Interim Results
Schroder Oriental Income Fund Ltd
30 April 2008
Investment Objective
The Company's investment objective is to provide a total return for investors
primarly through investments in equities and equity-related investments of
companies which are based in, or which derive a significant proportion of their
revenues from, the Asia Pacific region and which offer attractive yields.
Directors
Robert Sinclair (Chairman)
Fergus Dunlop
Peter Rigg
Christopher Sherwell
Advisers
Investment Manager Registrar
Schroder Investment Management Limited Northern Trust International Fund
31 Gresham Street Administration Services (Guernsey) Limited
London EC2V 7QA PO Box 255
Trafalgar Court
Company Secretary and Administrator Les Banques
Schroder Investment Management Limited St Peter Port
31 Gresham Street Guernsey GY1 3QL
London EC2V 7QA
Bankers
Registered Office JP Morgan Chase Bank
PO Box 255 125 London Wall
Trafalgar Court London EC2Y 5AJ
Les Banques
St Peter Port ING Bank NV
Guernsey GY1 3QL 60 London Wall
London EC2M 5TQ
Stockbrokers
Winterflood Investment Trusts Schroder & Co
The Atrium Building 31 Gresham Street
Cannon Bridge London EC2M 7QA
25 Dowgate Hill
London EC4R 2GA Custodian
JP Morgan Chase Bank
Auditors 125 London Wall
Ernst & Young LLP London EC2Y 5AJ
14 New Street
St Peter Port Solicitors
Guernsey GY1 4AF Eversheds LLP
Senator House
85 Queen Victoria Street
London EC4V 4JL
Financial Highlights
29 February 2008 31 August 2007 % Change
Total assets (£'000)* 240,132 226,476 +6.0
Borrowings (£'000) 33,564 29,211 +14.9
Shareholders' funds (£'000) 206,568 197,265 +4.7
Shares in issue ('000) 156,486 157,050 -0.4
Net asset value per share 132.00p 125.61p +5.1
Net asset value per share
(excluding undistributed current year revenue) 129.01p 121.79p +5.9
Share price 124.00p 117.75p +5.3
Share price discount** (3.88)% (3.32)%
NAV total return*** 6.63% 17.58%
MSCI AC Pacific ex Japan Total
Return (sterling adjusted) Index 3.41% 15.14%
Market capitalisation (£'000) 194,043 184,926 +4.9
* Calculated in accordance with AIC guidance and comprises shareholders' funds
plus borrowings used for investment purposes.
** Calculated using NAV per share (excluding undistributed current year
revenue).
*** Source: Fundamental Data.
Ten Largest Investments
As at 29 February 2008
Market
Value of Percentage of
Holdings Shareholders'
Company and Activities £'000 Funds
Macquarie Communications 8,739 4.23
Operates networks of broadcasting infrastructure in Australia and overseas
Babcock & Brown Japan Property Trust 7,312 3.54
Invests, manages and develops office and retail properties in Japan
Babcock & Brown Wind Partners 6,865 3.32
An investment fund which owns interests in wind farm assets
Macquarie Infrastructure Group 6,568 3.18
Owner and operator of toll road concessions in Australia, Europe and North America
Macquarie International Infrastructure Fund 6,469 3.13
Singapore based investment company
Transurban 5,819 2.82
Operator of toll roads in Australia and overseas
Rio Tinto 5,782 2.80
Multi national mining group based in Australia
Fortune Real Estate Investment Trust 5,540 2.68
Singapore based REIT, with portfolio of shopping malls in Hong Kong
Singapore Telecommunications 5,503 2.66
Provider of telecommunications services in Singapore,
Australia and a number of other Asian countries
Philippine Long Distance Telephone 5,395 2.61
Domestic cellular and international long distance telecommunications service provider
Total 63,992 30.97
At 31 August 2007, the ten largest investments represented 35.45% of shareholders' funds.
Chairman's Statement
Performance
During the six-month period ended 29 February 2008, the Company's net asset
value rose by 5.1% while the share price increased by 5.3%. Full details of
investment performance, as well as portfolio activity, policy and outlook, may
be found in the Investment Manager's Review.
