Interim Results

Edinburgh Small Companies Trust plc 13 February 2006 EDINBURGH SMALL COMPANIES TRUST PLC Edinburgh Small Companies Trust plc, the investment trust with an investment objective to achieve long term capital growth by investment in UK quoted smaller companies, announces its interim results for the six months ended 31 December 2005. INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2005 - Net asset value per share increased by 17.8% to 102.34 pence - Share price rose by 20.6% to 83.50 pence - The trust's benchmark, the Extended Hoare Govett Smaller Companies Index (excluding Investment Companies) increased by 16.5% - Smaller companies markets continue to offer attractive investment opportunities in under-researched companies that are often over-looked by mainstream investors -END- For further information, please contact: Richard England Press Manager, Standard Life Investments Tel. 0131 245 2750 George Walker Standard Life Investments Tel. 0131 245 6838 Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise. Investors may not get back the amount they originally invested. EDINBURGH SMALL COMPANIES TRUST CHAIRMAN'S STATEMENT Equity markets made good progress in the second half of 2005. The FTSE All-Share Index rose by 11.2%, with smaller companies performing even better, rising by 16.5% as shown by the Extended Hoare Govett Smaller Companies (ex-investments trusts) Index. The benign economic environment has supported the equity market, with the world economy in good shape led by strong performances from the USA and China. There were also signs of life in the German and Japanese economies, where strength in Japan in particular, sparked a sharp stock market rally. This strength in global economies was in spite of record high crude oil prices and some concern over the continuing but steady rise in US short interest rates. In October a frenzy of bid activity sparked a further market rally, particularly in medium sized quoted companies. This mergers and acquisitions activity was being driven by large international corporations, optimistic about the outlook for UK companies and recognising their relatively cheap valuations. Private equity investors still awash with cash were also key drivers of corporate activity. Finally, a stream of good corporate results and optimistic trading statements emanated from smaller companies across a wide range of sectors. Optimism was so pervasive that even retailers saw their share prices starting to recover after a very difficult year. Performance The net assets of the trust rose by 17.8% over the six month period, outperforming the Extended Hoare Govett Smaller Companies (ex-investments trusts) Index return of 16.5% by 1.3%. The share price rose by 20.6% thus narrowing the 'discount'. Performance of the Trust was driven by some strong individual movements from our largest holdings. Of particular note was Paypoint, which saw its share price rise by 95% during the period in question. Paypoint operate the yellow terminals frequently found in convenience stores, that make it possible to pay a wide variety of domestic bills and they are benefiting from the demise of the Post Office network. Wolfson Microelectronics, who specialise in analogue to digital signal conversion, saw the adoption of their chips across a wide range of consumer electronic products, most notably the Apple Ipod and as a result their share price rose a spectacular 118% over the period. The share price of Datamonitor, which supplies specialist industry research and is the largest holding in the Trust, surged ahead by 53% as it reported a stronger than expected operating performance. The Managers have favoured software and electronics companies and those with robust business models have performed very well during the period in question. The Trust benefited from participating in four initial public offerings that performed strongly in their immediate aftermarkets and beyond. These were New Star Asset Management, Carluccio's, the restaurant company, I-Mate which produces palmtop computers and Hansteen, the European industrial property company. Gearing The Managers have been given discretion to vary the level of the net gearing between 0% and 20% depending on their view on the outlook for smaller companies. The level of gearing, from the start of July until the beginning of December, ranged from 3% to 10%. Actual gearing at the 31 December 2005 stood at 14.6%. This reflects an optimistic view on the outlook for smaller companies. Indeed, gearing was raised from mid-November until the end of the year in anticipation of what is normally a strong start to the year. Currently £18.7 million of the 7.75% 2023 debenture is outstanding with no re-purchases being made in the reporting period. Revenue Account The revenue return per share is 0.22 pence for the period compared to 0.27 pence (restated for revised UK GAAP) for the six months ended 31 December 2004. As in previous years no interim