Final Results

RNS Number : 3194I

India Capital Growth Fund Limited

22 March 2018

 

INDIA CAPITAL GROWTH FUND LIMITED

Annual Results for the year ended 31 December 2017

Strong investment performance generates net investment gains of £43m

22 March 2018, London - India Capital Growth Fund ("ICGF" or "the Company"), the LSE premium listed investment company established to take advantage of long term investment opportunities in companies based in India, today reports results for the year ended 31 December 2017.

Highlights

	31 Dec 2017	31 Dec 2016	% change
Per Ordinary Share
Net Asset Value (NAV)	127.05p	89.31p	+42.3%
Share price discount to NAV	8.3%	17.8%
FX impact
Indian Rupee / Sterling	86.07	83.42	-3.2%

·     Strong investment performance generated £43m of net investment gains on the back of a 45.3% increase in the BSE Mid Cap TR Index during the year

·     Share price discount reduced to 8% at the year-end following increased marketing efforts whilst the share price increased by 59% during the year

·     Successful premium listing on the Main Market of the London Stock Exchange in January 2018

·     Average daily trading values as a percentage of market capitalisation in the Company's shares continues to be well ahead of direct competitors

·     Positive attribution from the portfolio during the year came from Ramkrishna Forgings (up 204%), Sobha Developers (up 153%), Dewan Housing (up 142%) and Balkrishna Industries (up 118%)

·     Portfolio turned over 13% during the year

Indian investment environment

·     GDP and corporate earnings recovering as anticipated following a period of lacklustre growth

·     Indian government implemented three significant reforms in 2017, each being transformational in nature in their own right, namely:

o  Goods & Services Tax (GST);

o  Real Estate Regulation Act; and

o  Insolvency & Bankruptcy Code (Amendment) Bill

·     Politics expected to dominate the agenda in 2018 as India gears up for the 2019 General Elections

·     Continuing shift in household savings from physical to financial assets led to significant inflows from domestic funds of US$14.0bn in the year - the largest annual inflows since 2008 - and supported by foreign investor inflows of US$8.0bn

Elisabeth Scott, Chairman of India Capital Growth Fund, said: "2017 has been another year of excellent returns for equity investors in India, and I am happy to say that this was also the case for your Company. Looking ahead to 2018, eight States go to the electoral polls and the outcome of each are expected to influence market sentiment, particularly as India's General Election approaches. We can expect increased political uncertainty as a consequence, nevertheless the portfolio is well placed to weather this."

David Cornell, Fund Manager of India Capital Growth Fund, commented: "The investment team continues to strive to identify well managed, attractively valued, small and mid-size companies, run by competent people with integrity, and operating in areas of the economy where long-term growth opportunities are widespread. This "bottom up" process remains the optimal investment style from which to build a portfolio for the longer-term investor, whilst ensuring that the "quality bias" serves to protect investors from increased market volatility. Additionally we expect significant earnings growth across our portfolio in the next two years."

ENQUIRIES

TB Cardew (PR Advisers)	020 7930 0777
Tom Allison	07789 998 020
Ed Orlebar	07738 724 630
Alycia MacAskill	07876 222 703
Ocean Dial Asset Management (Investment Manager)	020 7068 9870
Robin Sellers
David Cornell
Stockdale Securities (Broker)	020 7601 6115
Robert Finlay
Apex Fund Services (Guernsey) (Administrator)	01481 706 999
Stephen Cuddihee

About India Capital Growth Fund

India Capital Growth Fund Limited ("ICGF"), the LSE premium listed investment company registered and incorporated in Guernsey was established to take advantage of long term investment opportunities in companies based in India. ICGF predominantly invests in listed mid and small cap companies, although investments may also be made in large cap Indian companies where the Fund Manager believes long-term capital appreciation will be achieved. www.indiacapitalgrowth.com

CHAIRMAN'S STATEMENT 

Shareholders will recall that in September of last year Fred Carr, who served as your Chairman for eight years, announced his intention to step down once his successor had been appointed. After a search by a recruitment consultant, I was fortunate to have been offered the opportunity to replace Fred and I was appointed as Chairman by the Board on 18^th December. Thus I find myself in the unusual position of delivering the Chairman's statement for this Annual Report having stepped into the chair just days before the year end. I am grateful that Fred has agreed to act as a consultant to the Board until the end of March 2018 in order to effect a smooth transition.

