Half Yearly Report

RNS Number : 1633C

Edinburgh Dragon Trust plc

27 April 2012

 



27 April 2012

EDINBURGH DRAGON TRUST PLC

HALF YEARLY FINANCIAL REPORT

FOR THE SIX MONTHS ENDED 28 FEBRUARY 2012

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).

·     Asian stock markets remained resilient over the half year under review. The Company's net asset value rose by 8.7%, in sterling terms, on a total return basis compared to a rise of 7.4% in the benchmark index.

·    The Company's discount narrowed to 6.4% from 8.5% during the period.

·    Although Asia remains vulnerable to the uncertain global economic and market conditions, its dependence on external demand will gradually decrease over the longer term as domestic consumption and investment continues to rise.  The region's economic fundamentals remain robust with healthy company balance sheets, good corporate earnings and valuations remain reasonable.  

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 -CHAIRMAN'S STATEMENT

Background

During the six-month period ended 29 February 2012, the Company's net asset value rose by 8.7% in sterling terms on a total return basis, outperforming the MSCI All Country Asia ex Japan Index, which produced a total return of 7.4%. The impact of gearing was positive.  The share price rose from 230.0p to 252.60p, while the discount to its net asset value narrowed to 6.4% from 8.5% at the start of the period.

Overview

In what was a volatile period for equities worldwide, Asian stock markets remained resilient over the half year under review. Regional stock markets took their lead from the West, declining sharply at first as Europe's debt crisis deepened and economic data pointed to a faltering global recovery. Speculation over a possible hard landing in China magnified concerns over anaemic growth in the region. However, the brief sell-off was soon followed by a rebound that lasted till the period-end thanks to continued central bank support which eased contagion fears. Generally better economic data out of the US and the Federal Reserve's commitment to keep interest rates low until 2014 further boosted sentiment.

Meanwhile regional economies continued to expand, albeit at a slower pace than before. China's growth decelerated in the face of weak external demand while property prices eased following successive cooling measures; the government has lowered its GDP growth target to 7.5% for 2012, the first time it has dropped below 8% since 2004. India too faced economic and political challenges. Inflation remained stubbornly high and the oil price further weighed on its fiscal position, given the reliance on oil imports. Add to this a lack of decisive leadership, which not only saw the Congress party-led coalition suffer in recent state elections amid a spate of corruption scandals, but also led to indecision or backtracking on much-needed reforms for various sectors of the economy. Despite this environment, a number of Indian corporates continue to do well and the Manager remains overweight to India, given the opportunities at the company level. Elsewhere, robust domestic consumption and investment helped insulate Indonesia and Malaysia somewhat from the trade slowdown. Indonesia's economic resilience was underscored by the upgrade in its sovereign credit rating to investment grade status. Despite Thailand's economy being dragged down by the effects of the floods, the promising growth outlook for 2012 buoyed the equity market.

As growth prospects deteriorated and price pressures generally receded, Asian central banks shifted their attention from fighting inflation to stimulating growth. China and India made it easier for banks to lend by cutting the amount of money they must hold as reserves, while Indonesia, Thailand and the Philippines lowered interest rates.

Portfolio

Good stock selection, notably in Hong Kong and China, drove the Company's outperformance. In Hong Kong, semiconductor equipment manufacturer ASM Pacific, retailer Dairy Farm and trading firm Li & Fung led gains. ASM Pacific was the best performer as the company showed good cost controls and improved performance from its recently acquired equipment business despite being hurt by lacklustre demand. Longer term prospects look promising as bookings for semiconductor packaging equipment gain traction, helped in part by robust tablet/smartphone demand. Dairy Farm was aided by good earnings momentum, as easing inflation and interest rate cuts proved positive for the retailer. Similarly, Li & Fung performed well thanks to lower inflationary pressures in China, in addition to better economic numbers from the US, its key market. Meanwhile Standard Chartered rebounded strongly after prior weakness. The emerging market-focused lender, which generates more than 70% of the group's profits from Asia, gained from healthy earnings - it reported a ninth successive year of record profits - despite tough global economic conditions.  Among the Chinese holdings, both PetroChina and CNOOC were supported by the higher oil price. The mainland government is also implementing pricing reform which will particularly benefit PetroChina's downstream business.

The Company's holdings in Taiwan, India and the Philippines did well, too. Taiwan Semiconductor Manufacturing Company and Taiwan Mobile's gains were underpinned by solid cash flow and attractive dividend yields. India's Grasim Industries and its unit Ultratech Cement benefited from recovering volumes, better capacity utilisation and firmer pricing. In the Philippines, property developer Ayala Land's strategy of using different brands to segment the market is bearing fruit as evidenced by its recent record profits. The company is upbeat on the future and is gearing up for its highest ever capital spending in 2012. Meanwhile, the Bank of the Philippine Islands' 2011 results were solid with profits growing at a double digit rate on improving net interest margins. The recovery in the Philippines' economy, buoyed by steady consumption and an improving fiscal position, bodes well for the Company's investments there.