dividend is payable. Outlook Smaller companies in general have now been performing very strongly for nearly three years. By the end of 2005, our benchmark had risen by 116.5% since the start of April 2003, when the market turned upwards. The view of the Managers is that smaller companies can continue to make progress from here. The economic backdrop is reasonable with GDP growth in excess of 2% expected for the UK in 2006. Inflation remains under control, with base rates likely to stay at current levels for some time. UK consumer spending looks set to remain subdued, but the world economy looks in good shape with strength in the USA, China and recovery in Continental Europe and Japan. Further rises in the oil price are a risk to this benign environment. The most likely outcome, however, is continued mid-cycle growth spurred on by increased levels of capital expenditure particularly in IT and electronics. Valuations for smaller companies are slightly above long term averages and that of the broader market. Profits and dividend growth are, however, likely to be healthy for smaller companies in 2006 - possibly in excess of 10%. The smaller companies market remains a happy hunting ground for managers prepared to look at under-researched companies, typically over-looked by mainstream investors. Indeed, it is possible to find strong business franchises operating in growth markets at reasonable prices. The increased level of bid activity suggests that corporations and financial buyers are increasingly recognising these opportunities. The long term outlook remains encouraging. Donald MacDonald Chairman 13 February 2006 STATEMENT OF TOTAL RETURN for the six months ended 31 December 2005 (unaudited) Revenue Capital Total £'000 £'000 £'000 Realised gains on investments - 3,188 3,188 Unrealised gains on investments - 8,189 8,189 ________ ________ ________ 11,377 11,377 Income from investments 453 - 453 Interest from AAA money market funds 197 - 197 Interest receivable on short term deposits 156 - 156 Other income - - - Investment management fee (178) (178) (356) Administrative expenses (123) - (123) ________ ________ ________ Net return before finance costs and taxation 505 11,199 11,704 Interest payable and similar charges (355) (355) (710) ________ ________ ________ Return on ordinary activities before tax 150 10,844 10,994 Taxation - - - ________ ________ ________ Return attributable to equity Shareholders 150 10,844 10,944 ________ ________ ________ Return per Ordinary share (pence) 16.31 ________ The total column of this statement represents the profit and loss account of the company. All items in the above statement derive from continuing operations. _______________________________________________________________________________________ for the six months ended 31 December 2004 (unaudited) (restated) Revenue Capital Total £'000 £'000 Realised gains on investments - 1,307 1,307 Unrealised gains on investments - 4,892 4,892 ________ ________ ________ - 6,199 6,199 Income from investments 463 - 463 Interest from AAA money market funds 193 - 193 Interest receivable on short term deposits 154 - 154 Other income 1 - 1 Investment management fee (140) (140) (280) Administrative expenses (130) - (130) ________ ________ ________ Net return before finance costs and taxation 541 6,059 6,600 Interest payable and similar charges (356) (356) (712) ________ ________ ________ Return on ordinary activities before tax 185 5,703 5,888 Taxation (2) - (2) ________ ________ ________ Return attributable to equity Shareholders 183 5,703 5,886 ________ ________ ________ Return per Ordinary share (pence) 8.73 ________ _______________________________________________________________________________________ for the year ended 30 June 2005 (audited) (restated) Revenue Capital Total £'000 £'000 £'000 Realised gains on investments - 3,505 3,505 Unrealised gains on investments - 7,418 7,418 ________ ________ ________ - 10,923 10,923 Income from investments 1,281 - 1,281 Interest from AAA money market funds 381 - 381 Interest receivable on short term deposits 304 - 304 Other income 1 - 1 Investment management fee (292) (293) (585) Administrative expenses (286) - (286) ________ ________ ________ Net return before finance costs and taxation 1,389 10,630 12,019 Interest payable and similar charges (709) (709) (1,418) ________ ________ ________ Return on ordinary activities before tax 680 9,921 10,601 Taxation - - - ________ ________ ________ Return attributable to equity Shareholders 680 9,921 10,601 ________ ________ ________ Return per Ordinary share (pence) 15.73 ________ ____________________________________________________________________________ BALANCE SHEET At 31 December At 30 June At 31 December 2005 2005 2004 (unaudited) (audited) (unaudited) (restated) (restated) £'000 £'000 £'000 Fixed assets Investments 78,817 60,826 60,578 Current assets Debtors 357 372 164 AAA money market funds 8,110 8,110 8,110 Cash and short-term