30 April 2015
EDINBURGH DRAGON TRUST PLC
HALF YEARLY FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 28 FEBRUARY 2015
Edinburgh Dragon Trust's objective is long-term capital growth through investment in the Far East. Investments are made mainly in stock markets in the region, with the exception of Japan and Australasia, principally in large companies. When appropriate, the Company will utilise gearing to maximise long term returns.
The Company's benchmark is the MSCI All Country Asia (ex Japan).
· The Company's net asset value rose by 3.7% in sterling terms on a total return basis, compared to a rise of 5.9% in the benchmark index.
· The underperformance was due to the light exposure in China, where the stockmarket outperformed the broader region and the Company's exposure to financial holdings, particularly HSBC and Standard Chartered which faced regulatory challenges amid tough operating conditions.
· Asia remains a convincing long-term story, given its growing middle class with rising incomes that will underpin demand for many years to come.
For further information please contact:-
Adrian Lim, Senior Investment Manager, Aberdeen Asset Management Asia 0065 6395 2700
INTERIM BOARD REPORT - CHAIRMAN'S STATEMENT
Background
Global financial markets faced stiff headwinds amid an increasingly uncertain backdrop. In particular, Asia, and the broader emerging markets experienced volatility across currencies, equities and fixed income markets, as the prospect of tighter US monetary policy reduced the appetite for riskier assets and buoyed the US dollar. In Asia, growth support topped the policy agenda, with a wave of rate cuts and stimulus packages. This underpinned asset prices as well as the resilience of Asian markets over the six months under review.
Your Company's net asset value rose by 3.7% in sterling terms on a total return basis, underperforming the benchmark MSCI All Country Asia ex Japan Index's total return of 5.9%. The share price rose by 3.9% to 281.0p, while the discount to its net asset value narrowed slightly to 11.1% from 11.3% at the start of the period.
Overview
Policy intervention held the most sway over markets, as differing economic conditions and sharply lower oil prices allowed for greater divergence of monetary stance. The US Federal Reserve turned off the liquidity tap and indicated potential normalisation of interest rates, as the domestic recovery gained traction. Europe and Japan moved in the opposite direction, using massive stimulus to fight deflation and revitalise their economies. As a result, the US dollar appreciated against the euro and yen, as well as other Asian currencies. Elsewhere, China injected liquidity and cut interest rates, as the weakening property market and broader crackdown on corruption hampered growth. Beijing's readiness to support its economy buoyed the stockmarket, one of Asia's better performers.
The sharp drop in oil prices fuelled deflationary pressures. Crude fell below US$50 at one point, as Opec moved aggressively to safeguard its market share by keeping production levels unchanged despite oversupply worries arising from weak demand and high US inventories.
The impact of weak oil was felt unevenly across Asia. Oil-importing countries India and Indonesia were beneficiaries, as their governments took the opportunity to wean the population off costly subsidies and divert resources towards more productive uses, such as infrastructure. This lifted stockmarkets in both countries, alongside optimism over economic prospects arising from newly elected reform-minded leaders. In contrast, oil exporter Malaysia was on the losing end. Concerns over the impact of lower government revenues on the country's finances weighed heavily on its equity market.
In other parts of Asia, Philippines equities were the standout, as domestic consumption and the broader economy were underpinned by steady remittance inflows from Filipinos working overseas.
Portfolio
Your Company's underperformance was partly due to the light exposure in China, where the stockmarket outperformed the broader region. China remains an exciting growth story but given the poor score on corporate governance, due diligence is crucial to picking the best companies. Your Company's holdings have a firm foothold in their industries and have taken steps to adopt international management practices. Other key detractors included financial holdings, particularly HSBC and Standard Chartered, and commodities-related stocks. The underperformance was mitigated by the solid showing of stocks held in India and the Philippines.
Both HSBC and Standard Chartered grappled with a more stringent regulatory climate amid tough operating conditions. HSBC's profits fell, partly due to fines for infractions under the previous management and, consequently, a spike in compliance costs. Current management has made some headway in stabilising revenues, with possible streamlining in poorer-performing areas, such as Brazil and Mexico. While the bank has some house-keeping to complete, your Manager remains confident of its valuable global franchise and management.
It was a similar story at Standard Chartered, where changes were more sweeping after three profit warnings in just one year. Another distraction was speculation that US regulators could re-examine its alleged sanction violations. During the period, Standard Chartered exited its underperforming cash equity, equity research and equity capital markets businesses across Asia, and closed its Swiss private banking business. It also announced an overhaul at the top, with CEO Peter Sands and chairman John Peace among those planned to leave. Your Manager views these changes as strengthening the bank, whose competitive edge remains its unique focus on emerging markets.
Among commodities-related holdings, Singapore-listed offshore rig-builder Keppel Corp was pressured by concerns that the decline in crude prices would hurt its pipeline of orders. The impact was mitigated by news that it planned to take its subsidiary (Keppel Land) private, an opportunistic move to unlock value. PetroChina and Thai-listed PTT Exploration and Production (PTTEP) also felt the impact of weaker oil; PTTEP also booked a US$997 million impairment charge on its Montara's oil sands projects, which was to be expected, given the plunge in oil prices. PetroChina is likely to gain from structural reform on the mainland of China, giving it scope to improve returns by streamlining operations and selling non-core assets. PTTEP has set its sights on expanding abroad, with plans to invest substantially in Myanmar.
