Interim Results

Edinburgh Dragon Trust plc 09 May 2006 NEWS RELEASE 8 May 2006 EDINBURGH DRAGON TRUST PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 28 FEBRUARY 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). • The share price rose 30.0% to 130.0p reflecting a substantial narrowing in the discount from 6.6% to 1.3%. • The Trust's net asset value rose by 23.0% on a total return basis compared to a rise in the benchmark index, the MSCI All Country Asia (ex Japan), of 23.9%. • For long term investors, Asian markets still offer reasonable value with good long term growth prospects. • The Company's strategy remains to invest in companies with robust business models, strong balance sheets and management with a high regard for minority shareholders. For further information please contact:- Jeremy Whitley, Investment Manager, 0065 6395 2700 Edinburgh Fund Managers Ian Massie, Director - Investment Trusts 0131 313 1000 Edinburgh Fund Managers Chairman's Statement Background I am pleased to report that your Company has performed well over the six months under review. During the period, the share price rose 30.0%, while the Company's net asset value on a total return basis rose 23.0% compared to a 23.9% rise in the benchmark, the MSCI All Country Asia (ex Japan) Index. This performance reflected a substantial narrowing of the discount from 6.6% to 1.3%. The underperformance was mainly due to being overweight in Singapore and underweight in Korea. Overview Improving economic fundamentals and accommodating policy reforms assisted Asian markets to make further headway over the six months, outperforming gains in many major markets elsewhere around the globe. More importantly, rising domestic confidence helped to underpin firmer asset prices, while the quality of corporate earnings has remained strong. A further positive factor was the continued flow of foreign liquidity into Asian stocks, reflecting high levels of optimism over the region's growth prospects. This was particularly impressive given the backdrop of rising interest rates, firm commodity prices and growing inflationary pressures. However, in several countries, including Thailand and the Philippines, political unrest weighed on sentiment. India was among the more prominent beneficiaries of overseas liquidity, with foreign institutional investment reaching record levels of more than US$10bn in 2005. The market continued to make solid gains, spurred by robust economic growth and supportive policy measures, which included the liberalisation of key economic sectors and the Budget for financial year 2007, the latter sealing the government's commitment to encourage growth through much-needed infrastructure spending. In North Asia, South Korea performed strongly as public policy changes encouraged domestic investors to enter the market, and consumer confidence rebounded. However, the Kospi index has remained range-bound since early 2006, following the strong run-up in 2005. Following a prolonged period of poor performance over a number of years, the Chinese stockmarket rebounded strongly due to a number of government measures including new rules allowing foreign investors to invest directly in the A-shares of Chinese companies, previously unavailable to foreigners. However, some investor conditions apply, including a stipulation that foreigners must buy at least 10% of the company's outstanding capital and hold the shares for a minimum of three years. The Government also revised upwards its average growth rate for the past decade, confirming that output had risen much faster than was previously reported. Indonesia was the best performing market amongst the Southeast Asian countries. Share prices were supported by better-than-expected economic growth, and an improving outlook, which prompted a re-rating of the country's sovereign credit. The government also unveiled a package of initiatives to encourage foreign investment by increasing spend on infrastructure. On the monetary policy front, interest rates remained on the uptrend, largely in response to inflationary pressures. The reduction of fuel subsidies also contributed to higher levels of inflation in several countries, such as Indonesia, Malaysia and Thailand. Indonesia raised short-term rates to 12.25% in a series of rate hikes. Malaysia raised its key overnight rate twice in three months, having previously left rates unchanged for seven years. Central banks in South Korea, the Philippines, Thailand and India also raised interest rates over the period. Portfolio activity Over the six month period total purchases amounted to £58.3 million whilst sales amounted to £42.1 million. In terms of sales, we sold out of POSCO, the world's fifth largest steel producer, on the grounds that the stock had performed well despite a substantial rise in raw material prices, that China was facing an oversupply situation, and that as a result of these pressures the company was losing its pricing power. We also sold the holding in Samsung Fire and Marine which had performed extremely well and was trading at almost 2x book value, which we considered expensive. The proceeds were mainly reinvested back into the portfolio's core holdings, but three new holdings were also introduced. The first, Shinsegae, is a well managed discount store operator with 71 E-Mart stores across South Korea, and the opportunity is for the company to continue to increase margins via improved product mix, greater labour efficiency and increased bargaining power. Effectively this was a switch out of an export play, POSCO (see above), into a more domestically oriented company. The second new investment was Dialog, the leading mobile operator in Sri Lanka, which had recently listed. Dialog, a subsidiary of Telekom Malaysia, has developed a sound business model based on low subscriber acquisition costs, a broad sales and distribution network and an extensive range of value-added services. Cash