Detractors to performanceover the period included Sri Lankan conglomerate John Keells and two Indian holdings, Hero MotoCorp and HDFC. The companies declined in line with the weaker macroeconomic environment in the respective markets. Hong Kong conglomerate Jardine Strategic also lagged following strong prior performance. Nonetheless, the results of all of these companies remain encouraging.

In portfolio activity, noteworthy transactions during the review period included the purchase of Singapore-headquartered conglomerate Keppel Corporation and the sale of Hindustan Unilever, a leading fast moving consumer goods company in India. Keppel Corp was introduced to the portfolio because of its growing pipeline of business in its key offshore and marine division which secured S$10 billion in new orders. Against this, Hindustan Unilever was sold on valuation grounds. Although the operating performance remains robust, the stock's valuation appears relatively expensive after performing well.

Revenue Account

For the six months to 28 February 2012, the revenue account recorded a deficit on ordinary activities after taxation of £807,000, representing (0.41p) per share compared with a return of £115,000 for the six months to 28 February 2011.  The deficit in the revenue account has resulted from the interest on the 3.5% Cumulative Unsecured Loan Stock 2018 (CULS) being charged to the revenue account for the full six month period to 29 February 2012.  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 and the Company anticipates making a positive revenue return for its full financial year.  It remains the Board's policy to pay a final dividend marginally in excess of the minimum required to maintain investment trust status, which may, of course, lead to some volatility in the level of dividend paid.

Events during the Period

At the Company's Annual General Meeting on 7 December 2011, all resolutions were passed.  A final dividend of 3.2p was paid to shareholders on 9 December 2011.  

Outlook

Asian stockmarkets have seen a major rebound in confidence with the return of risk appetite, but there are reasons to remain cautious. Fears of contagion in the Eurozone remain a key concern and there is a long way to go before the sovereign debt issues are truly resolved. With Greece's debt problems temporarily put on hold, the focus may shift to elsewhere in the periphery of the Eurozone. Lingering worries over the sustainability of the recovery in the US, coupled with sharply higher oil prices triggered by Middle East tensions have also clouded the outlook in the near term. Global economic and market conditions therefore are expected to stay subdued. Asia, despite its broadly robust fundamentals, remains vulnerable to these external headwinds as many countries in the region remain export reliant. However, longer term, the region's dependence on external demand will gradually decrease and rising domestic consumption and investment should mitigate the impact on growth. Corporate earnings also offer some comfort. Although the rate of earnings growth may be a touch lower than we have been accustomed to in the last decade, balance sheets are healthy,  inflationary pressures appear to be subsiding and valuations remain reasonable.

For Edinburgh Dragon Trust plc

Allan McKenzie

Chairman

26 April 2012

INTERIM BOARD REPORT contd

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 £59.9 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

26 April 2012

INCOME STATEMENT

	Six months ended
	29 February 2012
		(unaudited)
	Revenue	Capital	Total
	£'000	£'000	£'000
Gains on investments	-	43,188	43,188
Net currency gains	-	12	12
Income (note 2)	3,912	-	3,912
VAT recovered on investment management fees	-	-	-
Investment management fee	(2,470)	-	(2,470)
Administrative expenses	(639)	-	(639)
	_________	_________	_________
Net return before finance costs and taxation	803	43,200	44,003
Interest payable and other charges	(1,365)	-	(1,365)
	_________	_________	_________
Return on ordinary activities before taxation	(562)	43,200	42,638
Taxation	(245)	-	(245)
	_________	_________	_________
Return on ordinary activities after taxation	(807)	43,200	42,393
	_________	_________	_________
Return per Ordinary share (pence)(note 4)	(0.41)	22.00	21.59
	_________	_________	_________

	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
	_________	_________	_________

	Year ended
	31 August 2011
		(audited)
	Revenue	Capital	Total
	£'000	£'000	£'000
Gains on investments	-	12,809	12,809
Net currency gains	-	460	460
Income (note 2)	17,075	-	17,075
VAT recovered on investment management fees	7	-	7
Investment management fee	(5,058)	-	(5,058)
Administrative expenses	(1,185)	-	(1,185)
	_________	_________	_________
Net return before finance costs and taxation	10,839	13,269	24,108
Interest payable and other charges	(1,808)	-	(1,808)
	_________	_________	_________
Return on ordinary activities before taxation	9,031	13,269	22,300
Taxation	(574)	-	(574)
	_________	_________	_________
Return on ordinary activities after taxation	8,457	13,269	21,726
	_________	_________	_________
Return per Ordinary share (pence)(note 4)	4.31	6.76	11.07
	_________	_________	_________

