Schroder Orientl Inc SOI Annual Financial Report

  Schroder Orientl Inc (SOI) - Annual Financial Report

RNS Number : 3857R
Schroder Oriental Income Fund Ltd
16 November 2012

                                                              16 November 2012

                          ANNUAL REPORT AND ACCOUNTS

Schroder Oriental  Income  Fund Limited  (the  "Company") hereby  submits  its 
annual financial report for the year ended  31 August 2012 as required by  the 
UK Listing Authority's Disclosure and Transparency Rule 4.1.

The Company's Annual Report and Accounts for the year ended 31 August 2012 are
also being published in hard copy  format and an electronic copy will  shortly 
be    available     to     download     from     the     Company's     website Please click on the following link
to view the document:

The Company  has submitted  its Annual  Report and  Accounts to  the  National 
Storage  Mechanism  and  it  will  shortly  be  available  for  inspection  at


Jonathan McGuire

Schroder Investment Management Limited Tel: 020 7658 3496

Chairman's Statement


The Company's net asset value for the year ended 31 August 2012 produced a
total return of 12.3% (2011: 16.1%) with a share price total return of 12.5%
(2011: 15.9%) building on the returns of the last 2 years. These compare
favourably with the reference index, the MSCI AC Pacific ex Japan Index, which
produced a return of 1.9% for the period under review (2011: 7.9%).

The Investment Manager's Review provides a more detailed description of the
performance of the portfolio during the year under review.


Revenue earnings per share for the year increased by 3.0% to 7.44p per share
compared with 7.22p for the previous year.

The Board has declared a second interim dividend of 4.10p per share for the
year ended 31 August 2012. This takes total dividends per share for the year
to 6.80p, an increase of 7.1% on total dividends of 6.35p per share paid last
year. The second interim dividend will be paid on 7 December 2012 to
shareholders on the register on 23 November 2012.

Issue of Shares

Demand for the Company's shares has continued during the year under review as
the asset class remained attractive for investors. We have continued to issue
shares at a slight premium to asset value in order to provide liquidity to
investors. A total of 9,485,000 Ordinary shares were issued during the year
(2011: 5,845,000) with a further 2,850,000 shares having been issued since the
end of the year. It is also the intention to issue shares in the Company at a
premium to net asset value where there is demand in the market.

Discount Management

The Board is seeking to renew the existing authority to buy-back shares in the
Company and an appropriate resolution is included in the Notice of the Annual
General Meeting. During the year ended 31 August 2012, the Directors did not
use the authority given to them and no purchases for cancellation were
undertaken. The Board believes that this authority is a valuable tool in the
continuing management of the share price volatility relative to net asset
value per share. It remains the intention of the Board to cancel any shares
bought back.

The objective will be the managing of any share price premium to net asset
value whilst meeting demand in the market for shares.


During the year under review, the Company renewed the revolving £25 million
multi-currency credit facility with Scotiabank Europe PLC. Gearing stood at
2.4% at the beginning of the year and had increased slightly to 2.7% at 31
August 2012. The level of gearing continues to be monitored closely by the
Board and managed as necessary.


Last year was the fourth in the Company's six full years that returns have
been in double-digits. While reassuring in terms of the Company's initial
objective, and reflected in investor demand that has necessitated another year
of share issuance to control the premium to net asset value, we are conscious
that financial markets remain volatile. Looking to Asia for income is now a
more accepted investment style, but that and the Company's gains are in
themselves reminders of the need to keep the portfolio refreshed with new

Whatever the immediate risks, however, the Board continues to take comfort
from the Manager's longer-term optimism, and the fact that your Company still
has reserves equivalent to over 11 months of the increased dividend.

Annual General Meeting and Presentation to Shareholders

The Annual General Meeting will be held in Guernsey at 12.00 noon on Monday 10
December 2012 and shareholders are invited to attend. There will also be a
presentation to shareholders in London at the offices of the Manager at 31
Gresham Street, London EC2V 7QA on Wednesday 12 December 2012 at 11.00 a.m.
providing UK-based shareholders with further opportunity to meet members of
the Board and the fund manager.

Robert Sinclair


15 November 2012

Investment Manager's Review

The net asset value of the Company recorded a return of 12.3% over the twelve
month period to end August 2012. A second interim dividend of 4.10p has been
declared giving a total dividend of 6.80p for the year, representing a 7.1%
increase over last year.

