Annual Financial Report

RNS Number : 0144Q

Edinburgh Dragon Trust plc

01 November 2012

 



1 November 2012

EDINBURGH DRAGON TRUST plc

ANNUAL FINANCIAL REPORT FOR THE YEAR TO 31 AUGUST 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) Index.

•        In challenging markets, Edinburgh Dragon continued to deliver strong performance for the year to 31 August 2012,  The net asset value rose 6.7% on a total return basis compared to a decline of 0.3%, in sterling terms, in the MSCI All Country Asia (ex Japan) Index.

•        The Company's long term performance is good, delivering outperformance of 23.5% and 43.5%, relative to the benchmark, over three and five years respectively. 

•        Against a difficult global economic backdrop in general, Asia has coped adequately. Companies have kept their cost discipline, debt levels are low and cashflow is solid.  The Manager's conservative stock-picking approach of identifying companies that can adapt to tough times has served the Company well.

For further information please contact:-

Andrew Gillan, Senior Investment Manager,

Aberdeen Asset Management Asia                                                                                  0065 6395 2700

Kenny Harper, Manager - Investment Trust Investor Relations,                                           0131 528 4000

Aberdeen Asset Management

CHAIRMAN'S STATEMENT

Background

The year under review was marked by Europe's debt problems, a muted US recovery and, as a result, slowing growth in Asia. Despite these headwinds, I am happy to report that in the 12 months to 31 August 2012, the net asset value of your Company rose 6.7% on a total return basis compared to a 0.3% decline, in sterling terms, in the benchmark, the MSCI AC Asia ex Japan Index. During the year, the share price gained 4.7% to 237.3p. It is also pleasing to note your Company's outperformance of 23.5% and 43.5%, relative to the benchmark, over three and five years respectively. 

Overview

Regional markets suffered losses in the last few months of 2011 as an unfolding debt crisis threatened to engulf Europe. The new year, however, saw optimism return and equities rebound, helped largely by the massive liquidity injection in Europe and the Federal Reserve's pledge to keep interest rates low. Nevertheless, renewed speculation over Greece's potential exit from the Eurozone, as well as deteriorating economic data from Europe, the US, China and India, triggered a sell-off in May. The prospect of further central bank stimulus then led shares to rise again through the summer.

Over the period, China and India were the two worst-performing stockmarkets in the region. In contrast, the Asean bourses mostly outperformed the benchmark. Improving economic fundamentals lifted the Philippines, while Malaysia and Thailand were driven by government spending and local consumption. Singapore, meanwhile, benefited from investors' search for safe haven and good dividend yields.

Sluggish recovery in the United States and the turmoil in Europe took a toll on Asia's exports, notably from China.  China's slowdown, however, was partly the result of previous policy measures aimed at curbing inflation and defusing the property bubble. Of late, Beijing has reversed policy by boosting liquidity to the banking system. The same decisiveness cannot be said of India, whose problems have much to do with the slow pace of reforms. Government proposals to liberalise the retail sector (and, later, reduce costly fuel subsidies) were derailed by coalition politics. The majority Congress party's poor showing at key state elections in March underlined its ineffectiveness.

In spite of the above external weakness, certain regional economies were notably resilient. Indonesia and Thailand were examples of a broader trend, whereby local demand compensated for slowing exports. The Philippines saw healthy economic expansion thanks, largely, to lower interest rates and improved business sentiment. Given benign inflation, and to support growth, central banks in China, India, Indonesia, Korea and Thailand also lowered the cost of money and reduced the amount of cash that banks must hold as reserves. Should it be necessary, governments have room to spend more, with under-developed infrastructure an expected target.

Against a difficult global economic backdrop in general, Asia is coping well. Among your Company's holdings, profits have held up and there were only a few disappointments.

Gearing

At the year end the Company had in issue £59.8 million of 3.5% Convertible Unsecured Loan Stock 2018 (CULS), representing actual gearing of 10.3%.  The CULS provides the company with long-term structural gearing at an acceptable cost and is in line with the Manager's long-term investment philosophy.  The CULS provides holders with an attractive yield of 3.5% per annum, as well as capital protection (with the liability comfortably covered by the gross assets of the Company of £576 million).  Holders of CULS may convert part, or all, of their holdings into Ordinary shares on 31 January and 31 July each year up to January 2018 at a fixed price of 310.1528p nominal of CULS for one Ordinary share. 

Discount

The discount at which the Company's shares trade relative to their net asset value, as at 31 August 2012, was 10.4%.  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 within certain limits.  There were no buy-backs of shares during the financial year and there have been no buy-backs subsequent to the year end. 

The Board believes the authority to buy-back shares for cancellation should remain in place and, accordingly, a resolution to renew the authority to buy-back shares for cancellation will be proposed at this year's Annual General Meeting. 

Revenue Account

The revenue return per share was 3.30p, compared to 4.31p in the previous year.  The lower return in the revenue account has resulted from a full year's interest on the CULS being charged and a slightly lower level of dividends, including special dividends, being received.  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.  The Board recommends the payment of a final dividend of 2.2p per Ordinary share (2011 - 3.2p) which, if approved by shareholders at the Annual General Meeting, will be paid on 14 December 2012.

The Board

The Board welcomes greater transparency in the fulfilment of its responsibilities to shareholders. New appointments are now routinely facilitated by an external recruitment firm.  When appointing a new Director, the Board takes into account the diversity of the Board, the balance of skills, knowledge, experience and personality to complement the existing skills of the Board, as well as the ability of a new Director to devote sufficient time to the Company to carry out his or her duties effectively.

As part of a previously stated commitment to an orderly process of refreshment, the Board was pleased to appoint Kathryn Langridge as a non-executive Director of the Company on 29 October 2012.   Iain Watt, who has been a Director of Edinburgh Dragon Trust since launch, will step down at the forthcoming Annual General Meeting after many years of valuable service to the Board. The Board joins me in thanking Iain for his enormous contribution to the Board and Company and wish him all the very best for the future.

In accordance with the provisions of the UK Corporate Governance Code, the Board has endorsed corporate governance procedures whereby all Directors will retire from the Board and submit themselves for re-election on an annual basis. The Board recommends that shareholders vote in favour of the re-election of all Directors at the Annual General Meeting. 

In line with the recommendation of the UK Corporate Governance Code, the Board of Edinburgh Dragon Trust underwent an external evaluation during the year. Feedback from the evaluation confirmed that "The skills essential for the proper supervision of the activities of the Company appear to be present and the overall quality of the Board appears to be high. Board meetings are considered to be of a high standard, to be the right number and of the right length."

Annual General Meeting

The Annual General Meeting will be held at Aberdeen's London office on Tuesday 11 December 2012 at 12.00 noon followed by a lunch for shareholders.  This will give shareholders the opportunity to meet the Directors and Manager after the formal AGM business has concluded and we welcome all shareholders to attend. The AGM will continue to be rotated between Edinburgh and London in successive years.

