Interim Results

Aberdeen Asian Income Fund Limited 14 September 2007 ABERDEEN ASIAN INCOME FUND LIMITED UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2007 Background During the six month period to 30 June 2007, the net asset value total return was 8.6% with the underlying net asset value per Ordinary share ('NAV') rising from 112.2p to 119.1p. The share price fell 2.2% over the period, as the discount to NAV at which the shares trade moved from 0.6% to 8.5%. The total return on the benchmark MSCI AC Asia Pacific ex-Japan Index was 15.5% in sterling terms over the period. While the underperformance is clear, I should remind shareholders that at the time of the Company's creation we did state that the benchmark was a general guide, but that the Manager would not adhere to it, nor indeed does the benchmark provide sufficient income to meet our dividend objectives. However, this is not an excuse for the disappointing performance. Analysing those returns in greater depth, the underperformance can be attributed to the following: first, stock selection, particularly in Malaysia, where the market has benefited from a belated re-rating, but where investors have favoured property and other high-growth sectors. In contrast, your Manager's preference has been for good, strong cashflow, high dividend-paying companies such as banks and consumer stocks, which have been dull performers through this period. However, the Manager is confident of their quality, and that their fundamentals will stand them in good stead in less frenetic market conditions. Second, in terms of asset allocation, the lack of exposure to South Korea was a detractor, as the market there has benefited from rotational buying in a strong liquidity-led environment. Yet dividend pay-outs are below average, reflecting that country's generally weak ability to provide for shareholder income. Similarly, the portfolio has been underweight to China, where the benchmark is concentrated in H shares and red chips in which quality is uneven. Third, the renewed strength of sterling has highlighted the potential impact of currency movements on returns. Most Asian currencies have strengthened lately against the US dollar but have fallen against sterling, with the notable exceptions being the Indian rupee and the Australian dollar (which have benefited from the so-called 'carry trade' of borrowing to invest in high-yielding currencies, as well as sustained global demand for resources). As we hold nothing in India and are underweight Australia, that move was not to our benefit. Your Manager's policy is not to hedge the portfolio currency exposure, but to assess currencies as they affect companies directly, especially in terms of any mismatch between receivables and outgoings. Broadly, they see better economic fundamentals supporting Asian currencies over the longer term. The majority of Asian countries still manage their currencies against the US dollar, either through a fixed peg or less overtly via a currency basket, and intervene to limit appreciation. Share Buy-backs, Dividends and Gearing At the time of the launch of the Company, your Board indicated that an active discount management policy would be operated through the use of share buy-backs with the aim of maintaining the price of the Ordinary shares at a discount of no more than 5% to the underlying NAV. Clearly, therefore, your Board were concerned to note the level of the discount at which the Company's shares were trading at the period end, as detailed above. Subsequently, the Company purchased in the market 200,000 Ordinary shares for cancellation. The Board has absolute discretion to make purchases of Ordinary shares for cancellation, subject to the Listing Rules and Jersey law, and the Directors will consider the merits of making further purchases of Ordinary shares subject to the volatility of the markets, if and when any suitable opportunities arise in the future. At the time of writing the Ordinary share discount to net asset value has tightened to under 6%. On 17 July 2007, the Board declared a first interim dividend of 2.0p per Ordinary share in respect of the year ending 31 December 2007 (2006 2.0p), which was paid on 28 August 2007 to shareholders on the register on 27 July 2007. A second interim dividend will be announced in January 2008 and payable in February 2008. The Company has retained short-term gearing throughout the period, with borrowings of HKD 137.7 million and USD 12.2 million (GBP 14.9 million in total) representing a gearing level of 11.4% of net assets at the period end. The Board is responsible for establishing and implementing the Company's gearing strategy, and will continue to have a close