Annual Financial Report

RNS Number : 0563G
New India Investment Trust PLC
31 May 2013
 



NEW INDIA INVESTMENT TRUST PLC

 

ANNUAL FINANCIAL REPORT

 

For the year ended 31 March 2013

 

1.         Chairman's Statement

 

Highlights

-       Share Price Total Return +6.8%

-       Net Asset Value Total Return +10.1%

-       Benchmark Total Return +7.6%

 

During the year ended 31 March 2013, your Company's net asset value rose by 10.1% to 268.7p. By comparison, the benchmark MSCI India Index rose by 7.6% in total return terms. The Ordinary share price gained 6.8% to reach 237.00p, reflecting a widening of the discount to net asset value from 9.0% to 11.8%.

 

The outperformance of the net asset value relative to the benchmark demonstrated once again the strength of your Manager's bottom-up, stock-picking approach, in particular, its focus on companies with strong finances, sustainable business models, market leadership, long-term growth prospects and prudent management.

 

In part, the market gains were due to the flood of liquidity resulting from asset purchases by major central banks in Europe and the US. These attempts to reflate the global economy buoyed equities worldwide and India was no exception. However, the uptick in share prices belied the problems on the ground. The frustrating combination of high inflation, slowing GDP growth and the twin fiscal and current account deficits, coupled with endemic corruption, continued to vex investors early on, as it did in the previous reporting period.

 

The turnaround began in September when Delhi announced a series of reforms that ended the policy paralysis of the last two-and-a-half years. Several sectors, including retail and aviation, were opened to greater foreign participation. The divestment of state-run assets and deregulation in fuel markets recommenced after being stalled. The proposed tax avoidance rule was postponed to 2016, allowing foreign institutional investors more time to relocate from current tax-treaty destinations. Markets responded positively to the measures, which came on the heels of Mr P Chidambaram's reappointment as finance minister. In a series of international road shows clearly aimed at reassuring investors, the veteran politician pledged to cap expenditure, reduce the budget shortfall and expedite the approval of the controversial goods and services tax, which is expected to bolster growth if implemented.

 

The government's new-found resolve is encouraging. However, it may be a while before the investment cycle turns. Capital goods and infrastructure spending remains muted. At the same time, the Manager would caution against overenthusiasm for the recent reform drive despite Chidambaram's strong track record. As long-term investors in India, we have witnessed Delhi's frequent backpedalling. With national elections due in 2014, we would not be surprised if policymakers succumbed to populist pressures yet again.

 

The economic slowdown, meanwhile, weighed on corporates in the consumer discretionary, industrials and materials sectors during the year. Conversely, defensive sectors such as consumer staples and healthcare remained resilient. Financials also did well as loan growth remained steady despite the more challenging backdrop. Your Company's outperformance is the result of its holdings in several of these businesses, including homegrown consumer goods producer Godrej, leading private-sector bank ICICI and mortgage provider HDFC. All are characterised by strong management teams, well-regarded brands and local reach, coupled with expanding regional presence. A more thorough discussion follows in the Manager's Report.

 

Further to a settlement reached with Satyam Computer Services, the Company has included an amount in these financial statements which is equivalent to £516,000. This is the estimated recovery of funds in relation to a claim made following the discovery of financial fraud which led to the sale of the stock at a weakened price.

 

Continuation of Company and Manager

Your Board has carefully considered the reappointment of your Manager.  The Manager's recent performance and long-term track record as well as their expertise and well-understood investment style make a good case for their continued appointment.

 

Accordingly, your Board recommends that Shareholders vote in favour of resolution No. 9 at the Annual General Meeting, to allow the Company to continue as an investment trust.

 

Annual General Meeting

The Annual General Meeting ("AGM") will be held at Bow Bells House, 1 Bread Street, London EC4M 9HH on Friday, 20 September 2013 at 11.30 a.m.

 

Hasan Askari, who was appointed a Director on 21 September 2012, retires and is seeking formal election to the Board at the AGM. Professor Bulmer-Thomas retires as a Director and seeks re-election at the AGM further to the AIC guidance for Directors with tenure in excess of 9 years to retire and seek annual re-election.

 

Your Board, having reviewed the reasons for the election of Hasan Askari and the re-election of Professor Bulmer-Thomas, strongly recommends Shareholders to vote in favour of the relevant resolutions.

 

Sarah Bates is retiring from the Board at the AGM. Sarah has served as a Director since the reconstruction of the Company in November 2004; her wise counsel, experience and contributions, in particular her chairing of the Audit Committee, are appreciated by myself and my colleagues on the Board. Hasan Askari will succeed her as Chairman of the Audit Committee.

In addition to the ordinary business of the meeting, Shareholders will be asked to authorise the Board; to buy back up to 14.99% of the Company's issued share capital; issue new shares representing up to 5% of the present issued share capital; issue new shares representing up to 5% of the present issued share capital otherwise than by a pro rata issue to existing Shareholders (i.e., pre-emption); and approve the continuation of the Company as an investment trust.

 

The Board would only expect to issue new Ordinary shares, or sell Ordinary shares from treasury, at a price per Ordinary share above the prevailing net asset value per Ordinary share. Your Board recommends that Shareholders vote in favour of these resolutions, and intends to do so in respect of its own shareholdings.

 

As in previous years, the Company is not paying a dividend for the year ended 31 March 2013.

 

There will be a presentation by the Manager at the AGM as well as an opportunity to meet the Directors over coffee following the meeting.

 

Outlook

Economic headwinds remain. Domestic demand for discretionary items has eased somewhat while exports could stay sluggish in the near term given the debt problems in the West. To stave off a credit-rating downgrade, the government needs to prevent any disruption to its reforms. However, policy-making may be complicated by shifting alliances within the ruling coalition, which has lost the support of a handful of key allies recently. On a positive note, falling commodity prices could provide the Reserve Bank of India some leeway to loosen monetary policy further, following the three rate cuts during the review period.

 

At the corporate level, profit margins remain under pressure. Companies are facing softer demand and increasing competition. Further, royalty payments have increased. Within the Company's portfolio, Hindustan Unilever, Ambuja Cements, ACC and Nestle India have hiked fees to their European parents. These firms are financially robust, cash generative and conservatively managed, attributes that will help certain of them tap rising middle-class consumption despite the challenging backdrop. Indeed, it is at the corporate level where India stands out. The country remains home to some of Asia's best-run companies. While valuations have risen, earnings growth, albeit in the single-digits, appears well-supported by positive long-term prospects.

 

William Salomon

Chairman

 

31 May 2013

 

 

2.         Manager's Report

 

Portfolio Overview

The Company's net asset value rose by 10.1% in sterling terms in the 12 months ended 31 March 2013 compared to the benchmark MSCI India Index's gain of 7.6%, in total return terms.

 

Among our holdings, Godrej Consumer Products and Tata Consultancy Services were key contributors to relative performance. Godrej, whose products include insecticides, hair colouring, soaps and liquid detergents, was supported by healthy domestic demand. With a presence in Indonesia, Latin America and Africa, the company has diverse revenue streams and is positioned to benefit from rising disposable incomes in other emerging markets. Tata Consultancy Services, which also has a diversified global presence, was buttressed by its UK and American clients, which compensated for a relatively soft European market. Elsewhere, financial companies ICICI Bank and HDFC benefited from continued loan growth.

 

Conversely, Gujarat Gas and Hero MotoCorp were the biggest detractors. Rising gas prices dampened Gujarat Gas' sales volumes. Also weighing on the gas distributor's share price was the conclusion of BG Group's sale of its majority stake to state-owned Gujarat State Petroleum Corporation. Investors worried that coming under government control would affect the company's ability to pass on rising costs to its customers. Elsewhere, Hero MotoCorp experienced a cyclical slowdown in its motorbike segment. That said, the company retains its leading position in the domestic market, and continues to invest in capacity expansion.

 

At the sector level, our overweight to consumer staples added to relative return. Against the muted economic backdrop, investors were attracted to the defensive sector, with its companies boasting stable cash flows and poised to benefit from the nation's expanding middle class. Against this, our overweight to materials pared gains, as our cement holdings fared poorly due to a slower-than-forecast revival in construction. High inflation has also deterred potential homebuyers. Nonetheless, we continue to like the cement sector for its localised nature, meaning it is immune to fluctuations in cement prices overseas. We see long-term potential in the industry, given India's massive infrastructure needs.

 

Over the year, Indian equities' sharp gains were underpinned by optimism over the government's reform push, as well as easing measures by central banks in developed markets. However, renewed domestic political uncertainty and worries over Europe's debt crisis and budget issues in the US spurred profit-taking towards the end of the review period. 

 

Economic News

Economic expansion slowed, with fourth-quarter growth at a relatively subdued 4.5%. GDP growth for the fiscal year is forecast to reach a decade-low at about 5%. High borrowing costs affected investments and consumer spending, while faltering demand from Europe and the US hurt exports. This contributed to widening current account and fiscal deficits, which in turn put pressure on the rupee, causing it to reach a record low against the US dollar in June.

