,936 603,355 391,485 13,737 1,224,513 1,683,482
Cost of investments at 31 December 120,714 439,147 268,586 14,682 843,129 790,551
Investment holding gains/(losses) 31 December 95,222 164,208 122,899 (945) 381,384 892,931
Fair value of investments at 31 December 215,936 603,355 391,485 13,737 1,224,513 1,683,482
Cost of investments sales 28,821 82,634 24,870 1,642 137,967 98,762
(Losses)/gains on investments
Net realised gains/(losses) on sales 22,491 58,360 22,472 (1,573) 101,750 137,538
Unrealised investment holding (losses)/gains (88,493) (247,412) (179,078) 3,436 (511,547) 147,817
(66,002) (189,052) (156,606) 1,863 (409,797) 285,355
The Company received £239,717,000 (2021 – £236,300,000) from investments sold in the year. The book cost of these
investments when they were purchased was £137,967,000 (2021 – £98,762,000). 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 2022 was £13,737,000 (2021 – £10,485,000) and the investment is not considered material in the
context of these financial statements.
At 31 December 2022, the Company was the beneficial owner of 15.4% (2021 – 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.
2022 2021
£’000 £’000
Transaction costs
Commission costs:
Purchases 284 372
Sales 209 491
Total commission costs 493 863
Custody transaction costs 9 9
Other transaction costs 91 74
593 946
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the Year Ended 31 December 2022
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10. OTHER RECEIVABLES
2022 2021
£’000 £’000
Due within one year:
Prepayments and accrued income 1,166 1,015
Other receivables – 7
Sales for subsequent settlement – 3,251
Taxation recoverable 142 101
1,308 4,374
The carrying amount of other receivables is a reasonable approximation of fair value.
11. OTHER PAYABLES
2022 2021
£’000 £’000
Amounts falling due within one year:
Other payables 1,215 1,530
1,215 1,530
Included in other payables and accruals is £1,084,000 (2021 – £1,393,000) in respect of the investment management fee.
12. CALLED UP SHARE CAPITAL
2022 2022 2021 2021
Number £’000 Number £’000
Allotted, called up and fully paid ordinary shares of 25p:
Brought forward 64,754,112 16,189 65,783,418 16,446
Shares bought back and cancelled (2,580,889) (646) (1,029,306) (257)
Carried forward 62,173,223 15,543 64,754,112 16,189
At the AGM held on 19 April 2022 the Company’s authority to buy back up to 14.99% of its issued share capital at that date
wasrenewed. During the year to 31 December 2022 a total of 2,580,889 (2021 – 1,029,306) ordinary shares of 25p each with
anominal value of £646,000 (2021 – £257,000) were bought back and cancelled at a total cost of £50,302,000
(2021–£22,885,000). At 31 December 2022 the Company had authority to buy back a further 7,990,933 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 2022 73,738 5,763 1,673,351 (8,164)
Shares purchased for cancellation – 646 (50,302) –
Gains on sales – – 101,750 –
Changes in investment holding gains – – (511,547) –
Other exchange dierences – – 4,144 –
Custody transaction and capital legal costs – – (9) –
Profit after taxation – – – 135
Balance at 31 December 2022 73,738 6,409 1,217,387 (8,029)
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 dierences – – 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)
FINANCIAL STATEMENTS
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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 £381,384,000 (2021 – £892,931,000) 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.
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:
2022 2021
per share per share 2022 2021
(pence) (pence) £’000 £’000
Total net assets (including current year revenue) 2,099.05 2,719.33 1,305,048 1,760,877
Less net revenue (profit)/loss after taxation (0.22) 8.37 (135) 5,417
Total net assets (excluding current year revenue) 2,098.83 2,727.70 1,304,913 1,766,294
Net asset value per ordinary share is based on net assets as shown above and on 62,173,223 (2021 – 64,754,112) 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 2022 (2021 – 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. This 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 2022 (2021 – 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 diculty 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 2022
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Annual report & financial statements 2022
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 69 and 70.
