Final Results

Edinburgh Dragon Trust plc 13 October 2006 13 October 2006 EDINBURGH DRAGON TRUST PLC PRELIMINARY RESULTS FOR THE YEAR TO 31 AUGUST 2006 Edinburgh Dragon Trust's objective is long-term capital growth through investment in the Far East (excluding Japan and Australasia). The Company's benchmark is the MSCI All Country Asia (ex Japan) Index. • Company's net asset value rose 16.9% (on a total return basis) to 127.06p, which is the highest year end NAV in last 10 years. • Asian company fundamentals remain attractive. • Dragon is the largest investment trust specialising in the Asian (ex Japan) sector. For further information please contact:- Jeremy Whitley, Investment Manager 0065 6395 2700 Ian Massie, Director - Investment Trusts 0131 313 1000 Edinburgh Dragon Trust Plc Chairman's Statement 31 August 2006 Background I am pleased to report that your Company delivered a good performance for the year to 31 August 2006, despite entering a volatile period for global stock markets amid heightened concerns over interest rates and economic growth. Over the year, your Company's net asset value rose 16.9% on a total return basis, compared to an 18.6% rise in the benchmark MSCI All Country Asia (ex Japan) Index. The underperformance against the benchmark was largely attributable to stock selection in India, which is covered in more detail in the investment manager's review. The share price rose 16.0% to 117.75p, reflecting a slight widening of the discount from 6.6% to 7.3%. Overview It was a rewarding year for investors in Asian stocks, which made strong advances despite rising interest rates, persistently high commodity prices and increased geopolitical risks. Several markets rallied to new highs, but then in May succumbed to a broad-based correction on fresh worries about increasing inflationary pressures and their potentially negative impact on US economic growth. Nonetheless, the sell-off proved short-lived, with markets recovering most of their losses by the end of the period. Overall, Indonesia, India, South Korea and the Philippines were the top performers, whilst deteriorating political environments caused Taiwan, Thailand and Malaysia to lag. The region's economic performance over the year has been equally impressive. Save for a few disappointments such as in Hong Kong, where inflation caused the economy to slow unexpectedly in the second quarter of 2006, growth in the region has generally exceeded expectations. Intra-regional trade has been a key driver, with China's consumption boom mitigating the effects of a slowdown in the US. Firm demand for Asia's exports has, in turn, fed into higher investment spending and spurred growth not only in manufacturing, but also in peripheral industries, such as resources and services. India, meanwhile, has benefitted from both internal growth and external trade. The country's rise as an outsourcing hub has attracted significant foreign investments, while domestic consumption continued to increase in tandem with incomes. A persistent rise in the price of oil threatened to hinder growth, but Asia proved resilient once again. The oil price impact was buffered by stronger currencies and price controls on staple goods, which cushioned the pinch of falling fuel subsidies. Monetary authorities have also been adroit in responding to heightened inflationary expectations, hiking interest rates in step with the rest of the world. Even China, which kept rates steady throughout 2005, raised its benchmark lending rate in April. In contrast, Indonesia was the only country to cut rates in a bid to stimulate growth after inflation showed signs of easing. On the corporate front, the benefits of past reforms such as paying down corporate debt and controlling capital expenditure have translated into stronger balance sheets and healthier earnings. Encouragingly, the resultant growth surge in cash flow is no longer being directed towards non-productive investments or diversification, but is being distributed to shareholders in the form of higher dividends. On a less optimistic note, elections in the region highlighted a more fractious political landscape. In Thailand, Prime Minister Thaksin's attempt to silence the furore over his asset sale of Shin Corporation which netted him US$1.9bn tax free earlier this year, backfired when opposition parties boycotted a snap election. This left the government in paralysis until late September, when a seemingly peaceful military coup took place with apparent royal assent. We await further clarification as events unfold but it seems likely the caretaker government will announce elections some time in the second half of 2007. In South Korea, the dominant Uri party unexpectedly lost its majority in the local elections, while Taiwan president Chen Shui-bian narrowly avoided a parliamentary vote to unseat him, amid allegations of corruption. Malaysia, too, has been beset by political infighting with the current administration being strongly criticised by a predecessor. Gearing Net gearing at the end of the period was 9.9%, compared to 9.8% at the end of the previous year. The Board regularly reviews the borrowing facilities of the Company, and its strategy, whereby the manager has discretion to operate the portfolio with effective