My first duty as your new Chairman therefore is to place on record, on behalf of Shareholders, the Board and the Investment Manager, our collective thanks to Fred for his outstanding guidance of the Company since 2009. He has navigated the Company through some choppy waters, both in terms of the volatility surrounding India's equity markets and the evolution of the Investment Team and its process. The Company is undoubtedly in a far stronger position today than it was when he inherited it. This is ably demonstrated by share price and NAV performance (both in absolute and relative terms), increased assets and lower costs, better underlying liquidity in the traded shares, and a much-reduced discount. The recent announcement that the Company has been accepted for listing to the Main Market of the London Stock Exchange ensures that he leaves the Company at a pivotal point in its journey. Shareholders have been well served by his vision and his leadership.

2017 has been another year of excellent returns for equity investors in India, and I am happy to say that this was also the case for your Company.  The Net Asset Value rose 42.3% in Sterling terms over the period, an under performance of 3.0% relative to the notional benchmark index, the BSE Midcap Total Return Index. All of this underperformance arose in December when three significant portfolio holdings corrected after a strong year. These corrections coincided with the BSE Midcap TR Index rallying 6.3%. Barring that, the Net Asset Value kept pace with notional benchmark index throughout the year which is a commendable achievement, given the extent of the rally. The share price rose 59% over the same period, supported by a significant narrowing of the discount from 18% at the start of the year to 8% by year end, a figure comfortably lower than our two closest competitors. Shareholders who are familiar with the long-term strategy of the Company will recall that, post the successful capital raising efforts of 2016, a key priority has been to close the gap between the performance of the Net Asset Value and the share price. It is pleasing to see the extent to which the market has begun to recognise that the healthy long-term investment performance is now working in combination with improved daily trading volumes and a more focused marketing effort. This change is best demonstrated by a broader shareholder register, as well as the tighter discount. All our efforts now must be focused on ensuring that these trends continue.

In India, small and mid cap stocks outperformed large cap stocks, driven primarily by an ongoing resurgence in domestic retail investor flows. Locals are being drawn to equities and bonds, many for the first time, principally as a consequence of the Government's concerted efforts to shrink the black economy. This is forcing savings, often held in cash and other assets such as gold and real estate, into the financial system. Low and stable inflation combined with better fiscal management have also brought bond yields down, and this is further supporting the investment case for stocks and shares. Since equities are not yet a widely held savings vehicle in India, it will be fascinating to watch this trend evolve in the years ahead.

This momentum has already provided a huge boost to the Company's performance, as India Capital Growth's mid cap mandate positions the portfolio squarely "in the action". This is our main point of differentiation from the core competition, which tends to focus on larger capitalised companies. The mid cap "bias" has enabled the Investment Manager to construct a portfolio of mainly domestically focused investments, companies which operate at the heart of India's fast-growing economy, and which are prime beneficiaries of India's natural demographic advantages and the Government's reform orientated policy agenda. Furthermore, the Company's closed ended structure ensures that portfolio holdings can be bought and sold at the Manager's discretion, with the long term in mind, undisturbed by fund flows (both in and out), which inevitably come at the worst moments. Alongside strong demand from local institutions, foreign investors continued to view India favourably in 2017, in tandem with the recent recovery across emerging markets in general. However, it is particularly exciting that for now at least, India continues to be singled out by investors for having the attractive combination of a sound macro-economic position and a stable currency, working alongside Government efforts to bring about structural reform.