flow is strong, it has in the past paid out in full previous years' profits, its gearing level of less than 10% seems comfortable, and it has a high return on equity of 47%. The third new investment was Fubon Financial, one of Taiwan's largest banks. The stock has performed poorly over the past few years, and with a valuation of only 1.3 times its assets on the balance sheet had, in our view, factored in the negatives of poor operating results and slow industry consolidation. However, there is potential for increasing synergy between the various subsidiaries, whilst at the same time the bank pays out a healthy dividend. These new purchases and top-ups have increased the level of gearing which, at the period end, stood at 13.5% i.e. the level of cash available for investment has been kept below 1%. Revenue account For the six months to 28 February 2006 the revenue account recorded a deficit of £1,008,000, representing 0.42p per share compared with a deficit of 0.12p for the six months to 28 February 2005. However, since the majority of Asian dividend income is accounted for in the second half of the Company's financial year, the Company is forecast to make a positive revenue return for the 12 months to 31 August 2006. Outlook Asian economies have entered 2006 on a stable footing. Fundamentals are solid, with domestic demand playing a growing role in the region's fortunes. While the sustainability of the US economic expansion remains uncertain, there now appear to be signs of a long-awaited recovery in both Europe and Japan. Nonetheless, given the strong performance in share prices over the past year, a correction would not be unexpected. Valuations look less compelling, and a fundamental re-rating of markets now depends on companies being able to deliver on their earnings projections, in the face of rising input costs and competitive pressures. However, foreign interest in the region remains keen so the liquidity-driven rally may continue. Looking further out, we feel Asian markets will continue to offer good value relative to other major markets. We thus remain confident that Dragon's strategy, focusing on companies with a robust business model, sound finances, and management with a high regard for minority shareholders, will continue to deliver good results for our own shareholders over the long term. Tony Cassidy Chairman INCOME STATEMENT Six months to 28 February 2006 (unaudited) Revenue Capital Total £'000 £'000 £'000 Realised gains on investments - 22,734 22,734 Unrealised gains on investments - 38,369 38,369 Currency (losses) /gains - (825) (825) Income 2,833 - 2,833 Investment management fee (1,504) - (1,504) Administrative expenses (437) - (437) __________ __________ __________ Net return before finance costs and taxation 892 60,278 61,170 Interest payable and similar charges (1,684) - (1,684) __________ __________ __________ Return on ordinary activities before taxation (792) 60,278 59,486 Taxation on ordinary activities (216) - (216) __________ __________ __________ Return on ordinary activities after taxation (1,008) 60,278 59,270 __________ __________ __________ Return per ordinary share (0.42p) 25.40p 24.98p __________ __________ __________ Six months to 28 February 2005 (unaudited) (restated) Revenue Capital Total £'000 £'000 £'000 Realised gains on investments - 3,811 3,811 Unrealised gains on investments - 22,268 22,268 Currency (losses) /gains - 1,207 1,207 Income 2,662 - 2,662 Investment management fee (1,068) - (1,068) Administrative expenses (329) - (329) __________ __________ __________ Net return before finance costs and taxation 1,265 27,286 28,551 Interest payable and similar charges (1,452) - (1,452) __________ __________ __________ Return on ordinary activities before taxation (187) 27,286 27,099 Taxation on ordinary activities (91) (21) (112) __________ __________ __________ Return on ordinary activities after taxation (278) 27,265 26,987 __________ __________ __________ Return per ordinary share (0.12p) 11.97p 11.85p __________ __________ __________ Year ended 31 August 2005 (audited) (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) /gains - (897) (897) Income 10,059 - 10,059 Investment management fee (2,298) - (2,298) Administrative expenses (733) - (733) __________ __________ __________ Net return before finance costs 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 ordinary share 1.50p 24.87p 26.37p __________ __________ __________ BALANCE SHEET As at As at As at 28 February 2006 28 February 2005 31 August 2005 (unaudited) (unaudited) (audited) (restated) (restated) £'000 £'000 £'000 Fixed assets Investments at fair value through profit or loss 360,692 243,014 283,456 Current assets Debtors 947 2,152 812 US Treasury Bills - 5,168 - Cash at bank 2,841 16,567 19,770 __________ __________ __________ 3,788 23,887 20,582 Current liabilities Creditors: amounts falling due within one year 1,511 1,725 1,556 __________ __________ __________ Net current assets 2,277 22,162 19,026 __________ __________ __________ Total assets less current liabilities 362,969 265,176 302,482 Creditors: amounts falling due after more than one 45,605 41,435 44,388 year __________ __________ __________ Net assets 317,364 223,741 258,094 __________ __________ __________ Capital and reserves Called up share capital 47,455 47,455 47,455 Capital reserve - unrealised 107,653 57,776 70,485 Capital reserve - realised 66,708 25,723 43,598 Special reserve 85,520 85,520 85,520 Capital redemption reserve 8,752 8,752 8,752 Share premium 4,285 4,285 4,285 Warrant reserve 1,047 1,047 1,047 Revenue reserve (4,056) (6,817) (3,048) __________ __________ __________ Equity shareholders' funds 317,364 223,741 258,094 __________ __________ __________ Adjusted net asset value per share 133.72p 94.26p 108.73p __________ __________ __________ RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Capital Capital Capital Share Share reserve reserve Special