The three-yearly resolution for the continuation of the Company as an investment trust will be proposed at the AGM.  Dragon is the largest investment trust specialising in the Asian (ex Japan) sector. The Board believes that the Company offers investors a broad and marketable exposure to Asian equity markets, many of which continue to provide attractive long-term investment opportunities in the region.  The Board believes that the prospects for Asian markets remain positive.  Given the Company's excellent long-term performance, including out-performance over 3 and 5 years, and that it is managed by one of the leading Asian fund managers, we strongly recommend that shareholders vote in favour of the resolution.

Outlook

At the time of writing, central banks have taken concerted action to stimulate the global economy. The European Central Bank and the Federal Reserve surprised investors with the open-ended nature of their commitments. However, this latest round of quantitative easing appears a double-edged sword. While it should be positive for equities in the near term, there are concerns in emerging economies that the influx of capital from yield-seeking investors could stoke inflationary pressures and lift asset prices. Any downward pressure on the US dollar will make Asian exports less competitive.

Various political risks also lie ahead. If US lawmakers allow tax rises and budget cuts to occur as scheduled on 1 January 2013 - the so-called "fiscal cliff" - the US could well slip into recession. An Obama re-election, alongside a Republican majority in the Senate, makes gridlock more likely. Meanwhile, China is due to hold its once-in-a-decade leadership transition in November..  

Against this backdrop, your Manager notes that, while corporate earnings growth is expected to be muted, there are few grounds for concern at this point. Companies have kept their cost discipline. Outside certain cyclical sectors such as mining, there is little evidence of excess capacity emerging. Debt levels are low and cashflow is solid. We believe your Manager's conservative stock-picking approach has identified companies that can adapt to tough times. This has certainly served your Company well in the past.

Allan McKenzie

Chairman

31 October 2012

MANAGER'S REVIEW

Background/Portfolio Review

The period under review was more challenging for Asia than the previous year as the weaker global growth outlook and the European debt crisis led to generally softer macroeconomic numbers. Despite that, the region's rate of economic growth was still healthier than that of the West. Inflation also receded across most of the region, allowing central banks to cut interest rates.

In terms of equity market performance, Asia's largest growth engines, namely China and India, were the main laggards while the Asean region outperformed once again, with the Philippines, Thailand and Malaysia all posting healthy gains. The portfolio benefited from the overweight to the Asean countries as well as the underweight to mainland China. As noted in the interim report, the overweight to India detracted, but this was mitigated by good performance from the portfolio's holdings relative to the Indian benchmark.

The Trust outperformed its benchmark for the 12 months to 31 August with the net asset value gaining 6.7%, compared with a 0.3% decline in the MSCI All Country Asia ex Japan index. Apart from fine performance of the Asean holdings, those in more defensive sectors, such as telecoms and consumer staples, also outperformed as the more secure earnings outlook underpinned valuations. Despite the portfolio's upbeat performance, it was not immune to earnings disappointments, in the cases of Infosys and Li & Fung, and news events such as the ongoing corruption investigation at Sun Hung Kai Properties and the regulatory probes at HSBC and Standard Chartered Bank.

It is worth emphasising that the portfolio's geographical preferences have remained fairly consistent over the long term and are a reflection of where we can find the best companies - at times this is in spite of a weaker macroeconomic environment. As noted last year, we continue to find China a challenging place to invest and prefer to gain exposure to the mainland via Hong Kong. This proved positive as slowing domestic growth, along with a number of corporate scandals, weighed on mainland shares. Conversely, the overweight to India and the non-benchmark exposure to Sri Lanka detracted as these markets, and more notably their currencies fell, owing to deteriorating fiscal positions. Encouragingly, the corporate results of our holdings in both markets were largely positive.

Turning towards stock selection, the portfolio's two Philippine holdings were among the top ten contributors. The improved domestic economic environment led to a pick-up in capital expenditure and investment, which in turn, benefited property developer Ayala Land and lender the Bank of the Philippine Islands (BPI). After posting record profits in 2011 and registering earnings growth of over 30%, Ayala Land maintained its positive trend in the first half of 2012, with a similar level of year-on-year growth. This is a result of the developer's strategy to target more market segments and, to a lesser extent, successful geographical expansion outside the capital Manila. BPI's interim 2012 profits surged more than 50% on the back of rising revenue, albeit the numbers were somewhat flattered by trading gains. The bank is conservatively run, well capitalised and has adequate room to grow its loan-to-deposit ratio from the current level of just over 60%.

The holdings in Hong Kong and Singapore also proved favourable, with Jardine Strategic and its affiliate Dairy Farm again performing well. Results were supportive, particularly within its consumer-related businesses. In Singapore, ST Engineering and City Developments (CDL) led performance. The aerospace and defence company gained from double-digit profit growth in the first half and continued to win new orders, while its dividend yield of over 4% remained appealing. CDL rebounded from prior weakness over the government's property cooling measures. House prices remain firm although price appreciation and transaction volumes slowed recently. The developer is well positioned given its good, low-cost land bank and variety of residential projects targeted at different market segments.

Elsewhere, Taiwan Mobile and Taiwan Semiconductor repeated their good performance. Taiwan Mobile's results were steady, with the acquisition of the Momo shopping network boosting revenue growth. While profit growth was more muted, good capital management underpinned the company's earnings. Taiwan Semiconductor's quarterly numbers were more volatile but the company maintained a healthy dividend payout, a net cash balance sheet and still managed profit growth in the first half of 2012. Continued growth in mobile computing should go on supporting the semiconductor industry in the years ahead.

The holdings in Thailand - PTTEP and Siam Cement - lagged the local market, although they had a decent performance the previous year. Both companies, being less exposed to the domestic economy, did not rebound to the same degree as those boosted by the recovery from last year's floods, while minimum wage hikes buoyed consumption. PTTEP, like other national energy companies, set off on an acquisition trail with the aim of securing future resources; the company purchased Cove Energy during the year. Siam Cement's profits fell from a year ago, primarily because of weaker petrochemical margins.

In India, both Infosys and Hero Motocorp underperformed. The IT Services company is exposed to both the financial services sector and the US market which slowed its growth momentum. However, Infosys continued to deliver decent earnings growth, boosted in part by rupee weakness, although the numbers undershot analysts' expectations. It was a different story for Hero Motocorp, which continued to report record quarterly sales volumes and profit growth throughout the review period. The second half of the calendar year, however, may prove a bit tougher as the currency weakness could put pressure on costs, while rural sales are dependent on the monsoon season. However, the company continues to invest in additional capacity and will target new export markets as it adjusts operationally without Honda's partnership.

Portfolio Activity

There was only one addition and two disposals during the year. As always, the bulk of our trading was done when pricing opportunities arose, with the aim of buying and holding the businesses that we chose to invest in. The new holding was Keppel Corporation, a leading Singapore-based conglomerate with a strong position in the offshore and marine segment. Despite operating in a cyclical industry, the company has established an excellent track record and its order book remains steady, given its ability to design proprietary jackups and semi-submersible rigs. We built up the position through the year and in a similar vein, we added to last year's new holdings in HSBC and AIA Group.