2017 was a difficult year for the Indian economy, as corporates and consumers alike grappled with the aftershocks of demonetisation (the cancellation of 85% of India's currency in circulation), the implementation of the Goods and Services Tax (a nationwide style VAT) and the Bankruptcy Code, to name but a few of the reforms introduced. The portfolio has borne these challenges admirably, well supported by a buoyant market, and I highly recommend that you read the Investment Manager's report for a more detailed account of these developments. Looking ahead to 2018, the portfolio faces a different set of risks. Eight States go to the electoral polls next year, and the outcomes of each are expected to influence market sentiment, particularly as India's General Election approaches. As Mr Modi prepares to go all out to win a second five-year term, it is conceivable that sound policy making will take a back seat to election politics. We can expect increased market volatility as a consequence, nevertheless the portfolio is well placed to weather this.

Thus 2017 has been a year of change for your Company:  the arrival of a new Chairman combined with the announcement of a move to a Main Market listing, all alongside major upheaval on the ground in India. Additionally the Government has announced fundamental changes to the capital gains tax rates which will apply to the sale of listed equities of Indian companies. Consequently net short term capital gains (for investments held less than 12 months) are taxed at 15% from 1 April 2017, and net long term capital gains (for investments held 12 months or longer) will be taxed at 10% with effect from 1 April 2018. However, against that backdrop, I am delighted to report that the investment process remains unchanged. Here the Manager continues to strive to identify well managed, attractively valued, small and mid-size companies, run by competent people with integrity, and operating in areas of the economy where long-term growth opportunities are widespread. The Board believes that this "bottom up" process remains the optimal investment style from which to build a portfolio for the longer-term investor, whilst ensuring that the "quality bias" serves to protect investors from any near term political uncertainty.

It seems right that the former Chairman brings this year's Statement to a close, and as such I quote on his behalf.

"I want to take this opportunity to thank all Shareholders for their support whilst I have been Chairman of the Company, and I am delighted that in more recent years, your patience has been rewarded. It has been a bumpy ride since 2009, but I am satisfied that the Company is in a good shape, and I have every confidence in Elisabeth Scott as your new Chairman. I would also like to thank my fellow directors, the team at Ocean Dial and all the Company's external service providers (current and former) for the enormous contribution they have collectively made to the success of the Company to date, both in 2017 and in prior years."

Elisabeth Scott

Chairman

22 March 2018

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.

INVESTMENT MANAGER'S REPORT

India was one of the best performing markets in 2017 in what was a strong year for capital markets globally. The BSE Sensex was up 27.9% in Rupee terms, whilst mid-caps and small caps outperformed large caps for the fourth consecutive year with over 40% return. Barring healthcare, all sectors showed positive returns. Much of the performance can be attributed to a rerating of the market, as corporate earnings' downgrades continued into this financial year to March 2018 (FY18). As such the "street" is now forecasting earnings growth for the MSCI India Index at 11% for FY18, well below the 22% forecast at the beginning of the year. Against this backdrop, the Fund performed well, with the Net Asset Value rising 42.3% in sterling terms (46.9% in local currency). Although this was marginally lower than the BSE Midcap Total Return Index at 45.3%, the Fund's notional benchmark, it was significantly higher than the broader BSE Sensex.

A lot of the rise in the markets can be attributed to liquidity, although the Government's reform based agenda did help support the markets. Foreign investors were net equity buyers at US$8.0bn compared to US$2.9bn in 2016, whilst domestic funds were net buyers of US$14.0bn compared to US$4.9bn in 2016, the largest annual inflows since 2008. Mutual funds led the charge with US$18.3bn, while the Insurance sector remained net sellers of US$4.3bn. Much of the increase in domestic fund inflow is attributable to the shifting nature of India's household savings provision which is divesting away from physical assets such as real estate and gold, and into financial assets such as equities and credit. There appears to be a structural element to this shift, as the Government's efforts at curbing black money and improving transparency is making it difficult to place untaxed income in either the real estate or the gold markets. This uptick in domestic funds flow also explains the outperformance of the mid cap index versus the broader index. In fact, the mid cap index now trades at a premium valuation (PE of 22xFY19) to the Sensex (PE of 19xFY19). Not surprisingly 2017 also saw record highs in equity capital raised. There were 200 capital raising transactions, almost 40% higher than the previous peak in 2010, raising total capital of US$30bn, almost 50% higher than 2010. IPOs contributed to 40% of this capital raising activity.