Regional markets struggled to make positive progress over the year under
review. Global developments were of major influence, particularly the
continued bouts of uncertainty over the future of the euro, with the focus
shifting from the smaller economies of Greece and Portugal to the systemically
more critical cases of Spain, Italy and, in some commentators' eyes, France.
The impact of a potential break-up and attendant economic dislocation in
Europe would come through many channels. Most obviously the European economic
bloc is a major trading partner of, and competitor to, Asia while European
domiciled banking groups play important roles in the region, particularly in
the corporate and trade finance sectors. The experience of 2008 has left Asian
investors with a healthy respect for the indiscriminate effects of a global
credit crunch.

While Europe has tended to grab the headlines, sluggish growth in the United
States also contributed to the subdued sentiment. Washington brinkmanship over
the debt ceiling, the downgrading of its sovereign rating, and a perception of
policy drift has added to the mood even though America's economic performance
has been respectable compared to other developed economies due to
stabilisation of private consumption and improvement in the net trade

The big domestic talking point in the region was China. Expectations on growth
have been consistently revised downwards. A modest recovery in the residential
property market was a lone beacon of hope despite distinct ambivalence on the
part of the authorities. Although there were some indications of monetary and
fiscal loosening, the quantum was very limited, resulting in cautious
sentiment among local investors, and a widespread feeling that the leadership
transition was hampering any material Government-led initiatives.

Unsurprisingly, China was the poorest performer over the year, but it is
noteworthy that, despite the lacklustre global backdrop and the travails of
the region's biggest economy, a number of markets offered respectable returns.
This was particularly true in ASEAN where domestic factors dominated, and
discipline in capital spending enhanced corporate returns. The exception was
Indonesia given its exposure to weak commodity prices and a negative swing in
the trade balance.

Weak commodity prices also impacted Australian returns, though the higher
yielding defensive sectors performed well, and the Australian dollar has been
notably resilient despite implied deterioration to the terms of trade and a
slowing economy.

Hong Kong was not able to shrug off the cold winds from its giant neighbour,
while sentiment has been impacted by a series of government measures aimed at
cooling the local property market. The trade dependent markets of Taiwan and
Korea struggled to progress as exports have slowed and policy responses to
lower inflationary pressures have been muted.

Fund Positioning and Performance

An uncertain global and regional investment environment and scarcity of income
opportunities has doubtless put the Company's portfolio in good stead,
evidenced by the total return of 12.3% compared to a return of 1.6% on the
reference index, the MSCI All Countries Pacific ex Japan Index. The main
contribution has come from stock selection, with notable impact from the
Company's holdings in Singapore, Taiwan, Thailand and Indonesia. Country
positioning was a small positive due to the underweighting in China and
overweight in Singapore.

Hong Kong, Singapore, Taiwan and Australia remain the main areas of exposure
in the portfolio, and in aggregate have increased at the expense of near
complete sales of Malaysia and complete sales of Philippines and reductions in
China and New Zealand. In sector terms, we added to real estate, information
technology and materials at the expense of industrials, telecoms and banks.

Investment Outlook

We remain very wary of basing any substantive portion of portfolio policy on
grand thinking on whether the United States economy will be stronger than
people expect (though on balance we think it will not) and that Europe will be
even weaker than expectations. It seems similarly futile to second guess the
next stages of QE in its various forms apart from a suspicion that, for highly
indebted Western democracies, the tendency must be towards inflation and
debasement of the currency as opposed to internal price adjustments.
Consequently the creditors (savers including Asia) will end up sharing some of
the pain of adjustment.

Amid all this uncertainty, indeed partly because of these uncertainties, we
believe there are pockets of value in Asia. Generally, value is not to be
found in the obvious defensive sectors such as consumer staples, health care
and utilities, where consequently we are underweight. High valuations by
historic standards reflect the fact that these stocks are over-owned and
consensus. Even telecoms are not that cheap but their yield characteristics
remain attractive. In contrast, a number of more cyclical areas such as
industrials and information technology are offering much better value even at
a time when economic data has started to surprise positively and inventories
remain low.

The key domestic worry in Asia remains China, which also has potential
ramifications for those parts of the region (commodity producers most
obviously) which are derivatives of that country's investment led growth. The
recent earnings season was notably grisly for Chinese companies due to rising
costs, slowing revenues, still strong capital spending and government measures
which, generally consciously, are tending to squeeze SOE profitability. We
remain underweight.