Dividends
I am pleased to report that the Directors of the Company have declared the
payment of a first interim dividend of 2.475 pence per share for the year ending
31 August 2008. This payment represents an increase of 10% on the first interim
dividend paid in respect of the previous year. The first interim dividend will
be paid on 30 April 2008 to shareholders on the Register on 11 April 2008.
We would be disappointed if total dividends for the year ending 31 August 2008
did not represent an increase of at least 10% when compared to total dividends
paid in respect of the last financial year.
Appointment of Additional Director
I am pleased to announce the appointment of Mr Fergus Dunlop as a Director of
the Company with effect from 21 April 2008. Fergus, aged 49, is a resident of
Guernsey. He has twenty years' experience in investment companies, in London,
Frankfurt, Munich and the Channel Islands.
Fergus joined Mercury Asset Management (later Merrill Lynch Investment Managers)
in London in 1987 and managed their joint venture with Munich Reinsurance, and
its Jersey subsidiary. In 1997 he moved to Mercury's office in Frankfurt. After
leaving Mercury at the end of 2001, he joined SUDPROJEKT, an investment advisory
boutique in Munich as partner.
Fergus is a director of Signet Global Fixed Income Strategies Limited as well as
several Channel Islands-based investment funds. He has a BA (Hons.) in History
from Bristol University, and an M.Phil. in Management Studies from Oxford
University.
In accordance with the Articles of Association, Mr Dunlop will be proposed for
election at the Annual General Meeting to be held in December.
Premium/discount management
During the period under review, the discount has demonstrated significant
volatility. In accordance with the Listing
Particulars, the Directors have implemented an active discount management
policy, which, during the period under review, included the use of share
buybacks to seek to maintain the price at which the ordinary shares trade
relative to their prevailing net asset value at no greater than a 5 per cent.
discount over the longer term. A total of 564,000 shares were purchased for
cancellation during the period and the Directors continue to keep their active
discount management policy under review.
Gearing
The Company had in place a revolving credit facility of £45 million throughout
the period under review. Drawings under the facility represented 15.27% of net
assets at the beginning of the period under review and 14.88% at the end of the
period.
As stated in the Listing Particulars, the Company's policy is to permit
borrowings of up to 25% of the Company's net asset value. During the period, the
average month-end gearing employed by the Company was 12.76%.
Outlook
The Company is on target to produce 10% increases in dividends on an annualised
basis, since it was launched in 2005 and the Directors have also established a
revenue reserve to provide support for future dividend payments. While we are
currently experiencing turmoil in world markets and the short term outlook is
uncertain, we take comfort in our Manager's cautious optimism for the portfolio
based on its relatively defensive nature.
Robert Sinclair
Chairman 28 April 2008
Investment Manager's Review
The net asset value of the Company recorded a total return of 5.1% over the
period. An interim dividend of 2.475 pence per share is proposed, representing a
10% increase over last year.
The first half of the Company's fiscal year has coincided with a substantial
correction in global equity markets. The credit problems which first surfaced
within the US sub-prime mortgage market have had increasingly widespread and
deep rooted ramifications. Risk aversion has risen sharply, not only among
equity investors, but more pervasively in the credit markets. The phenomenon has
been primarily a developed market one, with the epicentre in the US, but
encompassing those economies in the OECD most identified with an extended period
of declining savings rates, strong property prices and a credit-fuelled
consumer.
The impact on the Asian region has been at many levels, despite the fact that,
within the region, only Australia shares directly some of these key
characteristics. The cutting of risk exposure by international investors has
been evident both in the equity markets and in direct real estate; consequently
although the regional financial sector is generally free of direct exposure to
sub prime issues and conservatively financed, the sector has performed
relatively poorly.
More fundamentally, the weakness of the US economy and currency has impacted
consensus forecasts for the regional economies, particularly those perceived as
most exposed to manufactured exports to the developed world such as Taiwan,
Korea and Singapore. The impact has, however, been somewhat mitigated by the
resilience of emerging market economies which are becoming increasingly
important end markets for the region's exports.
