Final Results

RNS Number : 2034S

India Capital Growth Fund Limited

16 March 2016

 

16 March 2016

INDIA CAPITAL GROWTH FUND LIMITED

ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015

	31 Dec 2015	31 Dec 2014	% change
Per Ordinary Share
Net Asset Value (NAV) - Undiluted	80.64p	74.26p	+8.6%
Market price	61.00p	60.38p	+1.0%
Discount to NAV	24.4%	18.7%
Performance against notional benchmark
Change in BSE Mid Cap Index (GBP)	+7.7%	+60.1%
Relative performance to the Index - Undiluted	+0.9%	-0.3%
FX impact
Indian Rupee / Sterling	98.35	98.58	+0.2%

Key points:

·     Shareholders experienced positive returns for 2015 against a backdrop of deteriorating global economic outlook

o  Undiluted NAV increased by 8.6%, marginally ahead of the BSE Mid Cap Index

o  Indian Rupee stable and held up well relative to other Emerging Markets

·     Share price discount reflects the risk averse appetite of equity investors and the Subscription Share issue

·     Company will continue its focus on companies with high quality management teams, cash generating businesses and strong corporate governance

o  Supported by in-depth research provided by the Manager's Mumbai-based advisors

·     The case for investing in India at this stage of the global and Indian economic cycle is currently a strong one

Enquiries:

Ocean Dial Asset Management Limited (Investment Manager)             

Robin Sellers

Amul Pandya                  020 7802 8907

Grant Thornton UK LLP (NOMAD)

Philip Secrett

Jen Clarke                       020 7383 5100

Numis Securities Limited (Broker)

Nathan Brown                

Hugh Jonathan               020 7260 1000

Apex Fund Services (Guernsey) Limited (Administrator)

Stephen Cuddihee          01481 706999

Chairman's Statement

Whilst 2015 was disappointing for global equities, it should be remembered as the year in which India emerged as a standalone investment case. Despite a deteriorating global economic outlook, heightened geopolitical tensions, and the beginning of tighter US monetary policy; the India of 2015 has shown considerably greater resilience compared to the India of 2013, when the currency collapsed and the economy was ignominiously dubbed as a member of the Fragile Five. Against this backdrop, the Investment Manager delivered impressive returns in Sterling, with an 8.6% increase in the undiluted NAV versus 7.7% for the BSE Mid Cap Index. The majority of this was driven by equity returns, with only a 0.2% contribution from the Rupee appreciating against the Pound. The deterioration in risk appetite of investors over the year is demonstrated by the tepid response to NAV returns from the share price, which rose only by 1.0%.

In the final two Parliamentary sessions of the year, the BJP struggled to push legislation in the Rajya Sabha (Upper House) where it still sits in minority. Although the party is still in the process of learning how to grapple with the challenges that result from operating in a robust democracy, it has made, and continues to make, significant progress in reforming the Indian economy. In the last financial year, the central Government's subsidy bill constituted just over 50% of its fiscal deficit. The existing subsidy system is now being phased out with the introduction of the Direct Benefit Transfer Scheme. Since the launch of the Government's financial inclusion initiative in September 2014, every Indian household now has access to banking services, resulting in the opening of over 200 million accounts. Whilst being an impressive achievement in itself, which will facilitate the intermediation of financial services in the economy, it will also allow subsidies to be streamlined through a cash transfer from the Government into household bank accounts, thereby eliminating the middlemen through which excessive waste, pilfering and corruption occurs. 151 million Indians now receive their LPG subsidies through the scheme and it is now being piloted for the delivery of a Kerosene based cooking fuel that is predominantly used in poorer rural communities.

The drive towards fostering intra-State competition that was discussed in my Statement in the Interim Report has now been formalised. The Government has invited the World Bank and KPMG to review each State in terms of "ease of doing business" along the same parameters used for their international survey. This has had the desired effect, with each State now using the report to market their areas of strength and improve their areas of weakness in order to boost their rankings and encourage inward investment both from domestic companies and Multi National Corporations. The consequence of this is that India's overall ranking should improve and head towards Narendra Modi's stated target of reaching the top 50 within three years.  The full effect of the reforms taking place will take time to be felt due to India's scale and complexity, but the direction and speed of travel is what is key. Moreover, the stable macroeconomic backdrop has created a platform for a revival in business activity and growth. India was the largest recipient of Foreign Direct Investment commitments in the first half of the year, overtaking China. Having now also replaced China as the world's fastest growing country, it is well poised to take its economic output to a level closer to its true potential.

The reforms being implemented from the top down, alongside a rigorous marketing campaign from the Prime Minister to highlight these changes, have put India at the forefront of investment decisions from overseas companies. As the country sits on the cusp of its next phase of economic growth, its stock market - with approximately 6,000 listed companies - offers abundant opportunities to capture it.