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
14.9% of the Company’s total equity investments at 31 December 2022 (2021 – 15.6%) were listed on the main list of the
London Stock Exchange and a further 34.1% (2021 – 35.0%) on AIM. The NASDAQ Stock Exchange accounts for 21.5% (2021 –
20.9%), New York Stock Exchange for 3.6% (2021 – 3.2%) and other stock exchanges or unlisted 25.9% (2021 – 25.3%). A 10%
increase in equity investment prices at 31 December 2022 would have increased total net assets and profit & loss after taxation
by £114,687,000 (2021 – £164,123,000). A decrease of 10% would have the exact opposite eect. 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
2022 2021
2022 Weighted 2021 Weighted
Weighted average Weighted average
average period average period
interest until interest until
2022 rate/ maturity/ 2021 rate/ maturity/
Fair value interest maturity Fair value interest maturity
£’000 rate date £’000 rate date
Fixed rate:
UK bonds 44,809 0.8% 0.3 Years 19,904 0.1% 1.1 Years
US bonds 32,831 1.3% 0.3 Years 22,344 1.4% 0.8 Years
UK convertible bonds 2,000 9.0% 1.1 Years 1,000 10.0% 2.2 Years
Overseas convertible bonds 827 5.7% 1.2 Years 739 5.7% 2.2 Years
Floating rate cash:
Non-sterling 49,675 0.5% 56,529 0.0%
Sterling 30,767 0.6% 18,022 0.0%
80,442 74,551
The benchmark rates which determine the interest payments received on cash balances are the Bank of England base rate, the
European Central Bank rate and the United States Federal Reserve rate.
Interest rate risk sensitivity
(a) Cash
An increase of 100 basis points in interest rates as at 31 December 2022 would have a direct eect on net assets. Based on the
position at 31 December 2022, over a full year, an increase of 100 basis points would have increased the profit & loss after
taxation by £804,000 (2021 – £746,000) and would have increased the net asset value per share by 1.29p (2021 – 1.15p). The
calculations are based on the cash balances as at the respective balance sheet dates and are not representative of the year as
awhole.
(b) Fixed rate bonds
An increase of 100 basis points in bond yields as at 31 December 2022 would have decreased total net assets and profit & loss after
taxation by £224,000 (2021 – £388,000) and would have decreased the net asset value per share by 0.36p (2021 – 0.60p).
Adecrease in bond yields would have had an equal and opposite eect. 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.
FINANCIAL STATEMENTS
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Annual report & financial statements 2022
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 aected 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 would suer 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
eect 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 2022
Other
receivables
Cash and and Net
Investments deposits payables exposure
£’000 £’000 £’000 £’000
US dollar 321,822 27,885 118 349,825
Euro 98,470 6,106 93 104,669
Taiwan dollar 38,340 15,684 50 54,074
Japanese yen 50,047 – 55 50,102
Australian dollar 26,226 – – 26,226
Norwegian krone 24,331 – – 24,331
Korean won 16,156 – 133 16,289
Other overseas currencies 29,058 – 31 29,089
Exposure to currency risk on translation of valuations of securities listed in
overseas currencies 604,450 49,675 480 654,605
Sterling 620,063 30,767 (387) 650,443
1,224,513 80,442 93 1,305,048
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
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the Year Ended 31 December 2022
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Herald Investment Trust plc
Annual report & financial statements 2022
Foreign currency risk sensitivity
At 31 December 2022, had sterling strengthened by 10% (2021 – 10%) in relation to all currencies, with all other variables held
constant, total net assets and profit & loss after taxation would have decreased by the amounts shown below based on the
balances denominated in foreign currency. A 10% (2021 – 10%) weakening of sterling against all currencies, with all other
variables held constant, would have had the exact opposite eect 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 eect on valuation
than simple translation. In the short term investee companies generally cover their currency exposure to varying degrees.
There is insucient publicly disclosed information to quantify this, but in the long term this eect 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.
