Final Results

Schroder Oriental Income Fund Ltd 27 October 2006 SCHRODER ORIENTAL INCOME FUND LIMITED PRELIMINARY RESULTS FOR THE PERIOD FROM 17 JUNE 2005 TO 31 AUGUST 2006 The Directors of Schroder Oriental Income Fund Limited (the 'Company') announce the unaudited preliminary results for the period from 17 June 2005 to 31 August 2006. For the period from 17 June 2005 to 31 August 2006 Income Statement Note Revenue Capital Total £'000 £'000 £'000 Losses on investments - (1,826) (1,826) Foreign exchange gains - 1,677 1,677 Income 4 12,539 - 12,539 Investment management fees (378) (883) (1,261) Administrative expenses (376) (53) (429) Net return before finance costs and taxation 11,785 (1,085) 10,700 Interest payable (434) (984) (1,418) Net return on ordinary activities before taxation 11,351 (2,069) 9,282 Tax on ordinary activities 5 (1,222) - (1,222) Return on ordinary activities after tax for the period 10,129 (2,069) 8,060 attributable to equity shareholders Return per ordinary share 6.50p (1.33)p 5.17p The total column represents the profit and loss account of the Company. All revenue and capital items in the above statement derive from continuing operations. The Company has no recognised gains or losses other than those disclosed in the Income Statement and Reconciliation of Movements in Shareholders' Funds. Accordingly, no Statement of Total Gains or Losses is presented. Reconciliation of Movements in Shareholders' Funds (Unaudited) For the period from 17 June 2005 to 31 August 2006 Share Share Premium Capital Revenue Capital Account Reserve Reserve Total £'000 £'000 £'000 £'000 £'000 Issue of ordinary shares 1,571 155,711 - - 157,282 Share issue expenses - (1,824) - - (1,824) Net realised losses during the period - - (2,069) - (2,069) Net revenue return on ordinary - - - 10,129 10,129 activities Dividend paid -first interim - - - (3,887) (3,887) Balance at 31 August 2006 1,571 153,887 (2,069) 6,242 159,631 Balance Sheet (Unaudited) At 31 August 2006 £'000 FIXED ASSETS Investments at fair value 180,296 CURRENT ASSETS Debtors and prepayments 1,137 Cash at bank and short term deposits 2,102 3,239 CREDITORS: amount falling due within one year Multi-currency loans 23,490 Accruals 414 23,904 NET CURRENT LIABILITIES (20,665) NET ASSETS 159,631 CAPITAL AND RESERVES Called up share capital 1,571 Share premium account 153,887 Capital reserves (2,069) Revenue reserves 6,242 TOTAL EQUITY SHAREHOLDERS' FUNDS 159,631 Net asset value per share - pence per share 101.64p Cash Flow Statement (unaudited) For the period from 17 June 2005 to 31 August 2006 £'000 Operating activities Income from investments 10,912 Interest received 429 Administrative expenses (326) Investment management fee (971) Net cash flows from operating activities 10,044 Returns on investments and servicing of finance Bank loan and overdraft interest paid (1,400) Net cash flows from returns on investments and servicing of finance (1,400) Tax paid (1,222) Dividend paid - first interim (3,887) Capital expenditure and financial investments Purchase of investments (301,348) Sales proceeds 119,290 Net cash flows from capital expenditure and financial investments (182,058) Net cash outflow before financing (178,523) Financing Bank loan drawn 25,063 Proceeds from issue of shares 155,458 Net cash inflow from financing 180,521 Effects of exchange gains on cash and cash equivalents 104 Increase in cash and cash equivalents during the period 2,102 Notes: 1. General Information The Company was incorporated in Guernsey on 17 June 2005 and commenced trading on 28 July 2005. The results reported here are for the period from 28 July 2005 to 31 August 2006. This is the first period of accounts, hence no comparatives figures are available. Following the Placing and Offer for Subscription 150,000,000 shares were issued. A further three issues of shares were made during the period and as a result the total number of shares in issue at 31 August 2006 was 157,050,000. Accounting Policies The financial statements have been prepared on the historical cost basis, modified to include the revaluation of fixed asset investments and in accordance with applicable accounting standards in the United kingdom and on the basis that all activities are continuing. 2. Revenue return per ordinary share The Revenue return per ordinary share is based on the revenue attributable to shareholders of £10,129,000 and on 155,782,500 shares, being the weighted average number of shares in issue during the period. 3. Net asset value per ordinary share Net asset value per ordinary share is based on the net assets attributable to shareholders of £159,631,000 and on 157,505,000 shares in issue at the end of the period. 4. Income For the period from 17 June 2005 to 31 August 2006 £'000 Investment income Dividend income from listed overseas investments 10,853 Interest from fixed income securities 1,195 Stock dividends 62 Other income Deposit interest 429 12,539 5. Taxation Irrecoverable overseas tax - 1,222 The Company is exempt from income tax on its non-Guernsey source income. The above tax represents irrecoverable overseas withholding tax on dividend income received during the period. 