The Investment Manager's value driven philosophy is well positioned to do so with a portfolio that is constructed by a process that seeks to buy well managed, cash-generating businesses with strong corporate governance which can compound their earnings across market cycles. With this in mind, the short term uncertainty surrounding the timing of the recovery in corporate profitability, alongside global headwinds, should not deter the appetite of long term investors. In fact, the outlook for India has not looked this promising for many years and the Investment Manager believes the case for investing in India at this stage of the global and Indian economic cycle is currently a strong one. The board therefore remains hopeful of raising additional capital for the Company to invest in India by the final exercise date of the Subscription Shares of 6 August 2016. 

Fred Carr

Chairman

16 March 2016

INVESTMENT MANAGER'S REPORT

After the robust gains made in 2014 following the BJP's stunning election result, 2015 was expected to be a year where further meaningful upside would be hard to come by, at least without a period of consolidation, and particularly given the then tepid economic outlook and steep valuations. And thus it turned out; the Net Asset Value (NAV) rose 8.6% in Sterling terms, outperforming the BSE Mid Cap index by 0.9% which rose 7.7%. A detailed analysis of the attribution making up this performance is provided at the end of this report, but although the gains were modest relative to 2014, Midcap India performed well in the context of the country's large caps and the emerging market peer group as a whole, reinforcing our long held belief in the structural advantages India's equity markets have to offer.

Two key elements dominated investors' radars throughout the period. Uppermost was the steady erosion of the "Modi premium" which had been quickly established by the market following the BJP's comfortable election victory. This premium valuation (in terms of India's forward price/earnings multiple relative to its history) was established on the assumption that the single party majority in the lower house of India's parliament earned by the BJP would give the Government the space to pursue much needed policy reform and thereby drive economic growth. This, in conjunction with a stable macroeconomic outlook, fashioned from lower oil and commodity prices, and a highly credible Reserve Bank, justified India's elevated valuations with an expectation that corporate profitability would recover sufficiently to justify the market's premium valuation. And whilst the latter elements of the equation kept their side of the bargain, largely accounting for India's positive relative performance to broader Emerging Markets over the period, investors' belief in the Modi dream was overshadowed by two central themes. The BJP lost two State Elections over the year. The first was in Delhi, which due to its small population is insignificant in the overall makeup of the Governments' majority, whereas Bihar which it also lost, the outcome was numerically more important but strategically less so. Whilst neither loss caused any material change to the political balance or the growth outlook (though for different reasons), put together the results have added doubt in investors' minds as to the extent of Modi's political strength.

Elsewhere, the Government's failure to successfully legislate any significant headline reform, notably the Goods and Services Tax and revisions to the Land Acquisition Act, provided the market with sufficient disappointment to cap performance. Hence domestic political failure in conjunction with weak sentiment globally forced a rapidly deteriorating macro construct around Emerging Markets as a whole. This crafted a "risk off" trade; fund flow into Emerging Markets reversed causing currency weakness, increased market volatility, and in some cases, tighter monetary policy required to offset imported inflation. Although India was not immune from this fund flow reversal, (both debt and equity portfolio flows and foreign direct investment were favourable by comparison to others in the Emerging Market peer group), India's sound macroeconomic balances and strong currency reserves negated the need for any damaging adjustments to fiscal or monetary policies. In addition, foreign investor outflows were significantly offset by a substantial pick up in flows into equities from domestic mutual funds, drawn back into equities after a long absence owing to a combination of high real interest rates, a collapse in gold and real estate prices (traditional savings products), and increased scrutiny of the cash economy. Renewed interest from the domestic investor created incremental demand for equity in small and mid-size listed companies which contributed to the outperformance of this part of the market relative to the main board stocks and with it the portfolio, which is predominantly invested in Mid Cap Indian equities. This trend of Mid Cap outperformance was enhanced from mid-year onwards by selling pressure from foreign investors, in particular exchange traded funds and global Emerging Market funds who have historically owned more liquid names, consequently putting incremental downward pressure on the index heavy weights.

The markets' disappointment around headline reform in the local market over the period was warranted. Though the Government's lack of a majority in the Upper House (where legislation failed) was implicitly understood, investors still underestimated both Modi's failure to find a political solution to contentious policies, and this combined with the opposition's reluctance to support any legislation presented to them, however progressive, caused the parliamentary process to fail. A thaw in the political frost is required in order for parliament to function properly again, and we remain hopeful that this will be a theme for 2016.