This strength in emerging markets has been a major contributor to the other
major trend of the period; the remarkable strength in commodity prices despite
the decided weakening in OECD leading indicators. Asia overall is not a major
beneficiary of strong commodity prices (in contrast to say Latin America, Africa
or the Middle East), but those markets which are (primarily emerging ASEAN) have
performed well. Reflective of this was the big performance divergence in
Australia between resource stocks (enhanced by the bid for Rio Tinto by BHP
Billiton) and stocks exposed to the domestic economy such as the banks and
cyclical retailers.
Performance and Portfolio Activity
Performance has been satisfactory in absolute terms despite weakness in the
current calendar year. The performance of the Company has out-paced that of the
MSCI AC Pacific ex Japan reference index, although this index does not have the
bias towards higher income shares exhibited by the Company's portfolio. Both
stock selection and country positioning have aided relative performance.
Underweights in China and Korea and overweights in Hong Kong, Indonesia and
Thailand have been beneficial, while stock selection has been particularly
strong in Australia, the Philippines, Indonesia and Taiwan, only partly offset
by shortfalls in Hong Kong, Thailand and Malaysia.
The major exposures have remained fairly stable, with the largest country
weights being in Australia, Singapore, Hong Kong and Taiwan. At the margin, we
have reduced Taiwan while boosting exposure to Korea where underperformance has
thrown up some stock specific opportunities. Direct China exposure remains
relatively low reflecting both valuation concerns and the lack of yield, while
the Philippines and Thailand are the main exposures in ASEAN outside Singapore.
Outlook and Policy
The macro-economic backdrop has undoubtedly worsened over the current fiscal
year, and has deteriorated further since the end of February. Global growth
expectations have been cut, and yet inflationary expectations have risen. Global
growth is projected at just under 3% over the next twelve months, although
within this the divergence between the developed economies (most notably the
United States) and emerging markets has widened, with growth forecasts for the
latter actually rising thanks to stronger terms of trade (rising commodity
prices and currencies) and sustained momentum in domestic demand.
The tough external outlook will weigh on regional markets in the months ahead.
In principle, the region has some defensive merits conferred by generally strong
current accounts, high foreign exchange reserves, and fiscal flexibility.
However, inflationary pressures have been rising and monetary authorities will
be cautious of following the lead of the Federal Reserve in aggressively cutting
rates. Given the extent to which inflationary pressures are supply driven (food,
energy, raw materials) one solution could be to allow the regional currencies to
rise as part of the anti-inflationary policy, but key export industries already
facing decelerating demand will resist strongly.
In the circumstances, the Company's relatively defensive and domestically
weighted portfolio should be well placed in this environment. We believe that
there is still scope for modest dividend growth over the next twelve months, and
valuations are reasonable. The key uncertainty is inflation, but sentiment
regarding this is already very cautious and any sign of a deceleration would
elicit a strong positive reaction in regional markets even if global growth
remains relatively subdued.
Schroder Investment Management Limited
28 April 2008
Income Statement
(Unaudited) (Unaudited) (Audited)
For the six months For the six months For the year ended
ended 29 February 2008 ended 28 February 2007 31 August 2007
Revenue Capital Total Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments
held at fair value - 11,524 11,524 - 25,020 25,020 - 37,717 37,717
Other currency
(losses)/gains - (871) (871) - 777 777 - 1,526 1,526
Income 2 5,742 - 5,742 3,576 - 3,576 11,248 434 11,682
Investment management fee (229) (534) (763) (193) (450) (643) (415) (2,903) (3,318)
Performance fee - - - - (818) (818) - - -
Administrative expenses (186) (19) (205) (163) (15) (178) (369) (45) (414)
Net return before
finance costs
and taxation 5,327 10,100 15,427 3,220 24,514 27,734 10,464 36,729 47,193
Interest payable and
similar charges (260) (573) (833) (183) (427) (610) (414) (963) (1,377)
Net return on
ordinary activities
before taxation 5,067 9,527 14,594 3,037 24,087 27,124 10,050 35,766 45,816
Taxation on ordinary
activities (380) - (380) (233) - (233) (879) - (879)
Net return after
taxation
attributable
to equity shareholders 4,687 9,527 14,214 2,804 24,087 26,891 9,171 35,766 44,937
Net return per
ordinary share 4 2.99p 6.09p 9.08p 1.78p 15.34p 17.12p 5.84p 22.77p 28.61p
The Total column of this statement is the profit and loss account of the
Company. The Revenue and Capital columns are both provided in accordance with
guidance issued by The Association of Investment Companies. The Company has no
recognised gains or losses other than those disclosed in the Income Statement
and the Reconciliation of Movements in Shareholders' Funds. Accordingly no
Statement of Total Recognised Gains and Losses is presented.