 

Inflation was persistent, with the wholesale price index hovering above 7% for most of the year. However, growth concerns outweighed inflationary ones, and the central bank cut interest rates thrice, bringing the repo rate and reverse repo rate to 7.5% and 6.5% respectively.

 

It was an eventful year in politics, with Mr P Chidambaram reprising his role as finance minister. He took over from Pranab Mukherjee, who assumed the essentially non-political role of president. Following this, the government pushed through a series of market-friendly reforms. To narrow the fiscal deficit, diesel subsidies were reduced, and the government sold minority stakes in state-owned companies. In addition, limits on foreign investment were relaxed in the aviation, pension funds, and retail sectors. The central bank will also be allowed to issue new bank licenses. 

 

Later in the year, the government unveiled its annual budget, which drew a tepid response from investors as it was thought to lack sufficient incentives to attract the investments necessary to reignite growth. Nevertheless, tax hikes on large companies and wealthy individuals demonstrated improved fiscal discipline. The absence of major populist measures also showed the government's intent to control spending.

 

Information Technology

We continue to like the sector despite the relative weakness in software outsourcing growth, which has been an unsurprising outcome of the uncertainty in the global macroeconomic environment. The major Indian IT outsourcing companies are leaders in their field; they have attractive cost structures, qualified management and competitive software engineering skills.

 

Our core positions are in Infosys and Tata Consultancy Services ("TCS"), both of which generate healthy cash flows and have diversified global presences.  TCS and its subsidiary CMC, which we also hold, delivered robust earnings. Infosys has struggled to maintain its high margin growth in light of increased competition and softer demand from the developed world - the company is restructuring its business to re-focus on its clients' needs. We hold the stock as we value the company's professional management team, strong cash flows and solid balance sheet.  As valuations look reasonable, we are comfortable maintaining our exposure to these holdings.

 

Energy

Over the past decade, little has changed in this sector as the ongoing challenge of providing the public with reliable and reasonably-priced supply remains incomplete, unpredictable and politicised. While the recent partial deregulation in diesel prices is a welcome development, this does not fully cover the high costs sustained by energy companies and more needs to be done for the sector to operate profitably. We do not plan to invest in this sector until there is a comprehensive, transparent regulatory framework that will allow companies (and their investors) to project earnings with a reasonable amount of certainty.

 

We do not have exposure to index heavyweight Reliance Industries as we are uncomfortable with its aggressive expansion plans into new areas like resource exploration, retail and industrial park activities. These often require extensive capital outlay in areas where the company has neither a proven track record nor a clear competitive advantage.

 

Financials

Although fragmented and competitive, we have a substantial position in the banking sector, which is poised to benefit in the long term from wealth expansion in the middle class. We like banks that can manage risks throughout the credit cycle while focusing on meeting customers' financial needs. The environment is increasingly challenging, as loan growth slows and levels of restructured loans rise. Affected segments include real estate, mining, infrastructure and telecommunications. At the same time, we stay clear of banks that do a lot of investment banking work or aggressively manage their proprietary investment activities.

 

Our core holdings ICICI Bank, HDFC and its associate HDFC Bank, as well as the more recent addition Jammu & Kashmir Bank, continue to demonstrate robust loan growth and asset quality compared to their public-sector peers. While we have not seen a large increase in the amount of non-performing loans among our holdings, we continue to scrutinise their financials for signs of distress.

 

Consumer Discretionary

We like the automotive story in India, as the sector also stands to benefit from rising disposable incomes. We especially favour the two-wheeler segment due to its relative affordability. Since motorcycles are seen as a necessity rather than a luxury, the segment is more resilient in difficult times compared to four-wheelers. We are invested in Hero MotoCorp, the country's largest motorcycle maker.

 

In the December quarter, Hero MotoCorp's results were muted on the back of increased competition and elevating costs. Nevertheless, the company retains its competitive advantage given its dominance in the semi-urban and rural areas. It also remains committed to capacity expansion, while maintaining a net cash position. The company has yet to deliver on its technology tie-up with US-based Erik Buell Racing, with new products only expected to arrive next year.

 

Consumer Staples

We hold both local and multinational brands in the competitive fast-moving consumer goods landscape. Homegrown brands have the advantage in catering to local tastes and regional preferences, while the multinationals have strong brands and more aspirational products. We select the best from both worlds - Hindustan Unilever has the widest portfolio of household and personal products; ITC, an associate of British American Tobacco, has a thriving tobacco business; and Godrej Consumer Products is a leader in the personal care, hair, and household segments both locally and in emerging markets.

 

Our holdings continued to deliver double-digit earnings growth. But in spite of Hindustan Unilever's strong underlying performance, its share price took a beating when the Indonesian sister company announced higher royalty payments to Anglo-Dutch parent Unilever. As expected, Hindustan Unilever will also raise royalty fees, from 1.4% of sales to 3.15% in a phased manner over the next four years. Management has justified the increase as the company had been paying a lower royalty rate than many of its global counterparts. As the parent provides brand, know-how and technology support, we are supportive of the staged implementation, but have communicated our concerns about further hikes.

 

Materials

The most attractive businesses in this sector are cement companies. We hold Grasim Industries, the flagship company of the Aditya Birla Group, and complement this with its pure cement subsidiary UltraTech Cement as well as Ambuja Cements, which is owned by Swiss group Holcim. In February, we introduced Holcim's other local cement subsidiary ACC, which trades at a discount to its peers and has potential to improve productivity as it upgrades existing plants and introduces new capacity using Holcim's operational expertise. We believe our companies are well-positioned for long-term growth that will be driven by the country's increasing housing needs and infrastructure spending.

 

Our holdings reported relatively sluggish sales in the last quarter of 2012, as the recovery in construction was slower than expected. Earnings were further pressured by the hike in diesel prices. Nevertheless, we are confident that they will be able to weather the near-term cyclical slowdown. In other developments, the resolution to increase ACC and Ambuja's royalty payments to Holcim to 1% of net sales was approved, despite some opposition from minority shareholders.

 

Healthcare

India has a vibrant health care industry given the operational strength of its pharmaceutical companies and access to a substantial scientific talent pool. Our holdings include a mix of multinational subsidiaries (GlaxoSmithKline Pharmaceuticals and Sanofi India, previously Aventis Pharma India) that channel their drug pipelines into the Indian market, as well as a local company, Piramal Enterprises, which takes advantage of its low-cost manufacturing base to penetrate overseas markets.

 

Despite inflationary pressures and the ongoing policy uncertainty on drugs pricing, GlaxoSmithKline delivered faster growth than its peers in the December quarter. Piramal Enterprises, which has been building up capabilities in finance and real estate, saw decent expansion in its pharma-related and financial services businesses. We like the management team, which has a track record of successfully growing diverse businesses. The company is trading at a discount to its net asset value and remains cash-rich.

 

Industrials

The sector remains dogged by challenges, including a slowdown in industrial activity and infrastructure bottlenecks ranging from the state electricity boards, land acquisition issues and coal shortages. Recent efforts to address problems in the power sector include the financial restructuring plan for the state electricity boards and the proposal to implement a uniform price for coal. However, more needs to be done. Our exposure in this sector is limited to ABB India, a manufacturer and distributor of power and automation equipment, and Container Corporation, a rail freight operator.

 

Container Corporation had a sluggish December quarter given weak trading activity. The company will gradually pass on higher rail haulage costs by increasing tariffs. ABB's earnings deteriorated as the operating environment remained in the doldrums. The company has become more cautious about accepting new orders given liquidity issues in the sector.

 

Utilities

We are investors in Gas Authority of India (GAIL), the country's largest gas distribution company; Gujarat Gas, a gas distributor in which British Gas used to hold a majority stake; and private sector utility company Tata Power. British Gas' stake has since been sold to a consortium led by Gujarat State Petroleum Corporation. We did not participate in the mandatory tender offer as the offer price was unattractive.

 

GAIL reported a better third quarter as operating margins recovered, led by higher liquid petroleum gas prices and lower subsidies. Tata Power's core operations in Mumbai and Delhi also performed well in the same quarter but impairment charges at its Mundra plant continued to drag on profitability.

 

GAIL reported a better third quarter as operating margins recovered, led by higher liquid petroleum gas prices and lower subsidies. Tata Power's core operations in Mumbai and Delhi also performed well in the same quarter but impairment charges at its Mundra plant continued to drag on profitability.