2022 2021
£’000 £’000
US dollar 34,983 47,041
Euro 10,467 14,735
Taiwan dollar 5,407 6,976
Japanese yen 5,010 5,147
Australian dollar 2,623 5,169
Norwegian krone 2,433 3,902
Korean won 1,629 2,187
Other overseas currencies 2,909 3,305
65,461 88,462
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:
2022 2021
£’000 £’000
Fixed interest investments 77,640 42,248
Cash and cash equivalents 80,442 74,551
Sales for subsequent settlement – 3,251
158,082 120,050
During the year the maximum exposure in fixed interest investments was £85,394,000 (2021 – £42,722,000) and the minimum
£27,013,000 (2021 – £41,518,000). The maximum exposure in cash was £91,114,000 (2021 – £85,096,000) and the minimum
£50,164,000 (2021 – £58,031,000).
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 1.1% of the Company’s total assets at
31 December 2022 (2021 – 0.6%).
In practice, liquidity in investee companies is imperfect, particularly those with a market value of less than £100m. 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 oer price depending on market conditions generally and particularly to each
investment. 13.9% (£158m) (2021 – 9.0% (£147m)) of the listed equities in the portfolio are invested in stocks with amarket
capitalisation below £100m, where liquidity is expected to be more limited. If these stocks had on average arealisable value 20%
below the bid price the value of the total fund would be adversely aected by 2.4% (2021 – 1.7%).
FINANCIAL STATEMENTS
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Herald Investment Trust plc
Annual report & financial statements 2022
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
For the Year Ended 31 December 2022
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:
2022 2021
One year One year
or less or less
£’000 £’000
Other payables 1,215 1,530
1,215 1,530
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 2022
Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Financial assets
Equity investments 1,133,136 – 8,522 1,141,658
Government debt securities 77,640 – – 77,640
Convertible loan stocks – – 5,215 5,215
Total investments 1,210,776 – 13,737 1,224,513
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
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Herald Investment Trust plc
Annual report & financial statements 2022
A reconciliation of fair value measurements in Level 3 is set out below:
At 31 December 2022
£’000
Opening balance at 1 January 2022 10,485
Purchases 1,000
Sales (69)
Total (losses) or gains
– on assets sold during the year (1,573)
– on assets held at 31 December 2022 3,436
Assets transferred during the year 516
Return of capital (58)
Closing balance at 31 December 2022 13,737
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 51 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
There are no significant events after the end of the reporting period requiring disclosure.
GENERAL
78
Herald Investment Trust plc
Annual report & financial statements 2022
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 18 April 2023 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 and 12 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 2022.
2. To approve the Company’s Remuneration Policy.
3. To approve the Directors’ Remuneration Report, other than the Company’s Remuneration Policy, for the year ended
31December 2022.
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 elect Andrew Joy as a director of the Company.
9. To reappoint PricewaterhouseCoopers LLP as independent auditor to the Company to hold oce until the conclusion of
the next annual general meeting at which financial statements are laid before the Company.
10. To authorise the audit committee to determine the remuneration of the independent auditor.
SPECIAL BUSINESS
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 Ocial 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
(asdetermined by the directors);
(v) unless previously varied, revoked or renewed, the authority hereby conferred shall expire on the earlier of the date falling
15months after the passing of this resolution and the conclusion of the annual general meeting of the Company to be
held in 2024; 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 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 2024.
On behalf of the board
Apex Listed Companies Services (UK) Limited
Company Secretary
Registered Oce:
10–11 Charterhouse Square London EC1M 6EE
15 February 2023
79
Herald Investment Trust plc
Annual report & financial statements 2022
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 dierent 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 14 April 2023.
If you are an institutional investor you may also 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 to
www.proxymity.io. Your proxy must be lodged by 11.30am on 14 April
2023 in order to be considered valid or, if the meeting is adjourned, by
the time which is 48 hours before the time of the adjourned meeting.
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. An electronic
proxy appointment via the Proxymity platform may be revoked
completely by sending an authenticated message via the platform
instructing the removal of your proxy vote.
