Half Yearly Report

RNS Number : 6286F

Edinburgh Dragon Trust plc

28 April 2011

 



28 April 2011

EDINBURGH DRAGON TRUST PLC

HALF YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS ENDED 28 FEBRUARY 2011

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).

•     The net asset value rose by 4.8%, in sterling terms, on a total return basis compared to a rise of 6.9% in the benchmark index.

•     The Company successfully completed the issue of £60 million nominal of 3.5% Convertible Unsecured Loan Stock 2018 ("CULS") during the six month period to 28 February 2011.  

•     The prospects for Asian equities remain good over the longer term due to the region's superior economic fundamentals and reasonable company valuations. The Company's holdings have strong market positions, are financially robust and are run by excellent managers.  The Company is well placed to withstand any short-term economic turbulence and any longer-term cycles of slowing growth and rising prices.

For further information please contact:-

Andrew Gillan, Senior Investment Manager, Aberdeen Asset Management Asia        0065 6395 2700

Ian Massie, Head of Investment Trust Investor Relations,                                          0131 528 4000

Aberdeen Asset Management

INTERIM BOARD REPORT

Background

The Company's net asset value for the six months ended 28 February 2011 rose by 4.8% in sterling terms on a total return basis, underperforming the MSCI All Country Asia (ex Japan) Index, which rose 6.9%.  During the six months, the share price gained 2.7%, reflecting an expansion of the discount from 8.8% to 10.0%.

Overview

Strong fund inflows early in the period lifted Asian stockmarkets to new post-crisis highs.  While there were some signs of moderation towards the period end, most Asian economies continued to lead the global recovery, with  corporate earnings remaining well underpinned. Notably, China's GDP expanded by 10.3% for the year, overtaking Japan to become the second largest economy in the world, while Singapore set a record with its 14.5% GDP growth.

In the latter part of the period, markets hit headwinds as sentiment was dented by a slew of bad news, ranging from the debt crisis in Europe, to fears of more aggressive monetary policy tightening in Asia in response to rising inflation.  At the same time, capital inflows were driving domestic currencies higher, thereby eroding export competitiveness. In addition to direct intervention in foreign exchange markets, governments also introduced a variety of targeted policies aimed at negating the ill effects of fund inflows. China, for instance, lifted reserve ratio requirements and introduced fresh measures to cool its property sector. In October, it also raised interest rates for the first time in almost three years. Both Korea and Thailand imposed withholding taxes for bonds.

Political upheaval across Arab nations towards the end of the period triggered a spike in the oil price, adding to inflation worries. These issues precipitated a reversal in fund flows, as investors exited Asia and other emerging markets for developed markets that were considered more able to handle higher oil prices.  Generally, markets which had seen the biggest inflows previously saw the biggest outflows. A notable example of this was India, which was one of the poorest performing markets in January and February.

Portfolio

As a result of this shift in market sentiment, your Company's short-term performance was adversely affected even though long-term returns have remained robust. During the six months, South Korea and Singapore were the key detractors, whereas China and Thailand contributed positively to the Company's performance.

The underweight to Korea proved detrimental as the market rallied on hopes that the export-oriented market would benefit from a recovery in US consumer demand, whereas the overweight to Singapore also detracted from relative performance  due to the negative  impact on overall sentiment of more stringent anti-speculation rules for the real estate sector.

Conversely, the Company's underweight to China added to relative performance because mainland equities were weighed down by the central bank's interest rate hikes and inflationary concerns. Meanwhile, the overweight to Thailand benefited from a marked improvement in market sentiment following the government crackdown on red-shirt protestors, which restored order.

At the stock level, Hero Honda underperformed because of the termination of its joint venture with Japan's Honda Motor and news that the Hero Group would buy out Honda's stake. Short-term worries that demand for its motorcycles would be undermined by interest rate hikes, declining profit margins because of higher input costs, along with the rising price for petrol and vehicles dampened its share price.  However, your Manager remains comfortable with this holding, given its long-term prospects.  Similarly, Ayala Land in the Philippines also detracted from performance, with its share price held back by local market sentiment even though it reported record annual profits and appears well-positioned for long-term growth.

Among the stronger performers were ASM Pacific Technology and Taiwan Semiconductor (TSMC). Both companies posted strong results and had lagged previously.  These technology companies were also seen as potential beneficiaries of an expected recovery in US consumption.