Against this we sold Indian fast-moving consumer goods company Hindustan Unilever and took partial profits in sister company, Unilever Indonesia. The companies performed well, both operationally and even stronger in share price terms, so valuations look relatively expensive. We maintained a holding in the Indonesian company given the less severe competitive environment compared to India and the higher margins of the business there. In fairness, both companies have continued to perform well but we will maintain our pricing discipline as much as possible.

We also sold the small holding in Dah Sing Banking. Although cheap, well-capitalised and always mooted as a potential takeover target by larger mainland institutions, the operating numbers disappointed, with net interest margins contracting on the back of competition and further provisions taken for its treasury portfolio. We took the decision to transfer this exposure to larger financials, HSBC and AIA Group.

Other trading activities were more opportunistic and those worthy of specific mention include the following: we topped up Infosys and DFCC Bank on weakness and added to Hong Kong property stocks, Hang Lung Group and Swire Pacific, during the September 2011 market sell-off. We also topsliced positions in more defensive companies, such as BAT Malaysia, Singapore Telecom and Taiwan Mobile following their strong relative performance and reallocated the proceeds to stocks that fell to more attractive levels. These included Grasim, Petrochina and Siam Cement. We took partial profits from ASM Pacific earlier, then bought back shares towards the end of the financial year following a period of underperformance.

Outlook

As the Chairman highlighted, the outlook for corporate earnings growth in the region has moderated but remains positive. While inflationary pressures have eased, we cannot be certain that they will not resurface. Importantly, the valuations of Edinburgh Dragon Trust's underlying companies remain very reasonable, although many consumer-related companies appear to be trading on more expensive multiples, given the positive demographics and rising income levels across much of the region. As ever, the bulk of the portfolio's companies have solid balance sheets; all have experienced management teams and good market positions and we are confident in the future of their businesses.

Aberdeen Asset Management Asia Limited*

* on behalf of Aberdeen Asset Managers Limited

31 October 2012

THE INVESTMENT PROCESS 

Philosophy and Style

Our investment philosophy is that markets are not always efficient. We believe that superior investment returns are therefore attainable by identifying good companies which are cheap in terms of the fundamentals that in our opinion drive share prices over the long term. We undertake substantial due diligence before initiating any investment including company visits in order to assure ourselves of the quality of the prospective investment. We are then careful not to pay too high a price when making the investment. Subsequent to that investment we then keep in close touch with the company, aiming to meet management at least twice a year. Given our long-term fundamental investment philosophy, one would not expect much change in the companies in which we invest. We do, however, take opportunities offered to us by what we see as anomalous price movements within stock markets to either top up or top slice positions, which typically accounts for the bulk of the activity within the portfolio during the year under review.

AAM Asia is based in Singapore. Founded in 1992, the office is run by Hugh Young, the founding managing director who oversees a team of portfolio managers in Singapore who act as generalists, cross-covering the region. In addition, AAM Asia has offices in Kuala Lumpur, Hong Kong, Sydney, Taipei, Tokyo and Bangkok.

Risk Controls

We seek to minimise risk by our in-depth research. We do not view divergence from a benchmark as risk - we view investment in poorly run expensive companies that we do not understand as risk. In fact where risk parameters are expressed in benchmark relative terms, asset - including sector - allocation constitutes a significant constraint on stock selection. Hence diversification of stocks provides our main control.

Aberdeen's performance and investment risk unit independently monitors portfolio positions, and reports monthly. As well as attributing performance it also produces statistical analysis, which is used by the Manager primarily to check the portfolio is behaving as expected, not as a predictive tool.

PERFORMANCE TABLES

	31 August 2012	31 August 2011	% change
Performance
Equity shareholders' funds (£'000)	519,765	493,555	+5.3
Net asset value per share (including net revenue) (p)	264.70	251.37	+5.3
Share price (p)	237.30	230.00	+3.2
MSCI AC Asia (ex Japan) Index (in sterling terms; capital return basis)	572.34	590.17	-3.0
Revenue return per share (p)	3.30	4.31
Total return per share (p)	16.53	11.07
Gearing
Maximum potential gearing (%){A}	10.8	11.3
Actual gearing (%){B}	10.3	9.9
Discount
Level of discount at which the shares trade (%)	10.4	8.5
Operating costs
Ongoing charges ratio{C}	1.25	1.22
{A}    Maximum potential gearing ratio is calculated as the total of the liability component of £56.4m (2011 - £55.8m) of the Convertible Unsecured Loan Stock divided by net assets.
{B}     Actual gearing ratio calculated as the total of the liability component of £56.4m (2011 - £55.8m) of the Convertible Unsecured Loan Stock less the cash and short term deposits, divided by net assets.
{C}    Ongoing charges ratio is calculated in accordance with recent guidance issued by the AIC as the total of the investment management fee and ongoing administrative expenses divided by the average undiluted net asset value in the year. The figure for 2011 has been restated, in line with this new guidance.

Performance (total return)
	1 year	3 year	5 year
	% return	% return	% return
Share Price	4.7%	46.2%	73.4%
Net Asset Value	6.7%	51.9%	71.2%
MSCI AC Asia ex Japan Index	-0.3%	28.4%	27.7%
Performance (capital return)
	1 year	3 year	5 year
	% return	% return	% return
Share Price	3.2%	41.8%	64.5%
Net Asset Value	5.3%	47.6%	63.2%
MSCI AC Asia ex Japan Index	-3.0%	18.8%	11.8%

Changes in Asset Distribution

	Value at		Sales	Gains/	Value at
	31 August 2011	Purchases	proceeds	(losses)	31 August 2012
Country	£'000	£'000	£'000	£'000	£'000
China	39,330	2,774	-	424	42,528
Hong Kong	145,184	13,963	7,705	7,620	159,062
India	79,713	5,272	4,801	(6,275)	73,909
Indonesia	9,250	-	1,791	3,285	10,744
Malaysia	20,496	-	954	3,477	23,019
Philippines	16,777	-	-	6,453	23,230
Singapore	108,009	8,822	4,742	8,756	120,845
South Korea	41,531	-	-	2,058	43,589
Sri Lanka	15,229	528	-	(3,269)	12,488
Taiwan	33,293	-	4,762	6,624	35,155
Thailand	32,427	2,373	2,609	(3,158)	29,033
	_________	_________	_________	_________	_________
Total investments	541,239	33,732	27,364	25,995	573,602
Net current assets	8,066	-	-	(5,537)	2,529
	_________	_________	_________	_________	_________
Total assets less current liabilities	549,305	33,732	27,364	20,458	576,131
	_________	_________	_________	_________	_________

BUSINESS REVIEW

This Business Review, in conjunction with the rest of the Report and Accounts, is intended to provide shareholders with the information and measures that the Directors use to assess, direct and oversee the Manager in the management of the Company's portfolio. The Business Review is prepared in accordance with the requirements of Section 417 of the Companies Act 2006.

