Schroder Orientl Inc - Final Results

Chairman's Statement

Dear Shareholder

It is 13 years since the launch of the Company and this will be my final report to you as chairman. As I noted in my half year statement, I will not be standing for re-election at the forthcoming annual general meeting. I discuss board succession in more detail below but, before discussing this and other matters from the last financial year, I wanted to spend a moment reflecting on the Company's progress since I became chairman.

In those 13 years the Company's NAV total return to shareholders has been 333%, an annualised return of 13%. By comparison, the broad Asia ex Japan equity markets (as measured by the MSCI AC Pacific ex Japan Total Return Index in sterling terms) have returned 260%. It is, of course, gratifying that the Company has outperformed the equity markets of the region. This demonstrates the value that Schroders has added as investment manager and validates the income-orientated approach taken by the Company. More startling, however, is the sheer quantum of total return. Further, this period spans the financial crisis of 2008/2009 and subsequent smaller tremors in 2013 and 2015. So it is through a period of bull markets and bear markets alike.

The success of the Company's strategy has been replicated in its own growth in shareholder equity. Through C share issuance and tap issuance, the Company has grown from a market capitalisation of £161 million at launch to £600 million at the time of writing.

The final key attribute that the Company has demonstrated since its launch in 2005 has been consistent dividend growth, with the dividend having grown year on year. Indeed, this track record has led to the Company being named a 'Next Generation Dividend Hero' by the Association of Investment Companies this year.

The point of these observations is not to suggest hubris or complacency. Rather it is to demonstrate that, if ever evidence were needed that Asia is the economic powerhouse of the world and that patience and a long-term perspective are key attributes of successful investment, they are all contained here.

Investment markets and sentiment wax and wane; economies ebb and flow. Some years will, inevitably, will be more successful than others for the Company. But it seems clear that investment in companies in Asia with strong governance and good, sustainable dividends should continue to enable you, as our shareholders, to reap attractive returns in the long-term.

Returning now to the shorter term and the last financial year, performance has, indeed, been more muted. The NAV total return for the financial year to 31 August 2018 was 1.5%, in contrast to the prior year in excess of 20%. Two factors account for this lower return. Firstly, the weakness of sterling against Asian currencies following the Brexit referendum result was staunched and, indeed, so far in 2018 sterling has strengthened. Secondly, Asian equity markets have been less buoyant, mostly reflecting fears over the mounting trade rhetoric between the US and China, the imposition of tariffs and the impact of rising US interest rates.

Despite this, dividend growth from our underlying investments has remained robust and this has allowed the Company to grow its own dividend once again. During the financial year, the Company paid total dividends of 9.40 pence (2017: 8.80 pence) per share representing a yield of 3.8% on the share price as at 31 August 2018. Further, once again, as in previous years, the dividend was more than fully covered from income and so we added once again to the revenue reserve, which is available to supplement distributions in future years.

Despite this robust dividend flow, the share price produced a negative total return of -0.6%. This reflects the fact that, as at the financial year end, the shares were trading at a small discount to NAV of 1.2% versus a small premium of 0.9% at the same point last year. However, the shares have traded at a small premium during most of the year and close to NAV at all times, which is a characteristic upon which the board appreciates that shareholders place considerable value. This has enabled further issuance of 8,395,000 ordinary shares during the year under review, always on terms accretive to existing shareholders. This issuance is beneficial more generally because it improves the liquidity of shares and modestly reduces ongoing charges per share.

As I noted earlier, I will not be standing for re-election at the forthcoming AGM, to be held on 20 December 2018. This is as a part of an ongoing, orderly succession plan that commenced several years ago. In managing succession, the board has been mindful of maintaining the right mix and diversity of skills, experience and independence of thought whilst balancing fresh perspectives with corporate memory. The process to appoint a new director is well underway and I am confident that, by the end of 2018, we will be able to announce the appointment of a director who greatly complements the existing board, bringing fresh perspectives and broadening its diversity.

Following consultation with a number of shareholders, I am pleased to announce that my successor as chairman will be Peter Rigg, to facilitate effective succession planning in accordance with the provisions of the 2018 UK Corporate Governance Code. Peter has also served on the board since the inception of the Company and brings huge ability and experience to bear. Peter will seek to serve as chairman for the next two to three years before he too retires from the board.

So I finish my final report to you where I started it. The short-term outlook for investment markets, Asia included, is uncertain as geo-political rhetoric rises and headwinds are felt from rising US interest rates and the potential currency effects of Brexit. However, the long-term outlook for Asia remains as strong as ever: it is one of the most innovative and vibrant regions of the world and equity valuations are not demanding. The companies in which we invest are strong and well managed.

So, as in the past, whatever the short-term lumps and bumps, patience seems likely to be rewarded.

It has been my pleasure to serve you as chairman. I know that I leave you in capable hands. I will continue to watch the Company's progress with great interest, though in future from afar as a shareholder, like you.

Robert Sinclair


21 November 2018

Balance Sheet


at 31 August 2018








Non current assets



Investments at fair value through profit or loss



Current assets






Cash and cash equivalents






Total assets



Current liabilities






Net assets



Equity attributable to equity holders



Share capital



Capital redemption reserve



Special reserve



Capital reserves



Revenue reserve



Total equity shareholders' funds



Net asset value per share




Cash Flow Statement


for the year ended 31 August 2018








Operating activities



Profit before finance costs and taxation



Add back net foreign currency losses



Losses/(gains) on investments at fair value through profit or loss



Net purchases of investments at fair value through profit or loss



Less amortisation of discount on fixed interest securities



Decrease in receivables



(Decrease)/increase in payables



Overseas taxation paid



Net cash outflow from operating activities before interest



Interest paid



Net cash outflow from operating activities



Financing activities



Bank loans drawn down



Bank loans repaid



Issue of ordinary shares



Dividends paid



Net cash inflow from financing activities



Increase/(decrease) in cash and cash equivalents



Cash and cash equivalents at the start of the year



Effect of foreign exchange rates on cash and cash equivalents



Cash and cash equivalents at the end of the year



Dividends received during the year amounted to £32,614,000 (2017: £27,608,000) and bond and deposit interest receipts amounted to £234,000 (2017: £1,005,000).