During the review period, two new names were introduced to the portfolio: Li & Fung, one of the world's leading trading companies, and life insurer AIA Group Ltd, American International Group's Asian arm. Li & Fung has an excellent track record of growing organically, as well as via acquisitions, and boasts a top-tier client base. Earlier in the year, it signed a landmark sourcing agreement with US chain Wal-mart. Similarly, AIA Group is well-positioned for long-term growth.  Its addition provides a broad exposure to the under-developed life insurance industry in the region. It has strong market positions, with 100% ownership of subsidiaries in most markets in which it operates.  Your Manager also invested the proceeds from the Convertible Unsecured Loan Stock (CULS) across several existing positions. The CULS provides the company with long-term structural gearing at an acceptable cost and is in line with the Company's previously stated objective of exploring options to leverage sensibly the Company's capital base.

Revenue Account

For the six months to 28 February 2011 the revenue account recorded a return on ordinary activities after taxation of £115,000, representing 0.06p per share compared with a deficit of £427,000 for the six months to 28 February 2010.  The majority of the Company's portfolio income, in line with the majority of Asian dividend income, is accounted for in the second half of the Company's financial year.

Gearing

In my last Chairman's statement, I reported that the Board was exploring gearing options, following the expiry of the Company's £40 million multi-currency loan facility in September 2010, including the possibility of extending the Company's capital base.  The Board is pleased to report the successful issue of £60 million nominal of 3.5% Convertible Unsecured Loan Stock 2018 (CULS) in January 2011.   The CULS provides holders with an attractive yield of 3.5% per annum, significantly above the dividend yield on the Ordinary Shares, as well as capital protection through repayment at par and will be covered many times by the assets of the Company.  The CULS also provides option value for CULS holders through the ability, semi-annually (commencing 31 July 2011 to 31 January 2018), to convert into new Ordinary Shares over the next seven years at a pre-determined price.  The accounting treatment of the CULS resulted in an uplift in the NAV of just under 1%.

Events During the Period

At the Company's Annual General Meeting on 8 December 2010, all resolutions were passed.  A final dividend of 1.90p was paid to shareholders on 10 December 2010.   On 10 December 2010, the Company announced a Placing and Open offer for up to £50 million nominal of CULS at 100p per £1 nominal. At the General Meeting of the Company held on 11 January 2011 the resolution to approve the issue of £50 million nominal of CULS was passed.   Accordingly £50 million nominal of CULS was issued on 12 January 2011 and a further £10 million nominal of CULS were subsequently issued at the end of January 2011.The Company has a total of £60 million nominal of CULS in issue which trades on the London Stock Exchange's main market for listed securities.

Outlook

There has been a significant change in market mood and risk perception since the start of 2011, driven by the confluence of external and local factors. The upheaval across Arab nations in the Middle East and North Africa caused oil prices to rise sharply, adding to the inflationary pressures that were already building in the region. At the same time, the pace of economic growth in Asia has been moderating and this is likely to continue, particularly in light of the aftermath of the tragic earthquake in Japan.

However, the prospects for Asian equities remain good over the longer term because the region's superior economic fundamentals have not changed drastically.  Moreover, valuations are still reasonable. Most importantly, your Company's holdings have strong market positions, are financially robust, run by excellent managers, and thus, are well placed to withstand any short-term economic turbulence and the longer-term cycles of slowing growth and rising prices.

Principal Risks and Uncertainties

The principal risks identified by the Board are as follows:

· Resource risk: The Company is an investment trust and has no employees.  The responsibility for the management of the Company has been delegated to Aberdeen Asset Managers Limited ('the Manager'), a subsidiary of Aberdeen Asset Management PLC, under the management agreement.  The terms of the management agreement cover the necessary duties and conditions expected of the Manager.  The Board reviews the performance of the Manager on a regular basis and their compliance with the management contract formally on an annual basis.

· Investment and market risk:  The Company is exposed to the effect of variations in share prices due to the nature of its business.  Investment in Asian equities may involve a greater degree of risk than that usually associated with investment in the Western securities markets.  These include a greater risk of social, political and economic instability including changes in government which may restrict investment opportunities and have an adverse effect on economic reform.  Changes in legal, regulatory and accounting policies can also affect the value of the Company's investments.  The lower volumes of trading in certain securities of emerging markets issuers may result in lack of liquidity and price volatility.  In addition, currency fluctuations and high interest rates may affect the value of the Company's investments and the income derived therefrom. 

· The Board keeps under review the investment policy of the Company, taking account of stockmarket factors, and compares the Company's performance to the MSCI All Country Asia (ex Japan) benchmark index and peer group.