6. The above financial information is unaudited. The statutory accounts for the period ended 31 August 2006 will be finalised on the basis of the financial information presented by the Directors in this preliminary announce mount. This statement was approved by the Board of Directors on 27 October 2006. Chairman's Statement Performance During the first half of the 13-month financial period, markets produced good performance, supported by a favourable global environment. However, the impact on the region of signs of a slowdown in the US and slowing momentum growth in a number of Asian countries led to a distinct change in sentiment and a sharp reduction in net asset value. During the period from launch to 31 August 2006, the Company's net asset value increased from 98.77p per share (taking into account launch expenses of 1.22p per share) to 101.64p. During most of the period under review, the Company's share price traded at a premium to net asset value, reflecting strong market sentiment towards the Company and its asset class. However, recently the Company's shares have begun to trade at a slight discount reflecting more challenging market conditions. This impacted on the share price which fell over the period from 100p at launch to 95p at 31 August 2006. 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 second interim dividend of 2.40 pence per share for the 13-month period ended 31 August 2006, which, together with the payment of a first interim dividend of 2.475 pence per share represents an annualised rate of 4.5% being at the top end of the initial target range given in the prospectus. The second interim dividend will be paid on 27 November 2006 to shareholders on the Register on 10 November 2006. In accordance with the indications set out in the prospectus published in July 2005, the Company intends to pay two interim dividends in respect of each financial year. The Directors currently expect that they will be able to declare dividends totalling not less than 4.50 pence per share for the current year in amounts of at least 2.25 pence per share for each dividend payment. Premium/discount management As I indicated in my interim Statement, demand for the Company's shares was strong during the first half of the period under review, and our shares traded at a premium to net asset value. The Directors issued an additional 7,050,000 shares during that time at a premium to net asset value to satisfy additional demand. However, recently the shares have gone to a slight discount in line with peer group companies. In accordance with the Listing Particulars, it is the Directors' intention to implement an active discount management policy through 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. The Company currently has authority to make purchases of shares for cancellation and a resolution has been included in the Notice of the Annual General Meeting which, if passed, will renew the authority for a further year. Should demand for the Company's shares become strong again, we will issue shares at a premium to net asset value in circumstances where we believe such issuance to be in the interests of our shareholders. Outlook Your Board continues to believe that there are a number of attractive higher-yielding opportunities for the Company. The Investment Managers' report highlights the possibility of capital gains from these in a macro-economic environment of slowing growth and easier credit conditions. Similarly, we take comfort with regards to the Company's future income from the degree to which dividends in the region are well-covered by current profits, and from the number of companies that are increasing their dividend over time. Annual General Meeting The Annual General Meeting will be held in Guernsey at 12.00 noon on Monday 11 December 2006 and shareholders are invited to attend. Robert Sinclair Chairman Investment Manager's Review From the launch of the Company on 28 July 2005 to the end of the first financial period on 31 August 2006, the portfolio recorded a return on initial investible assets of 5.5%, taking into account the payment of the first interim dividend in May 2006. Despite a sharp sell-off in May, it has been a period of solid returns for the Pacific markets. Returns in the first half of the financial period were supported by a favourable global environment. Global growth indicators remained strong into the first quarter of 2006, supporting optimism for regional exports. Although US interest rates continued to rise and there were signs of a more co-ordinated international shift to higher interest rate policies, global bond markets gave little indication of inflationary pressures. Meanwhile, corporate earnings have generally been well up to expectations. Investors focussed on more cyclical markets and sectors; within the Pacific region this meant Korea, and in sectoral terms information technology and basic materials. There was something of a change of sentiment in the second half of the financial period. Although markets recovered some of their poise post the May correction, attention has been drawn to the clear signs of a housing-led consumer slowdown in the US, accompanied as it has been by slowing growth momentum in a number of Asian economies, notably Korea, Taiwan, and more recently in Japan. A notable corollary of this change in mood has been the weakness of the US dollar, as is evident from the divergence in regional returns expressed in US dollars and sterling in the last four months of the financial period. In terms of individual country returns, the smaller markets of the Philippines and Indonesia were amongst the strongest as overseas investors increasingly recognised the improving