Though the Government has fallen short on legislation, it has used its executive power productively to prioritise structural reform in parts of the economy critical to longer term economic stability. Thus the energy sector, and in particular coal, oil and gas, specific areas of infrastructure, notably roads and railways and crucially financial services are undergoing seismic change. Linked to improvements in the allocation of coal resources and the supply of coal to thermal units, has been a wholesale restructuring of debt surrounding the State electricity transmission and distribution companies. It is too early to claim real progress yet, but the Government should be given credit for forcing State governments to face up to tackling these problems. In addition the BJP has taken advantage of the collapse in oil prices to de-link market action in international oil prices with the subsidy payments to the population on fuel related products. This is to the benefit of the public accounts and to a large number of consumers who now receive their subsidy in the form of a cash payment electronically to their bank account rather than in physical form. This is linked to the policy of financial inclusion at the lowest level, whereby Modi's Government has enabled the majority of the population to gain access to a bank account. Paying the subsidy directly reduces embezzlement, on a massive scale, enabling the Government to allocate tax revenues more productively whilst empowering the consumer to spend more judiciously, ensuring a win-win for all. Expectations are high that these game changing policies can be extended to food and fertiliser subsidies where the real benefits for the Government's finances can be enjoyed. Road building has been a major priority of 2015, not just in the requirement to build more but also to improve regulation and avenues for future funding in order to encourage the private sector to become more involved, and there is tangible evidence of progress here with budgeted targets for kilometres constructed for the year actually being achieved. Emphasis is now being placed on further investment by the Government in the Railways, in particular track, rolling stock, and station upgrades at both a State and a Federal level.

The long awaited recovery in corporate profitability (still largely elusive) has been the second tenet in the reduction of the "Modi premium." Over the course of 2015 the market's expectations around aggregate earnings growth was steadily revised downwards in spite of easier monetary and fiscal policies and the maintenance of steady, if not exceptional GDP growth. Although India's economy is heavily skewed towards domestically generated growth it is not immune to broader market concerns over the tightening of US interest rates, the collapse in oil prices, and the concomitant effect on global growth. Thus companies exposed to these events (large cap IT, Oil & Gas, Metals and Mining for example) were subject to successive downward revision to earnings forecasts capping investor appetite. The portfolio has never been meaningfully exposed to these sectors, tending to focus more on domestically focused companies, largely shielded from global misery. However, issues negatively affecting the outlook on the home front caused equally disappointing performance in some specific areas. The Public Sector Banks were at the forefront of this headwind, hamstrung by relentless pressure on non-performing loans and increased scrutiny by the Reserve Bank intent on cleaning up the system. The portfolio had minimal exposure to this area, but asset quality issues are hampering the expansion of credit and holding back investment, acting as a firm brake on economic expansion. It is in the long term interests of the market that the Reserve Bank forces banks to be more transparent in their accounting of poor performing assets, and though the recognition of the problems is now apparent, more time and further pain is required before the sector can be considered fully fit again. Aside from the banking sector the consumer appetite retrenched somewhat in 2015, particularly in rural areas, hampered by successive weak monsoons and a significant reduction in financial support for this community. Urban consumption remained more resilient and the outlook here is more promising in the light of the recent Pay Commission's decision to award a 25% pay rise to all public sector employees from 2017 onwards. We anticipate this effect will filter through in quick time.

Looking forward to 2016, as India's growth and earnings dynamics continue to look more stable and attractive than much of the Emerging Market peer group we expect a solid if not spectacular year ahead, much along the lines of 2015, assuming volatility in global equities subsides after a tough start. 'Tough' is perhaps an understatement as India has not escaped the extreme volatility that engulfed global markets post the financial year end. As is often the case in periods of intense 'risk off' trading activity, selling is indiscriminate with good and bad alike being equally punished, and in the case of the portfolio, the situation is no different. Hence the undiluted NAV has fallen 8.3% (as at 9 March 2016) since the start of the year, marginally underperforming its notional benchmark. This has been somewhat offset by the strong performance of the Indian Rupee against the value of Sterling, which rose 3.2% to the end February, supporting the share price which has fallen 8.0%.

As India continues to stand out from the Emerging Market pack as a growth opportunity, with a stable political and macro framework and a reformist agenda, we expect both Foreign and Domestic investors to continue to support the market. On the issue of reform, we anticipate ongoing progress via the Executive as was the case in 2015 whilst remaining cautiously optimistic of a more constructive legislature. In addition the Reserve Bank will continue to pursue growth orientated monetary policy with further cuts to nominal interest rates as inflation is expected to remain within the stated target and providing the Government continues to pursue fiscal probity. This will enable corporates to continue the deleveraging process and assist banks to clean up their balance sheets. In due course this will catalyse a private sector investment cycle addressing much needed infrastructure development. There is much to look forward to still.