On the other hand, your Company's Indian holdings were impressive. Housing Development Finance Corp posted robust loan growth and higher margins, amid stable asset quality. It has remained competitive, boasting the lowest cost structure industry-wide, and benefits from steady growth in home mortgages. In the IT sector, Infosys' better-than-expected margins drove an upward re-rating of its stock. The company has started putting its US$5.5 billion cash pile to use, recently buying Israeli software company Panaya to enhance its automation technologies. Grasim Industries and its subsidiary UltraTech Cement rallied on hopes that the government's focus on infrastructure would translate into higher construction activity, boosting cement demand.
The Company's Philippine holdings also did well. Ayala Land posted decent revenue growth, as land sale prices reached new heights. It raised US$350 million via a share placement, as it seeks to ramp up its domestic presence over the next five years. The Bank of the Philippines Islands reported healthier growth in loans, deposits and net interest income.
During the period, your Manager introduced two stocks: MTR Corp is a city rail operator in Hong Kong and mainland China with property assets related to its core rail operations. It also develops properties and is the largest land-bank owner in Hong Kong. MTR generates steady cash flows from its defensive rail business, backed by a good reputation. It has been conservative when expanding abroad, thus avoiding overstretched finances.
The other addition is China Resources Enterprise, a conglomerate with interests in retailing, beverage, food, textiles and real estate in China and Hong Kong. It is a joint-venture partner of SABMiller in China and a market leader in beer. The company is integrating the Tesco operations, acquired through a joint venture. This will take time but should place it on an even firmer footing in the retail segment.
Your Manager also participated in the rights issue of Singapore-based OCBC, given the attractive 25% discount, which was used to strengthen its balance sheet after the mid-2014 takeover of Wing Hang Bank, an attractive acquisition that will expand its presence in Hong Kong, China and Macau.
Discounts and Share Buybacks
The Board monitors closely the discount level of the Company's shares and has in place a buyback mechanism whereby the Manager is authorised to buy back shares at certain levels. Since the start of 2015, Dragon's average discount has widened, trading at times in excess of 10%, and the discount as at 28 February 2015 was 11.1%. Dragon was not alone with this phenomenon as discounts across the sector also widened. The Board therefore agreed that it was appropriate for the Company to undertake share buybacks where to do so would be in the interests of shareholders.
During the six months ended 28 February 2015, 75,000 shares were bought back for cancellation at a cost of £215,000. Since the period end, a further 277,000 shares have been bought back for cancellation at a cost of £790,000. In order to give more flexibility for the future, the Board decided that shares bought back should be held in treasury and subsequently a further 479,630 shares were bought back into treasury at a cost of £1.4 million.
Revenue Account
For the six months to 28 February 2015, the revenue account recorded a deficit on ordinary activities after taxation of £1,248,000, representing (0.64p) per share compared with a deficit of £1,043,000 for the six months to 28 February 2014. 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.
Events during the Period
At the Company's Annual General Meeting on 16 December 2014, all resolutions were passed. A final dividend of 2.2p was paid to shareholders on 19 December 2014.
Outlook
The overriding concern of financial markets remains the heavy hand of policymakers. Europe has started its quantitative easing, but the US could soon tighten rates. The net impact on the global economy is hard to gauge. Meanwhile, a rising US dollar has clouded the timing of the Fed's impending rate hike. Continued dollar strength will hurt exports and constrain inflation, potentially stalling the US recovery. Not surprisingly, Fed chairman Yellen is now treading a more dovish path.
Nonetheless, US policy normalisation will happen, and along with that, repercussions for the rest of the world. For Asia, this may mean capital outflows and higher borrowing costs for companies owing to tighter liquidity and depreciating currencies vis-a-vis the US dollar. Increased uncertainty will undermine confidence and, in turn, curb consumer spending and investments.
The good thing is that Asian governments and central banks are already preparing for the inevitable, aided by benign inflation. Structural reform towards more domestically-based growth is also gathering pace. Over the long term, this will better insulate the region from external shocks.
Current conditions appear challenging for companies. The winners will be the ones in capable hands with good corporate governance that can continue to grow the business while keeping a tight rein on costs to protect margins; sub-standard ones will struggle to perform.
I am confident that your Manager's rigorous stock-picking investment style and the quality of the portfolio holdings will place your Company in good stead, and position it well for the future.
On a broader level, Asia remains a convincing long-term story, given its growing middle class with rising incomes that will underpin demand for many years to come.
For Edinburgh Dragon Trust plc
Allan McKenzie
Chairman
29 April 2015
INTERIM BOARD REPORT - OTHER
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 provision of investment management, marketing and administration services for the Company has been delegated to Aberdeen Fund Managers Limited ('AFML') 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. As part of that review, the Board assesses the Manager's succession plans, risk management framework and marketing activities. In addition, the Board visits the Manager's Singapore office, where the day-to-day investment management is undertaken, on a biennial 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 involves a greater degree of risk than that usually associated with investment in the major developed markets, including the 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, currency fluctuations and changes in interest rates may affect the value of the Company's investments and the income derived therefrom.