All revenue and capital items in the above statement derive from continuing
operations.
No operations were acquired or discontinued in the period.
Reconciliation of Movements in Shareholders' Funds
For the six months ended 28 February 2007 (Unaudited)
Called up Capital
Share redemption Special Capital Revenue
capital reserve reserve reserves reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 August 2006 1,571 - 153,887 (2,069) 6,242 159,631
Net return on ordinary - - - 24,087 2,804 26,891
activities
Second interim dividend paid -
for
the 13 month period ended - - - (3,769) (3,769)
31 August 2006
At 28 February 2007 1,571 - 153,887 22,018 5,277 182,753
For the year ended 31 August 2007 (Audited)
Called up Capital
Share redemption Special Capital Revenue
capital reserve reserve reserves reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 August 2006 1,571 - 153,887 (2,069) 6,242 159,631
Net return on ordinary activities 35,766 9,171 44,937
Second interim dividend paid for
the 13 month period ended 31
August 2006 - - - - (3,769) (3,769)
First interim dividend paid for
year ended 31 August 2007 - - - - (3,534) (3,534)
At 31 August 2007 1,571 - 153,887 33,697 8,110 197,265
For the six months ended 29 February 2008 (Unaudited)
Called up Capital
Share redemption Special Capital Revenue
capital reserve reserve reserves reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
At 31 August 2007 1,571 - 153,887 33,697 8,110 197,265
Net return on ordinary - - - 9,527 4,687 14,214
activities
Purchase of shares for (6) 6 - (671) - (671)
cancellation
Second interim dividend paid
for
the year ended 31 August 2007 - - - - (4,240) (4,240)
At 29 February 2008 1,565 6 153,887 42,553 8,557 206,568
Balance Sheet
(Unaudited) (Unaudited) (Audited)
At 29 February At 28 February At 31 August
2008 2007 2007
Notes £'000 £'000 £'000
Fixed assets
Investments held at fair value
through profit or loss 238,794 207,523 219,523
238,794 207,523 219,523
Current assets
Debtors 5,650 3,249 5,048
Cash at bank and short-term deposits 1,380 5,289 5,178
7,030 8,538 10,226
Current liabilities
Creditors - amounts falling due within one year 5 (39,256) (33,308) (32,484)
Net current liabilities (32,226) (24,770) (22,258)
Net assets 206,568 182,753 197,265
Capital and reserves
Called up share capital 6 1,565 1,571 1,571
Capital redemption reserve 6 - -
Special reserve 153,887 153,887 153,887
Capital reserves 42,553 22,018 33,697
Revenue reserve 8,557 5,277 8,110
Equity shareholders' funds 206,568 182,753 197,265
Net asset value per ordinary share 7 132.00p 116.37p 125.61p
Cash Flow Statement
(Unaudited) (Unaudited) (Audited)
For the six months For the six months For the year
ended 29 February ended 28 February ended 31 August
2008 2007 2007
Net cash inflow from operating activities 5,024 3,303 9,258
Net cash outflow from servicing of finance (554) (507) (1,383)
Total tax paid (315) (233) (676)
Equity dividends paid (4,240) (3,769) (7,303)
Net cash outflow from investment activities (6,528) (3,515) (4,067)
Net cash outflow before financing (6,613) (4,721) (4,171)
Net cash inflow from financing 2,617 7,131 7,151
Net cash (outflow)/inflow (3,996) 2,410 2,980
Reconciliation of net cash flow to movement in
net debt
Net cash (outflow)/inflow (3,996) 2,410 2,980
Movement in borrowings (2,617) (7,131) (7,151)
Movement in net debt resulting from cash flows (6,613) (4,721) (4,171)
Net debt at 1 September (24,033) (21,388) (21,388)
Exchange (losses)/gains on currency, loans and (871) 1,534 1,526
cash balances
Net debt carried forward (31,517) (24,575) (24,033)
Notes to the Accounts
1. Accounting Policies and Responsibility Statement
Directors confirm that, to the best of their knowledge, this set of condensed
financial statements has been prepared in accordance with the United Kingdom
Generally Accepted Accounting Practice (UK GAAP) and with the Statement of
Recommended Practice: Financial Statements of Investment Companies (SORP) issued
in January 2003 and revised in December 2005 and the Interim Management Report
in the form of the Chairman's Statement and Investment Manager's Review includes
a fair review of the information required by DTR 4.2.7 and 4.2.8 of the FSA's
Disclosure and Transparency Rules.