Portfolio performance

The NAV was supported by a fractional depreciation of Sterling versus the Indian Rupee. With the exception of Financials, Information Technology and Energy all sectors generated absolute returns for the year. These were led by Healthcare stocks, in particular Divis Laboratories (3.3% position, up 35%), Ajanta Pharma (2.7% position, up 29%) and Neuland Laboratories (1.15% position, up 63%). Elsewhere positive contributions came from Materials, driven by Berger Paints (2.8% position, up 34%) and PI Industries (3.9% position, up 26%). Equally important was the contribution from the Industrial sector, led by Kajaria Ceramics (4% position, up 67%) and Voltas (2% position, up 35%). On the downside, portfolio holding Indian Bank (1.8% position) fell 46% as did property developer Sobha (2.3% position, down 35%) in addition to Information Technology company KPIT Cummins (1.6% position, down 16%) and Tech Mahindra (3.4% position, down 18%). Finally, in the Energy sector, Aban Offshore (0.7% weight) fell 49.4%. More details on the portfolio holding and turnover are included later in this report.

Top 10 holdings of ICG Q Limited as at 31 December 2015

Dewan Housing Finance Corporation (4.6% of the portfolio)

Dewan Housing Finance is the third largest private sector Housing Finance Company in India. It was established in 1984 and over the last 30+ years, has concentrated on the low to middle income segment by providing finance to low cost houses. We are extremely positive on the long term prospects of housing finance in India, particularly in the low income segment, which has less pricing pressure and also has a favourable competitive environment as establishing a network is difficult and time consuming. Based on the closing market price on 31 December 2015, the stock trades at a price to projected FY17 earnings ratio of 7.3x and 1.2x projected FY17 book value.

Jyothy Laboratories (4.4% of the portfolio)

 Jyothy is a Mumbai-based FMCG company with 21 manufacturing units at 14 locations across India. It has six business divisions namely Fabric Care, Household Insecticide, Utensil Cleaners, Fragrances, Personal Care and Fabric Care Service, under the brands Ujala, Maxo, Exo, Jeeva and Maya. With its successful purchase and integration of Henkel in 2011 now bearing fruit, we see a period of sustained above market growth along with operating leverage driving earnings. Based on the closing market price on 31 December 2015, the stock trades at a price to projected FY17 earnings ratio of 31.7x.

Kajaria Ceramics Ltd (4.3% of the portfolio) 

Kajaria is the largest tile manufacturer in India and a leader in North India. Tile penetration in India is still very low and consumption should benefit from the housing boom and commercial developments in Tier 2 and 3 cities, along with higher consumer aspirations. Market dynamics are favourable, with CAGR of the tile market at 15-16% in last five years, while expectation is for this growth to continue over the next five years given the Government initiatives on Railway modernisation and Clean India. There is also a gradual upward movement in value chain, which has led to higher realisations and margins. Kajaria has industry-leading margins due to low proportion of imports, higher sales to retail, and superior product mix. It has increasingly been using a Joint Venture model to enhance its geographical footprint, which should fuel growth and improve ROCE. Based on the closing price on 31 December 2015 the stock trades at a price to projected FY17 earnings ratio of 27.5x.

Federal Bank Limited (3.9% of the portfolio)

Federal Bank is an old private sector bank with a network of over 1,000 branches and a dominant presence in the southern Indian state of Kerala. The Bank's lending is dominated by the SME (small and medium enterprises) and retail segments (30% each of the loan book). Having re-engineered its credit underwriting process and put in place solid risk management architecture over the last two years, Federal Bank is now poised for the next phase of "Growth with Quality". We continue to believe that the Bank is a potential re-rating story, on the back of improving profitability and growth, aided by a healthy capital position. Based on the closing market price on 31 December 2015, the stock trades at a price to projected FY17 earnings ratio of 8.4x and 1.0x projected FY17 book value.

Divis Laboratories (3.8% of the portfolio)

Divis Laboratories provides contract research and manufacturing services to the global pharmaceutical industry. It does not develop or market any final product of its own, but manufactures and supplies key ingredients to front-end pharmaceutical companies, who in turn formulate and market them to the final consumers. The company undertakes custom manufacture of active product ingredients for innovator companies and to generic companies where it benefits from strong economies of scale. Divis selects products with complex chemistry, develops proprietary, efficient processes to manufacture them and tries to capture a large share of the global market for products where it can control pricing. Based on the closing market price on 31 December 2015 the stock trades at a price to projected FY17 earnings ratio of 23.7x.

PI Industries (3.7% of the portfolio)

PI Industries (PI) focuses on domestic agri-input and custom synthesis business. In domestic agri-input, PI has tie-ups with global multi-national companies for IP products, through which it has obtained exclusive rights for distribution of licenced products in India and is constantly on the lookout to expand its operations/tie-ups. In FY16, in a tough domestic agro-chemicals market, PI has been able to grow because of its niche focus on few products and exclusive tie-ups. On account of its R&D driven approach, PI has become a preferred partner for companies for custom synthesis coupled with a non-compete and IP driven business model. It has a strong order book of US$615m which ensures long term revenue visibility in the custom synthesis segment. Based on the closing market price on 31 December 2015, the stock trades at a price to projected FY17 earnings ratio of 25.3x.