3. To be valid any hard copy proxy form or other instrument appointing
aproxy, 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
theCompany at Link Group, PXS 1, 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
International 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. Itis 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.
Unless otherwise indicated on the Form of Proxy, CREST, Proxymity or
any other electronic voting instruction, the proxy will vote as they think
fit or, at their discretion or withhold from voting.
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 15 February 2023 (being the last practicable date prior to the
publication of this notice) the Company’s issued share capital consisted
of 62,122,452 ordinary shares, carrying one vote each. Therefore, the
total voting rights in the Company as at 15 February 2023 were
62,122,452 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
UKDisclosure and Transparency Rules.
17. No director has a contract of service with the Company.
GENERAL
80
Herald Investment Trust plc
Annual report & financial statements 2022
FURTHER SHAREHOLDER INFORMATION
HERALD INVESTMENT TRUST PLC
The Company is an investment trust. Investment trusts oer
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,
TheDaily 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.
Ifyou 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 aairs 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 aairs 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
ofUK law by virtue of the European Union (Withdrawal)
Act2018, 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).
81
Herald Investment Trust plc
Annual report & financial statements 2022
COMPANY SECRETARY
Apex Listed Companies Services (UK) Limited
(formerly SanneFund 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
160 Queen Victoria Street
London
EC4V 4LA
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
160 Queen Victoria Street
London
EC4V 4LA
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: shareholderenquiries@linkgroup.co.uk
ASSOCIATION OF INVESTMENT COMPANIES (‘AIC’)
24 Chiswell Street
London
EC1Y 4YY
GENERAL
82
Herald Investment Trust plc
Annual report & financial statements 2022
ALTERNATIVE PERFORMANCE MEASURE ('APM')
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
2022 2021
PAGE £’000 £’000
Cash and cash equivalents 63 A 80,442 74,551
Add : Government debt
securities 69 B 77,640 42,248
Total cash and cash
equivalents and
government debt securities C=A+B 158,082 116,799
Net assets 63 D 1,305,048 1,760,877
Add : borrowings E – –
Net assets plus borrowings F=D+E 1,305,048 1,760,877
Less: Total cash and
cash equivalents and
government debt securities C (158,082) (116,799)
Total assets (excluding total
cash and cash equivalents and
government debt
securities) G=F-C 1,146,966 1,644,078
Gross gearing F/D 100 100
Net gearing G/D n/a n/a
Net cash G/D 88 93
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 72. 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
2022, as shown on page 1, is calculated by taking 2022 total
return and dividing by the opening NAV for the year (that is,
the NAV disclosed for 31 December 2021).
ALTERNATIVE PERFORMANCE MEASURES
83
Herald Investment Trust plc
Annual report & financial statements 2022
ONGOING CHARGES
The ongoing charges figure have 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:
2022 2021
PAGE £’000 £’000
Investment management fee 62 A 13,653 16,102
Other administrative
expenses 62 B 1,005 1,074
Less: costs in relation
to custody dealing and
non-recurring expenses C (24) (14)
Ongoing charges D=A+B+C 14,634 17,162
Average net assets E 1,391,638 1,683,345
Ongoing charges figure D/E 1.05% 1.02%
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 2022 3 A 2,505.0p 2,719.3p
Closing at 31 December 2022 3 B 1,782.0p 2,099.1p
Price movements C=(B-A)/A –28.9% –22.8%
Dividend reinvestment* D 0.0% 0.0%
Total return C+D –28.9% –22.8%
Share
PAGE Price NAV
Opening at 1 January 2021 29 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 (2021-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 2022 2021
Share Price (p) 3 A 1,782.0 2,505.0
Net Asset Value per share (p) 3 B 2,099.1 2,719.3
Discount 3 (A-B)/B 15.1% 7.9%
Herald Investment Trust plc
10–11 Charterhouse Square
London EC1M 6EE
020 7553 6300
www.heralduk.com