The Board continually monitors the investment policy of the Company, taking account of stockmarket factors, and reviews the Company's performance compared to its benchmark index and peer group. Further details on other risks relating to the Company's investment activities, including market price, liquidity and foreign currency risks, are provided in note 18 to the financial statements of the 2014 Annual Report.
Concentration risk
Trading volumes in certain securities of emerging markets can be low. The Investment Manager may accumulate investment positions across all its managed funds that represent a significant multiple of the normal trading volumes of an investment which may result in lack of liquidity and price volatility. Accordingly, the Company will not necessarily be able to realise, within a short period of time, an illiquid investment and any such realisation that may be achieved may be at considerably lower prices than the Company's valuation of that investment for the purpose of calculating the NAV per Ordinary Share.
Gearing risk
As at 28 February 2015 the Company had £59.8 million nominal of 3.5% Convertible Unsecured Loan Stock 2018 (CULS). Gearing has the effect of amplifying market falls and 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 the tax rules for investment companies, 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 buy back shares within certain limits.
Reliance on Third Party Service Providers
The Company has entered into a number of contracts with third party providers including share registrar and depositary services. Failure by any service provider to carry out its contractual obligations could have a detrimental impact on the Company operations. The performance of third party providers is reviewed on an annual basis.
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
29 April 2015
FINANCIAL HIGHLIGHTS
|
28 February 2015 |
31 August 2014 |
% change |
Equity shareholders' funds (£'000) |
620,735 |
603,077 |
+2.9 |
Net asset value per share |
316.2p |
307.1p |
+3.0 |
Share price (mid-market) |
281.0p |
272.5p |
+3.1 |
MSCI All Country Asia (ex Japan) Index (in sterling terms) |
712.2 |
677.3 |
+5.2 |
Discount to net asset value |
11.1% |
11.3% |
|
Net gearing{A} |
6.8% |
7.3% |
|
|
|
|
|
|
|
|
|
{A} Calculated in accordance with AIC guidance "Gearing Disclosures post RDR".
PERFORMANCE (TOTAL RETURN {B})
|
Six months ended |
Year ended |
Share price per share |
+4.0% |
+7.9% |
Net asset value per share |
+3.7% |
+10.4% |
MSCI All Country Asia (ex Japan) Index (in sterling terms) |
+5.9% |
+13.2% |
{B} Capital return plus dividends reinvested.
INVESTMENT PORTFOLIO
As at 28 February 2015
|
|
|
|
Total |
|
|
|
Valuation |
assets{C} |
Company |
Industry |
Country |
£'000 |
% |
Samsung Electronics Pref |
Technology Hardware Storage & Peripherals |
South Korea |
36,314 |
5.4 |
Oversea-Chinese Banking Corporation |
Banks |
Singapore |
32,787 |
4.8 |
Housing Development Finance Corp |
Thrifts & Mortgage Finance |
India |
32,532 |
4.7 |
Jardine Strategic Holdings |
Industrial Conglomerates |
Hong Kong |
30,473 |
4.5 |
AIA Group |
Insurance |
Hong Kong |
28,379 |
4.2 |
Taiwan Semiconductor Manufacturing Company |
Semiconductors & Semiconductor Equipment |
Taiwan |
27,213 |
4.0 |
China Mobile |
Wireless Telecommunication Services |
China |
26,502 |
3.9 |
Siam Cement (Alien) |
Construction Materials |
Thailand |
25,108 |
3.7 |
HSBC Holdings |
Banks |
Hong Kong |
23,061 |
3.4 |
United Overseas Bank |
Banks |
Singapore |
22,988 |
3.4 |
|
|
|
________ |
_______ |
Ten largest investments |
|
|
285,357 |
42.0 |
Standard Chartered{A} |
Banks |
United Kingdom |
22,350 |
3.3 |
Swire Pacific 'B' |
Real Estate Management & Development |
Hong Kong |
22,185 |
3.3 |
Singapore Telecommunications |
Diversified Telecommunication Services |
Singapore |
20,535 |
3.0 |
City Developments |
Real Estate Management & Development |
Singapore |
20,062 |
3.0 |
Infosys |
IT Services |
India |
19,226 |
2.8 |
Singapore Technologies Engineering |
Aerospace & Defence |
Singapore |
17,126 |
2.5 |
Grasim Industries |
Construction Materials |
India |
15,289 |
2.3 |
Taiwan Mobile |
Wireless Telecommunication Services |
Taiwan |
14,828 |
2.2 |
Ayala Land |
Real Estate Management & Development |
Philippines |
13,034 |
1.9 |
Bank of Philippine Islands |
Banks |
Philippines |
12,870 |
1.9 |
|
|
|
________ |
_______ |
Twenty largest investments |
|
|
462,862 |
68.2 |
John Keells Holdings{B} |