Yes Bank (3.7% of the portfolio)

Yes Bank is a new generation private sector bank, run by a highly competent top management team that has established a high quality, customer centric, service driven bank; now the fourth largest private sector bank in India. Having expanded to over 750 retail branches, the bank is focusing on building a strong retail franchise, targeting 45% of its assets and deposits to come from retail consumers. Similarly, it is aiming to increase its share of CASA (current account and saving account) deposits to 40% by 2020 from the current 26.6%. The Bank has consistently delivered high shareholder returns during the last five years with RoE greater than 20% and RoA in the range of 1.3% to 1.5%. We see this trend continuing as it builds its retail franchise. It has also maintained best-in-class asset quality on account of better asset acquisition. Based on the closing market price on 31 December 2015, the stock trades at a price to projected FY17 earnings ratio of 9.9x and 1.9x projected FY2017 book value.

IndusInd Bank (3.6% of the portfolio)

IndusInd Bank is also one of the new generation private sector banks in India which commenced its operations in 1994. IndusInd has become one of the leading commercial vehicle and two wheeler financiers in the country, and now has a diversified loan book with 44% in consumer finance and 56% in corporate and commercial Banking. Its key strength lies in its ability to raise low cost current account and saving account deposits which account for 35% of the total deposits. The bank's focus is to further improve this by aggressively increasing the branch network from 905 branches to 1,200 branches by FY17. Over the last couple of years IndusInd has improved its RoA to 1.85% and ROE to 18% through a combination of its profitable consumer finance franchise, stable asset quality and a large non-fund based portfolio. Based on the closing market price on 31 December 2015, the stock trades at a price to projected FY17 earnings ratio of 19x and 2.9x projected FY2017 book value.

Max India (3.4% of the portfolio)

Max India is a diversified insurance group with interests in life insurance, health insurance, hospitals and speciality films. The group holds a 72% stake in a life insurance venture called Max Life, which is one of the top five private sector life insurance companies in India. While the life insurance market in India has shown weakness in new business uptake over the last five years, Max India has grown in new business in three out of last five years. This has led to rapid growth in AUM and a CAGR of more than 20%. The group announced a restructuring plan in December 2014, whereby the existing business will be formed in three separate companies - life insurance, healthcare (including health insurance) and speciality films. Based on the closing market price on 31 December 2015, the stock trades at a price to projected FY17 earnings ratio of 37.6x and 3.7x projected FY17 book value.

Berger Paints (3.4% of the portfolio)

Berger Paints is the second largest paints company in India headquartered in Kolkata, India with a market share of 18%. With strategically located plants, Berger has a strong foothold in the East and North and mainly in Tier 2 cities. Its market share has increased owing to its sustained aggression in product development, robust expansion of its distribution network, differentiated marketing propositions targeting the middle and lower class and enhanced brand visibility. Despite being a mass market player, over the last couple of years, Berger has concentrated on a premium product mix with a higher focus on the luxury segment (Silk, Weathercoat All Guard and Easy Clean). Based on the closing market price on 31 December 2015, the stock trades at a price to projected FY17 earnings ratio of 40x.

Ocean Dial Asset Management

March 2016

Investment policy

The Company's investment objective is to provide long-term capital appreciation by investing (indirectly) in companies based in India. The investment policy permits the Company to make investments in a range of Indian equity and equity linked securities and predominantly in listed mid and small cap Indian companies with a smaller proportion in unlisted Indian companies. Investment may also be made in large-cap listed Indian companies and in companies incorporated outside India which have significant operations or markets in India. While the principal focus is on investment in listed equity securities or equity linked securities, the Company has the flexibility to invest in bonds (including non-investment grade bonds), convertibles and other types of securities. The Company may, for the purposes of hedging and investing, use derivative instruments such as financial futures, options and warrants. The Company may, from time to time, use borrowings to provide short-term liquidity and, if the Directors deem it prudent, for longer term purposes. The Directors intend to restrict borrowings on a longer term basis to a maximum amount equal to 25% of the net assets of the Company at the time of the drawdown. It is the Company's declared policy not to hedge the exposure to the Indian Rupee.