We believe Asia remains an attractive source of equity yield. Balance sheets
are generally in good shape and cash flows supportive. Despite the region
being a moderate proportion of global market capitalisation, it remains home
to around one third of the companies with a dividend yield over 4%.

Schroder Investment Management Limited

15 November 2012

Principal Risks and Uncertainties

The Board has adopted a matrix of key risks which affect its business and a
robust framework of internal control which is designed to monitor those risks
and to provide a monitoring system to enable the Directors to mitigate these
risks as far as possible and which assist in determining the nature and extent
of the significant risks the Board is willing to take in achieving its
strategic objectives. A full analysis of the Directors' system of internal
control and its monitoring system is set out in the Corporate Governance
Statement. The principal risks are considered to be as follows:

Financial Risk

The Company is exposed to the effect of market fluctuations due to the nature
of its business. A significant fall in regional equity markets would have an
adverse impact on the value of the Company's underlying investments. The Board
considers the portfolio's risk profile at each Board meeting and discusses
with the Manager appropriate strategies to mitigate any negative impact of
substantial changes in markets.

The Company invests predominantly in underlying assets which are denominated
in currencies other than Sterling and therefore has an exposure to changes in
the exchange rates between Sterling and these currencies which have the
potential to have a significant effect on returns. While the Directors
consider the Company's hedging policy on a regular basis, the Company did not
engage in currency hedging to reduce the risk of currency fluctuations and the
volatility of returns which might result from such currency exposure during
the current or prior year.

The Company utilises a credit facility, currently in the amount of
£25million, which increases the funds available for investment through
borrowing ("gearing"). Therefore, in falling markets, any reduction in the net
asset value and, by implication, the consequent share price movement is
amplified by the gearing. The Directors keep the Company's gearing under
constant review and impose strict restrictions on borrowings to mitigate this
risk. The Company's gearing continues to operate within pre-agreed limits and
will not exceed 25%.

A full analysis of the financial risks facing the Company is set out in
note19 on pages34 to 38 of the Annual Report.

Strategic Risk

Over time, investment vehicles and asset classes can fall from favour with
investors, and/or may fail to meet their investment objectives. This may be
reflected in a wide discount of the share price to underlying asset value.
Directors periodically review whether the Company's investment remit remains
appropriate and they continually monitor the success of the Company in meeting
its stated objectives. Further details may be found under the sections on
"Investment Performance" and "Premium/Discount Management" above.

Accounting, Legal and Regulatory Risk

Breaches of the UK Listing Rules, Companies (Guernsey) Law 2008 or other
regulations with which the Company is required to comply, could lead to a
number of detrimental outcomes and damage the Company's reputation. Breaches
of controls by service providers, including the Manager, could also lead to
reputational damage or loss.

The Board's system of internal control seeks to mitigate the potential impact
of these risks and it also relies on its advisers to assist it in ensuring
continued compliance.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the financial statements in
accordance with applicable Guernsey law and generally accepted accounting

Guernsey Company law requires the Directors to prepare financial statements
for each financial year which give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for that
period. In preparing these financial statements, the Directors should:

• select suitable accounting policies and then apply them consistently;

• make judgments and estimates that are reasonable and prudent.

The Directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with
the Companies (Guernsey) Law, 2008 (as amended). They are also responsible for
safeguarding the assets of the Company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.

Each of the Directors, whose names and functions are listed within the
Directors and Advisors section on the inside front cover of the Annual Report,
confirms that, to the best of their knowledge:

• the financial statements, which have been prepared in accordance with
International Financial Reporting Standards as adopted in the EU and with the
Companies (Guernsey) Law, 2008, give a true and fair view of the assets,
liabilities, financial position and the net return of the Company; and

• the Report of the Directors includes a fair review of the development
and performance of the business and the position of the Company, together with
a description of the principal risks and uncertainties that it faces.

The Directors are responsible for the maintenance and integrity of the
Company's website. Visitors to the website need to be aware that legislation
in Guernsey governing the preparation and dissemination of the Annual Report
and Accounts may differ from legislation in their jurisdiction.