Principal Activity

The Company is registered as a public limited company in Scotland and is an investment company as defined by Section 833 of the Companies Act 2006. The Company's registration number is SC106049.

The Company carries on business as an investment trust and the Directors do not envisage any change in this activity in the foreseeable future. The Company has received requisite approval of investment trust status from HM Revenue and Customs for accounting periods up to and including 31 August 2011.

The Directors are of the opinion, under advice, that the Company has conducted its affairs for the year ended 31 August 2012 so as to be able to obtain approval as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010 and the Investment Trust (Approved Company) (Tax) Regulations 2011 for that year, although approval for the period would be subject to review were there to be any enquiry under the Corporation Tax Self Assessment regime.

The Company has conducted its affairs so as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner.

Investment Objective and Policy

The Company's objective is to achieve long term capital growth through investment in the Far East. The Company's benchmark is the MSCI All Country Asia (ex Japan) Index.  Investments are made in stock markets in the region with the exception of Japan and Australasia, principally in large companies. 

Review of Performance

An outline of the performance, market background, investment activity and portfolio strategy during the year under review, as well as the investment outlook, is provided in the Chairman's Statement and Manager's Review.

Future Trends

The region's economies have high rates of growth, strong trade and fiscal surpluses and rapidly developing capital markets. Nevertheless the past has demonstrated regional risks and the outlook for the region is provided in the Chairman's Statement and Manager's Review.

Risk Management

The major risks associated with the Company are detailed below:

·         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') 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 involves a greater degree of risk than that usually associated with investment in the major 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 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 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. 

·         Gearing risk: As at 31 August 2012 the Company had £59.8 million nominal of 3.5% Convertible Unsecured Loan Stock 2018 (CULS).  Gearing has the effect of exacerbating 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.

Monitoring Performance - Key Performance Indicators

At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives. The key performance indicators (KPIs) are established industry measures, and are as follows:

· Net asset value (total return)

· Share price (total return)

· Performance attribution

· Discount to net asset value

An analysis of these measures is disclosed above.  Performance is measured against the Company's benchmark, the MSCI All Country Asia (ex Japan) Index and the Board also considers peer group comparative performance. 

Social, Community, Employee Responsibilities and Environmental Policy

As an investment trust, the Company has no employees and has no direct social, community, employee or environmental responsibilities. Details of the Company's Socially Responsible Investment policy are set out in the Corporate Governance Report.

DIRECTOR'S RESPONSIBILITY STATEMENT

The Directors are responsible for preparing the annual report and accounts in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period.  In preparing these financial statements, the Directors are required to:

·         select suitable accounting policies and then apply them consistently;

·         make judgments and estimates that are reasonable and prudent;

·         state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

·         prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors confirm that to the best of their knowledge that:

·         the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

·         the Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.

For Edinburgh Dragon Trust plc

Allan McKenzie

Chairman

31 October 2012

INCOME STATEMENT

		Year ended 31 August 2012			Year ended 31 August 2011
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments held at fair value through profit or loss	9	-	25,995	25,995	-	12,809	12,809
Currency (losses)/gains		-	(14)	(14)	-	460	460
Income	2	16,054	-	16,054	17,075	-	17,075
VAT recovered on investment management fees	3	-	-	-	7	-	7
Investment management fee	3	(5,009)	-	(5,009)	(5,058)	-	(5,058)
Administration expenses	4	(1,233)	-	(1,233)	(1,185)	-	(1,185)
		_______	_____	_____	_______	_____	_____
Net return before finance costs and taxation		9,812	25,981	35,793	10,839	13,269	24,108
Interest payable and similar charges	5	(2,752)	-	(2,752)	(1,808)	-	(1,808)
		_______	_____	_____	_______	_____	_____
Return on ordinary activities before taxation		7,060	25,981	33,041	9,031	13,269	22,300
Taxation on ordinary activities	6	(588)	-	(588)	(574)	-	(574)
		_______	_____	_____	_______	_____	_____
Return on ordinary activities after taxation		6,472	25,981	32,453	8,457	13,269	21,726
		_______	_____	_____	_______	_____	_____
Return per share (pence)
Basic and diluted	8	3.30	13.23	16.53	4.31	6.76	11.07
		_______	_____	_____	_______	_____	_____
The total column of this statement represents the profit and loss account of the Company.
A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement.
All revenue and capital items in the above statement derive from continuing operations.
The accompanying notes are an integral part of the financial statements.

BALANCE SHEET (audited)

		As at	As at
		31 August 2012	31 August 2011
	Notes	£'000	£'000
Non-current assets
Investments at fair value through profit or loss	9	573,602	541,239
		____________	____________
Current assets
Debtors and prepayments	10	1,598	2,795
Cash and short term deposits		2,651	6,930
		____________	____________
		4,249	9,725
		____________	____________
Creditors: amounts falling due within one year
Other creditors	11	(1,720)	(1,659)
		____________	____________
Net current assets		2,529	8,066
		____________	____________
Total assets less current liabilities		576,131	549,305
Non-current liabilities
3.5% Convertible Unsecured Loan Stock 2018	12	(56,366)	(55,750)
		____________	____________
Net assets		519,765	493,555
		____________	____________
Share capital and reserves
Called-up share capital	13	39,272	39,269
Share premium account		4,427	4,387
Special reserve		6,726	6,726
Equity component of 3.5% Convertible Unsecured Loan Stock 2018	12	3,163	4,126
Capital redemption reserve		16,945	16,945
Capital reserve	14	432,669	406,688
Revenue reserve		16,563	15,414
		____________	____________
Equity shareholders' funds	14	519,765	493,555
		____________	____________
Net asset value per Ordinary share (pence)	14	264.70	251.37
		____________	____________

RECONCILIATION OF MOVEMENT IN SHAREHOLDERS FUNDS (audited)

For the year ended 31 August 2012
		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 2011	39,269	4,387	6,726	4,126	16,945	406,688	15,414	493,555
Return on ordinary activities after taxation	-	-	-	-	-	25,981	6,472	32,453
Issue of new Ordinary shares from conversion of 3.5% Convertible Unsecured Loan Stock 2018	3	40	-	(3)	-	-	-	40
Dividend paid	-	-	-	-	-	-	(6,283)	(6,283)
Transfer of notional interest element on 3.5% Convertible Unsecured Loan Stock 2018	-	-	-	(960)	-	-	960	-
	______	______	______	______	______	______	______	______
Balance at 31 August 2012	39,272	4,427	6,726	3,163	16,945	432,669	16,563	519,765
	______	______	______	______	______	______	______	______
For the year ended 31 August 2011
		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 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
	______	______	______	______	______	______	______	______
The capital reserve includes investment holding gains amounting to £232,881,000 (2011 - £217,280,000), as disclosed in note 9.
The revenue reserve represents the amount of the Company's reserves distributable by way of dividend.
The accompanying notes are an integral part of the financial statements.