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
		29 February 2012	28 February 2011	31 August 2011
		(unaudited)	(unaudited)	(audited)
	Notes	£'000	£'000	£'000
Non-current assets
Investments at fair value through profit or loss		581,960	543,029	541,239
		_________	_________	_________
Current assets
Debtors and prepayments		749	721	2,795
Cash and short term deposits		4,710	4,477	6,930
		_________	_________	_________
		5,459	5,198	9,725
Current liabilities
Creditors		(1,675)	(2,090)	(1,659)
		_________	_________	_________
Net current assets		3,784	3,108	8,066
		_________	_________	_________
Total assets less current liabilities		585,744	546,137	549,305
		_________	_________	_________
Non-current liabilities
3.5% Convertible Unsecured Loan Stock 2018	9	(56,066)	(55,487)	(55,750)
		_________	_________	_________
Net assets		529,678	490,650	493,555
		_________	_________	_________
Capital and reserves
Called-up share capital		39,270	39,262	39,269
Share premium account		4,400	4,285	4,387
Special reserve		6,726	6,726	6,726
Equity component of 3.5% Convertible Unsecured Loan Stock 2018	9	3,462	4,133	4,126
Capital redemption reserve		16,945	16,945	16,945
Capital reserve		449,888	412,226	406,688
Revenue reserve		8,987	7,073	15,414
		_________	_________	_________
Equity shareholders' funds		529,678	490,650	493,555
		_________	_________	_________
Net asset value per Ordinary share (pence)	7	269.76	249.93	251.37
		_________	_________	_________

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

Six months ended 29 February 2012 (unaudited)
				Equity
		Share		component	Capital	Capital	Revenue
	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 2011	39,269	4,387	6,726	4,126	16,945	406,688	15,414	493,555
Return on ordinary activities after taxation	-	-	-	-	-	43,200	(807)	42,393
Dividend paid	-	-	-	-	-	-	(6,283)	(6,283)
Issue of new Ordinary shares from conversion of 3.5% Convertible Unsecured Loan Stock 2018	1	13	-	(1)	-	-	-	13
Notional interest on 3.5% Convertible Unsecured Loan Stock 2018				(663)			663
	_____	_____	_____	_____	_____	_____	_____	_____
Balance at 29 February 2012	39,270	4,400	6,726	3,462	16,945	449,888	8,987	529,678
	_____	_____	_____	_____	_____	_____	_____	_____
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
	_____	_____	_____	_____	_____	_____	_____	_____
Year ended 31 August 2011 (audited)
				Equity
		Share		component	Capital		Revenue
	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	-	-	-	-	-	13,269	8,457	21,726
Dividend paid	-	-	-	-	-	-	(3,730)	(3,730)
Issue of 3.5% Convertible Unsecured Loan Stock 2018	-	-	-	4,133	-	-	-	4,133
Issue of new Ordinary shares from conversion of 3.5% Convertible Unsecured Loan Stock 2018	7	102	-	(7)	-	-	-	102
	_____	_____	_____	_____	_____	_____	_____	_____
Balance at 31 August 2011	39,269	4,387	6,726	4,126	16,945	406,688	15,414	493,555
	_____	_____	_____	_____	_____	_____	_____	_____

CASHFLOW STATEMENT 

	Six months ended	Six months ended	Year ended
	29 February 2012	28 February 2011	31 August 2011
	(unaudited)	(unaudited)	(audited)
	£'000	£'000	£'000
Net return on ordinary activities before finance costs and taxation	44,003	19,549	24,108
Adjustments for:
Gains on investments	(43,188)	(18,348)	(12,809)
Currency gains	(12)	(459)	(460)
Decrease/(increase) in accrued income	706	83	(728)
(Increase)/decrease in other debtors	(3)	(56)	10
Increase in creditors	28	4	104
	_________	_________	_________
Net cash inflow from operating activities	1,534	773	10,225
Net cash outflow from servicing of finance	(1,048)	(33)	(1,191)
Total tax paid	(133)	(112)	(583)
Net cash inflow/(outflow) from financial investment	3,698	(56,953)	(62,300)
Equity dividend paid	(6,283)	(3,729)	(3,730)
	_________	_________	_________
Net cash outflow before financing	(2,232)	(60,054)	(57,579)
Issue of 3.5% Convertible Unsecured Loan Stock 2018	-	60,400	60,400
Expenses re the issue of 3.5% Convertible Unsecured Loan Stock 2018	-	(853)	(876)
	_________	_________	_________
(Decrease)/increase in cash	(2,232)	(507)	1,945
	_________	_________	_________
Reconciliation of net cash flow to movements in net funds
(Decrease)/increase in cash as above	(2,232)	(507)	1,945
Exchange movements	12	459	460
	_________	_________	_________
Movement in net funds in the period	(2,220)	(48)	2,405
Opening net funds	6,930	4,525	4,525
	_________	_________	_________
Closing net funds	4,710	4,477	6,930
	_________	_________	_________
Represented by:
Cash and short term deposits	4,710	4,477	6,930
	_________	_________	_________