PRINCIPAL GROUP INVESTMENTS

AS AT 31 DECEMBER 2015

Holding	Type		Sector		Value £000's	% of Company NAV
Dewan Housing	Mid Cap		Financials		2,775	4.59%
Jyothy Laboratories	Small Cap		Consumer Staples		2,659	4.40%
Kajaria Ceramics	Mid Cap		Industrials		2,605	4.31%
Federal Bank	Mid Cap		Financials		2,392	3.95%
Divis Laboratories	Large Cap		Healthcare		2,291	3.79%
PI Industries	Mid Cap		Materials		2,244	3.71%
Yes Bank	Large Cap		Financials		2,214	3.66%
IndusInd Bank	Large Cap		Financials		2,187	3.62%
Max India	Mid Cap		Financials		2,082	3.44%
Berger Paints India	Mid Cap		Materials		2,077	3.43%
Total top 10 equity investments					23,526	38.90%
Other small cap	(13 companies)				8,843	14.62%
Other mid cap	(9 companies)				20,693	34.21%
Other large cap	(5 companies)				5,189	8.58%
Total equity investments					58,251	96.31%
Cash less other net current liabilities of ICG Q Limited					2,258	3.74%
Total net assets of ICG Q Limited					60,509	100.05%
Cash less other net current liabilities of the Company					(29)	(0.05%)
Total Net Assets					60,480	100.00%

Notes:
Large cap - companies with a market capitalisation above INR250bn (£2.5bn)			19.64%
Mid cap - companies with a market capitalisation between INR60bn and INR250bn (£600m - £2.5bn)			57.65%
Small cap - companies with a market capitalisation below INR60bn (£600m)			19.02%
			96.31%

AUDITED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2015

				Year to	Year to
				to 31.12.15	31.12.14
		Revenue £000	Capital £000	Total £000	Total £000
Income
Net gains on financial asset at fair value through profit or loss		-	5,073	5,073	21,278
		-	5,073	5,073	21,278
Total income
Expenses
Operating expenses		(285)	-	(285)	(320)
Foreign exchange loss		(1)	-	(1)	(1)
Other professional fees		-	-	-	(117)
Total expenses		(286)	-	(286)	(438)
(Loss)/profit for the year before taxation		(286)	5,073	4,787	20,840
Taxation		-	-	-	-
(Loss)/profit for the year after taxation		(286)	5,073	4,787	20,840
Earnings per Ordinary Share (pence)				6.38	27.79
Fully diluted earnings per Ordinary Share (pence)				6.38	27.79

The total column of this statement represents the Company's statement of comprehensive income, prepared in accordance with IFRS as adopted by the EU. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies, as disclosed in the Basis of preparation note.

The profit after tax is the "total comprehensive income" as defined by IAS 1. There is no other comprehensive income as defined by IFRS and all the items in the above statement derive from continuing operations.

The fully diluted earnings per Ordinary Share in respect of the year ended 31 December 2014 was incorrectly calculated and stated in the Annual Report 2014 and has been restated to show the correct figure.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2015

			31.12.15		31.12.14
			£000		£000
Non-current assets
Financial asset designated at fair value through profit or loss			60,509		55,776
Current assets
Cash and cash equivalents			96		48
Receivables			21		8
			117		56
Current liabilities
Payables			(146)		(139)
Net current liabilities			(29)		(83)
Net Assets			60,480		55,693
Equity
Ordinary share capital			750		750
Reserves			59,730		54,943
Total equity			60,480		55,693
Number of Ordinary Shares in issue			75,001,463		75,001,463
Net Asset Value per Ordinary Share (pence) - Undiluted			80.64		74.26
Net Asset Value per Ordinary Share (pence) - Diluted			74.09		69.83

AUDITED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2015

		Share Capital £000	Capital Reserve £000	Revenue Reserve £000	Other Distributable Reserve £000	Total   £000
Balance as at 1 January 2015		750	(9,313)	(8,594)	72,850	55,693
Gain on investments		-	5,073	-	-	5,073
Revenue loss for the year after taxation		-	-	(286)	-	(286)
Balance as at 31 December 2015		750	(4,240)	(8,880)	72,850	60,480

AUDITED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2014

		Share Capital £000	Capital Reserve £000	Revenue Reserve £000	Other Distributable Reserve £000	Total   £000
Balance as at 1 January 2014 (restated)		750	(30,591)	(8,156)	72,850	34,853
Gain on investments		-	21,278	-	-	21,278
Revenue loss for the year after taxation		-	-	(438)	-	(438)
Balance as at 31 December 2014		750	(9,313)	(8,594)	72,850	55,693

AUDITED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2015

			Year to		Year to
			31.12.15		31.12.14
	Notes		£000		£000
Cash flows from operating activities
Operating profit			4,787		20,840
Adjustment for:
Net gain on financial asset at fair value through profit or loss			(5,073)		(21,278)
Foreign exchange losses			1		1
(Increase)/decrease in receivables			(13)		7
Increase/(decrease) in payables			7		(57)
Net cash outflow from operating activities			(291)		(487)
Cash flows from investing activities
Sale of investments			340		475
Net increase/(decrease) in cash and cash equivalents during the year			49		(12)
Cash and cash equivalents at the start of the year			48		61
Foreign exchange losses			(1)		(1)
Cash and cash equivalents at the end of the year			96		48

ACCOUNTING POLICIES

Basis of accounting

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and interpretations adopted by the International Accounting Standards Board (IASB). 