gearing up to 20% of shareholder funds, has been maintained. Revenue Account The revenue return per share showed a positive return of 1.41p per ordinary share, compared to a return of 1.50p in the previous year. The increased revenue returns over recent years have now resulted in the revenue reserve showing a small surplus of 0.1228p per ordinary share which will be distributed for this year. Capital appreciation remains the principal objective of the Company. Board We are delighted to welcome to the Board Allan McKenzie, who was appointed a non-executive director on 1 September 2006. Allan has over 30 years' experience of the fund management industry and is currently a managing director and chief operating officer at Blackrock International Limited. Between 1972 and 1991 he was actively involved in fund management, specialising in Asian equity markets. Since 1991 his role has been in marketing and client relationship management at both Scottish Widows Investment Management and Blackrock International Limited. Shareholders will, in the usual way, be asked to confirm his appointment at the annual general meeting. Outlook While the backdrop for the Asian region itself is benign, global factors are more disturbing, and we saw these impact both Asian and global markets during May. Price pressures both in terms of energy and raw material costs as well as labour and associated costs appear to be increasing, triggering synchronous central bank tightening, at a time when other key indicators, chiefly US housing, are weakening. Despite this, Asian stock markets have recovered most of their recent falls. More positively, fundamentals remain attractive, certainly on a relative basis, and foreign interest remains supportive. It would also appear there are now more long-term institutional investors in the region, and these can only provide more stability. The key question now is how far the global earnings cycle has run, and whether in Asia there are structural factors that will compensate for any slackening in growth. We consider that the portfolio is less exposed to export and other industries more sensitive to international trade, and this provides some defensiveness. In addition, the company's portfolio has a calendar 2006 price earnings ratio of 15.2 times, falling to around 14.1 times calendar 2007 earnings, assuming the manager's conservative earnings forecasts of high single digits are attained. Furthermore, the portfolio consists of companies with strong balance sheets, and operations generating sustainable cashflow, which should result in further increases in dividend payments. Overall, therefore, I believe the portfolio is well positioned to face what may prove to be a more challenging period ahead. Annual general meeting Edinburgh Dragon Trust is the largest investment trust specialising in the Asian (ex Japan) sector. The Dragon board believes that the Trust offers investors a broad and marketable exposure to Asian equity markets, many of which continue to provide attractive long-term investment opportunities in the region. As shareholders will be aware, they are given the opportunity to vote on the continuation of the company every three years. The directors believe that the prospects for Asian markets remain positive and the Company is managed by one of the leading managers of that region. Your Board strongly recommends that shareholders vote in favour of the resolution. Tony Cassidy Chairman INCOME STATEMENT (audited) Year ended 31 August 2006 Revenue Capital Total £'000 £'000 £'000 Realised gains on investments - 34,810 34,810 Unrealised gains on investments - 3,142 3,142 Currency gains - 2,168 2,168 Income 11,088 - 11,088 Investment management fee (2,981) - (2,981) Administration expenses (915) - (915) ________ ________ ________ Net return on ordinary activities before interest payable and taxation 7,192 40,120 47,312 Interest payable and similar charges (3,258) - (3,258) ________ ________ ________ Return on ordinary activities before taxation 3,934 40,120 44,054 Taxation on ordinary activities (595) - (595) ________ ________ ________ Return on ordinary activities after taxation 3,339 40,120 43,459 ________ ________ ________ Return per share (pence) 1.41 16.91 18.32 ________ ________ ________ ___________________________________________________________________________________________________________ Year ended 31 August 2005 (restated) Revenue Capital Total £'000 £'000 £'000 Realised gains on investments - 20,995 20,995 Unrealised gains on investments - 37,750 37,750 Currency losses - (897) (897) Income 10,059 - 10,059 Investment management fee (2,298) - (2,298) Administration expenses (733) - (733) ________ ________ ________ Net return on ordinary activities before interest payable and taxation 7,028 57,848 64,876 Interest payable and similar charges (3,130) - (3,130) ________ ________ ________ Return on ordinary activities before taxation 3,898 57,848 61,746 Taxation on ordinary activities (407) - (407) ________ ________ ________ Return on ordinary activities after taxation 3,491 57,848 61,339 ________ ________ ________ Return per share (pence) 1.50 24.87 26.37 ________ ________ ________ The total column of this statement represents the profit and loss account of the Company. The financial statements for the year to 31 August 2005 have been restated to reflect the change to accounting practices as set out in the accompanying notes. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year. A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement. BALANCE SHEET (audited) As at As at 31 August 2006 31 August 2005 (restated) £'000 £'000 Non-current assets Investments at fair value through profit or loss 331,252 283,456 __________ __________ Current assets Debtors and prepayments 1,531 812 Cash and short term deposits 12,194 19,770 __________ __________ 13,725 20,582 __________ __________ Creditors Amounts falling due within one year (1,428) (1,556) __________ __________ Net current assets 12,297 19,026 __________ __________ Total assets less current liabilities 343,549 302,482 Creditors: amounts falling due after more than one year Amounts falling due after more than one year (41,996) (44,388) __________ __________ Net assets 301,553 258,094 __________ __________ Capital and reserves Called-up share capital 47,455 47,455 Capital reserve - unrealised 76,050 70,485 Capital reserve - realised 79,200 43,598 Special reserve 85,520 85,520 Capital redemption reserve 8,752 8,752 Share premium account 4,285 4,285 Warrant reserve - 1,047 Revenue reserve 291 (3,048) __________ __________ Shareholders' funds 301,553 258,094 __________ __________ Net asset value per share (pence) 127.06 108.73 __________ __________ RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (audited) For the year ended 31 August 2006 Capital Capital Capital Share Share reserve reserve Special redemption premium Warrant Revenue capital unrealised realised reserve reserve reserve reserve reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 31 August 2005 47,455 71,285 43,598 85,520 8,752 4,285 1,047 (3,048) 258,894 as originally reported Restatements - (800) - - - - - - (800) ______ ______ ______ ______ ______ ______ ______ ______ ______ Balance at 31 August 2005 47,455 70,485 43,598 85,520 8,752 4,285 1,047 (3,048) 258,094 (restated) Transfer of warrant - - 1,047 - - - - - - reserve Return on ordinary - 5,565 34,555 - - - (1,047) 3,339 43,459 activities after taxation ______ ______ ______ ______ ______ ______ ______ ______ ______ Balance at 31 August 2006 47,455 76,050 79,200 85,520 8,752 4,285 - 291 301,553 ______ ______ ______ ______ ______ ______ ______ ______ ______ For the year ended 31 Capital Capital Capital Share August 2005 Share reserve reserve Special redemption premium Warrant Revenue capital - - reserve reserve account reserve reserve Total unrealised realised £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 31 August 2004 45,354 33,933 22,865 85,520 8,752 81 1,047 (6,539) 191,013 as originally reported Restatements - (563) - - - - - - (563) ______ ______ ______ ______ ______ ______ ______ ______ ______ Balance at 31 August 2004 45,354 33,370 22,865 85,520 8,752 81 1,047 (6,539) 190,450 (restated) Return on ordinary - 37,115 20,733 - - - - 3,491 61,339 activities after taxation Exercising of Warrants 2,101 - - - - 4,204 - - 6,305 ______ ______ ______ ______ ______ ______ ______ ______ ______ Balance at 31 August 2005 47,455 70,485 43,598 85,520 8,752 4,285 1,047 (3,048) 258,094 (restated) ______ ______ ______ ______ ______ ______ ______ ______ ______ CASHFLOW STATEMENT (audited) Year ended Year ended 31 August 2006 31 August 2005 £'000 £'000 £'000 £'000 Net cash inflow from operating activities 7,153 6,979 Servicing of finance Interest paid (3,251) (3,099) Taxation Overseas tax paid (603) (467) Financial investment Purchases of investments (82,231) (145,430) Sales of investments 71,611 119,491 _______ _______ Net cash outflow from financial investment (10,620) (25,939) _______ _______ Net cash outflow before financing (7,321) (22,526) Net cash inflow from financing - 6,305 Management of liquid resources - 30,425 _______ _______ (Decrease)/increase in cash (7,321) 14,204 _______ _______ Reconciliation of net cash flow to movements in net debt (Decrease)/increase in cash as above (7,321) 14,204 Net change in liquid resources - (30,425) _______ _______ Change in net debt resulting from cash flows (7,321) (16,221) Amortised Loan Note expenses (31) (31) Foreign exchange differences 2,168 (897) _______ _______ Movement in net debt in the year (5,184) (17,149) Net debt at 1 September (24,618) (7,469) _______ _______ Net debt at 31 August (29,802) (24,618) _______ _______ NOTES: 1. Accounting policies (a) Basis of preparation and going concern The financial statements have been prepared under the historical cost convention as modified to include the revaluation of investments and in accordance with applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' (issued January 2003 and revised in December 2005). They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements have been prepared on a going concern basis. The financial statements, and the net asset value per share figures, have been prepared in accordance with UK Generally Accepted Accounting Practice ('UK GAAP'). The new Financial Reporting Standards, issued as part of the programme to converge UK GAAP with International Financial Reporting Standards (IFRS), were applicable for the accounting period ended 31 August 2006 