regard to the level of gearing in the context of the current volatility in stockmarkets, detailed below. At the time of the launch of the Company, Intelli Corporate Finance Limited (the Company's broker) subscribed for 3.5 million Warrants and undertook to hold these Warrants for an initial two year period to December 2007. The Directors were permitted to release Intelli from the lock-in arrangements in the Warrant Agreement and, during the period, the Board permitted Intelli to sell Warrants to meet market demand. The Board will continue to monitor the market in the Company's Warrants. Overview Asia continued to enjoy surprisingly benign conditions over the past six months. Economic growth was healthy, as China's voracious appetite for manufacturing inputs and intermediate goods continued, despite fears of a housing-led slowdown in the US. In addition, there appears to have been an increasing trend towards domestic consumption as Asian economies wean themselves off their past reliance on exports, although the acid test for this new-found regional resilience would be any form of significant and sustained global slowdown. History has tended to show that it is highly challenging for any one country or region to remain immune from global trends and influences. The region's economic buoyancy has continued to drive stockmarkets, where investors have thus far been unmoved by externalities, such as rising global bond yields and higher oil prices. A sudden correction in China's runaway mainland markets, in February, was quickly contained as investors ascribed the reverse to local factors. (These markets are technically closed to foreigners.) A slew of initial public offerings and aggressive M&A activity then added impetus to market rebounds. With risk appetite remaining strong, several bourses climbed to fresh highs, notably in Australia, Malaysia, Singapore and Indonesia. The rotation of funds from one market to another also picked up as investors searched for relative value. This saw Singapore property stocks, selective Malaysian plantations and, least foreseen, Korean heavy industry stocks, chased up. While fundamentals have remained well supported by earnings generally, it appears buying has become less discriminating. The rush of IPOs, many with a thin history, points to an inevitable deterioration in quality. Away from stockmarkets, economic performance has been more mixed than it might appear. At one extreme are India and China, which have both been forced to address overheating in their economies, but where conditions have supported company performance. (India is seeing upgrades; in China quality is more suspect). At the other extreme are laggards such as Indonesia and Thailand, where consumer demand has been patchy for some time. Central Banks have cut interest rates in response. While they have been helped by firmer currencies, it is exporters that have borne the brunt of the increased margin pressure, which is only partly offset by lower price inflation. The driver for sustainable growth in the less developed economies, particularly, is further structural reform. While some progress has been seen in Malaysia and Indonesia, the exception is Thailand. Here it is sticky politics which has drained confidence, with elections now scheduled for this December. In trying to neutralise the influence of exiled prime minister, Thaksin Shinawatra, the ruling junta dissolved his Thai Rak Thai party, banning party members from contesting elections for five years. The stock market appears inexpensive, but catalysts to turn around negative sentiment towards Thailand are in short supply. Outlook Ten years after the Asian financial crisis in 1997, the tables have turned, and it is Asia's savers who are funding the West's consumption. Foreign exchange reserves are at record levels across the region, and these are being recycled into safe haven assets such as US Treasuries; an arrangement that helps to keep Asian currencies in check and borrowing costs low for dollar economies, and which has suited all parties. This has been a hard-won transformation for Asia, built on assiduous government pursuit of fiscal and monetary stability. Companies and regulators too have embraced a similar discipline, paying closer regard to governance and shareholder value. Despite having generated substantial cash flows, companies have preferred to pay down debt and strengthen balance sheets; surplus funds are being returned to shareholders via dividends and share buy-backs and not routed into speculative investments. The strong corporate earnings growth now being seen has ensured that overall valuations remain reasonable. But this tells only half the story, for it