· Currency risk:  The Company accounts for its activities and reports its results in sterling while its investment portfolio is invested in overseas securities.  Accordingly, the movement of exchange rates between sterling and the other currencies in which the Company's investments are denominated or its borrowings are drawn down may have a material effect, unfavourable as well as favourable, on the returns otherwise experienced on the investments made by the Company.  It is not the Company's policy to hedge this risk on a continuing basis but the Company may match specific overseas investments with foreign currency borrowings.

· Gearing risk:  The Company has £60 million nominal of CULS in issue.  Gearing has the effect of exacerbating market falls and enhancing gains.  In order to manage the level of gearing, the Board has set a maximum gearing ratio of 20%. 

· Regulatory risk:  The Company operates in a complex regulatory environment and faces a number of regulatory risks.  Serious breaches of regulations, such as section 1158 of the Corporation Tax Act 2010, the UKLA Listing Rules and the Companies Act, could lead to a number of detrimental outcomes and reputational damage.  The Audit Committee monitors compliance with regulations by reviewing internal control reports from the Manager.

· Discount volatility:  The Company's share price can trade at a discount to its underlying net asset value.  The Board monitors the discount level of the Company's shares and has in place a buyback mechanism whereby the Manager is authorised to buyback shares within certain limits. 

The Company has established a comprehensive framework for managing these risks which is evolving continually as the Company's investment activities change in response to market developments.

Going Concern

The financial statements have been prepared on a going concern basis. The Directors consider this is the appropriate basis as the Company has adequate resources to continue in operational existence for the foreseeable future. In considering this, the Directors took into account the portfolio of readily realisable securities and the ability of the Company to meet all its liabilities and ongoing expenses from its assets.

Responsibility Statement of the Directors in Respect of the Half-Yearly Financial Report

We confirm that to the best of our knowledge:

· the condensed set of financial statements has been prepared in accordance with the Statement Half-yearly financial reports issued by the UK Accounting Standards Board;

· the interim management report includes a fair review of the information required by:

(a)   DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

For Edinburgh Dragon Trust plc

Allan McKenzie

Chairman

28 April 2011

INCOME STATEMENT

	Six months ended
	28 February 2011
		(unaudited)
	Revenue	Capital	Total
	£'000	£'000	£'000
Gains on investments	-	18,348	18,348
Net currency gains	-	459	459
Income (note 2)	3,830	-	3,830
VAT recovered on investment management fees	6	-	6
Investment management fee	(2,523)	-	(2,523)
Administrative expenses	(571)	-	(571)
	_________	_________	_________
Net return before finance costs and taxation	742	18,807	19,549
Interest payable and other charges	(425)	-	(425)
	_________	_________	_________
Return on ordinary activities before taxation	317	18,807	19,124
Taxation	(202)	-	(202)
	_________	_________	_________
Return on ordinary activities after taxation	115	18,807	18,922
	_________	_________	_________
Return per Ordinary share (pence)(note 4)	0.06	9.58	9.64
	_________	_________	_________

	Six months ended
	28 February 2010
		(unaudited)
	Revenue	Capital	Total
	£'000	£'000	£'000
Gains on investments	-	75,524	75,524
Net currency gains	-	15	15
Income (note 2)	2,654	-	2,654
VAT recovered on investment management fees	-	-	-
Investment management fee	(2,172)	-	(2,172)
Administrative expenses	(666)	-	(666)
	_________	_________	_________
Net return before finance costs and taxation	(184)	75,539	75,355
Interest payable and other charges	(65)	-	(65)
	_________	_________	_________
Return on ordinary activities before taxation	(249)	75,539	75,290
Taxation	(178)	-	(178)
	_________	_________	_________
Return on ordinary activities after taxation	(427)	75,539	75,112
	_________	_________	_________
Return per Ordinary share (pence)(note 4)	(0.19)	33.94	33.75
	_________	_________	_________

		Year ended
	31 August 2010
		(audited)
	Revenue	Capital	Total
	£'000	£'000	£'000
Gains on investments	-	124,323	124,323
Net currency gains	-	205	205
Income (note 2)	12,067	-	12,067
VAT recovered on investment management fees	-	-	-
Investment management fee	(4,476)	-	(4,476)
Administrative expenses	(1,279)	-	(1,279)
	_________	_________	_________
Net return before finance costs and taxation	6,312	124,528	130,840
Interest payable and other charges	(130)	-	(130)
	_________	_________	_________
Return on ordinary activities before taxation	6,182	124,528	130,710
Taxation	(698)	-	(698)
	_________	_________	_________
Return on ordinary activities after taxation	5,484	124,528	130,012
	_________	_________	_________
Return per Ordinary share (pence)(note 4)	2.62	59.49	62.11
	_________	_________	_________

The total columns of this statement represent the profit and loss account of the Company. 

