Preliminary Annual Results

Edinburgh Small Companies Trust plc 26 August 2005 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 preliminary results for the year ended 30 June 2005. PRELIMINARY RESULTS FOR THE YEAR ENDED 30 JUNE 2005 For further information, please contact: Donald MacDonald Edinburgh Small Companies Trust plc Tel. 0131 557 5065 Richard England Press Manager, Standard Life Investments Tel. 0131 245 2750 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 plc Chairman's Statement The period under review is the first full year with Standard Life Investments as the Manager of the Company. The board is pleased with the substantial progress the Company has made in the last twelve months in terms of share price and net asset value performance. The improved performance, along with the benefit of strong support of the Manager in marketing and distribution has been reflected in a further significant narrowing of the discount over the past year. Review of Year ended 30 June 2005 Returns from smaller companies were strong over the year as a whole, and in line with broader market indices. The period from August 2004 through to March 2005 was one of significant strength for smaller company markets. Above-trend UK economic growth enabled a wide range of UK smaller companies to report healthy earnings progress. In addition, bid activity remained at high levels. Oil & gas and minerals were the strongest market areas, while technology was the weakest. By March 2005, however, it became clear that consumer spending in the UK was slowing. At the same time the new issues market was overheating and the oil price was approaching $55. Markets weakened significantly in March and April before recovering in June as the outlook for interest rates moved towards the greater likelihood of cuts, a move which would generally be good for stock markets. Performance I am pleased to report that the Company delivered a 20.8% rise in net asset value over the period. This was comfortably ahead of its benchmark, the Hoare Govett Smaller Companies Index (excluding investment trusts) which rose 14.8%. This strong performance reflects the success of the portfolio repositioning which has been implemented by the Manager since its appointment in September 2003. Performance improved steadily throughout the year as the Manager's style of investing in a well-diversified portfolio of medium and smaller capitalisation stocks with strong business franchises was rewarded by the market. A broad range of stocks performed well during the year, most notably Morgan Sindall, the social housing refurbishment company, Victrex, the specialist polymers manufacturer and Paddy Power, the Irish off-track bookmaker. Gearing The amount of 7.75% 2023 debenture outstanding remains at £18.7m with no repurchases during the year. However, the potential gearing was reduced from 38.9% to 32.5% of shareholders' funds over the period. After discussions with the Manager, the board has broadened the range of permissible effective gearing from 10% - 20% to 0% - 20%. This gives the Manager more flexibility to respond appropriately to market conditions. During the period, actual gearing was reduced from 11.5% at the start of the year to 3.2% at year end, reflecting the Manager's more cautious outlook. As the potential gearing has reduced, the impact of the dilutive effect of the interest payable on the 7.75% 2023 debenture continues to fall. Repurchases of the debenture may take place but only if it is advantageous to shareholders. The board believes that the risks inherent in the potential gearing are significantly reduced compared to last year. Discount The share price of the Company rose by 35.1% to 69.25p by the end of the period under review representing a significant narrowing in the discount from 28.1% to 19.6%. Revenue Account Dividends from UK companies grew last year, although in general, investment income from dividends received fell marginally. This reflected portfolio realignment towards slightly lower yielding shares and a lower level of actual gearing throughout the year. A substantially greater interest payment from funds on deposit meant that overall investment income rose for the year. A strong rise in dividend growth from shares held by the Company should lead to higher levels of income in the coming financial year although returns from money held on deposit may be lower. The expense ratio of the Company was significantly lower than the previous year, falling from 1.50% of average shareholders funds to 1.10%. As a result of the improved capital and revenue performance, the board is proposing to pay a dividend of 0.80p which represents an increase of 6.7% on 2004. If approved, the final dividend will be paid on 8 November 2005 to shareholders on the register at the close of business on 14 October 2005. Following the payment of the dividend the Company will have revenue reserves of 1.1p per share. Share and Warrant buybacks No shares or warrants were purchased by the Company for cancellation over the twelve month period. The board is seeking permission from shareholders to renew the authority to purchase up to 14.99% of the shares in issues. Details of the special resolution will be set out in the Notice of Annual General Meeting within the Annual Report. Prospects While the next twelve months are unlikely to show as strong growth in smaller company markets as the year just ended, there is likely to be measured progress. With the recent peak in interest rates, UK economic growth may pick up around a year from now providing a more positive environment to support further progress in the UK stock market. However, stock market sentiment may be subject to unpredictable geopolitical events and indeed the rapid rise in the oil price to record levels is of some concern. Stock market valuations for smaller companies are moving ahead of recent historical norms but are not yet stretched. The investment process of the current Manager is carefully risk controlled. It is focused on Companies with proven business