seems that the extraordinary global stability of recent times, thanks to the aforementioned de facto compact, may be drawing to a close. Labour and input costs in China and India are rising, which will feed into inflation globally. If monetary tightening is the upshot, this will threaten the foundation of leveraged cheap money that has driven up asset prices and propelled a global search for yield - and is manifested now in the mispricing of risk in the US sub-prime market. Indeed, as I write, the value of the Company's assets and the latest net asset value per Ordinary shares is now 110.10p as at 12 September 2007. The collapse of various high profile funds investing in sub-prime credits has caused risk aversion to spike across asset classes. Stock markets have tumbled from their recent peaks, although in Asia they are still comfortably ahead for the year to date. The worry is that emergency injections of liquidity into the financial system by central banks will provide only temporary relief. Confidence is important. If investors perceive that banks, in particular, as lenders to, and investors in, holders of sub-prime instruments, need to cover losses, that may cause a more extended run on more liquid financial assets such as shares. A sell-off could then become self-reinforcing, affecting the real economy in turn. But while mindful of these dangers, your Manager emphasises that the portfolio's financial holdings have minimal, if any, exposure to the subprime sector. Should Asian stocks fall further, this will have the effect of removing the marginal investor, aside from offering the chance to add to positions at lower cost. The markets appear well supported by earnings, dividend-paying stocks especially. Your Board believes that the Manager's stock selection approach, with its focus on corporate fundamentals, is a sound one, and likely to be more rewarding over the long term than a strategy based on momentum or blindly buying stocks that have recently reported high returns. I look forward to reporting to you again with the Annual Report for the year to 31 December 2007, which will be issued in March 2008. In the meantime, shareholders can find regular updates from your Manager, and copies of all Stock Exchange announcements on the Company's website www.asian-income.co.uk. Also on the website there are NAV and share price feeds which are updated on a daily basis. Peter Arthur Chairman 14 September 2007 Aberdeen Asian Income Fund Limited Income Statement (unaudited) Six months ended 30 June 2007 Revenue Capital Total Â£'000 Â£'000 Â£'000 Investment income Dividend income 3,538 - 3,538 Interest income 15 - 15 _______ _______ _______ Total revenue 3,553 - 3,553 _______ _______ _______ Gains/(losses) on financial assets at fair value through the profit or loss - 7,682 7,682 Currency (losses)/ gains - 452 452 _______ _______ _______ 3,553 8,134 11,687 _______ _______ _______ Expenses Investment management fee (247) (371) (618) Other operating expenses (301) - (301) _______ _______ _______ Profit/(loss) before finance costs and tax 3,005 7,763 10,768 _______ _______ _______ Finance costs (168) (253) (421) _______ _______ _______ Profit/(loss) for the period attributable to equity Shareholders 2,837 7,510 10,347 _______ _______ _______ Earnings per Ordinary share (pence) Basic and diluted 2.58 6.83 9.41 _______ _______ _______ The total column of this statement represents the Income Statement of the Company, prepared in accordance with IFRS. The revenue and capital columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations. All income is attributable to the equity holders of Aberdeen Asian Income Fund Limited. There are no minority interests. Aberdeen Asian Income Fund Limited Income Statement (unaudited) Six months ended 30 June 2006 Revenue Capital Total Â£'000 Â£'000 Â£'000 Investment income Dividend income 3,499 - 3,499 Interest income 35 - 35 _______ _______ _______ Total revenue 3,534 - 3,534 _______ _______ _______ Gains/(losses) on financial assets at fair value through the profit or loss - (8,285) (8,285) Currency (losses)/ gains - 717 717 _______ _______ _______ 3,534 (7,568) (4,034) _______ _______ _______ Expenses Investment management fee (216) (325) (541) Other operating expenses (283) - (283) _______ _______ _______ Profit/(loss) before finance costs and tax 3,035 (7,893) (4,858) _______ _______ _______ Finance costs (137) (205) (342) _______ _______ _______ Profit/(loss) for the period attributable to equity Shareholders 2,898 (8,098) (5,200) _______ _______ _______ Earnings per Ordinary share (pence) Basic and diluted 2.63 (7.36) (4.73) _______ _______ _______ The total column of this statement represents the