The year will however be remembered for the implementation of three significant reform measures by the BJP led Government, namely; the Goods & Services Tax (GST); the Real Estate Regulation Act (RERA); and the Insolvency & Bankruptcy Code (Amendment) Bill. Each of these is transformational in nature in their own right. GST came into effect on 1st July 2017, redefining the indirect tax landscape, with a uniform tax across the country for each product category. Though there were the inevitable teething troubles, the Government has been proactive in addressing the concerns of all businesses involved, with numerous amendments in the filing processes as well as in the tax rates themselves. The number of business registrations has exceeded expectations, and over time this will strengthen the compliance levels across the country for the better. Companies which have previously avoided tax can no longer enjoy a price advantage and hence over time, such businesses will either comply or disappear. The shrinkage of the informal sector bodes well for the portfolio's investee companies which stand to benefit from increases in market share across their respective sectors.

The significance of the Real Estate Regulation Act can be gauged by the fact that this is the first time there is a regulator for this sector. Transparency and good governance have constantly been lacking and it was commonly known that this was the place to park "black" money. RERA brings regulatory structure to the sector and importantly shifts the balance of power from the developer to the house buyer. Given the huge shortage of housing in the country there now exists the opportunity for some high quality real estate companies to emerge which, in time, we look forward to putting under the microscope. Finally, the Insolvency & Bankruptcy Code significantly alters the negotiating power back in favour of the Banks and

away from the creditors, which was previously not the case when it was near impossible for Banks to foreclose on defaulting assets, principally due to the complexity of the litigation process. Under the new law, if a resolution for a defaulting company is not arrived at within 270 days, it must be referred to the National Company Law Tribunal (NCLT), and the company goes into liquidation. This will have far reaching implications on the way business is done in India, leading to stronger governance and more competition, thereby creating a better environment to attract foreign investment. We are excited about these prospects.

This regulatory upheaval has been disruptive for the economy, particularly following the demonetisation exercise implemented in November 2016. Despite this the Government's popularity remains intact. Early in the year, the BJP swept the polls in India's largest state, Uttar Pradesh, as well as retaining Gujarat (Prime Minister Modi's home state) and gaining power in Himachal Pradesh. The win in Gujarat was hard fought however, with the Congress faring well in the rural parts of the state.

At the time of writing it would appear that the first signs of a pick-up in economic activity are emerging. GDP growth bottomed out at 5.7% p.a. in the quarter ended June 17, and has since accelerated to 6.3% in the quarter ending September 17. The IMF is projecting India to grow at 7.4% in FY19, making it the fastest growing major economy. There are also a lot of data points suggesting a genuine improvement in the economy. Among these is credit growth, which has once again moved to double digits, trending at 10.7% in December. Moreover, corporates are indicating that business is more or less back to normal. Looking ahead however, 2018 will be a year of divergence. On the one hand, growth should accelerate as the economy recovers from the twin shocks of demonetisation and GST transition, whilst on the other the macroeconomic scenario may suffer as both the current account deficit and the fiscal deficit are expected to widen. This follows sharp increases in commodity prices, particularly that of oil as India imports over 70% of its crude requirement. With oil prices having risen by over 40%, since the lows of June 17, inflation is now running close to 5%, above the Central Bank's comfort level of circa 4%. This has also led to the Reserve Bank of India changing its stand on interest rates from accommodative to neutral, as well as causing bond yields to rise by almost 100bps. There are also fears that the Government may slip on its fiscal deficit targets, due to lower revenues (because of disruptions due to GST implementation) and greater rural spending ahead of the general elections in 2019. In addition, the current account deficit has widened to 1.2% from a low of 0.6%. However despite an incremental worsening of the macroeconomic parameters, macroeconomic data remains firmly within comfort limits. It is valuations that remain the key concern of 2018. As earlier discussed, increased liquidity has encouraged the market to run ahead of earnings, reflected by the main market trading at 19x FY2019 earnings, whilst the mid cap stocks continue to trade at 22x. It is encouraging however to witness that Corporate India is starting to deliver the improved profitability needed to maintain these elevated multiples.