redemption premium Warrant Revenue capital unrealised realised reserve reserve account reserve reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Six months ended 28 February 2006 Balance at 31 August 2005 47,455 71,285 43,598 85,520 8,752 4,285 1,047 (3,048) 258,894 as previously reported Restatement - (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) Return on ordinary - 37,168 23,110 - - - - (1,008) 59,270 activities after taxation _______ _______ _______ _______ _______ _______ _______ _______ ______ Balance at 28 February 2006 47,455 107,653 66,708 85,520 8,752 4,285 1,047 (4,056) 317,364 _______ _______ _______ _______ _______ _______ _______ _______ ______ Capital Capital Capital Share Share reserve reserve Special redemption premium Warrant Revenue unrealised realised reserve reserve account reserve reserve Total capital Six months ended 28 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 February 2005 Balance at 31 August 2004 45,354 33,933 22,865 85,520 8,752 81 1,047 (6,539) 191,013 as previously reported Restatement - (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 - 24,406 2,858 - - - - (278) 26,986 activities after taxation Exercising of Warrants 2,101 - - - - 4,204 - - 6,305 _______ _______ _______ _______ _______ _______ _______ _______ ______ Balance at 28 February 2005 47,455 57,776 25,723 85,520 8,752 4,285 1,047 (6,817) 223,741 (restated) _______ _______ _______ _______ _______ _______ _______ _______ ______ Capital Capital Capital Share Share reserve reserve Special redemption premium Warrant Revenue unrealised realised reserve reserve account reserve reserve Total capital Year ended 31 August 2005 £'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 previously reported Restatement - (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 For the period ended 28 February 2006 Six months to Six months to Year to 28 February 2006 28 February 2005 31 August 2005 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Revenue before finance costs and taxation 892 1,265 7,028 Increase in accrued income (198) (150) (100) Increase in other debtors (56) (7) (23) Increase in creditors 144 4 74 ____________ ____________ ____________ Net cash inflow from operating activities 782 1,112 6,979 Net cash outflow from servicing of finance (1,672) (1,490) (3,099) Total tax paid (99) (101) (467) Net cash outflow from financial investment (16,316) (19,247) (25,939) ____________ ____________ ____________ Net cash outflow before financing (17,305) (19,726) (22,526) Net cash inflow from financing - 6,303 6,305 Management of liquid resources - 24,913 30,425 ____________ ____________ ____________ (Decrease) / increase in cash and cash equivalents (17,305) 11,490 14,204 ____________ ____________ ____________ RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NET DEBT (Decrease)/Increase in cash as above (17,305) 11,490 14,204 Net change in liquid resources - (24,913) (30,425) ________ ________ ________ Change in net debt resulting from cashflows (17,305) (13,423) (16,221) Amortised loan note expenses (16) (15) (31) Exchange movements (825) 1,207 (897) ____________ ____________ ____________ Movement in net debt in the period (18,146) (12,231) (17,149) Opening net debt (24,618) (7,469) (7,469) ____________ ____________ ____________ Closing net debt (42,764) (19,700) (24,618) ____________ ____________ ____________ Represented by: Cash and cash equivalents 2,841 21,735 19,770 Debt falling due after more than one year (45,605) (41,435) (44,388) ____________ ____________ ____________ (42,764) (19,700) (24,618) ____________ ____________ ____________ NOTES: 1. Accounting Policies The accounts have been prepared under the historical cost convention, as modified to include the revaluation of investments and in accordance with applicable UK Accounting Standards and with the Statement of Recommended Practice for '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, and the net asst value per share figures, have been prepared in accordance with UK Generally Accepted Accounting Principles ('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 28 February 2006 and the financial statements for the six months ended 28 February 2005 and year ended 31 August 2005 have also been restated. The main change arising from the revisions to UK GAAP for Edinburgh Dragon Trust 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. The same accounting policies used for the year ended 31 August 2005 have been applied with the following exceptions: (a) Investments - Listed investments have been designated upon initial recognition at fair value through profit and 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 of sales consideration, dealt within the capital column. Such costs are disclosed separately. Subsequent to initial recognition, investments are valued at fair value. 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. (b) Realised Capital Reserve - 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 loses on such investments are transferred from the unrealised capital reserve to realised capital reserve on disposal of the investment. (c) Unrealised Capital Reserve - Increases and decreases in the fair value of investments are recognised in the income statement and are then transferred to the unrealised capital reserve. 2. There will be no interim dividend for the year to 31 August 2006; the objective of the company is long term capital appreciation. 3. As at 28 February 2006, there were 237,276,875 ordinary shares in issue. 4. 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 auditor's report on those accounts was unqualified. 5. The statement of total return and balance sheet set out do not represent full accounts in accordance with Section 240 of the Companies Act 1985. 6. The interim report will be posted to shareholders in May. 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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