 

Telecommunication Services 

The local telecommunications market is one of the world's most competitive and the large players (Bharti Airtel, Reliance Communications, Vodafone and Idea Cellular) continue to battle for market share. Spectrum licensing remains an uncertain issue. The lacklustreresponse to the 2G 1,800 MHz spectrum auction prompted the government to lower the reserve price in a re-auction as well as reallocate the 900 MHz spectrum. Despite the reduced price, the re-auction failed to draw any interest from telecom operators, which demonstrated these companies' greater fiscal discipline. While the regulatory environment is challenging, there are signs that competitive pressures could be easing since the cancellation of dozens of licenses last year and recent tariff hikes taken by incumbents. As for Bharti, domestic operating metrics appear to be improving although the company is taking longer than expected to meet its target profitability in Africa.

 

Strategy

In the near term, optimism over India's reform drive will be tempered by concerns over its slowing growth and stubborn inflation. While the ongoing liberalisation of the energy sector should alleviate the budget deficit, political stability will be the key to successful future reforms. The political scene is as messy as ever, and Chidambaram is likely to face increased opposition to his reform push as the 2014 general elections approach. That said, we believe that the nation's prospects are still compelling. Apart from being in a demographic sweet spot, its large domestic economy makes it less export-reliant than many of its peers.

On the corporate level, India has much to offer, with a good mix of well-run homegrown and multinational firms. Our investment process remains unchanged. We continue to look for good-quality companies with capable management, robust balance sheets and proven track records. Our holdings have held up well during difficult times and we remain on the lookout for opportunities to accumulate stocks at attractive prices, given the current volatility.

 

Aberdeen Asset Management Asia Limited

Manager

 

31 May 2013

 

 

3.         Business Review

A review of the Company's activities is given in the Corporate Summary, the Chairman's Statement and the Manager's Report. This includes a review of the business of the Company, its principal activities as well as likely future developments of the business.

 

The Board meets at least four times a year to review performance with the Manager. The Board receives, for each meeting, a detailed portfolio report and an analysis of economic indicators. The Board discusses performance and strategy, considering perceived regional risks and economic conditions and using such measures as attribution analysis against the benchmark to assess the Company's success in achieving its objectives. The Key Performance Indicators for the Company, which are established industry measures, include NAV performance, share price performance and benchmark performance. A record of these measures is disclosed under Results.

 

The Board regularly reviews the major strategic risks that the Board and the Manager have identified, and against these the Board sets out the delegated controls designed to manage those risks. Aside from the risks associated with investment in Indian equities, or those of companies that derive significant revenue or profit solely from India, the key risks related to investment strategy are managed through a defined investment policy, specific guidelines and restrictions, and by the process of oversight at each Board meeting, as outlined above. Operational disruption, accounting and legal risks are also covered annually, and regulatory compliance is reviewed at each Board meeting. The major risks associated with the Company are detailed in the Corporate Summary and in note 16 to the Financial Statements.

 

The Company does not make political donations and has not made any donations for charitable purposes during the year. In common with most investment trusts, the Company has no employees.

 

Principal Activity

The business of the Company is that of an investment trust investing in India. The investment objective of the Company is set out on in the Corporate Summary. The Company owns 100% of the share capital of its subsidiary, New India Investment Company (Mauritius) Limited, an investment company registered in Mauritius.

 

Status

The Company is registered as a public limited company in England & Wales under company number 02902424, is an investment company as defined in Section 833 of the Companies Act 2006, and is a member of the Association of Investment Companies ("AIC").

 

The Company has been approved by HM Revenue & Customs ("HMRC") as an investment trust for the purposes of Sections 1158 - 1159 of the Corporation Tax Act 2010 ("Sections 1158 -1159") for the year ended 31 March 2012. During the year, the Company was approved by HMRC as an investment trust under Sections 1158 - 1159 and Part 2 Chapter 1 Statutory Instrument 2011/2999 for all financial years commencing on or after 1 April 2012, subject to the Company continuing to meet the relevant eligibility criteria.

 

The Company intends to manage its affairs so that the Company's Ordinary shares will be qualifying investments for the stocks and shares component of an Individual Savings Account.

 

 

4.         Corporate Summary

 

The Company

New India Investment Trust PLC ("New India" or the "Company") is an investment trust whose Ordinary shares are admitted to trade on the Official List in the premium segment and are traded on the main market of the London Stock Exchange. The Company is a member of the Association of Investment Companies.

 

Investment Manager

Aberdeen Asset Management Asia Limited, 21 Church Street, #01-01 Capital Square Two, Singapore 049480 (the "Manager" or "AAM Asia").

 

Investment Objective

The investment objective of the Company is to provide shareholders with long-term capital appreciation by investment in companies which are incorporated in India, or which derive significant revenue or profit from India, with dividend yield from the company being of secondary importance.

 

Investment Policy

The Company (either directly or through its Mauritian subsidiary, New India Investment Company (Mauritius) Limited (the "Subsidiary")) primarily invests in Indian equity securities. The Company and the Subsidiary are collectively referred to as the "Group".

 

The Group's investment policy is flexible, enabling it to invest in all types of securities, including equities, debt and convertible securities in companies listed on the Indian stock exchanges or which are listed on other international exchanges and which derive significant revenue or profit from India, and Indian securities listed on other international stock exchanges. The Group may also, where appropriate, invest in open-ended collective investment schemes and closed-end funds that invest in India and are listed on the Mumbai Stock Exchange and/or the Indian National Stock Exchange. The Group is free to invest in any particular market segment or geographical region of India. The Group may also invest in small-, mid- or large-capitalisation companies.

 

The Manager continues to expect the portfolio to comprise in the region of 25 to 30 holdings (but without restricting the Group from holding a more or less concentrated portfolio).

 

Currency and Hedging Policy

The Group's financial statements are maintained in sterling while, because of its investment focus, many of the Group's investments are denominated and quoted in currencies other than sterling, in particular, the Indian rupee. Although it is not the Group's present intention to do so, the Group may, where appropriate and economic to do so, employ a policy of hedging against fluctuations in the rate of exchange between sterling and other currencies in which its investments are denominated. Cash balances are held in such currency or currencies as the Manager considers it to be appropriate, although it is expected that this would generally be the Indian rupee.

 

Borrowing Policy and Gearing

The Group is permitted to borrow up to 25 per cent of its net assets (measured when new borrowings are incurred). It is intended that this power should be used to leverage the Group's portfolio in order to enhance returns where and to the extent that it is considered appropriate to do so.

 

Gearing will be used in relation to specific opportunities or circumstances. The Directors will take care to ensure that borrowing covenants will permit flexibility of investment policy.

 

Investment Restrictions

It is the investment policy of the Group to invest no more than 15 per cent of its gross assets in other listed investment companies (including listed investment trusts). The Group does not have any investments in other listed investment companies at 31 March 2013.

 

Benchmark

The Company compares its performance to the MSCI India Index (sterling adjusted). However, the Company's portfolio is constructed without reference to the composition of any stockmarket index or benchmark. It is likely, therefore, that there will be periods when its performance may vary significantly from the benchmark.

 

Capital Structure

As at 31 March 2013 and the date of approval of this Report, the Company had a capital structure comprising 59,070,140 (2012: 59,070,140) Ordinary shares of 25p with voting rights).

 

Net Asset Value

At 31 March 2013, the Company had total shareholders' funds of £158.7m and a net asset value of 268.71p per Ordinary share.

 

Websites

www.newindia-trust.co.uk

www.aberdeen-asset.com

 

Company Secretary

Aberdeen Asset Management PLC, Bow Bells House, 1 Bread Street, London EC4M 9HH

Email: company.secretary@invtrusts.co.uk

 

Principal Risks and Uncertainties

The Board seeks to set out below its view of the principal key risks affecting its business; further information on financial risks may be found in note 16 to the financial statements. The Board is aware that, apart from those issues it can identify, there are likely to be matters about which it does not or cannot know which may also affect the Company.

 

With that reservation, the Board believes that the factors which could have the most significant adverse impact on shareholders would be likely to include:

 

· falls in the prices of securities in Indian companies, which may be themselves determined by local and international economic, political and financial factors and management actions;

· adverse movements in the exchange rate between sterling and the rupee as well as between other currencies affecting the overall value of the portfolio;

· a lack of skill by the Company's investment management team;

· factors which affect the discount to net asset value at which the Ordinary shares of the Company trade. These may include the popularity of the investment objective of the Company, the popularity of investment trust shares in general and the ease with which the Company's Ordinary shares can be traded on the London Stock Exchange;

· insolvency of a custodian or sub-custodian combined with a shortfall in the assets held by that custodian or sub-custodian arising from fraud, operational errors or settlement difficulties resulting in a loss of assets owned by the Company; and

· changes in or breaches of the complicated set of statutory, tax and regulatory rules within which the Company seeks to conduct its business; the Alternative Investment Fund Managers Directive ("the Directive") will begin to be implemented from July 2013 with full implementation in the UK by July 2014. The Directive may have significant consequences for the Company (and all similar investment companies) which might materially increase compliance and regulatory costs. The Directive is subject to further implementation guidance, and the Board will continue to monitor the progress and likely implications for the Company of the Directive.