CASHFLOW STATEMENT (audited)

		Year ended		Year ended
		31 August 2012		31 August 2011
	Notes	£'000	£'000	£'000	£'000
Net cash inflow from operating activities	15		9,819		10,225
Servicing of finance
Bank, loan and CULS interest paid			(2,096)		(1,191)
Taxation
Net tax paid			(579)		(583)
Financial investment
Purchases of investments		(33,721)		(90,751)
Sales of investments		28,595		28,451
		_______		_______
Net cash outflow from financial investment			(5,126)		(62,300)
Equity dividend paid			(6,283)		(3,730)
			_______		_______
Net cash outflow before financing			(4,265)		(57,579)
Financing
Issue of 3.5% Convertible Unsecured Loan Stock 2018			-		60,400
Expenses re the issue of 3.5% Convertible Unsecured Loan Stock 2018			-		(876)
			_______		_______
Net cash inflow from financing			-		59,524
			_______		_______
(Decrease)/increase in cash	16		(4,265)		1,945
			_______		_______
Reconciliation of net cash inflow to movements in net funds
(Decrease)/increase in cash as above			(4,265)		1,945
Exchange movements			(14)		460
			_______		_______
Movement in net funds in the year			(4,279)		2,405
Net funds at 1 September			6,930		4,525
			_______		_______
Net funds at 31 August			2,651		6,930
			_______		_______

NOTES TO THE ACCOUNTS (audited)

1.	Accounting policies
	(a)	Basis of accounting
		The financial statements have been prepared under the historical cost convention, as modified to include the revaluation of investments and in accordance with the applicable UK Accounting Standards 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 have been prepared on a going concern basis.
		The financial statements, and the net asset value per share figures, have been prepared in accordance with UK Generally Accepted Accounting Practice ('UK GAAP').
	(b)	Investments
		Listed investments have been designated upon initial recognition as fair value through profit or loss. Investments are recognised and de-recognised on the trade date at fair value, which is generally deemed to be the cost of the investment at that point. Subsequent to initial recognition, investments are valued at fair value, which for listed investments is deemed to be bid market prices or closing prices for SETS (London Stock Exchange's electronic trading service) stocks sourced from the London Stock Exchange. Gains and losses arising from changes in fair value are included as a capital item in the Income Statement and are ultimately recognised in the capital reserve.
	(c)	Income
		Dividends (other than special dividends), including taxes deducted at source, are included in revenue by reference to the date on which the investment is quoted ex-dividend. Special dividends are reviewed on a case-by-case basis and may be credited to capital, if circumstances dictate. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Fixed returns on non-equity shares are recognised on a time-apportioned basis so as to reflect the effective yield on shares. Other returns on non-equity shares are recognised when the right to return is established. The fixed return on a debt security, if material, is recognised on a time apportioned basis so as to reflect the effective yield on each security. Where the Company has elected to receive its dividends in the form of additional shares rather than cash, the amount of the foregone cash dividend is recognised as income. Any excess in the value of the shares received over the amount of cash dividend foregone is recognised in capital reserves. Interest receivable on bank balances is dealt with on an accruals basis.
	(d)	Expenses
		All expenses are accounted for on an accruals basis. Expenses are charged through the revenue column of the Income Statement with the exception of expenses directly relating to the acquisition or disposal of an investment, in which case, they are added to the cost of the investment or deducted from the sale proceeds. Such transaction costs are disclosed in accordance with the SORP. These expenses are charged to the capital column of the Income Statement and are separately identified and disclosed in note 9.
	(e)	Deferred taxation
		Deferred taxation is provided on all timing differences, that have originated but not reversed at the Balance Sheet date, where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred at the Balance Sheet date, measured on an undiscounted basis and based on enacted tax rates. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the accounts which are capable of reversal in one or more subsequent periods. Due to the Company's status as an investment trust company, and the intention to continue to meet the conditions required to obtain approval for the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.
	(f)	Capital reserves
		Gains and losses on investments and changes in fair values of investments which are readily convertible to cash, without accepting adverse terms, are transferred to the capital reserve.
	(g)	Foreign currency
		Assets and liabilities in foreign currencies are translated at the rates of exchange ruling on the Balance Sheet date. Transactions involving foreign currencies are converted at the rate ruling on the date of the transaction. Gains and losses on the realisation of foreign currencies are recognised in the Income Statement and are then transferred to the capital reserve.
	(h)	Dividends payable
		Final dividends are dealt with in the period in which they are paid.
	(i)	3.5% Convertible Unsecured Loan Stock 2018
		Convertible Unsecured Loan Stock ("CULS") issued by the Company is regarded as a compound instrument, comprising of a liability component and an equity component. At the date of issue, the fair value of the liability component was estimated by assuming that an equivalent non-convertible obligation of the Company would have a coupon rate of 4.662%. The fair value of the equity component, representing the option to convert liability into equity, is derived from the difference between the issue proceeds of the CULS and the fair value assigned to the liability. The liability component is subsequently measured at amortised cost using the effective cost interest rate.
		Direct expenses associated with the CULS issue are allocated to the liability and equity components in proportion to the split of the proceeds of the issue. Expenses allocated to the liability component are amortised over the life of the instrument.
		The interest expense on the CULS is calculated according to the effective interest rate method by applying the assumed rate of 4.662% at initial recognition to the liability component of the instrument. The difference between this amount and the interest paid is added to the carrying liability of the CULS.
		On conversion of CULS, equity is issued and the liability component is derecognised. The original equity component recognised at inception remains in equity. No gain or loss is recognised on conversion.
		When CULS is repurchased for cancellation, the fair value of the liability at the redemption date is compared to its carrying amount, giving rise to a gain or loss on redemption that is recognised through profit or loss. The amount of consideration allocated to equity is recognised in equity with no gain or loss being recognised.
		In the event of a winding-up of the Company the rights and claims of the Trustee and CULS holders would be subordinate to the claims of all creditors in respect of the Company's secured and unsecured borrowings, under the terms of the Trust Deed.

		2012	2011
2.	Income	£'000	£'000
	Income from investments
	UK dividend income	1,460	653
	Overseas dividend income	14,390	14,791
	Scrip dividends	195	1,623
		_______	_______
		16,045	17,067
		_______	_______
	Other income
	Deposit interest	8	8
	Interest from UK Treasury Bills	1	-
		_______	_______
		9	8
		_______	_______
	Total income	16,054	17,075
		_______	_______
		2012	2011
	Income from investments	£'000	£'000
	Listed UK	626	482
	Listed overseas	15,419	16,585
		_______	_______
		16,045	17,067
		_______	_______

		2012			2011
		Revenue	Capital	Total	Revenue	Capital	Total
3.	Investment management fee	£'000	£'000	£'000	£'000	£'000	£'000
	Investment management fee	5,009	-	5,009	5,058	-	5,058
		_______	_______	_______	_______	_______	_______
	The management fee paid to Aberdeen Asset Managers Limited ('the Manager') is 0.25% per quarter of the total net assets less (i) the value of any investment funds managed by the Manager and (ii) 50% of the value of any investment funds managed or advised by investment managers other than the Manager.
	The management agreement is terminable by the Company on three months' notice or in the event of a change of control in the ownership of the Manager. The notice period required by the Manager is six months.