Industrial Conglomerates |
Sri Lanka |
12,753 |
1.9 |
Keppel Corp |
Industrial Conglomerates |
Singapore |
11,946 |
1.8 |
Dairy Farm International |
Food & Staples Retailing |
Hong Kong |
11,640 |
1.7 |
CNOOC |
Oil, Gas & Consumable Fuels |
China |
11,612 |
1.7 |
Hero Motocorp |
Automobiles |
India |
11,228 |
1.7 |
ICICI Bank |
Banks |
India |
9,850 |
1.5 |
DBS Group |
Banks |
Singapore |
9,396 |
1.4 |
PetroChina 'H' |
Oil, Gas & Consumable Fuels |
China |
9,052 |
1.3 |
Hang Lung Group |
Real Estate Management & Development |
Hong Kong |
8,789 |
1.3 |
Hang Lung Properties |
Real Estate Management & Development |
Hong Kong |
8,293 |
1.2 |
|
|
|
________ |
_______ |
Thirty largest investments |
|
|
567,421 |
83.7 |
PTT Exploration & Production (Alien) |
Oil, Gas & Consumable Fuels |
Thailand |
8,028 |
1.2 |
E-Mart Co |
Food & Staples Retailing |
South Korea |
7,900 |
1.2 |
ITC |
Tobacco |
India |
7,612 |
1.1 |
Public Bank |
Banks |
Malaysia |
6,983 |
1.0 |
CIMB Group Holdings |
Banks |
Malaysia |
6,576 |
1.0 |
British American Tobacco Malaysia |
Tobacco |
Malaysia |
6,451 |
1.0 |
Li & Fung |
Textiles, Apparel & Luxury Goods |
Hong Kong |
6,284 |
0.9 |
DFCC Bank |
Banks |
Sri Lanka |
6,094 |
0.9 |
Venture Corp |
Electronic Equipment Instruments & Components |
Singapore |
5,756 |
0.8 |
Swire Properties |
Real Estate Management & Development |
Hong Kong |
5,328 |
0.8 |
|
|
|
________ |
_______ |
Forty largest investments |
|
|
634,433 |
93.6 |
Unilever Indonesia |
Household Products |
Indonesia |
5,086 |
0.7 |
ASM Pacific Technology |
Semiconductors & Semiconductor Equipment |
Hong Kong |
4,716 |
0.7 |
Ultratech Cement |
Construction Materials |
India |
4,350 |
0.6 |
BS Financial Group |
Banks |
South Korea |
3,692 |
0.5 |
DGB Financial Group |
Banks |
South Korea |
3,507 |
0.5 |
China Resources Enterprise |
Food & Staples Retailing |
China |
2,867 |
0.4 |
MTR Corp |
Road & Rail |
Hong Kong |
1,946 |
0.3 |
Shinsegae Company |
Multiline Retail |
South Korea |
1,403 |
0.2 |
Global Brands Group |
Textiles, Apparel & Luxury Goods |
Hong Kong |
1,046 |
0.2 |
|
|
|
________ |
_______ |
Total investments |
|
|
663,046 |
97.7 |
Net current assets |
|
|
15,621 |
2.3 |
|
|
|
________ |
_______ |
Total assets{C} |
|
|
678,667 |
100.0 |
|
|
|
________ |
_______ |
{A} Valuation amalgamates both UK (£18,657,000) and Hong Kong (£3,693,000) listed equity holdings.
{B} Valuation amalgamates both equity (£12,541,000) and warrant (£212,000) holdings.
{C} Total assets less current liabilities.
INCOME STATEMENT
|
Six months ended 28 February 2015 |
||
|
(unaudited) |
||
|
Revenue |
Capital |
Total |
|
£'000 |
£'000 |
£'000 |
Gains on investments |
- |
23,470 |
23,470 |
Net currency losses |
- |
(32) |
(32) |
Income (note 2) |
3,863 |
- |
3,863 |
Investment management fee |
(3,079) |
- |
(3,079) |
Administrative expenses |
(514) |
- |
(514) |
|
_________ |
_________ |
_________ |
Net return before finance costs and taxation |
270 |
23,438 |
23,708 |
|
|
|
|
Interest payable and other charges |
(1,350) |
- |
(1,350) |
|
_________ |
_________ |
_________ |
Return on ordinary activities before taxation |
(1,080) |
23,438 |
22,358 |
|
|
|
|
Taxation (note 3) |
(168) |
- |
(168) |
|
_________ |
_________ |
_________ |
Return on ordinary activities after taxation |
(1,248) |
23,438 |
22,190 |
|
_________ |
_________ |
_________ |
Return per Ordinary share (pence)(note 4) |
|
|
|
Basic |
(0.64) |
11.94 |
11.30 |
|
_________ |
_________ |
_________ |
Diluted |
- |
10.87 |
10.82 |
|
_________ |
_________ |
_________ |
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. |
|
Six months ended 28 February 2014 |
||
|
(unaudited) |
||
|
Revenue |
Capital |
Total |
|
£'000 |
£'000 |
£'000 |
Losses on investments |
- |
(26,171) |
(26,171) |
Net currency losses |
- |
(86) |
(86) |
Income (note 2) |
3,887 |
- |
3,887 |
Investment management fee |
(2,683) |
- |
(2,683) |
Administrative expenses |
(636) |
- |
(636) |
|
_________ |
_________ |
_________ |
Net return before finance costs and taxation |
568 |
(26,257) |
(25,689) |
|
|
|
|
Interest payable and other charges |
(1,351) |
- |
(1,351) |
|
_________ |
_________ |
_________ |
Return on ordinary activities before taxation |
(783) |
(26,257) |
(27,040) |
|
|
|
|
Taxation (note 3) |
(260) |
- |
(260) |
|
_________ |
_________ |
_________ |
Return on ordinary activities after taxation |
(1,043) |
(26,257) |
(27,300) |
|
_________ |
_________ |
_________ |
Return per Ordinary share (pence)(note 4) |