 

Some of these risks can be mitigated or managed to a greater or lesser extent by the actions of the Board in appointing competent investment managers and custodians. In addition, the Board seeks to put in place, through its contractual arrangements and through various monitoring processes, controls which should avert (but do not guarantee the avoidance of) what might be regarded as operational mistakes. However, investment tends to involve both risk and opportunity regarding future prospects, and the Board cannot avoid either in the Company's search for returns.

 

Duration

The Company does not have a fixed life. However, the Articles of Association of the Company provide for an annual continuation vote.

 

Management Agreement

The Company has an agreement with AAM Asia for the provision of investment management services, details of which are shown in note 4.

 

Investor Warning

The Board has been made aware by the Manager that some investors have received telephone calls from people purporting to work for the Manager, or third parties, who have offered to buy their investment company shares. These may be scams which attempt to gain personal information with which to commit identity fraud or could be 'boiler room' scams where a payment from an investor is required to release the supposed payment for their shares.

 

These callers do not work for the Manager and any third party making such offers has no link with the Manager. The Manager never makes these types of offers and does not 'cold-call' investors in this way. If investors have any doubt over the veracity of a caller, they should not offer any personal information, end the call and contact the Manager's Customer Services using the details provided below.

 

Customer Services

Freephone: 0500 00 00 40

(Open from Monday - Friday, 9am - 5pm)

Email: inv.trusts@aberdeen-asset.com

 

 

5.         Results

 

Financial Highlights

 

31 March 2013

31 March 2012

% change

Total equity shareholders' funds (net assets)

£158,726,000

£144,105,000

+10.1

Share price (mid market)

237.00p

222.00p

+6.8

Net asset value per share

268.71p

243.96p

+10.1

Discount to net asset value

11.8%

9.0%






Total return/(loss) per share

24.75p

(24.95p)


Revenue return per share

0.20p

0.61p


Revenue reserves per share

2.37p

2.18p


Prospective gross portfolio yield{A}

1.5%

1.7%


MSCI India portfolio yield{A}

1.4%

1.3%


Prospective portfolio P/E ratio{B}

19.6x

20.0x






Ongoing charges




Ongoing charges ratio{C}

1.56%

1.57%





{A}     Source - AAM Asia (estimated information)/Factset.

{B}      Consensus broker views.

{C}      Ongoing charges ratio is calculated in accordance with recent guidance issued by the AIC as the total of the investment management fee and administrative expenses divided by the average cum income net asset value throughout the year. The figures for 2012 have been restated accordingly.

 

Performance (total return)

 

1 year

3 year

5 year


% return

% return

% return

Share price

+6.8

+8.1

+70.8

Net asset value per Ordinary share

+10.1

+12.2

+66.7

MSCI India Index (sterling adjusted)

+7.6

-11.1

+20.0

 

 

6.         Statement of Directors' Responsibilities

 

The Directors are responsible for preparing the Annual Report and the Group financial statements in accordance with applicable United Kingdom law and those International Financial Reporting Standards (''IFRSs'') as adopted by the European Union.

 

Under Company Law the Directors must not approve the Group financial statements unless they are satisfied that they present fairly the financial position, financial performance and cash flows of the Group for that period. In preparing the Group financial statements the Directors are required to:

 

·        select suitable accounting policies in accordance with IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors", and then apply them consistently;

·        present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·        provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's financial position and financial performance;

·        state that the Group has complied with IFRS, subject to any material departures disclosed and explained in the financial statements; and

·        make judgments and estimates that are reasonable and prudent.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The maintenance and integrity of the website maintained for the Group is the responsibility of the Directors; the work carried out by the Auditor does not involve consideration of these matters and, accordingly, the Auditor accepts no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site.

 

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Responsibility statements under the Disclosure and Transparency Rules

Each of the Directors confirms that, to the best of their knowledge:

 

·        the financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company and undertakings included in the consolidation taken as a whole; and

·        the Directors' Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole together with a description of the principal risks and uncertainties that they face.

 

 

On behalf of the Board

 

William Salomon

Chairman

 

31 May 2013

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 


Year ended

Year ended



31 March 2013

31 March 2012



 Revenue

 Capital


 Revenue

 Capital




 return

 return

 Total

 return

 return

 Total


Notes

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

Revenue








Income

3

2,414

-

2,414

2,649

53

2,702

Gains/(losses) on investments held at fair value through profit or loss

9(a)

-

14,494

14,494

-

(15,116)

(15,116)

Currency gains/(losses)


-

10

10

-

(36)

(36)



________

_________

________

________

________

________

Total revenue


2,414

14,504

16,918

2,649

(15,099)

(12,450)



________

_________

________

________

________

________









Expenses








Investment management fees

4

(1,446)

-

(1,446)

(1,456)

-

(1,456)

Other administrative expenses

5

(791)

-

(791)

(775)

-

(775)



________

_________

________

________

________

________

Profit/(loss) before tax 


177

14,504

14,681

418

(15,099)

(14,681)









Taxation

6

(60)

-

(60)

(58)

-

(58)



________

_________

________

________

________

________

Profit/(loss) for the year


117

14,504

14,621

360

(15,099)

(14,739)



________

_________

________

________

________

________









Return/(loss) per Ordinary share (pence)

8

0.20

24.55

24.75

0.61

(25.56)

(24.95)



________

_________

________

________

________

________









The Group does not have any income or expense that is not included in profit/(loss) for the year, and therefore the "Profit/(loss) for the year" is also the "Total comprehensive income for the year", as defined in IAS 1 (revised).

All of the profit/(loss) and total comprehensive income is attributable to the equity holders of the parent company. There are no minority interests.

The total column of this statement represents the Statement of Comprehensive Income of the Group, 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.

The accompanying notes are an integral part of these financial statements.


CONSOLIDATED AND COMPANYBALANCE SHEETS

 


Group

Company

Group

Company



As at

As at

As at

As at



31 March

31 March

31 March

31 March



2013

2013

2012

2012


Notes

£'000

£'000

£'000

£'000

Non-current assets






Investments held at fair value through profit or loss

9

157,596

158,273

142,664

143,733



________

_________

________

________







Current assets






Cash at bank

10

1,183

558

1,575

415

Receivables

11

612

60

329

55



________

_________

________

________

Total current assets


1,795

618

1,904

470



________

_________

________

________

Total assets


159,391

158,891

144,568

144,203







Current liabilities






Payables

12

(665)

(165)

(463)

(98)



________

_________

________

________

Total current liabilities


(665)

(165)

(463)

(98)



________

_________

________

________

Net assets


158,726

158,726

144,105

144,105



________

_________

________

________







Share capital and reserves






Ordinary share capital

13

14,768

14,768

14,768

14,768

Share premium account


25,406

25,406

25,406

25,406

Special reserve


15,778

15,778

15,778

15,778

Capital redemption reserve


4,484

4,484

4,484

4,484

Capital reserve

14

96,888

97,528

82,384

82,988

Revenue reserve


1,402

762

1,285

681



________

_________

________

________

Equity shareholders' funds


158,726

158,726

144,105

144,105



________

_________

________

________







Net asset value per Ordinary share (pence)

15

268.71

268.71

243.96

243.96



________

_________

________

________


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

Year ended 31 March 2013


















 Share 


 Capital





 Share

 premium

 Special

 redemption

 Capital

 Revenue



 capital

 account

 reserve

 reserve

 reserve

 reserve

 Total


 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

Balance at 1 April 2012

14,768

25,406

15,778

4,484

82,384

1,285

144,105

Net profit on ordinary activities after taxation

-

-

-

-

14,504

117

14,621


________

_________

________

________

________

_________

________

Balance at 31 March 2013

14,768

25,406

15,778

4,484

96,888

1,402

158,726


________

_________

________

________

________

_________

________









Year ended 31 March 2012


















 Share 


 Capital





 Share

 premium

 Special

 redemption

 Capital

 Revenue



 capital

 account

 reserve

 reserve

 reserve

 reserve

 Total


 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

Balance at 1 April 2011

14,768

25,406

15,778

4,484

97,483

923

158,842

Net (loss)/profit on ordinary activities after taxation

-

-

-

-

(15,099)

360

(14,739)

Return of unclaimed dividends

-

-

-

-

-

2

2


________

_________

________

________

________

_________

________

 Balance at 31 March 2012

14,768

25,406

15,778

4,484

82,384

1,285

144,105


________

_________

________

________

________

_________

________

 

COMPANY STATEMENT OF CHANGES IN EQUITY

 