		2012	2011
4.	Administrative expenses	£'000	£'000
	Share Plan marketing contribution	205	187
	Directors' fees	152	125
	Safe custody fees	395	406
	Auditor's remuneration:
	Fees payable to the Company's auditor for the audit of the Company's annual accounts	16	20
	Fees payable to the Company's auditor for the review of the Company's half yearly accounts	5	4
	Secretarial fee	103	93
	Other expenses	357	350
		_______	_______
		1,233	1,185
		_______	_______
	The secretarial fee is paid to the Manager and adjusted annually in line with the Retail Prices Index. The contribution to Share Plan Marketing was paid to the Manager in respect of marketing and promotion of the Company.
	The audit fee of £20,000 for the year ended 31 August 2011 included an amount of £5,000 paid to KPMG for additional audit work related to the issue of Convertible Unsecured Loan Stock 2018. No additional fees were due to KPMG for the year ended 31 August 2012.
	No pension contributions were made in respect of any of the Directors.
	The Company does not have any employees.

		2012	2011
5.	Interest payable and similar charges	£'000	£'000
	Loans repayable in less than 1 year	-	10
	Interest on 3.5% Convertible Unsecured Loan Stock 2018	2,096	1,337
	Notional interest on 3.5% Convertible Unsecured Loan Stock 2018	596	364
	Amortisation of 3.5% Convertible Unsecured Loan Stock 2018 issue expenses	60	97
		_______	_______
		2,752	1,808
		_______	_______

			2012			2011
			Revenue	Capital	Total	Revenue	Capital	Total
6.	Taxation		£'000	£'000	£'000	£'000	£'000	£'000
	(a)	Analysis of charge for the year
		Irrecoverable overseas withholding tax	588	-	588	574	-	574
			_______	_____	_____	______	______	______
		Taxation on ordinary activities	588	-	588	574	-	574
			_______	_____	_____	______	______	______
	(b)	Factors affecting the tax charge for the year
		The tax assessed for the year is lower than the effective rate of corporation tax in the UK.
			2012			2011
			Revenue	Capital	Total	Revenue	Capital	Total
			£'000	£'000	£'000	£'000	£'000	£'000
		Return on ordinary activities before taxation	7,060	25,981	33,041	9,031	13,269	22,300
			_______	_____	_____	______	______	______
		Effective rate of corporation tax at 25.17% (2011 - 27.17%)	1,777	6,539	8,316	2,454	3,605	6,059
		Effects of:
		UK dividend income	(367)	-	(367)	(178)	-	(178)
		Gains on investments not taxable	-	(6,543)	(6,543)	-	(3,480)	(3,480)
		Currency losses/(gains) not taxable	-	4	4	-	(125)	(125)
		Other non-taxable income	(3,671)	-	(3,671)	(4,459)	-	(4,459)
		Increase in excess expenses and loan relationship deficit	2,261	-	2,261	2,183	-	2,183
		Irrecoverable overseas withholding tax	588	-	588	574	-	574
			_______	_____	_____	_______	_______	_______
		Current tax charge for year	588	-	588	574	-	574
			_______	_____	_____	_______	_______	_______
	(c)	Provision for deferred taxation
		No provision for deferred taxation has been made in the current year or in the prior year.
		The Company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of investments as it is exempt from tax on these items because of its status as an investment trust company.
	(d)	Factors that may affect future tax charges
		The Company has not recognised a deferred tax asset £5,495,000 (2011 - £3,617,000) arising as a result of excess management expenses and non-trade loan relationship deficits. These expenses will only be utilised if the Company has profits chargeable to corporation tax in the future.

7.	Dividends
	In order to comply with the requirements of Sections 1158 -1159 of the Corporation Tax Act 2010 and with company law, the Company is required to make a final dividend distribution.
	The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.
	The table below sets out the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158 - 1159 are considered. The revenue available for distribution by way of dividend for the year is £6,472,000 (2011 - £8,457,000).
		2012	2011
		£'000	£'000
	Proposed final dividend for 2012 - 2.20p per Ordinary share (2011 - 3.20p)	4,320	6,283
		_______	_____
	The final dividend will be paid on 14 December 2012 to shareholders on the register at the close of business on 16 November 2012.

		2012		2011
8.	Return per Ordinary share	£'000	pence	£'000	pence
	Revenue return	6,472	3.30	8,457	4.31
	Capital return	25,981	13.23	13,269	6.76
		_______	_______	_______	______
	Total return	32,453	16.53	21,726	11.07
		_______	_______	_______	______
	Weighted average Ordinary shares in issue		196,349,420		196,313,144
			_________		_________
	The impact of the 3.5% Convertible Unsecured Loan Stock 2018 issued in January 2011 on both the revenue return per Ordinary share and total return per Ordinary share was anti-dilutive for the year ended 31 August 2012 and 31 August 2011.

		Listed	Listed
		overseas	in UK	Total
9.	Investments	£'000	£'000	£'000
	Fair value through profit or loss:
	Opening book cost	308,070	15,889	323,959
	Opening fair value gains/(losses) on investments held	217,619	(339)	217,280
		_______	_______	_______
	Opening fair value	525,689	15,550	541,239
	Movements in year:
	Purchases at cost	31,094	2,638	33,732
	Sales - proceeds	(27,364)	-	(27,364)
	Sales - gains on sales	10,394	-	10,394
	Current year fair value gains/(losses) on investments held	15,661	(60)	15,601
		_______	_______	_______
	Closing fair value	555,474	18,128	573,602
		_______	_______	_______
		Listed	Listed
		overseas	in UK	Total
		£'000	£'000	£'000
	Closing book cost	322,194	18,527	340,721
	Closing fair value gains/(losses) on investments held	233,280	(399)	232,881
		_______	_______	_______
	Closing fair value	555,474	18,128	573,602
		_______	_______	_______
			2012	2011
			£'000	£'000
	Listed on a recognised overseas investment exchange		555,474	525,689
	Listed in the UK		18,128	15,550
			_______	_______
			573,602	541,239
			_______	_______
			2012	2011
	Gains on investments held at fair value through profit or loss		£'000	£'000
	Realised gains on sales		10,394	16,031
	Increase/(decrease) in fair value gains on investments held		15,601	(3,222)
			_______	_______
			25,995	12,809
			_______	_______
	Transaction costs
	During the year 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:
			2012	2011
			£'000	£'000
	Purchases		106	209
	Sales		84	70
			_______	_______
			190	279
			_______	_______

		2012	2011
10.	Debtors and prepayments	£'000	£'000
	Accrued income	1,528	1,497
	Amounts due from brokers	-	1,231
	Overseas withholding tax recoverable	-	9
	Other debtors and prepayments	70	58
		_______	_______
		1,598	2,795
		_______	_______

