Interim Results

Edinburgh Dragon Trust plc 27 April 2007 NEWS RELEASE 27 April 2007 EDINBURGH DRAGON TRUST PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 28 FEBRUARY 2007 Edinburgh Dragon Trust's objective is long-term capital growth through investment in the Far East (excluding Japan and Australasia). The Company's benchmark is the MSCI All Country Asia (ex Japan). • The share price rose 17.2% to 138.0p reflecting a narrowing in the discount from 7.3% to 4.7%. • The Trust's net asset value rose by 14.0% on a total return basis compared to a rise in the benchmark index, the MSCI All Country Asia (ex Japan), of 14.7%. • Asia's long term investment potential remains. • The Company's strategy remains focused on well managed companies with strong balance sheets and cashflows, run by experienced management with due regard to minority shareholders. For further information please contact:- Jeremy Whitley, Investment Manager, 0065 6395 2700 Edinburgh Fund Managers Ian Massie, Director - Investment Trusts 0131 313 1000 Edinburgh Fund Managers Chairman's Statement Background In what was a volatile period for financial markets I am happy to report that your Company performed satisfactorily. The net asset value over the six months to end February 2007 rose on a total return basis by 14.0%, compared to the 14.7% gain recorded by the benchmark MSCI All Country Asia ex Japan Index. In this period, the share price rose by 17.2%, with the discount narrowing to 4.7%. Since the period end, in general, discounts in the sector have widened. Overview The six months under review were another rewarding period for most Asian stock markets, which overcame external concerns such as a renewed rise in oil and commodity prices, increasing worries about the US housing sector, and heightened volatility following a sharp drop in Chinese equities at the end of February. The key factors supporting share prices included robust corporate earnings, favourable economic data and increased merger & acquisition activity. Viewed against a wider backdrop, many Asian market benchmarks reached multi-year highs despite recent falls, including Singapore, India, Indonesia and Hong Kong. At the same time, markets that attracted the greatest international investor inflows in 2006 such as China and India, were the most volatile. After hitting a fresh record at the beginning of February, the Chinese market corrected sharply at the end of the month, recording its largest one-day decline in 10 years. The trigger for the sell-off was renewed speculation that the government would hasten the pace of austerity measures. For its part, the People's Bank of China has raised banks' cash reserve requirements a few times already in the past year, in a bid to rein in the overheating economy and stock market. In India's case, increases in interest rates by the central bank to contain inflation and stem rampant loan growth caused share prices to retreat from their highs by the end of the period. The laggards were markets in Korea and Thailand. In Korea, a strong currency weighed on market performance, whilst Thailand felt the brunt of continued political uncertainty that included several monetary policy blunders by the Central Bank and some high profile resignations. News on the economic front remained generally favourable, as resilient domestic consumption and export growth overshadowed a series of interest rate hikes in the region from countries including China, India, and Taiwan. Encouragingly, though, a few countries went against the tightening trend such as Indonesia and Thailand, with their inflation under control, and in an effort to boost growth. Portfolio Review Over the six month period, total purchases amounted to £29.3m whilst sales amounted to £21.4m. This equates to an annualised turnover of around 25%, which we consider normal. We introduced four new stocks to the portfolio: Standard Chartered Bank, Kookmin Bank, Bumiputra-Commerce Holdings and John Keells. Standard Chartered has embarked on a relatively aggressive growth strategy which includes acquisitions in Korea, Taiwan, Pakistan and Indonesia. The results so far have been very encouraging, with strong growth in both wholesale and consumer banking, and spread across different revenue sources and geographic markets. Kookmin Bank was re-introduced to the portfolio, having been sold nearly three years ago - its credit card crisis is now well behind it, the bank has tightened its lending procedures and raised provisioning levels, which has improved both its asset quality and net interest margins. Bumiputra-Commerce Holdings, the second largest banking group by assets in Malaysia, is the amalgamation of a number of banking interests, specifically Bumiputra-Commerce Bank/BCB (commercial banking), CIMB (investment banking & securities) PT Niaga (Indonesian commercial bank) and Southern Bank. The new management has improved internal controls, risk management frameworks, as well as credit controls. This is a restructuring story which offers something different to the other more established banking names in the Malaysia portfolio, namely Maybank and Public Bank. Finally, John Keells is one of the best managed conglomerates in Sri Lanka with interests spanning shipping, transport, leisure, F&B and property. The company recently won approval to participate in a significant project to develop the port terminal in Colombo. No holding was sold outright over the period although a number of positions were reduced post the sharp run-up in share prices. The main reductions were of Wing Hang Bank and China Mobile in Hong Kong, ICICI Bank in India, Fubon Financial in Taiwan, City Developments in Singapore, Shinsegae, the Korean