models and is therefore well placed to capitalise on growth while remaining resilient in an uncertain world. The board is confident that good progress will be made in the coming year. Donald MacDonald 26 August 2005 STATEMENT OF TOTAL RETURN for the year ended 30 June 2005 (Unaudited) Revenue Capital Total £000 £000 £000 Realised gains on investments - 3,505 3,505 Unrealised gains on investments - 7,417 7,417 _________ _________ _________ TOTAL CAPITAL GAINS ON INVESTMENTS - 10,922 10,922 Investment Income 1,281 - 1,281 Interest receivable on AAA funds 381 - 381 Interest receivable 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 10,629 12,018 Interest payable and similar charges (709) (709) (1,418) _________ _________ _________ Return on ordinary activities before taxation 680 9,920 10,600 Taxation - - - _________ _________ _________ Return on ordinary activities after taxation 680 9,920 10,600 Dividends in respect of equity shares (539) - (539) _________ _________ _________ Transfer to reserves 141 9,920 10,061 _________ _________ _________ Return per ordinary share 1.01p 14.72p 15.73p _________ _________ _________ Dividends per ordinary share 0.80p - 0.80p _________ _________ _________ STATEMENT OF TOTAL RETURN for the year ended 30 June 2004 (Audited) Revenue Capital Total £000 £000 £000 Realised losses on investments - (12,361) (12,361) Unrealised gains on investments - 22,184 22,184 _________ _________ _________ TOTAL CAPITAL GAINS ON INVESTMENTS - 9,823 9,823 Investment Income 1,337 - 1,337 Interest receivable on AAA funds 292 - 292 Interest receivable from UK T Bills 30 - 30 Interest receivable 179 - 179 Other income 6 - 6 Investment management fee (267) (267) (534) Administrative expenses (377) - (377) _________ _________ _________ Net return before finance costs and taxation 1,200 9,556 10,756 Interest payable and similar charges (712) (770) (1,482) _________ _________ _________ Return on ordinary activities before taxation 488 8,786 9,274 Taxation - - - _________ _________ _________ Return on ordinary activities after taxation 488 8,786 9,274 Dividends in respect of equity shares (506) - (506) _________ _________ _________ Transfer (from)/to reserves (18) 8,786 8,768 _________ _________ _________ Return per ordinary share 0.72p 13.03p 13.75p _________ _________ _________ Dividends per ordinary share 0.75p - 0.75p _________ _________ _________ BALANCE SHEET At 30 June At 30 June 2005 2004 (Unaudited) (Audited) £000 £000 £000 £000 Fixed assets Investments 60,862 53,551 Current assets Debtors 372 916 AAA money market funds 8,110 8,110 Cash and short term deposits 8,713 5,386 ______ ______ 17,195 14,412 Creditors: amounts falling due within one year 1,316 1,252 ______ ______ Net current assets 15,879 13,160 ______ ______ Total assets less current liabilities 76,741 66,711 Creditors: amounts falling due after more than one year 19,264 19,295 ______ ______ 57,477 47,416 ______ ______ Capital and reserves Called up share capital 16,851 16,851 Share premium 56 56 Capital redemption reserve 17,219 17,219 Warrant reserve 777 777 Special reserve 28,618 28,618 Capital reserve - unrealised 9,873 2,456 Capital reserve - realised (16,664) (19,167) Revenue reserve 747 606 ______ ______ Total equity shareholders' funds 57,477 47,416 ______ ______ Adjusted net asset value per share 86.11p 71.23p ______ ______ CASHFLOW STATEMENT 2005 2004 (Unaudited) (Audited) £000 £000 £000 £000 Net cash inflow from operating activities 1,081 849 Servicing of Finance Interest paid (1,449) (1,466) Debenture redemption services - (75) ______ ______ Net cash outflow from servicing of Finance (1,449) (1,541) Capital expenditure and financial investment Purchase of investments (24,942) (41,733) Sales of investments 29,143 43,366 ______ ______ Net cash inflow from capital expenditure and financial 4,201 1,633 investment Equity dividends paid (506) (506) Management of liquid resources Purchase of Treasury Bills - - Sale of Treasury Bills - 4,970 Purchase of AAA money market funds (8,110) (6,075) Sale of AAA money market funds 8,110 4,765 ______ ______ Net cash inflow from management of liquid resources - 3,660 Financing Redemption of debenture - (500) Exercise of warrants - 1 ______ ______ Net cash outflow from financing - (499) ______ ______ 3,327 3,596 Increase in cash ______ ______ Reconciliation of net cashflow to movement in net debt Increase in cash 3,327 3,596 Net change in liquid resources - (3,660) Redemption of debenture - 500 ______ ______ Change in net debt resulting from cashflows 3,227 436 Other non-cash movements 31 48 ______ ______ Movement in net debt in year 3,358 484 Opening net debt (5,799) (6,283) ______ ______ Closing net debt (2,441) (5,799) ______ ______ NOTES: 1. The accounts are prepared under the same accounting policies used for the year ended 30 June 2004. 2. The financial information for the year ended 30 June 2004 has been extracted from the Annual Report and Accounts of the company, which have been filed with the Registrar of Companies and contained an unqualified auditors' report. The statutory accounts for 2005 will be delivered to the Registrar of Companies following the company's Annual General Meeting which will be held at the offices of Standard Life, 1 George Street, Edinburgh on Thursday 3 November 2005 at 12.30pm. 3. The statement of total return (incorporating the revenue account) and balance sheet set out above do not represent full accounts in accordance with Section 240 of the Companies Act 1985. 4. The investment management fee in each case includes irrecoverable VAT calculated at 17.5%. 5. The final dividend, subject to shareholder approval, will be paid on 8 November 2005 to shareholders on the register at the close of business on 14 October 2005. The ex-dividend date is 12 October 2005. 6. The Annual Report will be posted to shareholders mid September 2005 and copies will be available from the registered office of the company. 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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