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'. 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.

		Six months ended	Six months ended	Year ended
		29 February 2012	28 February 2011	31 August 2011
2.	Income	£'000	£'000	£'000
	Income from investments
	UK dividend income	136	-	653
	Overseas dividends	3,126	3,316	14,791
	Scrip dividends	645	510	1,623
		_________	_________	_________
		3,907	3,826	17,067
		_________	_________	_________
	Other income
	Deposit interest	4	4	8
	Interest from UK Treasury bills	1	-	-
		_________	_________	_________
	Total income	3,912	3,830	17,075
		_________	_________	_________

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

		Six months ended	Six months ended	Year ended
		29 February 2012	28 February 2011	31 August 2011
4.	Return per Ordinary share	p	p	p
	Revenue return	(0.41)	0.06	4.31
	Capital return	22.00	9.58	6.76
		_________	_________	_________
	Total return	21.59	9.64	11.07
		_________	_________	_________
	The figures above are based on the following:
		£'000	£'000	£'000
	Revenue return	(807)	115	8,457
	Capital return	43,200	18,807	13,269
		_________	_________	_________
	Total return	42,393	18,922	21,726
		_________	_________	_________
	Weighted average number of Ordinary shares in issue	196,346,819	196,311,219	196,313,144
		_________	_________	_________

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
		29 February 2012	28 February 2011	31 August 2011
		£'000	£'000	£'000
	Purchases	48	165	209
	Sales	54	36	70
		_________	_________	_________
		102	201	279
		_________	_________	_________

6.	Capital reserves
	The capital reserve reflected in the Balance Sheet at 29 February 2012 includes gains of £252,386,000 (28 February 2011 - £229,579,000; 31 August 2011 - £217,280,000) 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
		29 February 2012	28 February 2011	31 August 2011
	Net assets attributable (£'000)	529,678	490,650	493,555
	Net asset value per share (pence)	269.76	249.93	251.37
	The net asset value per Ordinary share is based on net assets and on 196,350,842 Ordinary shares (28 February 2011 - 196,311,219; 31 August 2011 - 196,346,350), 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 2012; 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	59,891	55,750	4,126
	Conversion of 3.5% Convertible Unsecured Loan Stock 2018 into Ordinary shares	(14)	(13)	(1)
	Notional interest on 3.5% Convertible Unsecured Loan Stock 2018 transferred to revenue reserve	-	-	(663)
	Amortisation of discount and issue expenses (see note 1)	-	329	-
		_________	_________	_________
	Balance at end of period	59,877	56,066	3,462
		_________	_________	_________
	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 ("CULS"). The CULS 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 CULS.  Once 80% of the CULS issued have been converted the Company is allowed to request that holders redeem or convert the remainder.  Interest is paid on the CULS on 31 January and 31 July each year, commencing 31 July 2011. 100% of the interest is charged to revenue in line with the Board's expected long-term split of returns from the investment portfolio of the Company.
	The Company has decided to make an annual transfer between the equity component of the CULS and the revenue reserve so that the revenue reserve reflects distributable reserves as defined by company law.​​​
	On 10 February 2012 the Company converted £13,943 nominal amount of CULS into 4,492 Ordinary shares.
	As at 29 February 2012, there was £59,877,070 nominal amount of CULS in issue.

10.	Called-up share capital
	As at 29 February 2012 there were 196,350,842 Ordinary shares in issue (28 February 2011 - 196,311,219; 31 August 2011 - 196,346,350).

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 29 February 2012 and 28 February 2011 has not been audited.
	The information for the year ended 31 August 2011 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 29 February 2012 pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information. The report of the auditors is provided below.

12.	This Half-Yearly Financial Report was approved by the Board on 26 April 2012.

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 2012 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 29th February 2012 which comprises Income Statement, Balance Sheet, Cash Flow Statement and Reconciliation of Movement in Shareholders' Funds 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 29th February 2012 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

26 April 2012

 

END

 

 

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