deposits 992 8,713 4,254 _________ _________ _________ 9,459 17,195 12,528 Creditors Amounts falling due within one year (593) (777) (562) _________ _________ _________ Net current liabilities 8,866 16,418 11,966 _________ _________ _________ Total assets less current liabilities 87,683 77,244 72,544 Creditors Amounts falling due after more than one year (19,248) (19,264) (19,279) _________ _________ _________ Net assets 68,435 57,980 53,265 _________ _________ _________ Capital and reserves Equity shareholders' interest: Called up share capital - equity 16,851 16,851 16,851 Share premium 56 56 56 Capital redemption reserve 17,219 17,219 17,219 Special reserve 28,618 28,618 28,618 Warrant reserve 777 777 777 Capital reserves - realised (14,009) (16,664) (18,355) Capital reserves - unrealised 18,026 9,837 7,311 Revenue reserve 897 1,286 788 _________ _________ _________ Shareholders' funds 68,435 57,980 53,265 _________ _________ _________ Net Asset Value per Ordinary share (pence) 102.34 86.86 79.88 _________ _________ _________ Statement of Changes in Equity for the period ended 31 December 2005 Period ended 31 December 2005 Share Share Capital Warrant Special Capital Retained Total capital premium redemption reserve reserve reserve earnings £'000 £'000 £'000 reserve £'000 £'000 £'000 £'000 £'000 Balance at 30 June 2005 as 16,851 56 17,219 777 28,618 (6,791) 747 57,477 previously reported Adjustments (see note 2) - - - - - (36) 539 503 ________ ________ ________ ________ ________ ________ ________ ________ Balance at 30 June 2005 as 16,851 56 17,219 777 28,618 (6,827) 1,286 57,980 restated Dividends paid and declared - - - - - - (539) (539) Net profit on ordinary - - - - - 10,844 150 10,994 activities after taxation ________ ________ ________ ________ ________ ________ ________ ________ Balance at 31 December 2005 16,851 56 17,219 777 28,618 4,017 897 68,435 ________ ________ ________ ________ ________ ________ ________ ________ Period ended 31 December 2004 Share Share Capital Warrant Special Capital Retained Total capital premium redemption reserve reserve reserve earnings £'000 £'000 £'000 reserve £'000 £'000 £'000 £'000 £'000 Balance at 30 June 2004 as 16,851 56 17,219 777 28,618 (16,711) 606 47,416 previously reported Adjustments (see note 2) - - - - - (37) 506 469 ________ ________ ________ ________ ________ ________ ________ ________ Balance at 30 June 2004 as 16,851 56 17,219 777 28,618 (16,748) 1,112 47,885 restated Dividends paid and declared - - - - - - (506) (506) Net profit on ordinary - - - - - 5,703 183 5,886 activities after taxation ________ ________ ________ ________ ________ ________ ________ ________ Balance at 31 December 2004 16,851 56 17,219 777 28,618 (11,045) 789 53,265 ________ ________ ________ ________ ________ ________ ________ ________ Year ended 30 June 2005 Share Share Capital Warrant Special Capital Retained Total capital premium redemption reserve reserve reserve earnings £'000 £'000 £'000 reserve £'000 £'000 £'000 £'000 £'000 Balance at 30 June 2004 as 16,851 56 17,219 777 28,618 (16,711) 606 47,416 previously reported Adjustments (see note 2) - - - - - (37) 506 469 ________ ________ ________ ________ ________ ________ ________ ________ Balance at 30 June 2004 as 16,851 56 17,219 777 28,618 (16,748) 1,112 47,885 restated Dividends paid and declared - - - - - - (506) (506) Net profit on ordinary - - - - - 9,921 680 10,601 activities after taxation ________ ________ ________ ________ ________ ________ ________ ________ Balance at 30 June 2005 16,851 56 17,219 777 28,618 (6,827) 1,286 57,980 ________ ________ ________ ________ ________ ________ ________ ________ CASHFLOW STATEMENT Six months ended Six months ended Year ended 31 December 2005 31 December 2004 30 June 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Net cash inflow from operating activities 330 623 1,081 Net cash outflow from servicing of finance (725) (724) (1,449) Tax paid - (2) - Net cash (outflow)/ inflow from financial (6,787) (524) 4,201 investment Equity dividend paid (539) (505) (506) _________ _________ _________ (Decrease)/ increase in cash (7,721) (1,132) 3,327 _________ _________ _________ Financing Drawdown of loans - - - (Decrease)/increase in cash (7,723) (1,132) 3,327 Reconciliation of operating revenue to net cash inflow from operating activities Net revenue before finance costs and 505 540 1,389 taxation (Increase)/ decrease in accrued income (8) 225 (38) Decrease in other debtors 13 11 2 (Decrease)/ increase in other creditors (2) (13) 21 Management expenses charged to capital (178) (140) (293) _________ _________ _________ Net cash inflow from operating activities 330 623 1,081 _________ _________ _________ Reconciliation of net cash flow to movements in net debt (Decrease)/increase in cash as above (7,721) (1,132) 3,327 Other movements 16 16 31 _________ _________ _________ Movement in net debt in the period (7,705) (1,116) 3,358 Opening net debt at 1 July (2,441) (5,799) (5,799) _________ _________ _________ Closing net debt at 31 December (10,146) (6,915) (2,441) _________ _________ _________ Represented by: Cash at bank 9,102 12,364 16,823 Debt falling due within one year (19,248) (19,279) (19,264) _________ _________ _________ (10,146) (6,915) (2,441) _________ _________ _________ NOTES: 1. Accounting policies The accounts have been prepared under the historical cost convention, as modified to include the revaluation of investments and in accordance with applicable Accounting Standards and with the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies'. They have also been prepared on the assumption that the approval as an investment trust will continue to be granted. For the accounting period beginning on 1 July 2005, the Company had the option to prepare its financial statements in accordance with International Financial Reporting Standards ('IFRS'), as adopted by the International Accounting Standards Board ('IASB'). The Board has elected to continue to adopt UK Generally Accepted Accounting Principles ('UK GAAP') and therefore with the new Financial Reporting Standards issued as part of the programme to converge UK GAAP with IFRS. Figures for the 6 months ended 31 December 2004 and the year ended 30 June 2005 have been restated accordingly. The same accounting policies used for the year ended 30 June 2005 have been applied with the following exceptions: (a) Investments are measured initially at cost and are recognised at trade date. Subsequent to initial recognition investments are valued at fair value. For listed investments this is deemed to be bid market prices. Movements in fair value are recognised in the statement of total return. (b) Interim and final dividends are recognised in the period in which they are paid. The impact of these changes are shown below. 2 Reconciliation of Balance Sheets 30 June 31 December 30 June 2005 2004 2004 (audited) (unaudited) (audited) £'000 £'000 £'000 Net assets as previously reported 57,477 53,310 47,416 Restatement of investments at bid value (36) (45) (37) Reversal of provision for final dividend 539 - 506 _________ _________ _________ Restated net assets 57,980 53,265 47,885 _________ _________ _________ 3 Reconciliation of the Statement of Total Return Year ended 6 months 30 June 2005 ended 31 December 2004 (audited) (unaudited) £000 £000 Total transfer to reserve per original reported Statement of Total 10,061 5,894 Return Add 2005 dividends on ordinary shares 539 - Change from mid to bid basis at 30 June 2004 37 37 Change from mid to bid basis at 30 June 2005 (36) - Change from mid to bid basis at 31 December 2004 - (45) _________ _________ Restated total transfer to reserves 10,601 5,886 _________ _________ Ordinary dividends on Equity shares deducted from reserves are analysed below: Six months Six months Year ended ended 31 ended 31 30 June 2005 December 2005 December 2004 (unaudited) (unaudited) (audited) £000 £000 £000 Ordinary dividends on equity shares: 2004 final dividend - 0.75p - 506 506 2005 final dividend - 0.80p 539 - - _________ _________ _________ 539 506 506 _________ _________ _________ 4 Return per share Six months Six months Year ended ended 31 ended 31 30 June 2005 December 2005 December 2004 p (restated) (restated) p p Revenue return 0.22 0.27 1.01 Capital return 16.09 8.46 14.72 _________ _________ _________ 16.31 8.73 15.73 _________ _________ _________ The figures above are based on the following attributable assets: Six months Six months Year ended ended 31 ended 31 30 June 2005 December 2005 December 2004 £000 (restated) (restated) £000 £000 Revenue return 150 183 680 Capital return 10,844 5,703 9,921 _________ _________ _________ 10,994 5,886 10,601 _________ _________ _________ Weighted average number of shares in issue: 67,404,688 67,404,646 67,404,646 _________ _________ _________ 5 Transaction costs Six months Six months Year ended ended 31 ended 31 30 June 2005 December 2005 December 2004 £000 £000 £000 Incurred during the period were transaction costs of: Purchases 121 65 140 Sales 25 21 58 _________ _________ _________ 146 86 198 _________ _________ _________ 6 Financial information The results for the year to 30 June 2005 do not represent full accounts in accordance with Section 240 of the Companies Act 1985 but the full accounts received an unqualified report from the auditors and have been filed with the Registrar of Companies. These financial statements have been restated to reflect the change to accounting policies as set out in the accompanying notes. 7. Interim Report The interim report will be posted to shareholders in late February 2006 and additional copies will be available from the Investment Manager and the Secretary. For Edinburgh Small Companies Trust plc Edinburgh Fund Managers plc, Secretary END This information is provided by RNS The company news service from the London Stock Exchange

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