|
|
|
Basic |
(0.53) |
(13.37) |
(13.90) |
|
_________ |
_________ |
_________ |
Diluted |
- |
- |
- |
|
_________ |
_________ |
_________ |
|
|
|
|
|
Year ended 31 August 2014 (audited) |
||
|
Revenue |
Capital |
Total |
|
£'000 |
£'000 |
£'000 |
Gains on investments |
- |
50,341 |
50,341 |
Currency losses |
- |
(43) |
(43) |
Income |
17,010 |
- |
17,010 |
Investment management fee |
(5,597) |
- |
(5,597) |
Administrative expenses |
(1,203) |
- |
(1,203) |
|
_______ |
_______ |
_______ |
Net return before finance costs and taxation |
10,210 |
50,298 |
60,508 |
|
|
|
|
Interest payable and similar charges |
(2,741) |
- |
(2,741) |
|
_______ |
_______ |
_______ |
Return on ordinary activities before taxation |
7,469 |
50,298 |
57,767 |
|
|
|
|
Taxation on ordinary activities |
(732) |
(6) |
(738) |
|
_______ |
_______ |
_______ |
Return on ordinary activities after taxation |
6,737 |
50,292 |
57,029 |
|
_______ |
_______ |
_______ |
|
|
|
|
Return per share (pence) |
|
|
|
Basic |
3.43 |
25.61 |
29.04 |
|
_______ |
_______ |
_______ |
Diluted |
n/a |
23.32 |
27.59 |
|
_______ |
_______ |
_______ |
|
|
|
|
BALANCE SHEET
|
|
As at |
As at |
As at |
|
|
28 February 2015 |
28 February 2014 |
31 August 2014 |
|
|
(unaudited) |
(unaudited) |
(audited) |
|
Notes |
£'000 |
£'000 |
£'000 |
Non-current assets |
|
|
|
|
Investments at fair value through profit or loss |
|
663,046 |
573,624 |
646,672 |
|
|
|
|
|
Current assets |
|
|
|
|
Debtors and prepayments |
9 |
1,787 |
1,777 |
2,850 |
Money market funds |
|
14,200 |
- |
7,000 |
Cash and short term deposits |
|
1,761 |
2,333 |
6,209 |
|
|
_______ |
_______ |
_______ |
|
|
17,748 |
4,110 |
16,059 |
|
|
_______ |
_______ |
_______ |
Creditors: amounts falling due within one year |
|
|
|
|
Other creditors |
|
(2,127) |
(1,697) |
(2,040) |
|
|
_______ |
_______ |
_______ |
Net current assets |
|
15,621 |
2,413 |
14,019 |
|
|
_______ |
_______ |
_______ |
Total assets less current liabilities |
|
678,667 |
576,037 |
660,691 |
|
|
|
|
|
Creditors: amounts falling due after more than one year |
|
|
|
|
3.5% Convertible Unsecured Loan Stock 2018 |
10 |
(57,932) |
(57,295) |
(57,614) |
|
|
_______ |
_______ |
_______ |
Net assets |
|
620,735 |
518,742 |
603,077 |
|
|
_______ |
_______ |
_______ |
Capital and reserves |
|
|
|
|
Called-up share capital |
|
39,260 |
39,275 |
39,275 |
Share premium account |
|
4,478 |
4,468 |
4,475 |
Special reserve |
|
6,511 |
6,726 |
6,726 |
Equity component of 3.5% Convertible Unsecured Loan Stock 2018 |
10 |
1,689 |
2,279 |
1,981 |
Capital redemption reserve |
|
16,960 |
16,945 |
16,945 |
Capital reserve |
6 |
534,550 |
434,563 |
511,112 |
Revenue reserve |
|
17,287 |
14,486 |
22,563 |
|
|
_______ |
_______ |
_______ |
Equity shareholders' funds |
|
620,735 |
518,742 |
603,077 |
|
|
_______ |
_______ |
_______ |
Net asset value per Ordinary share (pence) |
7 |
|
|
|
Basic |
|
316.21 |
264.16 |
307.10 |
Diluted |
|
314.81 |
n/a |
n/a |
|
|
|
|
|
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Six months ended 28 February 2015 (unaudited)
|
|
Share |
|
Equity |
Capital |
|
|
|
|
Share |
premium |
Special |
component |
redemption |
Capital |
Revenue |
|
|
capital |
account |
reserve |
CULS 2018 |
reserve |
reserve |
reserve |
Total |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
Balance at 31 August 2014 |
39,275 |
4,475 |
6,726 |
1,981 |
16,945 |
511,112 |
22,563 |
603,077 |
Return on ordinary activities after taxation |
- |
- |
- |
- |
- |
23,438 |
(1,248) |
22,190 |
Dividend paid |
- |
- |
- |
- |
- |
- |
(4,320) |
(4,320) |
Share Buybacks |
(15) |
- |
(215) |
- |
15 |
- |
- |
(215) |
Issue of new Ordinary shares from conversion of 3.5% Convertible Unsecured Loan Stock 2018 |
- |
3 |
- |
- |
- |
- |
- |
3 |
Transfer of notional interest element on 3.5% Convertible Unsecured Loan Stock 2018 |
- |
- |
- |
(292) |
- |
- |
292 |
- |
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
Balance at 28 February 2015 |
39,260 |
4,478 |
6,511 |
1,689 |
16,960 |
534,550 |
17,287 |
620,735 |
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
Six months ended 28 February 2014 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
Share |
|
Equity |
Capital |
|
|
|
|
Share |
premium |
Special |
component |
redemption |
Capital |
Revenue |
|
|
capital |
account |
reserve |
CULS 2018 |
reserve |
reserve |
reserve |
Total |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
Balance at 31 August 2013 |