		2012	2011
11.	Creditors: amounts falling due within one year	£'000	£'000
	Amounts due to brokers	11	-
	Other creditors	1,709	1,659
		_______	_______
		1,720	1,659
		_______	_______

12.	Non-current liabilities
	3.5% Convertible Unsecured Loan Stock 2018
		Number	Liability	Equity
		of units	component	component
		£'000	£'000	£'000
	Balance at 31 August 2011	59,891	55,750	4,126
	Conversion of 3.5% Convertible Unsecured Loan Stock 2018 into Ordinary shares	(43)	(40)	(3)
	Notional interest on 3.5% Convertible Unsecured Loan Stock 2018	-	596	-
	Notional interest on 3.5% Convertible Unsecured Loan Stock 2018 transferred to revenue reserve	-	-	(960)
	Amortisation of issue expenses (see note 1(i))	-	60	-
		_______	_______	_______
	Balance at 31 August 2012	59,848	56,366	3,163
		_______	_______	_______
		Number	Liability	Equity
		of units	component	component
		£'000	£'000	£'000
	Balance at 31 August 2010	-	-	-
	Issue of 3.5% Convertible Unsecured Loan Stock 2018	60,000	55,894	4,106
	Premium on issue	-	373	27
	Expenses of the issue	-	(816)	-
	Conversion of 3.5% Convertible Unsecured Loan Stock 2018 into Ordinary shares	(109)	(102)	(7)
	Notional interest on 3.5% Convertible Unsecured Loan Stock 2018	-	364	-
	Amortisation of issue expenses (see note 1(i))	-	37	-
		_______	_______	_______
	Balance at 31 August 2011	59,891	55,750	4,126
		_______	_______	_______
	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.
	During the year ended 31 August 2012 the Company converted £43,160 (2011 - £108,987) nominal amount of CULS into 13,909 (2011 - 35,131) Ordinary shares.
	As at 31 August 2012, there was £59,847,853 (2011 - £59,891,013) nominal amount of CULS in issue.

		2012	2011
13.	Called-up share capital	£'000	£'000
	Allotted, called-up and fully paid:
	Ordinary shares of 20p
	Opening balance of 196,346,350 (2011 - 196,311,219) shares	39,269	39,262
	Issue of 13,909 (2011 - 35,131) Ordinary shares on conversion of £43,160 (2011 - £108,987) nominal 3.5% Convertible Unsecured Loan Stock 2018	3	7
		_______	_______
	Closing balance of 196,360,259 (2011 - 196,346,350) shares	39,272	39,269
		_______	_______

14.	Net asset value per share
	The net asset value per share and the net asset values attributable to the Ordinary shareholders at the year end calculated in accordance with the Articles of Association were as follows:
		2012	2011
	Net assets attributable (£'000)	519,765	493,555
	Number of Ordinary shares in issue	196,360,259	196,346,350
	Net asset value per share (p)	264.70	251.37
		_______	_______
	The impact of the 3.5% Convertible Unsecured Loan Stock 2018 issued in January 2011 on the net asset value per share was anti-dilutive for the year ended 31 August 2012 and 31 August 2011.

15.	Reconciliation of net return before finance costs and	2012	2011
	taxation to net cash inflow from operating activities	£'000	£'000
	Net return before finance costs and taxation	35,793	24,108
	Adjustments for:
	Gains on investments held at fair value through profit or loss	(25,995)	(12,809)
	Exchange losses/(gains) charges to capital	14	(460)
	Increase in accrued income	(31)	(728)
	(Increase)/decrease in other debtors	(12)	10
	Increase in sundry creditors including management fee due	50	104
		_______	_______
	Net cash inflow from operating activities	9,819	10,225
		_______	_______

		1 September	Cash	Currency	31 August
		2011	flow	movements	2012
16.	Analysis of changes in net funds	£'000	£'000	£'000	£'000
		_______	_______	_______	_______
	Cash and short term deposits	6,930	(4,265)	(14)	2,651
		_______	_______	_______	_______

17.	Capital management policies and procedures
	The Company's capital management objectives are:
	to ensure that the Company will be able to continue as a going concern; and
	to maximise the capital return to its equity shareholders through an appropriate balance of equity capital and debt. The Board has imposed a maximum gearing level of 20% of net assets.
	The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market, and the extent to which revenue in excess of that which is required to be distributed should be retained.
	The Company has no externally imposed capital requirements.