A Statement of Total Recognised Gains and Losses has not been presented as all gains and losses are recognised in the Income Statement.

All revenue and capital items in the above statement derive from continuing operations.

BALANCE SHEET

		As at	As at	As at
		28 February 2011	28 February 2010	31 August 2010
		(unaudited)	(unaudited)	(audited)
	Notes	£'000	£'000	£'000
Non-current assets
Investments at fair value through profit or loss		543,029	409,254	467,876
		_________	_________	_________
Current assets
Debtors and prepayments		721	767	910
Cash and short term deposits		4,477	7,925	4,525
		_________	_________	_________
		5,198	8,692	5,435
		_________	_________	_________
Current liabilities
Creditors		(2,090)	(1,530)	(1,987)
		_________	_________	_________
Net current assets		3,108	7,162	3,448
		_________	_________	_________
Total assets less current liabilities		546,137	416,416	471,324
Non-current liabilities
3.5% Convertible Unsecured Loan Stock 2018	9	(55,487)	-	-
		_________	_________	_________
Net assets		490,650	416,416	471,324
		_________	_________	_________
Capital and reserves
Called-up share capital		39,262	39,262	39,262
Share premium account		4,285	4,285	4,285
Special reserve		6,726	6,718	6,718
Equity component of 3.5% Convertible Unsecured Loan Stock 2018	9	4,133	-	-
Capital redemption reserve		16,945	16,945	16,945
Capital reserve		412,226	344,430	393,419
Revenue reserve		7,073	4,776	10,687
		_________	_________	_________
Equity shareholders' funds		490,650	416,416	471,316
		_________	_________	_________
Net asset value per Ordinary share (pence)	7	249.93	212.12	240.09
		_________	_________	_________

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

Six months ended 28 February 2011 (unaudited)
				Equity
		Share		component	Capital
	Share capital	premium  account	Special  reserve	CULS 2018	redemption  reserve	Capital reserve	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 August 2010	39,262	4,285	6,726	-	16,945	393,419	10,687	471,324
Return on ordinary activities after taxation	-	-	-	-	-	18,807	115	18,922
Dividend paid	-	-	-	-	-	-	(3,729)	(3,729)
Issue of 3.5% Convertible Unsecured Loan Stock 2018	-	-	-	4,133	-	-	-	4,133
	_____	_____	_____	_____	_____	_____	_____	_____
Balance at 28 February 2011	39,262	4,285	6,726	4,133	16,945	412,226	7,073	490,650
	_____	_____	_____	_____	_____	_____	_____	_____
Six months ended 28 February 2010 (unaudited)
			Share		Capital
		Share	premium	Special	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	reserve	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 August 2009		46,190	4,285	75,770	10,017	268,891	8,921	414,074
Return on ordinary activities after taxation		-	-	-	-	75,539	(427)	75,112
Dividend paid		-	-	-	-	-	(3,718)	(3,718)
Tender offer of own shares		(6,928)	-	(69,052)	6,928	-	-	(69,052)
		_____	_____	_____	_____	_____	_____	_____
Balance at 28 February 2010		39,262	4,285	6,718	16,945	344,430	4,776	416,416
		_____	_____	_____	_____	_____	_____	_____
Year ended 31 August 2010 (audited)
			Share		Capital
		Share	premium	Special	redemption	Capital	Revenue
		capital	account	reserve	reserve	reserve	reserve	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 August 2009		46,190	4,285	75,770	10,017	268,891	8,921	414,074
Return on ordinary activities after taxation		-	-	-	-	124,528	5,484	130,012
Dividend paid		-	-	-	-	-	(3,718)	(3,718)
Tender offer of own shares		(6,928)	-	(69,044)	6,928	-	-	(69,044)
		_____	_____	_____	_____	_____	_____	_____
Balance at 31 August 2010		39,262	4,285	6,726	16,945	393,419	10,687	471,324
		_____	_____	_____	_____	_____	_____	_____