39,274 |
4,452 |
6,726 |
2,572 |
16,945 |
460,820 |
19,557 |
550,346 |
Return on ordinary activities after taxation |
- |
- |
- |
- |
- |
(26,257) |
(1,043) |
(27,300) |
Dividend paid |
- |
- |
- |
- |
- |
- |
(4,320) |
(4,320) |
Issue of new Ordinary shares from conversion of 3.5% Convertible Unsecured Loan Stock 2018 |
1 |
16 |
- |
(1) |
- |
- |
- |
16 |
Transfer of notional interest element on 3.5% Convertible Unsecured Loan Stock 2018 |
- |
- |
- |
(292) |
- |
- |
292 |
- |
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
Balance at 28 February 2014 |
39,275 |
4,468 |
6,726 |
2,279 |
16,945 |
434,563 |
14,486 |
518,742 |
|
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
_____ |
For the year ended 31 August 2014 (audited)
|
|
Share |
|
Equity |
Capital |
|
|
|
|
Share |
premium |
Special |
component |
redemption |
Capital |
Revenue |
|
|
capital |
account |
reserve |
CULS 2018 |
reserve |
reserve |
reserve |
Total |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
Balance at 31 August 2013 |
39,274 |
4,452 |
6,726 |
2,572 |
16,945 |
460,820 |
19,557 |
550,346 |
Return on ordinary activities after taxation |
- |
- |
- |
- |
- |
50,292 |
6,737 |
57,029 |
Issue of new Ordinary shares from conversion of 3.5% Convertible Unsecured Loan Stock 2018 |
1 |
23 |
- |
(2) |
- |
- |
- |
22 |
Dividend paid |
- |
- |
- |
- |
- |
- |
(4,320) |
(4,320) |
Transfer of notional interest element on 3.5% Convertible Unsecured Loan Stock 2018 |
- |
- |
- |
(589) |
- |
- |
589 |
- |
|
______ |
______ |
______ |
______ |
______ |
______ |
______ |
______ |
Balance at 31 August 2014 |
39,275 |
4,475 |
6,726 |
1,981 |
16,945 |
511,112 |
22,563 |
603,077 |
|
______ |
______ |
______ |
______ |
______ |
______ |
______ |
______ |
CASHFLOW STATEMENT
|
Six months ended |
Six months ended |
Year ended |
|
28 February 2014 |
28 February 2014 |
31 August 2014 |
|
(unaudited) |
(unaudited) |
(audited) |
|
£'000 |
£'000 |
£'000 |
Net return on ordinary activities before finance costs and taxation |
23,708 |
(25,689) |
60,508 |
Adjustments for: |
|
|
|
Losses/(gains) on investments |
(23,470) |
26,171 |
(50,341) |
Currency losses |
32 |
86 |
43 |
Decrease in accrued income |
474 |
528 |
(263) |
(Increase)/decrease in other debtors |
(58) |
(12) |
25 |
(Decrease)/increase in creditors |
45 |
(99) |
110 |
|
_________ |
_________ |
_________ |
Net cash inflow from operating activities |
731 |
985 |
10,082 |
Net cash outflow from servicing of finance |
(1,047) |
(1,047) |
(2,094) |
Net tax paid |
(61) |
(115) |
(374) |
Net cash inflow/(outflow) from financial investment |
7,696 |
2,692 |
5,734 |
Purchase of money market funds |
(7,200) |
- |
(7,000) |
Equity dividend paid |
(4,320) |
(4,320) |
(4,320) |
Net cash outflow from financing |
(215) |
- |
- |
|
_________ |
_________ |
_________ |
(Decrease)/increase in cash |
(4,416) |
(1,805) |
2,028 |
|
_________ |
_________ |
_________ |
|
|
|
|
Reconciliation of net cash flow to movements in net debt |
|
|
|
(Decrease)/increase in cash as above |
(4,416) |
(1,805) |
2,028 |
Other non-cash movements |
(318) |
(305) |
(624) |
Net change in liquid resources |
7,200 |
- |
7,000 |
Exchange movements |
(32) |
(86) |
(43) |
|
_________ |
_________ |
_________ |
Movement in net debt in the period |
2,434 |
(2,196) |
8,361 |
Opening net debt |
(44,405) |
(52,766) |
(52,766) |
|
_________ |
_________ |
_________ |
Closing net debt |
(41,971) |
(54,962) |
(44,405) |
|
_________ |
_________ |
_________ |
NOTES
1. |
Accounting policies |
|
The financial statements 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 |
|
|
28 February 2015 |
28 February 2014 |
31 August 2014 |
2. |
Income |
£'000 |
£'000 |
£'000 |
|
Income from investments |
|
|
|
|
UK dividend income |
267 |
179 |
903 |
|
Overseas dividends |
3,580 |
3,558 |
13,714 |
|
Scrip dividends |
- |
148 |
2,381 |
|
|
_________ |
_________ |
_________ |
|
|
3,847 |
3,885 |
16,998 |
|
Other income |
_________ |
_________ |
_________ |
|
Deposit interest |
1 |
2 |
4 |
|
Interest from money market funds |
15 |
- |
8 |
|
|
_________ |
_________ |
_________ |
|
|
16 |
2 |
12 |
|
|
_________ |
_________ |
_________ |
|
Total income |
3,863 |
3,887 |
17,010 |
|
|
_________ |
_________ |
_________ |
3. |
The taxation for the period represents withholding tax suffered on overseas dividend income. An amount of £134,000 of recoverable Taiwan withholding tax was recognised in the six months to 28 February 2015.