Going Concern

The Directors believe that, having considered the Company's investment
objective (see inside front cover of the Annual Report), risk management
policies (see note19 to the accounts on pages34 to 38 of the Annual Report),
capital management policies and procedures (see note 20 to the accounts on
page 39 of the Annual Report), the nature of the portfolio and expenditure
projections, that the Company has adequate resources, an appropriate financial
structure and suitable management arrangements in place to continue the
operational existence for the foreseeable future. For these reasons, they
consider that there is reasonable evidence to continue to adopt the going
concern basis in preparing the final statements.

Statement of Comprehensive Income

for the year ended 31 August 2012

2012 2011

Revenue Capital Total Revenue Capital Total

£'000 £'000 £'000 £'000 £'000 £'000


Gains on investments at fair value through

   profit or loss 
- 23,242  23,242 - 26,157  26,157

Net foreign currency (losses)/gains -
(308) (308)-   1,270  1,270

Income from investments  15,044  200
 15,244  14,280  - 14,280

Other income 41
 - 41 43  - 43


Total income 15,085 
23,13438,219  14,323  27,42741,750

Management fee  (599)
(1,397) (1,996) (562) (1,312)(1,874)

Performance fee  -
(1,583) (1,583)  - (2,236)(2,236)

Other administrative expenses 
(476)(7) (483) (485) (7) (492)


Profit before finance costs and taxation 14,010  20,147 
34,15713,276  23,87237,148

Finance costs 
(224) (522)(746)(102) (233)(335)


Profit before taxation 13,786 
19,625  33,41113,17423,63936,813

(1,052) -  (1,052) (1,248)  -(1,248)


Net profit and total comprehensive income 12,734   19,625 
32,359 11,926  23,63935,565


Earnings per share   7.44p
11.47p 18.91p 7.22p 14.31p21.53p

The "Total" column of this statement represents the Company's Statement of
Comprehensive Income, prepared in accordance with IFRS. The "Revenue" and
"Capital" columns represent supplementary information prepared under guidance
issued by the Association of Investment Companies.

All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the year.

Statement of Changes in Equity

for the year ended 31 August 2012


redemption Special Capital Revenue

reserve reserve reserve reserve1 Total

£'000 £'000 £'000 £'000 £'000


At 31 August 2010 10,918 39
150,374 44,377 13,491 219,199

Issue of shares 9,000
- - - - 9,000

Net profit -
- - 23,639 11,926 35,565

Dividends paid in the year -
- - - (9,694) (9,694)


At 31 August 2011 19,918 39
150,374 68,016 15,723 254,070


Issue of shares 14,791
- - - - 14,791

Net profit  -
- - 19,625 12,734 32,359

Dividends paid in the year -
- - - (10,896) (10,896)


At 31 August 2012 34,709 39
150,374 87,641 17,561 290,324


1 The revenue reserve represents the amount distributable by way of dividend.

Balance Sheet

at 31 August 2012

2012 2011

£'000 £'000


Non current assets

Investments at fair value through profit or
loss  299,377 


Current assets


 1,160  1,589

Cash and cash
15,893  13,970


17,053  15,559


Total assets

316,430  276,876

Current liabilities

 (26,106) (22,806)


290,324  254,070


Equity attributable to equity holders

 34,709  19,918

Capital redemption
 39  39

 150,374  150,374

 87,641  68,016

 17,561  15,723


Total equity shareholders'
290,324  254,070


Net asset value per share

 165.18p 152.80p

Cash Flow Statement

for the year ended 31 August 2012

2012 2011

£'000 £'000


Operating activities

Profit before
33,411 36,813

Add back
746 335

Add back exchange losses/(gains) on foreign currency bank
loan 444 (1,186)

Add back gains on investments at fair value through profit or
loss (23,242) (26,157)

Net (purchases)/sales of investments at fair value though profit or
loss (14,818) 2,083

Add back amortisation of discount on fixed interest
securities - 1

Decrease/(increase) in
610 (98)

(Decrease)/increase in
(578) 146

Overseas taxation
(1,233) (1,210)


Net cash (outflow)/inflow from operating activities before
interest (4,660) 10,727


(562) (288)


Net cash (outflow)/inflow from operating
activities (5,222)


Financing activities

Net bank loans drawn down

3,250 -

Issue of
14,791 9,000

(10,896) (9,694)


Net cash inflow/(outflow) from financing
7,145 (694)