Income Statement of the Company, prepared in accordance with IFRS. The revenue and capital columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations. All income is attributable to the equity holders of Aberdeen Asian Income Fund Limited. There are no minority interests. Balance Sheet (unaudited) As at As at As at 30 June 30 June 31 December 2007 2006 2006 (unaudited) (unaudited) (audited) Â£'000 Â£'000 Â£'000 Non-current assets Investments held at fair value through profit or loss 142,809 120,764 136,714 _______ _______ _______ Current assets Cash and cash equivalents 2,926 1,226 1,327 Other receivables 531 893 1,809 _______ _______ _______ 3,457 2,119 3,136 _______ _______ _______ Current liabilities Bank loans (14,869) (16,192) (15,290) Other payables (431) (615) (1,191) _______ _______ _______ (15,300) (16,807) (16,481) _______ _______ _______ Net current liabilities (11,843) (14,688) (13,345) _______ _______ _______ Net assets 130,966 106,076 123,369 _______ _______ _______ Capital and reserves Ordinary share capital 110,000 110,000 110,000 Warrant reserve 2,200 2,200 2,200 Capital reserve 15,296 (9,239) 7,786 Revenue reserve 3,470 3,115 3,383 _______ _______ _______ Equity Shareholders' funds 130,966 106,076 123,369 _______ _______ _______ Net asset value per Ordinary share (pence): Basic and diluted 119.06 96.43 112.15 _______ _______ _______ Statement of Changes in Equity (Unaudited) Six months ended 30 June 2007 Share Warrant Capital Revenue Retained capital reserve reserve reserve earnings Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Opening balance 110,000 2,200 7,786 3,383 - 123,369 Profit for the period - - - - 10,347 10,347 Transferred from retained earnings to capital - - 7,510 - (7,510) - reserve* Transferred from retained earnings to revenue - - - 2,837 (2,837) - reserve Dividends paid - - - (2,750) - (2,750) ______ ______ ______ ______ ______ ______ Balance at 30 June 2007 110,000 2,200 15,296 3,470 - 130,966 ______ ______ ______ ______ ______ ______ Six months ended 30 June 2006 Share Warrant Capital Revenue Retained capital reserve reserve reserve earnings Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Opening balance 110,000 2,200 (1,141) 217 - 111,276 Loss for the period - - - - (5,200) (5,200) Transferred from retained earnings to capital - - (8,098) - 8,098 - reserve* Transferred from retained earnings to revenue - - - 2,898 (2,898) - reserve ______ ______ ______ ______ ______ ______ Balance at 30 June 2006 110,000 2,200 (9,239) 3,115 - 106,076 ______ ______ ______ ______ ______ ______ * Represents the capital profit attributable to equity Shareholders per Income Statement. Cash Flow Statement (Unaudited) Six months ended Six months ended 30 June 2007 30 June 2006 Â£'000 Â£'000 Operating activities Profit/(loss) for the period 10,347 (5,200) Add back interest payable 421 342 (Gains)/losses on investments held at fair value through the profit or loss (7,682) 8,285 Net gains on foreign exchange (452) (717) Net sales/(purchases) of investments held at fair value through the profit or 1,587 (39,659) loss Decrease in amounts due from brokers 1,345 - Increase in other receivables (74) (483) Decrease in amounts due to brokers (792) (9,594) Increase/(decrease) in other payables 40 (64) __________ __________ Net cash inflow/(outflow) from operating activities before and after interest and 4,740 (47,090) taxation Interest paid (422) - Dividends paid (2,750) - __________ __________ Net cash inflow/(outflow) from operating activities 1,568 (47,090) Financing activities Loans drawndown - 17,119 __________ __________ Net cash inflow from financing activities - 17,119 __________ __________ Net increase/(decrease) in cash and cash equivalents 1,568 (29,971) Analysis of changes in cash during the period Opening balance 1,327 31,407 Increase/(decrease) in cash above 1,568 (29,971) Currency differences 31 (210) __________ __________ Cash and cash equivalents at the end of the period 2,926 1,226 __________ __________ Notes to the Financial Statements For the period ended 30 June 2007 1. Accounting policies The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) 34 - 'Interim Financial Reporting', as adopted by the International Accounting Standards Board (IASB), and interpretations issued by the International Reporting Interpretations Committee of the IASB (IFRIC). They have also been prepared using the same accounting policies applied for the period ended 31 December 2006 financial statements, which received an unqualified audit report. 