|
|
|
Six months ended |
Six months ended |
Year ended |
|
|
28 February 2015 |
28 February 2014 |
31 August 2014 |
4. |
Return per Ordinary share |
p |
p |
p |
|
Basic |
|
|
|
|
Revenue return |
(0.64) |
(0.53) |
3.43 |
|
Capital return |
11.94 |
(13.37) |
25.61 |
|
|
_________ |
_________ |
_________ |
|
Total return |
11.30 |
(13.90) |
29.04 |
|
|
_________ |
_________ |
_________ |
|
The figures above are based on the following: |
|
|
|
|
|
£'000 |
£'000 |
£'000 |
|
Revenue return |
(1,248) |
(1,043) |
6,737 |
|
Capital return |
23,438 |
(26,257) |
50,292 |
|
|
_________ |
_________ |
_________ |
|
Total return |
22,190 |
(27,300) |
57,029 |
|
|
_________ |
_________ |
_________ |
|
Weighted average number of Ordinary shares in issue |
196,364,973 |
196,369,349 |
196,371,896 |
|
|
_________ |
_________ |
_________ |
|
|
Six months ended |
Six months ended |
Year ended |
|
|
28 February 2015 |
28 February 2014 |
31 August 2014 |
|
|
p |
p |
p |
|
Diluted |
|
|
|
|
Revenue return |
n/a |
n/a |
n/a |
|
Capital return |
10.87 |
n/a |
23.32 |
|
|
_________ |
_________ |
_________ |
|
Total return |
10.82 |
n/a |
27.59 |
|
|
_________ |
_________ |
_________ |
|
The figures above are based on the following: |
|
|
|
|
|
£'000 |
£'000 |
£'000 |
|
Revenue return |
(99) |
47 |
9,218 |
|
Capital return |
23,438 |
(26,257) |
50,292 |
|
|
_________ |
_________ |
_________ |
|
Total return |
23,339 |
(26,210) |
59,510 |
|
|
_________ |
_________ |
_________ |
|
Number of dilutive shares |
19,279,638 |
19,287,149 |
19,284,599 |
|
Diluted shares in issue |
215,644,611 |
215,656,498 |
215,656,495 |
|
|
|
|
|
|
|
|
|
|
|
The calculation of the diluted total, revenue and capital returns per Ordinary share is carried out in accordance with Financial Reporting Standard No. 22 "Earnings per Share". For the purpose of calculating diluted total, revenue and capital returns per Ordinary share, the number of Ordinary shares used is the weighted average number used in the basic calculation plus the number of Ordinary shares deemed to be issued for no consideration on exercise of all 3.5% Convertible Unsecured Loan Stock 2018 ("CULS"). |
|||
|
|
|||
|
As at 28 February 2015 and 31 August 2014 there was no dilution to the revenue return per Ordinary share. For the period ended 28 February 2014 the potential Ordinary shares were non dilutive as the Ordinary share price was below the CULS conversion price. Where dilution occurs, the net returns are adjusted for items relating to the CULS. Total earnings for the period are tested for dilution. Once dilution has been determined individual revenue and capital earnings are adjusted. Accrued CULS finance costs for the period and unamortised issue expenses are reversed.