The financial information for each of the six months ended 29 February 2008 and
28 February 2007 comprises non-statutory accounts within the meaning of Section
240 of the Companies Act 1985. The financial information for the year ended 31
August 2007 has been extracted from published accounts that have been delivered
to the Registrar of Companies and on which the report of the auditors was
unqualified. The interim accounts have been prepared on the same basis as the
annual accounts.
The Company's accounting policies have not varied from those described in the
Report and Accounts for the year to 31 August 2007.
2. Income
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
29 February 2008 28 February 2007 31 August 2007
£'000 £'000 £'000
Income from investments:
Overseas dividends 5,176 3,023 9,957
Interest on fixed income securities 423 494 901
Stock dividends - - 179
Special dividend taken to capital - - 434
Interest on deposits: 143 59 211
5,742 3,576 11,682
3. Management fees and interest payable
The investment management fee and finance costs on borrowings for investment
purposes are apportioned 70% to the capital return and 30% to the revenue
return.
4. Return per Ordinary share
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months ended months ended year ended
29 February 2008 28 February 2007 31 August 2007
Revenue (£'000) 4,687 2,804 9,171
Capital (£'000) 9,527 24,087 35,766
Total (£'000) 14,214 26,891 44,937
Weighted average number of ordinary shares in 156,706,508 157,050,000 157,050,000
issue
Revenue 2.99p 1.78p 5.84p
Capital 6.09p 15.34p 22.77p
Total 9.08p 17.12p 28.61p
5. Creditors: Amounts falling due within one year
Included within creditors is the following loan:
(Unaudited) (Unaudited) (Audited)
At 29 February At 28 February At 31 August
2008 2007 2007
Yen 1,224,853,000 885,150,000 1,224,853,000
US Dollars 55,000,000 45,135,000 48,354,000
Equivalent to £33,564,000 £29,864,000 £29,211,000
The Company has a multi-currency loan facility of £45,000,000 with ING Bank N.V. This facility
has a revolving 364 day term, and is unsecured.
6. Called up share capital
(Unaudited) (Unaudited) (Audited)
At 29 February At 28 February At 31 August
2008 2007 2007
£'000 £'000 £'000
Authorised:
250,000,000 ordinary shares of 1p each 2,500 2,500 2,500
Allotted, Called up and Fully paid:
Opening balance 157,050,000 ordinary shares of 1p each 1,571 1,571 1,571
Transfer to capital redemption reserve on purchase of 564,000
(28 February 2007 and 31 August 2007: nil) shares for cancellation (6) - -
Closing balance 156,486,000
(28 February 2007 and 31 August 2007: 157,050,000)
ordinary shares of 1p each. 1,565 1,571 1,571
7. Net asset value per ordinary share
(Unaudited) (Unaudited) (Audited)
At 29 February At 28 February At 31 August
2008 2007 2007
Net assets attributable to ordinary shareholders (£'000) 206,568 182,753 197,265
Ordinary shares in issue at end of period 156,486,000 157,050,000 157,050,000
Net asset value per ordinary share 132.00p 116.37p 125.61p
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