2. Earnings per share The earnings per Ordinary share is based on the net profit after taxation of Â£10,347,000 (2006 - loss of Â£5,200,000) and on 110,000,000 (2006 - 110,000,000) Ordinary shares, being the weighted average number of Ordinary shares in issue during the period. The earnings per Ordinary share detailed above can be further analysed between revenue and capital as follows: Six months ended 30 June 2007 Six months ended 30 June 2006 Revenue Capital Total Revenue Capital Total Net profit/(loss) (Â£'000) 2,837 7,510 10,347 2,898 (8,098) (5,200) ___________ ___________ ___________ ___________ ___________ ___________ Weighted average number of 110,000,000 110,000,000 110,000,000 110,000,000 110,000,000 110,000,000 Ordinary shares in issue ___________ ___________ ___________ ___________ ___________ ___________ Return per Ordinary share (p) 2.58 6.83 9.41 2.63 (7.36) (4.73) 3. Net asset value per share The basic net asset value per Ordinary share and the net asset values attributable to Ordinary Shareholders at the period end calculated in accordance with the Articles of Association were as follows: As at As at As at Net asset value per share 30 June 2007 30 June 2006 31 December 2006 Attributable net assets (Â£'000) 130,966 106,076 123,369 Number of Ordinary shares in issue 110,000,000 110,000,000 110,000,000 Net asset value per Ordinary share (p) 119.06 96.43 112.15 Six months ended Six months ended 30 June 2007 30 June 2006 4. Other operating expenses Â£'000 Â£'000 Directors' fees 47 50 Administration fees 52 50 Marketing contribution 51 40 Auditors' remuneration 6 7 Custodian charges 70 80 Other 75 56 ___________ ___________ 301 283 ___________ ___________ 5. Transaction costs During the period expenses were incurred in acquiring or disposing of investments classified as fair value though 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: Six months ended Six months ended 30 June 2007 30 June 2006 Â£'000 Â£'000 Sales 21 3 Purchases 13 165 ___________ ___________ 34 168 ___________ ___________ 6. Related party transactions Mr H Young is a director of Aberdeen Asset Management Asia Limited ('AAM Asia'), which is a subsidiary of Aberdeen Asset Management PLC ('AAM'). Aberdeen Private Wealth Management Limited has an agreement to provide management services to the Company, which it has sub-delegated to AAM Asia. AAM has an agreement to provide administration services to the Company. The management fee is payable monthly in arrears based on an annual amount of 1% of the net asset value of the Company valued monthly. During the period Â£618,000 (2006 - Â£541,000) of management fees were paid and payable, with a balance of Â£103,000 (2006 - Â£176,000) being payable to AAM Asia at the period end. The investment management fees are charged 40% to revenue and 60% to capital. The administration fee is based on an annual amount of Â£100,000, increased annually in line with any increases in RPI, payable quarterly in arrears. During the period Â£52,000 (2006 - Â£50,000) of fees were paid and payable, with a balance of Â£26,000 (2006 - Â£17,000) being payable to AAM at the period end. 7. The previous year's comparative period in these financial statements differs to those published in last years Interim Report, which, due to Listing Rules requirements, covered the six month period from incorporation to 7 May 2006. Aberdeen Private Wealth Management Limited Secretaries 14 September 2007 Independent Review Report to the Members of Aberdeen Asian Income Fund Limited Introduction We have been instructed by the Company to review the financial information for the six months ended 30 June 2007 which comprises the Income Statement, Balance Sheet, Statement of Changes in Equity, Cash Flow Statement, and the related notes 1 to 7. We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the company in accordance with guidance contained in Bulletin 1999/4 'Review of interim financial information' issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed. Directors' responsibilities The Interim Report, including the financial information contained therein, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the forthcoming annual accounts except where any changes, and the reasons for them, are disclosed. Review Work Performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 'Review of interim financial information' issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data, and based thereon, assessing whether the accounting policies and presentation have been consistently applied, unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review Conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2007. Ernst & Young LLP Jersey 14 September 2007 Channel Islands This information is provided by RNS The company news service from the London Stock Exchange

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