CASHFLOW STATEMENT 

	Six months ended	Six months ended	Year ended
	28 February 2011	28 February 2010	31 August 2010
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Net return on ordinary activities before finance costs and taxation	19,549	75,355	130,840
Adjustments for:
Gains on investments	(18,348)	(75,524)	(124,323)
Currency gains	(459)	(15)	(205)
Decrease in accrued income	83	689	561
Increase in other debtors	(63)	(76)	(3)
Increase in creditors	4	45	166
	_________	_________	_________
Net cash inflow from operating activities	766	474	7,036
Net cash outflow from servicing of finance	(33)	(66)	(130)
Total tax paid	(112)	(122)	(867)
Net cash (outflow)/inflow from financial investment	(56,953)	77,030	67,735
Equity dividend paid	(3,729)	(3,718)	(3,718)
	_________	_________	_________
Net cash (outflow)/inflow before financing	(60,061)	73,598	70,056
Tender offer of own shares (including expenses)	-	(68,996)	(69,044)
Issue of 3.5% Convertible Unsecured Loan Stock 2018	59,554	-	-
	_________	_________	_________
(Decrease)/increase in cash	(507)	4,602	1,012
	_________	_________	_________
Reconciliation of net cash flow to movements in net funds
(Decrease)/increase in cash as above	(507)	4,602	1,012
Exchange movements	459	15	205
	_________	_________	_________
Movement in net funds in the period	(48)	4,617	1,217
Opening net funds	4,525	3,308	3,308
	_________	_________	_________
Closing net funds	4,477	7,925	4,525
	_________	_________	_________
Represented by:
Cash and short term deposits	4,477	7,925	4,525
	_________	_________	_________

NOTES:

1.	Accounting policies
	The accounts have been prepared in accordance with applicable UK Accounting Standards, with pronouncements on half-yearly reporting issued by the Accounting Standards Board and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in January 2009. They have also been prepared on the assumption that approval as an investment trust will continue to be granted.
	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 half-yearly financial statements have been prepared using the same accounting policies as the preceding annual accounts, with the addition of the following accounting policy which is in accordance with the relevant accounting standard;
	3.5% Convertible Unsecured Loan Stock 2018
	Convertible Unsecured Loan Stock ("CULS") issued by the Company is regarded as a compound instrument, comprising of a liability component and an equity component. At the date of issue, the fair value of the liability component was estimated by assuming that an equivalent non-convertible obligation of the Company would have a coupon rate of 4.662%. The fair value of the equity component, representing the option to convert liability into equity, is derived from the difference between the issue proceeds of the CULS and the fair value of assigned to the liability. The accounting treatment of the CULS resulted in an uplift in the NAV of just under 1%. The liability component is subsequently measured at amortised cost using the effective cost interest rate and the equity component remains unchanged.
	Direct expenses associated with the CULS issue are allocated to the liability and equity components in proportion to the split of the proceeds of the issue. Expenses allocated to the liability component are amortised over the life of the instrument.
	The interest expense on the CULS is calculated according to the effective interest rate method by applying the assumed rate of 4.662% at initial recognition to the liability component of the instrument.
	On conversion of CULS, equity is issued and the liability component is derecognised. The original equity component recognised at inception remains in equity. No gain or loss is recognised on conversion.
	When CULS is repurchased for cancellation, the fair value of the liability at the redemption date is compared to its carrying amount, giving rise to a gain or loss on redemption that is recognised through profit or loss.   The amount of consideration allocated to equity is recognised in equity with no gain or loss being recognised.
	In the event of a winding-up of the Company the rights and claims of the Trustee and CULS holders would be subordinate to the claims of all creditors in respect of the Company's secured and unsecured borrowings, under the terms of the Trust Deed.

		Six months ended	Six months ended	Year ended
		28 February 2011	28 February 2010	31 August 2010
2.	Income	£'000	£'000	£'000
	Income from investments
	UK dividend income	-	2	436
	Overseas dividends	3,316	2,332	11,043
	Scrip dividends	510	313	579
		_________	_________	_________
		3,826	2,647	12,058
		_________	_________	_________
	Other income
	Deposit interest	4	7	9
		_________	_________	_________
	Total income	3,830	2,654	12,067
		_________	_________	_________

3.	The taxation charge for the period represents withholding tax suffered on overseas dividend income.

		Six months ended	Six months ended	Year ended
		28 February 2011	28 February 2010	31 August 2010
4.	Return per Ordinary share	p	p	p
	Revenue return	0.06	(0.19)	2.62
	Capital return	9.58	33.94	59.49
		_________	_________	_________
	Total return	9.64	33.75	62.11
		_________	_________	_________
	The figures above are based on the following:
		£'000	£'000	£'000
	Revenue return	115	(427)	5,484
	Capital return	18,807	75,539	124,528
		_________	_________	_________
	Total return	18,922	75,112	130,012
		_________	_________	_________
	Weighted average number of Ordinary shares in issue	196,311,219	222,532,834	209,314,267
		_________	_________	_________