macro-economic picture in both countries. Indonesia has recovered following the initial shock of the removal of fuel subsidies which, while depressing consumption, has resulted in a sharp improvement in the trade account and flexibility to reduce currently high interest rates. Similarly, in the Philippines, fiscal reform is also enabling interest rate reductions. Korea was also a good performer, thanks to its strong rally in the second half of 2005, partly offset by a correction as global growth expectations have moderated through this year. The key disappointments have been Taiwan and Singapore among the major markets, New Zealand and Malaysia among smaller markets. Although Taiwanese technology stocks rose over the period, this was more than cancelled out by weakness in domestic sectors, most notably the banks, as consumer confidence deteriorated (not helped by political issues) and bad debt provisions increased. Performance and Portfolio Activity While the Company's portfolio has generated positive returns over the review period, these have been significantly short of the +10.3% return generated by the MSCI All Country Pacific ex Japan index. However, this index does not reflect the income focus of the Company which has not been a favoured characteristic over the last year. This has been due to a combination of generally rising interest rates (both in the United States and in the region) and a pro-cyclical stance among investors. Consequently, stable income companies (often offering high current dividend streams) have been neglected, evidenced by the underperformance by sectors such as utilities and telecommunications over the review period. This market environment has contributed to the subdued capital return performance, with disappointing stock selection in the utilities, telecommunication and financial (particularly the real estate investment trusts) sectors. On a more positive note income generation has been strong over the period, with dividend announcements well up to expectations. However, in reviewing the overall level of income it should be recalled that it covers a 13 month period, and that we have been able to take advantage of some high yield opportunities within the fixed income portion of the portfolio which may not be repeatable in future. In terms of policy, we moved rapidly to establish a fully invested position. The major geographic exposures have remained Australia, Singapore, Hong Kong and Taiwan, with smaller but still significant exposures in Indonesia, the Philippines, Korea and Thailand. Outlook and Policy A slowing in the global economy appears increasingly likely over coming quarters, as leading indicators have turned over and consumers appear less inclined to shrug off the impact of energy prices and debt servicing costs. While we may see further interest rate rises in many economies - most notably in Europe - the spreading evidence of a softening in housing and consumption in the US suggests that we are nearing the end of the tightening cycle there. We believe this could provide a supportive backdrop for the Company's portfolio. Slowing growth of end demand in the US will undoubtedly impact the export performance of the Asian regional economies. However, we expect a slowdown rather than a major decline given that employment remains robust and the corporate sector is in good financial health. Consequently, Asian economies should continue to expand, but with the added possibility that regional monetary policy and credit conditions will improve, not least thanks to an end (but probably not a reversal) in the US Federal Reserve Board's tightening process. In the closing months of the financial period, there were signs of a shift in investor mood which, in a relative sense, has been helpful for higher yielding shares and sectors. Should we get a combination of slowing growth and easier credit conditions in the region, this may continue. Longer-term, we continue to believe that the region offers attractive opportunities for the yield investor, as suggested by an overall gross yield on the reference index of 3.1%. The corporate sector continues to generate substantial free cash flow, balance sheets are strong, and shareholder focus continues to improve. The major geographic exposures remain as they have been through the last year. In sector terms, the portfolio is heavily weighted in more domestically focussed sectors such as the financials, real estate and telecommunications, while exposure in the industrial sector is primarily through transportation-related companies rather than export-sensitive manufacturers. Second Interim Dividend The Directors of the Company have declared the payment of a second interim dividend of 2.40 pence per share for the 13-month period ended 31 August 2006 on the Ordinary Shares of the Company. Ex-Dividend Date: 8 November 2006 Record date: 10 November 2006 Payment Date: 27 November 2006 Dividend per share: 2.4.p The Report and Accounts will be mailed to registered shareholders in November 2006 and from the date of release copies of the Report and Accounts will be made available to the public at the Company's Registered Office and at 31 Gresham Street, London EC2V 7QA. Enquiries: Schroder Investment Management Limited John Spedding (020 7658 3206) 27 October 2006 This information is provided by RNS The company news service from the London Stock Exchange

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