Basis of preparation

The financial statements for the year ended 31 December 2015 have been prepared under the historical cost convention adjusted to take account of the revaluation of the Company's investments to fair value.

Where presentational guidance set out in the Statement of Recommended Practice (SORP) for Investment Trust Companies and Venture Capital Trusts issued by the Association of Investment Companies (AIC) in January 2009 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. In particular, supplementary information which analyses the statement of profit or loss and other comprehensive income between items of a revenue and capital nature has been presented alongside the statement of comprehensive income.

Going concern

The Board have concluded the going concern basis of accounting is appropriate because there are no material uncertainties related to events or conditions that may cast significant doubt about the ability of the company to continue as a going concern for the next 12 months.

Impact of IFRS 10 'Consolidated Financial Statements'

As set out under IFRS 10, a parent entity that qualifies as an investment entity should not consolidate its subsidiaries. The Company meets all the following criteria to qualify as an investment entity:-

(i)   Obtaining funds from one or more investors for the purpose of providing those investors with investment management services - the Board of Directors of the Company has delegated this function to its investment manager, Ocean Dial Asset Management Limited;

(ii)  Commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both - funds are invested in ICG Q Limited for the sole purpose of achieving capital appreciation via further placements in Indian listed securities; and

(iii) Measures and evaluates the performance of substantially all of its investments on a fair value basis - on a monthly basis, the Company's investment in ICG Q Limited is revalued at the prevailing Net Asset Value at the corresponding valuation date.

(iv) The IFRS 10 Investment Entity Exemption requires investment entities to fair value all subsidiaries that are themselves investment entities. As the subsidiary meets the criteria of an investment entity, it has not been consolidated.

On the basis of the above, these financial statements represent the stand-alone figures of the Company.

Expenses

Expenses are accounted for on an accruals basis. Other expenses, including management fees, are allocated to the revenue column of the statement of profit or loss and other comprehensive income.

Taxation

Full provision is made in the statement of profit or loss and other comprehensive income at the relevant rate for any taxation payable in respect of the results for the year.

Investments

The Company's investment is designated at fair value through profit or loss at the time of acquisition. It is initially recognised at fair value, being the cost incurred at acquisition. Transaction costs are expensed in the statement of profit or loss and other comprehensive income. Gains and losses arising from changes in fair value are presented in the statement of comprehensive income in the period in which they arise.

The investment is designated at fair value through profit or loss at inception because it is managed and its performance evaluated on a fair value basis in accordance with the Company's investment strategy as documented in the Admission Document and information thereon is evaluated by the management of the Company on a fair value basis.

The basis of the fair value of the investment in the underlying subsidiary, ICG Q Limited, is its Net Asset Value.

Purchases and sales are recognised on the trade date - the date on which the Company commits to purchase or sell the investment.  

The financial asset is derecognised when the rights to receive cash flows from the investment have expired or the Company has transferred substantially all risks and rewards of ownership.

Receivables and Payables

Receivables are recognised initially at fair value and subsequently measured at amortised cost less provision for impairment. Due to their short-term maturities, their fair values approximate their costs.

Payables are recognised initially at fair value and subsequently measured at amortised cost. Due to their short-term maturities, their fair values approximate their costs.

Foreign currency translation

The Company's shares are denominated in Sterling and the majority of its expenses are incurred in Sterling. Accordingly, the Board has determined that the functional currency is Sterling. Sterling is also the presentation currency of the financial statements.

Monetary foreign currency assets and liabilities are translated into Sterling at the rate of exchange ruling at the statement of financial position date. Investment transactions and income and expenditure items are translated at the rate of exchange ruling at the date of the transactions. Gains and losses on foreign exchange are included in the statement of comprehensive income.

Cash and cash equivalents

Cash comprises of Bank current accounts. Cash equivalents are short-term highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant changes in value.

Share capital

The share capital of the Company comprises of both Ordinary Shares and Subscription Shares issued. The Company's Ordinary Shares and Subscription Shares have had all the features and have met all the conditions for classification as equity instruments under IAS 32 (amended) and have been classified as such in the financial statements.

Standards, interpretations and amendments to published statements not yet effective

Certain current standards, amendments and interpretations are not relevant to the Company's operations. Equally, certain interpretations to existing standards which are not yet effective are equally not relevant to the Company's operations.