Year ended 31 March 2013


















 Share 


 Capital





 Share

premium

Special

 redemption

 Capital

 Revenue



 capital

 account

 reserve

 reserve

 reserve

 reserve

 Total


 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

Balance at 1 April 2012

14,768

25,406

15,778

4,484

82,988

681

144,105

Net profit on ordinary activities after taxation

-

-

-

-

14,540

81

14,621


________

_________

________

________

________

_________

________

Balance at 31 March 2013

14,768

25,406

15,778

4,484

97,528

762

158,726


________

_________

________

________

________

_________

________









Year ended 31 March 2012


















 Share 


 Capital





 Share

premium

Special

 redemption

 Capital

Revenue



 capital

 account

reserve

 reserve

 reserve

 reserve

 Total


 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

Balance at 1 April 2011

14,768

25,406

15,778

4,484

97,789

617

158,842

Net (loss)/profit on ordinary activities after taxation

-

-

-

-

(14,801)

62

(14,739)

Return of unclaimed dividends

-

-

-

-

-

2

2


________

_________

________

________

________

_________

________

Balance at 31 March 2012

14,768

25,406

15,778

4,484

82,988

681

144,105


________

_________

________

________

________

_________

________


CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS

 


Year ended

Year ended



31 March 2013

31 March 2012



Group

Company

Group

Company


Notes

£'000

£'000

£'000

£'000

Operating activities






Profit/(loss) before tax


14,681

14,621

(14,681)

(14,739)

(Gain)/loss on investments held at fair value through profit or loss


(14,494)

(14,540)

15,116

14,799

Net (gains)/losses on foreign exchange


(10)

-

36

2

Purchases of investments held at fair value through profit or loss


(6,086)

-

(9,756)

(378)

Sales of investments held at fair value through profit or loss


5,123

-

9,374

153

Decrease/(increase) in other receivables


233

(5)

(13)

(7)

Increase/(decrease) in other payables


240

67

(1,388)

(67)



__________

__________

__________

__________

Net cash (outflow)/inflow from operating activities before tax


(313)

143

(1,312)

(237)







Taxation paid


(89)

-

(2)

-



__________

__________

__________

__________

Net cash (outflow)/inflow from operating activities


(402)

143

(1,314)

(237)







Financing activities






Return of unclaimed dividends


-

-

2

2



__________

__________

__________

__________

Net (decrease)/increase in cash and cash equivalents


(402)

143

(1,312)

(235)







Cash and cash equivalents at the start of the year


1,575

415

2,923

652

Effect of foreign exchange rate changes


10

-

(36)

(2)



__________

__________

__________

__________

Cash and cash equivalents at the end of the year

10

1,183

558

1,575

415



__________

__________

__________

__________

 

Notes to the Financial Statements

 

For the year ended 31 March 2013

 

1.

Principal activity


The principal activity of the Company is that of an investment trust company within the meaning of Section 1158 of the Corporation Tax Act 2010 ("s1158").




The principal activity of its foreign subsidiary is similar in all relevant respects to that of its United Kingdom parent.

 

2.

Accounting policies


The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union, and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB ("IFRIC").





(a)

Basis of preparation



The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 31 March 2013. There are no differences between the accounting policies applied with respect to the Group and those applied with respect to the Company.






The Company has taken advantage of the exemption provided under Section 408 of the Companies Act 2006 not to publish its individual Statement of Comprehensive Income and related notes.






The Group and Company financial statements are presented in Sterling, which is also the functional currency as it is the basis upon which shareholders operate and expenses are generally paid. All values are rounded to the nearest thousand pounds (£'000) except when otherwise indicated.






Where presentational guidance set out in the Statement of Recommended Practice ("SORP"): 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the Association of Investment Companies ("AIC"), is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.






At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue but not yet effective:



IFRS 9 - Financial Instruments (early adoption permitted) (effective for annual periods beginning on or after 1 January 2015);



IFRS 10 - Consolidated Financial Statements (early adoption permitted) (effective for annual periods beginning on or after 1 January 2013);



IFRS 11 - Joint Arrangements (early adoption permitted) (effective for annual periods beginning on or after 1 January 2013);



IFRS 12 - Disclosure of Interests in Other Entities (early adoption permitted) (effective for annual periods beginning on or after 1 January 2013);



IFRS 13 - Fair Value Measurement (effective for annual periods beginning on or after 1 January 2013);



Amendments to IAS 1 - Presentation of Items of Other Comprehensive Income (effective for annual periods beginning on or after 1 July 2012);



Amendments to IAS 19 - Employee Benefits (effective for annual periods beginning on or after 1 January 2013);



IAS 27 - Separate Financial Statements (early adoption permitted) (effective for annual periods beginning on or after 1 January 2013);



IAS 28 - Investments in Associates and Joint Ventures (early adoption permitted) (effective periods beginning 1 January 2013).






The Directors do not anticipate that the adoption of these Standards and Interpretations in future periods will materially impact the Company's financial results in the period of initial application although there will be revised presentations to the Primary Financial Statements and additional disclosures. The Company intends to adopt the standards in the reporting period when they become effective.





(b)

Group accounts



The Group financial statements consolidate the financial statements of the Company and its subsidiary, New India Investment Company (Mauritius) Limited.






The Subsidiary has been fully consolidated from the date of its inception, being the date on which the Group obtained control, and will continue to be consolidated until the date that such control ceases. Control comprises the power to govern the financial and operating policies of the investee so as to obtain benefit from its activities and is achieved through direct or indirect ownership of voting rights, currently exercisable or convertible potential voting rights, or by way of contractual agreement. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.





(c)

Presentation of Consolidated Statement of Comprehensive Income



In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Consolidated Statement of Comprehensive Income between items of revenue and capital nature has been presented in the Consolidated Statement of Comprehensive Income.





(d)

Segmental reporting



The Directors are of the opinion that the Group is engaged in a single segment of business, being investment business. The Board has considered the requirements of IFRS 8 'Operating Segments' and is of the view that the Group is engaged in a single segment business, of investing in Indian quoted equities and that therefore the Group has only a single operating segment. The Board of Directors, as a whole, has been identified as constituting the chief operating decision maker of the Group. The key measure of performance used by the Board to assess the Group's performance is the total return on the Group's net asset value, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the financial statements.





(e)

Income



Dividends receivable on equity shares (other than special dividends) are recognised in the Consolidated Statement of Comprehensive Income on the ex-dividend date. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Group's right to receive payment is established. Special dividends are credited to capital or revenue, according to their circumstances. Where a Group company has elected to receive dividends in the form of additional shares rather than in cash, the amount of the cash dividend foregone is recognised in the Consolidated Statement of Comprehensive Income. Provision is made for any dividends not expected to be received. Interest receivable from cash and short-term deposits is accrued to the end of the financial year.





(f)

Expenses and interest payable



All expenses, with the exception of interest expenses, which would be recognised using the effective interest method, are accounted for on an accruals basis. Expenses are charged to the revenue column of the Consolidated Statement of Comprehensive Income except as follows:



-       expenses which are incidental to the acquisition or disposal of an investment are charged to the capital column of the Consolidated Statement of Comprehensive Income and separately identified and disclosed in note 9 (c); and



-       expenses are charged to the capital column of the Consolidated Statement of Comprehensive Income where a connection with the maintenance or enhancement of the value of the investments can be demonstrated.





(g)

Taxation



The tax expense represents the sum of the tax currently payable and deferred tax. Tax payable is based on the taxable profit for the year. Taxable profit differs from profit before tax as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the Balance Sheet date.









Deferred tax

Deferred tax is recognised in respect of all temporary differences at the Balance Sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the Balance Sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise.





(h)

Investments



All investments have been designated upon initial recognition at fair value through profit or loss. This is done because all investments are considered to form part of a group of financial assets which is evaluated on a fair value basis, in accordance with the Group's documented investment strategy, and information about the investments is provided internally on that basis. Purchases of investments are recognised on a trade date basis at the value of the consideration payable and designated upon initial recognition as held at fair value through profit or loss. Sales of assets are also recognised on a trade date basis. Proceeds as measured at fair value, which is regarded as the proceeds of sale less any transaction costs.






The fair value of the financial instruments is based on their quoted bid price at the Balance Sheet date, without deduction for any estimated future selling costs. Any unquoted investments would be held at fair value, as measured by the Directors using appropriate valuation methodologies such as earnings multiples, recent transactions and net assets. In the case of the Company's investment in the subsidiary, of which the Company owns 100% of its Ordinary share capital, this has been measured at fair value, which is deemed to be its net asset value.






Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Consolidated Statement of Comprehensive Income as "Gains/(losses) on investments at fair value through profit or loss". Also included within this caption are transaction costs in relation to the purchase or sale of investments, including the difference between the purchase price of an investment and its bid price at the date of purchase.





(i)

Cash and cash equivalents



Cash comprises cash in hand and at banks and short-term deposits. Cash equivalents are short-term, highly-liquid investments that are readily convertible to known amounts of cash, and that are subject to an insignificant risk of changes in value.