discount store operator and Philippine property developer Ayala Land. Revenue account For the six months to 28 February 2007 the revenue account recorded a deficit of £590,000, representing 0.25p per share compared with a deficit of 0.42p for the six months to 28 February 2006. However, since the majority of Asian dividend income is accounted for in the second half of the Company's financial year, the trust is forecast to make a positive revenue return for the 12 months to 31 August 2007. Outlook Looking ahead, your Board believes that Asia's long-term investment potential remains, not withstanding that concerns outlined above continue to exert their influence. Solid underlying fundamentals, including healthy earnings growth and rising domestic demand, in addition to steady liquidity inflows, augur well for the region. Nonetheless, given the strong performance in share prices over the past year, some wariness is merited at a time when increased cost pressures could depress margins and curb profitability over the next 12 months. In addition, signs of overheating in certain markets - such as China and India - could add to volatility, and investors are likely to pay closer scrutiny to valuations as compared to the past few years, when the focus was more on growth. Whilst the extent of the fall-out in the US housing market and the deterioration in the sub-prime mortgage market there remains a concern, your Managers continue to regard this from an Asian perspective and, on the whole, remain comfortable with what Asian corporates are reporting. Recent short-lived sell-offs are more likely a result of profit-taking and an adjustment of investor risk appetite rather than a precursor of a more serious and long-lived economic global recession. Valuations, while not as cheap as they once were, given the sharp run up in share prices over the past four years, are fair and we would continue to view any pullback as a positive. In light of this market environment, our Managers remain conservative with their stock selection, focusing on well-managed companies with strong balance sheets and cashflows, run by experienced management with due regard to minority shareholders. I am thus positive over your Company's outlook because of its underlying investments' fundamental characteristics that place an emphasis on quality and price, with both increasingly important at this stage of the cycle. Tony Cassidy Chairman INCOME STATEMENT Six months to 28 February 2007 (unaudited) Revenue Capital Total £'000 £'000 £'000 Realised gains on investments - 6,351 6,351 Unrealised gains on investments - 35,319 35,319 Currency gains/(losses) - 1,136 1,136 Income 3,358 - 3,358 Investment management fee (1,699) - (1,699) Administrative expenses (565) - (565) __________ __________ __________ Return on ordinary activities before finance costs and 1,094 42,806 43,900 taxation Interest payable and similar charges (1,448) - (1,448) __________ __________ __________ Return on ordinary activities before taxation (354) 42,806 42,452 Taxation on ordinary activities (236) - (236) __________ __________ __________ Return on ordinary activities after taxation (590) 42,806 42,216 __________ __________ __________ Return per Ordinary share (pence) (0.25) 18.04 17.79 __________ __________ __________ Six months to 28 February 2006 (unaudited) Revenue Capital Total £'000 £'000 £'000 Realised gains on investments - 22,734 22,734 Unrealised gains on investments - 38,369 38,369 Currency gains/(losses) - (825) (825) Income 2,833 - 2,833 Investment management fee (1,504) - (1,504) Administrative expenses (437) - (437) __________ __________ __________ Return on ordinary activities before finance costs and 892 60,278 61,170 taxation Interest payable and similar charges (1,684) - (1,684) __________ __________ __________ Return on ordinary activities before taxation (792) 60,278 59,486 Taxation on ordinary activities (216) - (216) __________ __________ __________ Return on ordinary activities after taxation (1,008) 60,278 59,270 __________ __________ __________ Return per Ordinary share (pence) (0.42) 25.40 24.98 __________ __________ __________ INCOME STATEMENT Year ended 31 August 2006 (audited) Revenue Capital Total £'000 £'000 £'000 Realised gains on investments - 34,810 34,810 Unrealised gains on investments - 3,142 3,142 Currency gains/(losses) - 2,168 2,168 Income 11,088 - 11,088 Investment management fee (2,981) - (2,981) Administrative expenses (915) - (915) ________ ________ ________ Return on ordinary activities before finance costs and 7,192 40,120 47,312 taxation Interest payable and similar charges (3,258) - (3,258) ________ ________ ________ Return on ordinary activities before taxation 3,934 40,120 44,054 Taxation on ordinary activities (595) - (595) ________ ________ ________ Return on ordinary activities after taxation 3,339 40,120 43,459 ________ ________ ________ Return per Ordinary share (pence) 1.41 16.91 18.32 ________ ________ ________ 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. BALANCE SHEET As at As at As at 28 February 2007 28 February 2006 31 August 2006 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Non-current assets Investments at fair value 381,630 360,692 331,252 Current assets Debtors and prepayments 1,177 947 1,531 Cash and short term deposits 3,023 2,841 12,194 ________ ________ ________ 4,200 3,788 13,725 ________ ________ ________ Creditors: amounts falling due within one year (1,577) (1,511) (1,428) ________ ________ ________ Net current assets 2,623 2,277 12,297 ________ ________ ________ Total assets less current liabilities 384,253 362,969 343,549 Creditors: amounts falling due after more than one (40,775) (45,605) (41,996) year ________ ________ ________ Net assets 343,478 317,364 301,553 ________ ________ ________ Capital and reserves Called-up share capital 47,455 47,455 47,455 Capital reserve - unrealised 112,605 107,653 76,050 Capital reserve - realised 85,451 66,708 79,200 Special reserve 85,520 85,520 85,520 Capital redemption reserve 8,752 8,752 8,752 Share premium account 4,285 4,285 4,285 Warrant reserve - 1,047 - Revenue reserve (590) (4,056) 291 ________ ________ ________ Equity Shareholders' funds 343,478 317,364 301,553 ________ ________ ________ Adjusted net asset value per Ordinary share 144.74 133.72 127.06 (pence) ________ ________ ________ RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Capital Capital Capital Share Share reserve reserve Special redemption premium Warrant Revenue capital unrealised realised reserve reserve account reserve reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Six months ended 28 February 2007 Balance at 31 August 2006 47,455 76,050 79,200 85,520 8,752 4,285 - 291 301,553 Return on ordinary - 36,555 6,251 - - - - (590) 42,216 activities after taxation Dividends paid - - - - - - - (291) (291) _______ _______ _______ _______ _______ _______ _______ _______ ______ Balance at 28 February 2007 47,455 112,605 85,451 85,520 8,752 4,285 - (590) 343,478 _______ _______ _______ _______ _______ _______ _______ _______ ______ Capital Capital Capital Share Share reserve reserve Special redemption premium Warrant Revenue unrealised realised reserve reserve account reserve reserve Total capital Six months ended 28 February 2006 Balance at 31 August 2005 47,455 70,485 43,598 85,520 8,752 4,285 1,047 (3,048) 258,094 (restated) Return on ordinary - 37,168 23,110 - - - - (1,008) 59,270 activities after taxation _______ _______ _______ _______ _______ _______ _______ _______ ______ Balance at 28 February 2006 47,455 107,653 66,708 85,520 8,752 4,285 1,047 (4,056) 317,364 _______ _______ _______ _______ _______ _______ _______ _______ ______ Capital Capital Capital Share Share reserve reserve Special redemption premium Warrant Revenue unrealised realised reserve reserve account reserve reserve Total capital Year ended 31 August 2006 Balance at 31 August 2005 47,455 70,485 43,598 85,520 8,752 4,285 1,047 (3,048) 258,094 (restated) Transfer of warrant reserve - - 1,047 - - - - - - Return on ordinary - 5,565 34,555 - - - (1,047) 3,339 43,459 activities after taxation ______ ______ ______ ______ ______ ______ ______ ______ ______ Balance at 31 August 2006 47,455 76,050 79,200 85,520 8,752 4,285 - 291 301,553 ______ ______ ______ ______ ______ ______ ______ ______ ______ CASHFLOW STATEMENT Six months to Six months to Year to 28 February 2007 28 February 2006 31 August 2006 (unaudited) (unaudited) (audited) £'000 £'000 £'000 Revenue before finance costs and taxation 1,094 892 7,192 Increase in accrued income (376) (198) (81) Increase in other debtors (35) (56) (37) Increase in creditors 212 144 79 ___________ ___________ ___________ Net cash inflow from operating activities 895 782 7,153 Net cash outflow from servicing of finance (1,495) (1,672) (3,251) Total tax paid (64) (99) (603) Net cash outflow from financial investment (8,115) (16,316) (10,620) Equity dividends paid (291) - - ___________ ___________ ___________ Decrease in cash (9,070) (17,305) (7,321) ___________ ___________ ___________ RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NET DEBT Decrease in cash as above (9,070) (17,305) (7,321) Amortised Loan Note expenses (16) (16) (31) Exchange movements 1,136 (825) 2,168 ___________ ___________ ___________ Movement in net debt in the period (7,950) (18,146) (5,184) Opening net debt (29,802) (24,618) (24,618) ___________ ___________ ___________ Closing net debt (37,752) (42,764) (29,802) ___________ ___________ ___________ Represented by: Cash and short term deposits 3,023 2,841 12,194 Debt falling due after more than one year (40,775) (45,605) (41,996) ___________ ___________ ___________ (37,752) (42,764) (29,802) ___________ ___________ ___________ NOTES: 1. Accounting Policies The accounts have been prepared under the historical cost convention, as modified to include the revaluation of investments and in accordance with applicable UK Accounting Standards and with the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies' (December 2005). They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements and the net asset value per share figures have been prepared in accordance with UK Generally Accepted Accounting Principles ('UK GAAP'). The interim accounts have been prepared using the same accounting policies used for the year ended 31 August 2006. 2. There will be no interim dividend for the year to 31 August 2007; the objective of the company is long term capital appreciation. 3. As at 28 February 2007, there were 237,276,875 ordinary shares in issue. 4. The comparative figures for the financial year ended 31 August 2006 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under Section 237(2) or (3) of the Companies Act 1985. 5. The statement of total return and balance sheet set out do not represent full accounts in accordance with Section 240 of the Companies Act 1985. 6. The interim report will be posted to shareholders in May 2007. Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements. Investors may not get back the amount they originally invested. Where investment is made in emerging markets, their potential volatility may increase the risk to the value of the investment. For Edinburgh Dragon Trust plc Edinburgh Fund Managers plc, Secretary This information is provided by RNS The company news service from the London Stock Exchange

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