At the date of the authorisation of these financial statements, the following standards and interpretations which were in issue but not yet effective have not been early adopted in these financial statements.

·     Amendments to IFRS 7 and IFRS 9 - Mandatory effective date  and Transition disclosures is effective for periods beginning on or after 1 January 2018

·     Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39 is effective for periods beginning on or after 1 January 2018

·     IFRS 14 - Regulatory Deferral Accounts is effective for periods beginning on or after 1 January 2016

·     Amendments to IAS 16 and  IAS 41 - Agriculture: Bearer Plants is effective for periods beginning on or after 1 January 2016

·     Amendments to IAS 16 and IAS 38 - Clarification of Accountable Methods of Depreciation and Amortisation is effective for periods beginning on or after 1 January 2016

·     Amendments to IFRS 11 - Accounting for Acquisition of Interests in Joint Operations is effective for periods beginning on or after 1 January 2016

·     Amendments to IAS 27 - Equity Method in Separate Financial Statements is effective for periods beginning on or after 1 January 2016

·     IFRS 9 - Financial Instruments (issued in 2014) is effective for periods beginning on or after 1 January 2018

·     IFRS 15 - Revenue from Contracts with Customers beginning on or after 1 January 2018

The Board has not yet assessed the impact of these standards as they have been recently published. The Directors believe that other pronouncements which are in issue but not yet operative or adopted by the Company will not have a material impact on the financial statements of the Company, but these will continue to be reviewed. These are:-

·     Amendment to IAS 36 - Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets

·     Amendment to IAS 32 - Offsetting Financial Assets and Financial Liabilities

·     Amendments to IFRS 10, IFRS 12 and IAS 27 - Investment Entities

·     Amendment to IAS 39 - Novation of Derivatives and Continuation of Hedge Accounting

·     IFRIC 21 - Levies

·     Amendments to IAS 19 - Defined Benefits Plans: Employee Contributions

·     Annual improvements to IFRSs 2010-2012 cycle

·     Annual improvements to IFRSs 2011-2013 cycle

SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

IFRS require management to make judgments, estimates and assumptions that effect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equate to the related actual results. The main use of accounting estimates and assumptions occurs in the calculation of the sensitivity analysis. And in relation to the valuation of unlisted investment, actual results may differ from the estimates. It is management's judgement that the Net Asset Value (NAV) of ICG Q Limited is an appropriate proxy for fair value as the Company can control the sale of the subsidiary's investments and therefore no liquidity discount is required.

EARNINGS PER SHARE

Earnings per Ordinary Share is calculated on the profit for the period of £4,787,000 (31.12.14 - £20,840,000) divided by the weighted average number of Ordinary Shares of 75,001,463 (31.12.14 - 75,001,463). The fully diluted earnings per Ordinary Share is calculated on the same profit for the period but divided by the diluted weighted average number of Ordinary Shares of 75,001,463 (31.12.14 - 75,001,463). For the years ended 31 December 2015 and 31 December 2014, there was no dilutive impact of the 37,500,710 Subscription Shares on the Earnings per Ordinary Share as the average market price of the Ordinary Shares for the period did not exceed the exercise price of the Subscription Shares of 61 pence.  

The Subscription Shares have a subscription date of 6 August 2016. However, if at any time after 6 August 2015 the average middle market quotation for an Ordinary Share for at least 10 consecutive trading days is 5% or more above the subscription price, the Company has the right, but not the obligation, by an announcement on a RIS, to change the subscription date for exercise of the Subscription Shares to an earlier date (being a date not less than 30 days after the Company's announcement) that it is bringing forward the subscription date. In that event, an announcement will be made on a RIS and a notice of the revised subscription date will be given to all holders of the Subscription Shares on the register at 5.00pm on the date falling three business days following the announcement of the revised subscription date.

The fully diluted earnings per Ordinary Share in respect of the year ended 31 December 2014 was incorrectly calculated and stated in the Annual Report 2014 as 20.96 pence and has been restated to show the correct figure of 27.79 pence. Last year, the dilutive impact of the Subscription Shares was stated as 34,416,671 Ordinary Shares but was Nil as the average market price of the Ordinary Shares for the period did not exceed the exercise price of the Subscription Shares of 61 pence.

This announcement was approved by the Board on 16 March 2016. It is not the Company's statutory accounts, but has been prepared on the same basis as those accounts. The statutory accounts for the year ended 31 December 2015 have been approved and audited and received an audit report which was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report.

The full Annual Report together with the audited accounts for the year is expected to be mailed to shareholders on 22 March 2016 and a copy will be posted on the Company's website www.indiacapitalgrowth.com in accordance with AIM Rule 26.

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

 

END

 

 

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