5.	Transaction costs
	During the period expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows:
		Six months ended	Six months ended	Year ended
		28 February 2011	28 February 2010	31 August 2010
		£'000	£'000	£'000
	Purchases	165	28	111
	Sales	36	236	268
		_________	_________	_________
		201	264	379
		_________	_________	_________

6.	Capital reserves
	The capital reserve reflected in the Balance Sheet at 28 February 2011 includes gains of £229,579,000 (28 February 2010 - £179,932,000; 31 August 2010 - £220,502,000) which relate to the revaluation of investments held at the reporting date.

7.	Net asset value
	The net asset value per share and the net assets attributable to the Ordinary shareholders at the period end were as follows:
		As at	As at	As at
		28 February 2011	28 February 2010	31 August 2010
	Net assets attributable (£'000)	490,650	416,416	471,316
	Net asset value per share (pence)	249.93	212.12	240.09
	The net asset value per Ordinary share is based on net assets and on 196,311,219 Ordinary shares, (28 February 2010 - 196,311,219; 31 August 2010 - 196,311,219) being the number of Ordinary shares in issue at the period end.

8.	There will be no interim dividend for the year to 31 August 2011; the objective of the Company is long-term capital appreciation.

9.	Non-current liabilities
		Number	Liability	Equity
		of Units	Component	Component
	3.5% Convertible Unsecured Loan Stock 2018	£000	£000	£000
	Balance at beginning of period	-	-	-
	Issue of 3.5% Convertible Unsecured Loan Stock 2018	60,000	55,894	4,106
	Premium on issue	-	373	27
	Issue expenses	-	(795)	-
	Amortisation	-	15	-
		_________	_________	_________
	Balance at end of period	60,000	55,487	4,133
		_________	_________	_________
	On 12, 26 and 27 January 2011, the Company issued a total of £60,000,000 nominal amount of 3.5% Convertible Unsecured Loan Stock 2018. The loan stock can be converted at the election of holders into Ordinary shares during the months of January and July each year throughout their life, commencing 31 July 2011 to January 2018 at a rate of 1 Ordinary share for every 310.1528p nominal of 3.5% Convertible Unsecured Loan Stock 2018. Interest is paid on the 3.5% Convertible Unsecured Loan Stock 2018 on 31 January and 31 July each year, commencing 31 July 2011. Interest is charged 100% to revenue in line with the Board's expected long-term split of returns from the investment portfolio of the Company.

10.	Called-up share capital
	As at 28 February 2011 there were 196,311,219 Ordinary shares in issue (28 February 2010 and 31 August 2010 - 196,311,219).

11.	Half-Yearly Financial Report
	The financial information contained in this Half-Yearly Financial Report does not constitute statutory accounts as defined in Sections 434 - 436 of the Companies Act 2006. The financial information for the six months ended 28 February 2011 and 28 February 2010 has not been audited.
	The information for the year ended 31 August 2010 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditors on those accounts contained no qualification or statement under Section 498 of the Companies Act 2006.
	The auditors have reviewed the financial information for the six months ended 28 February 2011 pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

12.	This Half-Yearly Financial Report was approved by the Board on 28 April 2011.

13.        The Half-Yearly Financial Report is available on the Company's website, www.edinburghdragon.co.uk and the Half-Yearly Report will be posted to shareholders in May 2011 and copies will be available from the Manager.

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.

INDEPENDENT REPORT TO THE AUDITORS

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 28 February 2011 which comprises the Income Statement, Balance Sheet, Reconciliation of Movements in Shareholder's Funds and Cash Flow Statement and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Services Authority ("the UK FSA"). Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FSA.

The annual financial statements of the company are prepared in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with the Statement Half-Yearly Financial Reports as issued by the UK Accounting Standards Board.

Our Responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 28 February 2011 is not prepared, in all material respects, in accordance with the Statement Half-Yearly Financial Reports as issued by the UK Accounting Standards Board and the DTR of the UK FSA.

Richard Hinton

for and on behalf of KPMG Audit Plc

Chartered Accountants

Edinburgh

28 April 2011

 

END

 

 

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