(j)

Receivables and payables



Other receivables and prepayments do not carry any interest and are short-term in nature, and are, accordingly, stated at their recoverable amount. Payables are non-interest bearing and are stated at their payable amount.





(k)

Dividends payable

Dividends are recognised from the date on which they are declared and approved by shareholders.





(l)

Nature and purpose of reserves

Special reserve

The special reserve arose following Court approval in 1998 to transfer £30m from the share premium account. This reserve is distributable and its function is to fund any share buy-backs by the Company.

 

Capital redemption reserve

The capital redemption reserve arose when Ordinary shares were redeemed, and subsequently cancelled by the Company, at which point an amount equal to the par value of the Ordinary share capital was transferred from the Ordinary share capital to the capital redemption reserve.

 

Capital reserve

This reserve reflects any gains or losses on investments realised in the period along with any increases and decreases in the fair value of investments held that have been recognised in the Statement of Comprehensive Income.

 

Revenue reserve 

This reserve reflects all income and costs which are recognised in the revenue column of the Statement of Comprehensive Income. The revenue reserve represents the amount of the Company's reserves distributable by way of dividend. 





(m)

Foreign currency



Overseas monetary assets and liabilities are converted into Sterling at the rate of exchange ruling at the Balance Sheet date. Transactions during the year involving foreign currencies are converted at the rate of exchange ruling at the transaction date. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss and recognised in the Group Statement of Comprehensive Income.

 

 


Year ended 31 March 2013

Year ended 31 March 2012



Revenue

Capital

Total

Revenue

Capital

Total

4.

Investment management fees

£'000

£'000

£'000

£'000

£'000

£'000


Investment management fees

1,446

 -

1,446

1,456

 -

1,456



_______

______

_______

_______

______

_______










The Company has an agreement with AAM Asia for the provision of management services.




During the year, the management fee was payable monthly in arrears and was based on an annual amount of 1% of the net asset value of the Group, valued monthly. The management agreement is terminable by either the Company or AAM Asia on 12 months' notice. The balance due to AAM Asia at the year end was £256,000 (2012 - £123,000). All investment management fees are charged 100% to the revenue column of the Consolidated Statement of Comprehensive Income.




Additionally, the Manager is entitled to a performance-related investment management fee calculated in respect of each financial year to 31 March (the "measurement period") and payable in arrears. The fee is 10% of the amount by which the net asset value per share of the Company (adjusted to add back any performance fees paid or accrued during the measurement period, calculated on a consolidated basis for the Group and diluted by the exercise of the Warrants in August 2010), exceeds the Company's net asset value per share on either the first business day of the current measurement period, or at the end of the most recent measurement period in respect of which a performance fee has been paid, whichever is higher, this net asset value per share to be increased by the percentage (if any) by which the Company's benchmark index has increased over the current measurement period, multiplied by the number of Ordinary shares in issue at the start of the measurement period. When aggregated, the management fee and performance fee, for any financial year, are capped at 1.75% of the gross assets of the Company as at the end of the relevant measurement period.




In accordance with the basis of calculation described above, no performance fee was payable to the Manager in respect of the year ended 31 March 2013 (2012 - nil) as the achieved net asset value for the year is less than the benchmark net asset value.



 


Year ended

Year ended



31 March 2013

31 March 2012

5.

Other administrative expenses - revenue

£'000

£'000


Directors' fees

94

93


Marketing contribution

95

97


Auditor's remuneration:




-       fees payable to the Group's auditor for the audit of the Group's annual accounts

27

26


-       fees payable to the Group's auditor for the audit of the Company's subsidiary annual accounts

7

7


-       for other services relating to taxation provided to the Group

15

17


Legal and advisory fees

86

61


Custodian and overseas agents' charges

304

314


Other

163

160



________

_______



791

775



________

_______






Directors' fees include £6,000 (2012 - £5,000) paid in respect of the Directors of New India Investment Company (Mauritius) Limited.




During the year under review, £15,000 was paid to the external auditor for other services relating to taxation. The majority of these fees consist of tax advice provided by Ernst & Young in relation to the Company's Mauritian subsidiary; Ernst & Young advised the Company at the time of its restructuring in November 2004 when the Mauritian Subsidiary was created. The amounts disclosed above for Auditor's remuneration are all shown net of VAT.




The Company has an agreement with Aberdeen Asset Management PLC ('AAM PLC') for the provision of marketing services in relation to the Company's participation in the Aberdeen Investment Trust Share Plan and ISA. The total fees paid and payable under the agreement during the year were £95,000 (2012 - £97,000) and £24,000 (2012 - £nil) was due to AAM PLC at the year end.

 



Year ended 31 March 2013

Year ended 31 March 2012




Revenue

Capital

Total

Revenue

Capital

Total

6.

(a)

Tax on ordinary activities

£'000

£'000

£'000

£'000

£'000

£'000



Current tax:









Overseas taxation

60

-

60

58

-

58




________

_______

_______

_______

_______

_______





(b)

Factors affecting the tax charge for the year



The tax charged for the year can be reconciled to the profit per the Consolidated Statement of Comprehensive Income as follows:








Year ended 31 March 2013

Year ended 31 March 2012




Revenue

Capital

Total

Revenue

Capital

Total




£'000

£'000

£'000

£'000

£'000

£'000



Profit/(loss) before tax

177

14,504

14,681

418

(15,099)

(14,681)




_______

_______

_______

_______

_______

_______



Corporation tax on profit/(loss) at the standard rate of 24% (2012 - 26%)

42

3,481

3,523

109

(3,925)

(3,816)



Effects of:









(Gains)/losses on investments held at fair value through profit or loss not taxable (see note below)

-

(3,479)

(3,479)

-

3,930

3,930



Currency (gains)/losses not taxable

-

(2)

(2)

-

9

9



Movement in excess expenses

537

-

537

578

-

578



Non-taxable dividend income

(579)

-

(579)

(687)

(14)

(701)



Overseas tax

46

-

46

58

-

58



Prior year adjustment

14

-

14

-

-

-




_______

_______

_______

_______

_______

_______



Total tax charge

60

-

60

58

-

58




_______

_______

_______

_______

_______

_______












The Company has excess expenses of £2,545,000 (2012 - £2,045,000) carried forward. This sum has arisen due to cumulative deductible expenses having exceeded taxable income over the life of the Company. It is considered too uncertain that there will be sufficient taxable profits against which these expenses can be offset and, therefore, in accordance with IAS 12, a deferred tax asset of £585,000 (2012 - £491,000) has not been recognised, based on the current tax rate of 23% (2012 - 24%). Any excess management expenses will be utilised against any taxable income that may arise in the future.






The Company is exempt from corporation tax on capital gains provided it obtains agreement from HM Revenue & Customs that the tests within Section 1158 and 1159 of the Corporation Tax Act 2010 have been met. Under Mauritian taxation laws, no Mauritian capital gains tax is payable on profits arising from the sale of securities.

 

7.

Dividends on equity shares


No final dividend is being proposed for the year ended 31 March 2013 (2012 - £nil).




During the year, £nil (2012 - £2,000) was refunded in respect of unclaimed dividends from previous years.




During the year, the subsidiary company made a dividend payment of £400,000 (2012 - £345,000) to the parent company, and the net amount due to the parent company at the year end was £nil (2012 - £nil).

 

8.

Return/(loss) per Ordinary share


The basic earnings per Ordinary share is based on the net profit after taxation of £14,621,000 (2012 - loss of £14,739,000) and on 59,070,140 (2012 - 59,070,140) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.




The earnings per Ordinary share detailed above can be further analysed between revenue return and capital return as follows:





Year ended

Year ended



31 March 2013

31 March 2012



Revenue

Capital

Revenue

Capital

Total


Net profit/(loss) (£'000)

117

14,504

360

(15,099)

(14,739)


Weighted average number of Ordinary shares in issue





59,070,140


Return/(loss) per Ordinary share (pence)

0.20

24.55

24.75

0.61

(25.56)

(24.95)

 


Year ended

Year ended



31 March 2013

31 March 2012

9.