|
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/(losses) on investments in the Income Statement. The total costs were as follows:
|
|||
|
|
|
|
|
|
|
Six months ended |
Six months ended |
Year ended |
|
|
28 February 2015 |
28 February 2014 |
31 August 2014 |
|
|
£'000 |
£'000 |
£'000 |
|
Purchases |
65 |
19 |
58 |
|
Sales |
136 |
55 |
101 |
|
|
_________ |
_________ |
_________ |
|
|
201 |
74 |
159 |
|
|
_________ |
_________ |
_________ |
6. |
Capital reserves |
|
The capital reserve reflected in the Balance Sheet at 28 February 2015 includes gains of £274,956,000 (28 February 2014 - £208,295,000; 31 August 2014 - £270,246,000) 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 2015 |
28 February 2014 |
31 August 2014 |
|
Basic |
|
|
|
|
Net assets attributable (£'000) |
620,735 |
518,742 |
603,077 |
|
Number of Ordinary shares in issue |
196,302,642 |
196,374,115 |
196,376,759 |
|
Net asset value per share (pence) |
316.21 |
264.16 |
307.10 |
|
|
_________ |
_________ |
_________ |
|
Diluted |
|
|
|
|
Net assets attributable assuming conversion of CULS (£'000) |
678,667 |
- |
- |
|
Number of potential Ordinary shares in issue |
215,581,488 |
196,374,115 |
196,376,759 |
|
Net asset value per share (pence) |
314.81 |
- |
- |
|
|
_________ |
_________ |
_________ |
|
The diluted net asset value per Ordinary share has been calculated in accordance with guidelines issued by the Association of Investment Companies ("AIC") on the assumption that the £59,793,881 nominal amount of 3.5% Convertible Unsecured Loan Stock 2018 ("CULS") are converted at a rate of 1 Ordinary share for every 310.1528p nominal of CULS at the period end, resulting in 19,278,846 additional Ordinary shares. Where dilution occurs, the net assets are adjusted for items relating to the CULS. |
|||
|
|
|||
|
Net asset value per share - debt converted |
|||
|
In accordance with AIC guidance, convertible bond instruments are deemed to be 'in the money' if the cum income (debt at fair value) net asset value ("NAV") exceeds the conversion price per share (310.1528p). In such circumstances a NAV is produced and disclosed assuming the convertible debt is fully converted. At 28 February 2015 the cum income (debt at fair value) NAV was 316.21p and thus the CULS were 'in the money'. At 28 February and 31 August 2014 the CULS were not 'in the money'.
|
|
|
Six months ended |
Six months ended |
Year ended |
|
|
28 February 2015 |
28 February 2014 |
31 August 2014 |
8. |
Dividends |
£'000 |
£'000 |
£'000 |
|
2013 final dividend - 2.2p |
- |
4,320 |
4,320 |
|
2014 final dividend - 2.2p |
4,320 |
- |
- |
|
|
_________ |
_________ |
_________ |
|
|
4,320 |
4,320 |
4,320 |
|
|
_________ |
_________ |
_________ |
|
|
|
|
|
|
There will be no interim dividend for the year to 31 August 2015 (2014 - nil) as the objective of the Company is long-term capital appreciation. |
9. |
Debtors and prepayments |
|
Included in debtors is an amount of USD 696,000 (28 February and 31 August 2014 - USD 696,000), equivalent to £451,000 (28 February 2014 - £415,000; 31 August 2014 - £405,000), being the estimated recovery of funds following the settlement between Aberdeen Asset Managers Limited and Satyam Computer Services in relation to a claim made following the discovery of a financial fraud, which lead to the sale of the stock at a weakened price. |
10. |
Creditors: amounts falling due after more than one year |
|
|
|
|
|
Number |
Liability |
Equity |
|
|
of units |
component |
component |
|
3.5% Convertible Unsecured Loan Stock 2018 ("CULS") |
£000 |
£000 |
£000 |
|
Balance at beginning of period |
59,797 |
57,614 |
1,981 |
|
Conversion of CULS into Ordinary shares |
(3) |
(3) |
- |
|
Notional interest element on CULS |
- |
292 |
- |
|
Notional interest element on CULS transferred to revenue reserve |
- |
- |
(292) |
|
Amortisation of issue expenses |
- |
29 |
- |
|
|
_________ |
_________ |
_________ |
|
Balance at end of period |
59,794 |
57,932 |
1,689 |
|
|
_________ |
_________ |
_________ |
|
|
|
|
|
|
|
|
|
|
|
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, 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, of which 100% 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. |
|||
|
|
|||
|
Following the receipt of election instructions from CULS holders, on 10 February 2015 the Company converted £2,743 nominal amount of CULS into 883 Ordinary shares. As at 28 February 2015, there was £59,793,881 nominal amount of CULS in issue. |
|||
|
|
11. |
Called-up share capital |
|
As at 28 February 2015 there were 196,302,642 (28 February 2014 - 196,374,115; 31 August 2014 - 196,376,759) Ordinary shares in issue. Following the period end a further 277,000 Ordinary shares have been bought back for cancellation and a further 479,630 Ordinary shares have been bought back for treasury resulting in there being 195,546,012 Ordinary shares in issue and 479,630 Ordinary shares held for treasury at the date this Report was approved. |
12. |
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 2015 and 28 February 2014 has not been audited. |
|
|
|
The information for the year ended 31 August 2014 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditor on those accounts contained no qualification or statement under Section 498 of the Companies Act 2006. |
|
|
|
The auditor has reviewed the financial information for the six months ended 28 February 2015 pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information. The report of the auditor is below. |
13. |
This Half-Yearly Financial Report was approved by the Board on 29 April 2015. |
14. 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 2015 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 REVIEW 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 2015 which comprises the Income Statement, Balance Sheet, Reconciliation of Movements in Shareholder's Funds, 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 Conduct Authority ("the UK FCA"). 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 FCA.
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 2015 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 FCA.
Philip Merchant
for and on behalf of KPMG LLP
Chartered Accountants
Edinburgh
29 April 2015