Increase in cash and cash
1,923 9,745


Cash and cash equivalents at the start of the year
 13,970 4,225


Cash and cash equivalents at the end of the year
 15,893 13,970


Notes to the Accounts

for the year ended 31 August 2012

1. Accounting Policies

The accounts have been prepared in accordance with the Companies (Guernsey)
Law 2008 and International Financial Reporting Standards (IFRS), which
comprise standards and interpretations approved by the International
Accounting Standards Board ("IASB"), together with interpretations of the
International Accounting Standards and Standing Interpretations Committee
approved by the International Accounting Standards Committee ("IASC"), that
remain in effect and to the extent that they have been adopted by the European

Where consistent with the requirements of IFRS, the Directors have sought to
prepare the financial statements on a basis compliant with presentational
guidance set out in the statement of recommended practice for investment trust
companies ("the SORP") issued by the Association of Investment Companies in
January 2009.

The policies applied in these accounts are consistent with those applied in
the preceding year.

The Company's share capital is denominated in Sterling and this is the
currency in which its shareholders operate and expenses are generally paid.
The Directors have therefore determined that Sterling is the functional
currency and the currency in which the accounts are presented.

The accounts have been prepared on the going concern basis. The disclosures on
going concern in the Report of the Directors on page 17 of the Annual Report
form part of these financial statements. The principal accounting policies
adopted are set out below.

2. Income

2012 2011

£'000 £'000


£'000 £'000

Income from investments:

15,044  14,173

- 107


15,044  14,280


Other income:

41  43


15,085  14,323


3. Management and performance fee

2012 2011

Capital Total Revenue Capital Total

£'000 £'000 £'000 £'000 £'000


Management fee 599 1,397
1,996 562 1,312 1,874

Performance fee -
1,583 1,583 - 2,236 2,236


2,980 3,579 562 3,548 4,110


4. Earnings per share

2012 2011

£'000 £'000


Net revenue
12,734 11,926

Net capital
19,625 23,639


Net total
32,359 35,565


Weighted average number of Ordinary shares in issue during the year
171,163,885  165,180,664

Revenue earnings per
7.44p  7.22p

Capital earnings per
11.47p 14.31p


Total earnings per
18.91p 21.53p


5. Net asset value per share

2012 2011


Net assets attributable to shareholders
(£'000) 290,324 

Shares in issue at the year
175,764,500  166,279,500 


Net asset value per
165.18p  152.80p


6. Related Party Transactions

The Company has appointed Schroder Investment Management Limited (the
"Manager"), a wholly owned subsidiary of Schroders plc, to provide investment
management, accounting, Company secretarial and administration services.
Details of the management and performance fee agreement are given in the
Report of the Directors on page 16 of the Annual Report. The management fee
payable in respect of the year amounted to £1,996,000 (2011: £1,874,000), of
which £532,000 (2011: £470,000) was outstanding at the year end. The Company
secretarial fee payable to the Manager amounted to £75,000 (2011: £75,000) of
which £19,000 (2011: £19,000) was outstanding at the year end. A performance
fee amounting to £1,583,000 (2011: £2,236,000) was payable in respect of the
year and the whole of this amount (2011: same) was outstanding at the year

If the Company invests in funds managed or advised by the Manager or any of
its associated companies, any fees earned by the Manager from those funds is
deducted from the management fee payable by the Company. There have been no
such investments during the current or comparative year.

Details of Mr Sherwell's connections with the Manager are given on page 15 of
the Annual Report.

The Directors of the Company received fees for their services and details are
given in the Remuneration Report on page 19 of the Annual Report.

Details of Directors' shareholdings are given on page 15 of the Annual Report.

7. Status of announcement

2011 Financial Information

The figures and financial information for 2011 are extracted from the
published Annual Report and Accounts for the year ended 31 August 2011 and do
not constitute the statutory accounts for that year. The Annual Report and
Accounts have been delivered to the Registrar of Companies and included the
Report of the Independent Auditors which was unqualified and did not contain a
statement under either section 498(2) or section 498(3) of the Companies Act

2012 Financial Information

The figures and financial information for 2012 are extracted from the Annual
Report and Accounts for the year ended 31 August 2012 and do not constitute
the statutory accounts for the year. The Annual Report and Accounts include
the Report of the Independent Auditors which is unqualified and does not
contain a statement under either section 498(2) or section 498(3) of the
Companies Act 2006. The Annual Report and Accounts will be delivered to the
Registrar of Companies in due course.

Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.

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


FR FFDFWMFESEDF -0- Nov/16/2012 17:45 GMT