Investments held at fair value through profit or loss

£'000

£'000


(a)

Group





Opening book cost

81,246

75,752



Opening investment holdings fair value gains

61,418

81,788




________

_______



Opening valuation

142,664

157,540



Movements in the year:





Purchases at cost

6,077

9,348



Sales - proceeds

(5,639)

(9,108)



Sales - realised net gains

3,338

5,254



Increase/(decrease) in investment holdings gains

11,156

(20,370)




________

_______



Closing valuation

157,596

142,664




________

_______









£'000

£'000



Closing book cost

85,022

81,246



Closing investment holdings fair value gains

72,574

61,418




________

_______



Closing valuation

157,596

142,664




________

_______








Gains/(losses) on investments

£'000

£'000



Realised gains on sales of investments

3,338

5,254



Increase/(decrease) in investment holdings gains

11,156

(20,370)




________

_______




14,494

(15,116)




________

_______







Year ended 31 March 2013

Year ended 31 March 2012




Investments

Investments




In subsidiary

Overseas

Total

In subsidiary

Overseas

Total


(b)

Company

£'000

£'000

£'000

£'000

£'000

£'000



Opening book cost

50,150

6,717

56,867

50,150

6,407

56,557



Opening investment holdings fair value gains

84,044

2,822

86,866

97,327

4,423

101,750




________

_______

_______

________

_______

_______



Opening valuation

134,194

9,539

143,733

147,477

10,830

158,307



Movements in the year:









Purchases at cost

-

-

-

-

378

378



Sales - proceeds

-

-

-

-

(153)

(153)



Sales - realised net gains

-

-

-

-

85

85



Increase/(decrease) in investment holdings fair value gains

14,966

(426)

14,540

(13,283)

(1,601)

(14,884)




________

_______

_______

________

_______

_______



Closing valuation

149,160

9,113

158,273

134,194

9,539

143,733




________

_______

_______

________

_______

_______













Year ended 31 March 2013

Year ended 31 March 2012




Investments

Investments




In subsidiary

Overseas

Total

In subsidiary

Overseas

Total




£'000

£'000

£'000

£'000

£'000

£'000



Closing book cost

50,150

6,717

56,867

50,150

6,717

56,867



Closing investment holdings fair value gains

99,010

2,396

101,406

84,044

2,822

86,866




________

_______

_______

________

_______

_______



Closing valuation

149,160

9,113

158,273

134,194

9,539

143,733




________

_______

_______

________

_______

_______





As at

As at




31 March 2013

31 March 2012



Gains/(losses) on investments

£'000

£'000



Realised gains on sales of investments

-

85



Increase/(decrease) in investment holdings fair value gains

14,540

(14,884)




________

_______




14,540

(14,799)




________

_______








As at 31 March 2013, all of the overseas investments held are in listed stocks. At 31 March 2012, all investments were also held in listed stocks.






The Company owns 100% of the Ordinary share capital of its subsidiary, New India Investment Company (Mauritius) Limited, an investment holding company registered in Mauritius.





(c)

Transaction costs



During the year, expenses were incurred in acquiring or disposing of investments classified as fair value though profit or loss. These have been expensed through the capital column of the Statement of Comprehensive Income, and are included within gains/(losses) on investments at fair value through profit or loss in the Statement of Comprehensive Income. The total costs were as follows:







Year ended

Year ended




31 March 2013

31 March 2012




Group

Company

Group

Company




£'000

£'000

£'000

£'000



Purchases

21

-

32

-



Sales

16

-

33

-




________

_______

_______

________




37

-

65

-




________

_______

_______

________

 


Group

Company

Group

Company



2013

2013

2012

2012

10.

Cash and cash equivalents

£'000

£'000

£'000

£'000



________

_______

_______

________


Cash at bank

1,183

558

1,575

415



________

_______

_______

________

 


Group

Company

Group

Company



2013

2013

2012

2012

11.

Receivables

£'000

£'000

£'000

£'000


Prepayments and accrued income

96

60

329

55


Other receivables

516

-

-

-



________

_______

_______

________



612

60

329

55



________

_______

_______

________








Included in other receivables is an amount of USD783,000, equivalent to £516,000, being the estimated recovery of funds following the settlement between Aberdeen Asset Managers Limited and Satyam Computer Services in relation to a claim made following the discovery of a financial fraud, which led to the sale of the stock at a weakened price.




None of the above amounts are past their due date or impaired (2012 - nil).

 


Group

Company

Group

Company



2013

2013

2012

2012

12.

Payables

£'000

£'000

£'000

£'000


Amounts due to brokers

158

-

167

-


Other payables

498

165

258

98


Current tax

9

-

38

-



________

_______

_______

________



665

165

463

98



________

_______

_______

________

 


2013

2012

13.

Ordinary share capital

Number

£'000

Number

£'000


Issued and fully paid






Ordinary shares of 25p each

59,070,140

14,768

59,070,140

14,768



________

_______

_______

________








The Ordinary shares give shareholders voting rights, the entitlement to all of the capital growth in the Group's assets, and to all the income from the Group that is resolved to be distributed.




Ownership of Subsidiary


At the year end, the Company's wholly-owned Subsidiary, New India Investment Company (Mauritius) Limited ('the Subsidiary') had share capital of 4,275,000 (2012 - 4,275,000) Redeemable Participating Preference shares of £0.10 each ('Preference shares') and 50 Management shares of £1 each. The Company holds 100% of the share capital of the Subsidiary.




In January 2005 the Subsidiary issued a Warrant instrument to the Company, giving the Company the right to purchase up to 38,350,900 Preference shares, at an exercise price per share of £20 per share ('the 2015 Warrant'). The 2015 Warrant is exercisable for 10 years from 14 January 2005.




In August 2010, the Subsidiary issued a further Warrant instrument to the Company for a consideration of £9,000,000, giving the Company the right to purchase up to 1,321,417 Preference shares, at an exercise price per share of £40 per share ('the 2020 Warrant'). The 2020 Warrant is exercisable for 10 years from 26 August 2010.




Following the above, there are two separate Warrants issued by the Subsidiary. The Subsidiary has the right to repurchase both Warrants in part or in whole.




Partial repurchase of Subsidiary Warrant


On 15 May 2008, the Subsidiary repurchased part of the 2015 Warrant, in relation to 405,900 Preference shares, at a valuation based on the subscription price of £20. In aggregate, proceeds of £3,004,000 were received by the Company in the form of a partial capital redemption. These proceeds were credited to the capital reserve of the Company.




At the year end there were two (2012 - two) Warrants in issue carrying the right for the Company to subscribe for 37,945,000 (2012 - 37,945,000) and 1,321,417 (2012 - 1,321,417) new Preference shares of 10p in the Subsidiary at £20 and £40 per share respectively.

 


2013

2012

14.

Capital reserves

£'000

£'000


Group




At 1 April 2012

82,384

97,483


Currency gains/(losses)

10

(36)


Movement in investment holdings fair value gains

11,156

(20,370)


Gains on sales of investments

3,338

5,254


Capitalised dividend income

-

53



________

_______


At 31 March 2013

96,888

82,384



________

_______






The capital reserve includes gains of £72,574,000 (2012 - £61,418,000) which relate to the revaluation of investments held at the reporting date.







2013

2012


Company

£'000

£'000


At 1 April 2012

82,988

97,789


Currency losses

-

(2)


Movement in investment holdings fair value gains

14,540

(14,884)


Gains on sales of investments

-

85



________

_______


At 31 March 2013

97,528

82,988



________

_______






The capital reserve includes gains of £101,406,000 (2012 - £86,866,000) which relate to the revaluation of investments held at the reporting date.

 

15.

Net asset value per Ordinary share


The net asset value per Ordinary share is based on a net asset value of £158,726,000 (2012 - £144,105,000) and on 59,070,140 (2012 - 59,070,140) Ordinary shares, being the number of Ordinary shares in issue at the year end.

 

16.

Financial instruments


The Group's financial instruments comprise securities and other investments, cash balances and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement and debtors for accrued income.




The Manager has a dedicated investment management process, which ensures that the investment policy explained on in the Corporate Summary is followed. Stock selection procedures are in place based on the active portfolio management and identification of stocks. The portfolio is reviewed on a periodic basis by a senior investment manager and also by the Manager's Investment Committee.




The Manager has an independent Investment Risk department for reviewing the investment risk parameters of the Group's portfolio on a regular basis. The department reports to the Manager's Performance & Investment Risk Committee which is chaired by the Manager's Chief Investment Officer. The department's responsibility is to review and monitor predicted portfolio risk and style characteristics using best practice, industry standard multi-factor models.




Additionally, the Manager's Compliance department continually monitors the Group's investment and borrowing powers and reports its findings to the Manager's Risk Management Committee and to the Board of the Company.




The main financial risks arising from the Group's financial instruments are: (i) market risk; (ii) liquidity risk; and (iii) credit risk.




The Board regularly reviews and agrees policies for managing each of these risks, and these are summarised below. These policies have remained unchanged since the inception of the Group.




The Board considers that the carrying amount of all disclosed receivables and payables approximates to their fair values.




(i)

Market risk



The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, foreign currency risk and other price risk. 






Interest rate risk



Interest rate movements may affect the level of income receivable on cash deposits.






The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.






Financial assets



The interest rate risk profile of the Group's financial assets, excluding equity shares and short-term debtors which are non-interest bearing, as at 31 March 2013 and 31 March 2012 was as follows:







Total





 (per Balance Sheet)

Floating rate




2013

2012

2013

2012



Type

£'000

£'000

£'000

£'000



Cash at bank - Sterling

1,183

1,575

1,183

1,575




________

_______

_______

________



The floating rate assets consist of cash deposits on call earning interest at prevailing market rates, and are classified as having maturity dates of less than one year.