and the financial statements for the twelve months ended 31 August 2005 have also been restated. The main change arising from these revisions to UK GAAP, in relation to the Company's financial statements, is the recognition of investments at fair value, which for listed investments is deemed to be bid market prices. Previously investments were valued at mid market prices. (b) Investments Listed investments have been designated upon initial recognition at fair value through profit or loss. Investments are recognised and derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned and are initially measured at fair value. Transaction costs on purchases and sales are taken through the Income Statement as part of the cost or sales consideration, dealt within the capital column. Subsequent to initial recognition, investments are valued at fair value. For listed investments, this is deemed to be bid market prices. Gains and losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Income Statement and are ultimately recognised in the capital reserve - unrealised. (c) Income Dividends (other than special dividends), net of taxes deducted as sources, are included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are reviewed on a case-by-case basis and may be credited to capital, if circumstances dictate. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the cash dividend is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend is recognised in capital reserves. Interest receivable on bank balances is dealt with on an accruals basis. (d) Expenses All of the expenses are accounted for on an accruals basis. Loan interest is accountable on an effective interest rate basis. Both are chargeable to revenue. Transaction costs incurred on the purchase and disposal of investments are recognised as a capital item in the Income Statement. (e) Loan Notes Loan noted are translated at the rate of exchange ruling on the Balance sheet date and include unamortized issue expenses. Issue expenses are amortised evenly over the life of the Loan Notes. (f) Taxation The charge for taxation is based on the revenue return for the year. Deferred tax Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred at the balance sheet date measured on an undiscounted basis and based on enacted tax rates. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the accounts which are capable of reversal in one or more subsequent periods. Due to the Company's status as an investment trust Company, and the intention to continue to meet the conditions required to obtain approval for the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. (g) Capital reserves Capital reserve - realised Gains or losses on investments realised in the period that have been recognised in the Income Statement are transferred to the realised capital reserve. In addition, any prior unrealised gains or losses on such investments are transferred from the unrealised capital reserve to realised capital reserve on disposal of the investment. Capital reserve - unrealised Increases and decreases in the fair value of investments are recognised in the income statement and are then transferred to the unrealised capital reserve. (h) Foreign currency Transactions involving foreign currencies are translated at the rate ruling on the date of the transaction other than investment income which is translated at the rate ruling on the date of receipt. Assets and liabilities in foreign currencies are translated at the rates of exchange ruling on the balance sheet date, with the exception of forward exchange contracts which are valued at the forward rate ruling at the time of the balance sheet date. (i) Dividends payable Final dividends are dealt with in the period in which they are paid. 2. The proposed final dividend of 0.1228p per ordinary share in respect of the year ended 31 August 2006 will be paid on 15 December 2006 to shareholders on the register at the close of business on 17 November 2006. The ex-dividend date is 15 November 2006. 3. The statement of total return, balance sheet, reconciliation of movements in shareholder funds and cashflow statement set out above do not represent full statutory accounts in accordance with Section 240 of the Companies Act 1985. The financial information for the year ended 31 August 2005 has been extracted from the Annual Report and Accounts of the company which have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified. The statutory accounts for 2006 contain an unqualified auditors' report and will be delivered to the Registrar of Companies following the company's Annual General Meeting which will be held at Donaldson House, 97 Haymarket Terrace, Edinburgh on 13 December 2006 at 11.00am. 4. The Annual Report will be posted to shareholders in early November 2006 and copies will be available from the registered office. 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 and may be affected by exchange rate movements. Investors may not get back the amount they originally invested. Where investment is made in emerging markets, their potential volatility may increase the risk to the value of the investment. For Edinburgh Dragon 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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