18.	Financial instruments
	Risk management
	The Company's financial instruments comprise securities and other investments, cash balances, Convertible Unsecured Loan Stock and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income.
	The Manager has a dedicated investment management process, which aims to ensures that the investment policy explained below is followed. Stock selection procedures are in place based on the active portfolio management and identification of stocks. The portfolio is reviewed on a periodic basis by a Senior Investment Manager and also by the Manager's Investment Committee.
	The Company's Manager has an independent Investment Risk department for reviewing the investment risk parameters of the Company's portfolio on a regular basis. The department reports to the Manager's Performance Review Committee which is chaired by the Manager's Chief Investment Officer. The department's responsibility is to review and monitor ex-ante (predicted) portfolio risk and style characteristics using best practice, industry standard multi-factor models.
	Additionally, the Manager's Compliance department continually monitors the Trust's investment and borrowing powers and reports to the Manager's Risk Management Committee.
	The main financial risks that the Company faces from its financial instruments are market risk (comprising interest rate risk, currency risk and other price risk), liquidity risk and credit risk.
	The Board regularly reviews and agrees policies for managing each of these risks. The Manager's policies for managing these risks are summarised below and have been applied throughout the year. The numerical disclosures exclude short-term debtors and creditors.
	Market risk
	The fair value of or future cash flows from a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk and other price risk.
	Interest rate risk
	Interest rate movements may affect the level of income receivable on cash deposits.
	The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.
	Interest risk profile
	The interest rate risk profile of the portfolio of the Company's financial assets and liabilities, excluding equity holdings which are all non-interest bearing, at the Balance Sheet date was as follows:
				Weighted average
				period for which			Weighted average		Fixed	Floating
				rate is fixed			interest rate		rate	rate
	At 31 August 2012			Years			%		£'000	£'000
	Assets
	Indian Rupee			-			-		-	21
	Sterling			-			0.23		-	2,617
	Taiwanese Dollar			-			-		-	13
				_______			_______		_______	_______
	Total assets			n/a			n/a		-	2,651
				_______			_______		_______	_______
	Liabilities
	3.5% Convertible Unsecured Loan Stock 2018			5.33			3.50		56,366	-
				_______			_______		_______	_______
	Total liabilities			n/a			n/a		56,366	-
				_______			_______		_______	_______
				Weighted average
				period for which			Weighted average		Fixed	Floating
				rate is fixed			interest rate		rate	rate
	At 31 August 2011			Years			%		£'000	£'000
	Assets
	Indian Rupee			-			-		-	48
	Sterling			-			0.44		-	6,682
	Taiwanese Dollar			-			-		-	13
	US Dollar			-			0.10		-	187
				_______			_______		_______	_______
				n/a			n/a		-	6,930
				_______			_______		_______	_______
	Liabilities
	3.5% Convertible Unsecured Loan Stock 2018			6.33			3.50		55,750	-
				_______			_______		_______	_______
	Total liabilities			n/a			n/a		55,750	-
				_______			_______		_______	_______
	The weighted average interest rate is based on the current yield of each asset, weighted by its market value.
	The floating rate assets consist of cash deposits on call earning interest at prevailing market rates.
	The Company's equity portfolio and short-term debtors and creditors (excluding bank loans) have been excluded from the above tables.
	Interest rate sensitivity
	Movements in interest rates would not significantly affect net assets attributable to the Company's shareholders and total profit.
	Foreign currency risk
	The majority of the Company's investment portfolio is invested in overseas securities and the Balance Sheet, therefore, can be significantly affected by movements in foreign exchange rates. It is not the Company's policy to hedge this risk on a continuing basis but the Company may, from time to time, match specific overseas investments with foreign currency borrowings.
	The revenue account is subject to currency fluctuation arising on dividends paid in foreign currencies. The Company does not hedge this currency risk.
	Foreign currency risk exposure by currency of denomination:
		31 August 2012				31 August 2011
			Net	Total				Net		Total
		Overseas	monetary	currency		Overseas		monetary		currency
		investments	assets	exposure		investments		assets		exposure
		£'000	£'000	£'000		£'000		£'000		£'000
	Hong Kong Dollar	144,656	-	144,656		142,762		-		142,762
	Indian Rupee	73,908	21	73,929		79,713		48		79,761
	Indonesian Rupiah	10,744	-	10,744		9,250		-		9,250
	Korean Won	43,589	-	43,589		41,531		-		41,531
	Malaysian Ringgit	23,019	-	23,019		20,496		-		20,496
	Philippine Peso	23,231	-	23,231		16,777		-		16,777
	Singapore Dollar	120,847	-	120,847		134,211		-		134,211
	Sri Lankan Rupee	12,488	-	12,488		15,229		-		15,229
	Taiwanese Dollar	35,154	13	35,167		33,293		13		33,306
	Thailand Baht	29,032	-	29,032		32,427		-		32,427
	US Dollar	38,806	-	38,806		-		187		187
		_______	_______	_______		_______		_______		_______
		555,474	34	555,508		525,689		248		525,937
	Sterling	18,128	2,617	20,745		15,550		6,682		22,232
		_______	_______	_______		_______		_______		_______
	Total	573,602	2,651	576,253		541,239		6,930		548,169
		_______	_______	_______		_______		_______		_______
	Foreign currency sensitivity
	There is no sensitivity analysis included, as the Company's significant foreign currency financial instruments are in the form of equity investments, which have been included within the other price risk sensitivity analysis, so as to show the overall level of exposure.
	Other price risk
	Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments.
	It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular country or sector. Both the allocation of assets and the stock selection process act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on various stock exchanges worldwide.
	Other price risk sensitivity
	If market prices at the Balance Sheet date had been 10% higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 August 2012 would have increased/decreased by £57,360,000 (2011 - increased/decreased by £54,124,000) and equity reserves would have increased/decreased by the same amount.
	Liquidity risk
	This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is not considered to be significant, as the Company's assets mainly comprise readily realisable securities which can be sold to meet funding requirements if necessary.  In order to monitor the concentration of Dragon's investee companies with Aberdeen, the total percentage holdings of those securities owned by Aberdeen-managed funds is reviewed by the Board.
	The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions, and reviews these on a regular basis. The Board has imposed a maximum gearing level, measured on the most stringent basis of calculation after netting off cash equivalents, of 20%.
	Short-term flexibility can be achieved through the use of loan and overdraft facilities. At 31 August 2011 and 2012 the Company had no loan or overdraft facility in place. Details of the Board's policy on gearing are shown in the interest rate risk section of this note.
	Liquidity risk exposure
	At 31 August 2012 the Company had borrowings in the form of the £59,847,853 nominal of 3.5% Convertible Unsecured Loan Stock 2018 (2011 - £59,891,013).
	Credit risk
	This is the risk of failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss.
	The risk is not considered to be significant, and is actively managed as follows:
	investment transactions are carried out with a large number of brokers, whose credit-standing is reviewed periodically by the Manager, and limits are set on the amount that may be due from any one broker;
	the risk of counterparty, including the custodian, exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a daily basis. In addition, the Custodian carries out a stock reconciliation to third party administrators' records on a daily basis to ensure discrepancies are picked up on a timely basis. The Manager's Compliance department carries out periodic reviews of the Custodian's operations and reports its finding to the Manager's Risk Management Committee. This review will also include checks on the maintenance and security of investments held;
	cash is held only with reputable banks with high quality external credit enhancements.
	None of the Company's financial assets are secured by collateral or other credit enhancements.
	Credit risk exposure
	In summary, compared to the amounts in the Balance Sheet, the maximum exposure to credit risk at 31 August was as follows:
			2012					2011
			Balance		Maximum			Balance		Maximum
			Sheet		exposure			Sheet		exposure
	Current assets		£'000		£'000			£'000		£'000
	Loans and receivables		1,598		1,598			2,795		2,795
	Cash at bank and in hand		2,651		2,651			6,930		6,930
			_______		_______			_______		_______
			4,249		4,249			9,725		9,725
			_______		_______			_______		_______
	None of the Company's financial assets is past due or impaired.
	Maturity of financial liabilities
	The maturity profile of the Company's financial liabilities at 31 August was as follows:
								2012		2011
								£'000		£'000
	In more than one year							56,366		55,750
								_______		_______
	At 31 August 2012 the full contractual liability for the CULS assuming no further conversions was £71,013,000 (2011 - £73,160,000).

19.	Fair value hierarchy
	FRS 29 'Financial Instruments: Disclosures' requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.  The fair value hierarchy has the following levels:
	Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
	Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (ie as prices) or indirectly (ie derived from prices); and
	Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
	All of the Company's investments are in quoted equities (2011 - same) actively traded on recognised stock exchanges, with their fair value being determined by reference to their quoted bid prices at the reporting date. The total value of the investments (2012 - £573,602,000; 2011 - £541,239,000) have therefore been deemed as Level 1.

21.     The Annual General Meeting will be held on 11 December 2012 at Bow Bells House, 1 Bread Street London.

22.     The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 August 2012 have been agreed with the auditors and are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2012 and 2011 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying the reports, and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006. The financial information for 2011 is derived from the statutory accounts for 2011 which have been delivered to the Registrar of Companies. The 2012 accounts will be filed with the Registrar of Companies in due course.

          The annual results are circulated to shareholders in the form of an Annual Report, copies of which will be available at the Company's registered office, 40 Princes Street, Edinburgh EH2 2BY or on the Company's website www.edinburghdragon.co.uk.

          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.

By Order of the Board

Aberdeen Asset Managers Limited, Secretary

 

END

 

 

FR FDEFMFFESEFS