Financial liabilities



Excluding short term creditors, the Group had no financial liabilities as at 31 March 2013 and 31 March 2012 which were exposed to interest rate risk.






Interest rate sensitivity



Movements in interest rates would not significantly affect net assets and total profit attributable to the Group's shareholders.






Foreign currency risk



The Group's total return and net assets can be significantly affected by currency translation movements as the majority of the Group's assets and income are denominated in currencies other than Sterling, which is the Group's functional currency. It is not the Group's policy to hedge this risk but it reserves the right to do so, to the extent possible.






Foreign currency exposure by currency of denomination:







31 March 2013

31 March 2012





Net

Total


Net

Total




Overseas

monetary

currency

Overseas

monetary

currency




investments

assets

exposure

investments

assets

exposure




£'000

£'000

£'000

£'000

£'000

£'000



US Dollar

9,113

516

9,629

9,539

-

9,539



Indian Rupee

148,483

(158)

148,325

133,125

(167)

132,958




________

_______

_______

________

_______

_______




157,596

358

157,954

142,664

(167)

142,497




________

_______

_______

________

_______

_______












At 31 March 2013, the exchange rate of the Indian Rupee against the reporting currency Sterling was £1: INR 82.528 compared with an exchange rate of £1: INR 81.397 at 31 March 2012. Based on continuing to hold the same investments in the same quantities from 1 April 2012 to 31 March 2013, all other things being equal, the impact of the exchange rate movement over the year would be to decrease the value of the investments by £1,824,000 (2012 - £17,868,000).






Foreign currency sensitivity



There is no sensitivity analysis included as the Group's significant foreign currency financial instruments are in the form of equity investments, which have been included within the other price risk sensitivity analysis so as to show the overall level of exposure.






Other price risk



Other price risks (ie, changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments.






It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a sector. Both the allocation of assets and the stock selection process act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Group are all listed on the Bombay (Mumbai) Stock Exchange and/or The Indian National Stock Exchange, with the exception of the Gail (India) GDR, whose primary exchange is London, Grasim Industries GDR, Ultratech Cement GDR and Ambuja Cements GDR, whose primary exchange is Luxembourg and Infosys Technologies ADR, whose primary exchange is the NASDAQ GS.






Other price risk sensitivity



If market prices at the Balance Sheet date had been 15% higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 March 2013 would have increased /(decreased) by £23,639,000 (2012 - increased/(decreased) by £21,400,000) and equity reserves would have increased /(decreased) by the same amount.





(ii)

Liquidity risk



This is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities. All liabilities are payable on demand for a cash consideration equivalent to the balances shown in note 12, and therefore liquidity risk is not considered to be significant, as the Group's assets mainly comprise readily realisable securities which can, in normal circumstances, be sold to meet funding requirements, if necessary.





(iii)

Credit risk



This is failure of the counterparty to a transaction to discharge its obligations under that transaction, which could result in the Group suffering a loss.






The risk is not considered to be significant, and is managed as follows:



-       investment transactions are carried out with a large number of brokers, whose credit standing is reviewed periodically by the Manager, and limits are set on the amount that may be due from any one broker;



-       the risk of counterparty exposure due to failed trades causing a loss to the Group is mitigated by the review of failed trade reports by the Manager on a daily basis. In addition, both stock and cash reconciliations to custodians' records are performed on a daily basis by the Manager to ensure discrepancies are investigated on a timely basis. The Manager's Compliance department carries out periodic reviews of the Custodian's operations and reports its findings to the Manager's Risk Management Committee and to the Board of the Company. This review will also include checks on the maintenance and security of investments held; and



-       cash is held only with reputable banks whose credit ratings are monitored on a regular basis.






None of the Group's financial assets are secured by collateral or other credit enhancements.






Credit risk exposure



In summary, compared to the amounts included in the Balance Sheet, the maximum exposure to credit risk at 31 March was as follows:









2013

2012




Balance

Maximum

Balance

Maximum




Sheet

exposure

Sheet

exposure




£'000

£'000

£'000

£'000



Non-current assets







Investments designated at fair value through profit or loss

157,596

-

142,664

-



Current assets{A}







Cash at bank

1,183

1,183

1,575

1,575




________

_______

_______

________




158,779

1,183

144,239

1,575




________

_______

_______

________






{A} Excluding short-term debtors. 






None of the Company's financial assets are past due or impaired. 






Fair values of financial assets and financial liabilities



Investments held at fair value through profit or loss are valued at their quoted bid prices which equate to their fair values. The Directors are of the opinion that the other financial assets and liabilities are stated at fair value in the Balance Sheet and considered that this is equal to the carrying amount.

 

17.

Capital management policies and procedures


The Company's capital management objectives are:


-       to ensure that the Company will be able to continue as a going concern; and


-       to maximise the income and capital return to its equity shareholders through an appropriate balance of equity capital and debt. The policy is that debt should not exceed 25% of net assets.







2013

2012



£'000

£'000


Debt

-

-



________

_______






Equity




Equity share capital

14,768

14,768


Retained earnings and other reserves

143,958

129,337



________

_______



158,726

144,105



________

_______


Debt as a % of net assets

0.0%

0.0%



________

_______






The Board, with the assistance of the Manager monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes:


-       the planned level of gearing, which takes account of the Manager's views on the market;


-       the need to buy back equity shares for cancellation, which takes account of the difference between the net asset value per share and the share price (ie the level of share price discount or premium);


-       the need for new issues of equity shares; and


-       the extent to which revenue in excess of that which is required to be distributed should be retained.




The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period.




The Company had no loan gearing at the year end (2012 - nil).

 

18.

Fair value hierarchy


IFRS 7 'Financial Instruments: Disclosures' requires an entity to classify fair value measurements using a fair value hierarchy that reflects the subjectivity of the inputs used in making measurements. The fair value hierarchy has the following levels: 




Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;


Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (ie as prices) or indirectly (ie derived from prices); and


Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).




The financial assets and liabilities measured at fair value in the Balance Sheet are grouped into the fair value hierarchy at the Balance Sheet date are as follows:




Group




Level 1

Level 2

Level 3

Total


As at 31 March 2013

Note

£'000

£'000

£'000

£'000


Financial assets at fair value through profit or loss







Quoted equities

a)

157,596

-

-

157,596




________

_______

_______

________


Net fair value


157,596

-

-

157,596




________

_______

_______

________









As at 31 March 2012







Financial assets at fair value through profit or loss







Quoted equities

a)

142,664

-

-

142,664




________

_______

_______

________


Net fair value


142,664

-

-

142,664




________

_______

_______

________









Company









Level 1

Level 2

Level 3

Total


As at 31 March 2013

Note

£'000

£'000

£'000

£'000


Financial assets at fair value through profit or loss







Quoted equities

a)

9,113

-

-

9,113


Investment in Subsidiary

b)

-

149,160

-

149,160




________

_______

_______

________


Net fair value


9,113

149,160

-

158,273




________

_______

_______

________











Level 1

Level 2

Level 3

Total


As at 31 March 2012

Note

£'000

£'000

£'000

£'000


Financial assets at fair value through profit or loss







Quoted equities

a)

9,539

-

-

9,539


Investment in Subsidiary

b)

-

134,194

-

134,194




________

_______

_______

________


Net fair value


9,539

134,194

-

143,733




________

_______

_______

________









a)

Quoted equities



The fair value of the Group's investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges.


b)

Investment in Subsidiary



The Company's investment in its Subsidiary is categorised in Fair Value Level 2 as its fair value has been determined by reference to the Subsidiary company's net asset value at the reporting date. The net asset value is predominantly made up of quoted equities traded on recognised stock exchanges.

 

19.

Controlling party


In the opinion of the Directors on the basis of shareholdings advised to them, the Company has no immediate or ultimate controlling party.


This Annual Financial Report announcement is not the Company's statutory accounts. The above results for the year ended 31 March 2013 are an abridged version of the Company's full accounts. The 2013 and 2012 statutory accounts received unqualified reports from the Company's Auditor and did not include any reference to matters to which the Auditor drew attention by way of emphasis without qualifying the reports, and did not contain a statement under s.498 of the Companies Act 2006. The financial information for 2012 is derived from the statutory accounts for 2012 which have been delivered to the Registrar of Companies. The 2013 statutory accounts will be filed with the Registrar of Companies in due course.


The Annual Report will be posted to shareholders in June 2013. Further copies may be obtained from the registered office, Bow Bells House, 1 Bread Street, London EC4M 9HH or from the Company's website, www.newindia-trust.co.uk.


The Annual General Meeting will be held at Bow Bells House, 1 Bread Street, London EC4M 9HH at 11.30 a.m. on 20 September 2013.


By Order of the Board

Aberdeen Asset Management PLC

Secretaries

 

31 May 2013

 


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