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 This information is provided by RNS The company news service from the London Stock Exchange

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