Portfolio performance

The portfolio kept pace with the mid cap index, albeit underperforming marginally for the year. Most of the underperformance happened in December, when the BSE Midcap TR Index rose 5.4% (in local currency) for the month. During the year, most stocks delivered positive returns, but it was the laggards of the past few years who drove the performance, whilst the traditional compounders from the consumer sector took a back seat.

Positive contribution to the portfolio during the year came from Dewan Housing (142% up), Ramkrishna Forgings (204% up), Sobha (153% up), Federal Bank (64% up), Motherson Sumi (75% up) and Balkrishna Industries (118% up). Negative contribution came from Capital First (16% down), Neuland Labs (14% down) and Matrimony (5% down). Overall, there were 13 stocks which went up by over 50% and only three stocks which had negative returns in 2017.

During the year we added six new stocks and exited seven stocks. We did however make several changes to the weights of individual stocks, given sharp price movements, to ensure the concentration risk in the portfolio was managed effectively.

Portfolio additions and exits

Companies added	Sector	Companies exited	Sector
BLS International	IT	Ajanta Pharma	Healthcare
Capital First	Financials	Dabur India	Consumer Staples
Jammu & Kashmir Bank	Financials	Lupin	Healthcare
Matrimony.com	Consumer Discretionary	Mahindra CIE Auto	Consumer Discretionary
PSP Projects	Industrials	Max Financial Services	Financials
Sagar Cements	Materials	UFO Moviez India	Consumer Discretionary
		Voltas	Industrials

Top 10 companies

Company name	% of company NAV	Sector	Description
Dewan Housing	5.9%	Financials	3rd largest private sector housing finance company
Ramkrishna Forgings	4.9%	Materials	Auto component manufacturing
Motherson Sumi Systems	4.6%	Consumer Discretionary	India's largest auto wiring company and one of the largest auto component makers
Federal Bank	4.4%	Financials	Long established private sector bank
Sobha Developers	3.3%	Real Estate	South India based property developer
Kajaria Ceramics	3.3%	Industrials	Largest tile manufacturer in India
Jyothy Laboratories	3.2%	Consumer Staples	Consumer company with interest in fabric care, utensil cleaners, etc.
NIIT Technologies	3.2%	IT	Outsourced IT service provider
Finolex Cables	3.2%	Industrials	Wiring and cable manufacturer
City Union Bank	3.0%	Financials	Small regional bank focusing on small/medium enterprises

Ocean Dial Asset Management

22 March 2018

PRINCIPAL GROUP INVESTMENTS

AS AT 31 DECEMBER 2017

Holding	Market     cap size	Sector		Value £000		% of Company NAV
Dewan Housing Finance	M	Financials		8,463		5.92
Ramkrishna Forgings	S	Materials		6,997		4.90
Motherson Sumi Systems	L	Consumer Discretionary		6,516		4.56
Federal Bank	M	Financials		6,303		4.41
Sobha Developers	S	Real Estate		4,675		3.27
Kajaria Ceramics	S	Industrials		4,661		3.26
Jyothy Laboratories	S	Consumer Staples		4,633		3.24
NIIT Technologies	S	IT		4,591		3.21
Finolex Cables	S	Industrials		4,576		3.20
City Union Bank	S	Financials		4,324		3.03
Balkrishna Industries	M	Consumer Discretionary		4,218		2.95
Skipper	S	Materials		4,099		2.87
Capital First	S	Financials		4,026		2.82
Tech Mahindra	L	IT		3,807		2.66
PI Industries	M	Materials		3,802		2.66
The Ramco Cements	M	Materials		3,712		2.60
Yes Bank	L	Financials		3,662		2.56
Indusind Bank	L	Financials		3,640		2.55
Indian Bank	M	Financials		3,302		2.31
Sagar Cements	S	Materials		3,230		2.26
Total top 20 equity investments				93,237		65.23
Other Small Cap		(15 companies)		33,511		23.45
Other Mid Cap		( 4 companies)		12,413		8.68
Other Large Cap		( No other companies)		-		-
Total equity investments				139,161		97.36
Cash less other net current liabilities of ICG Q Limited				3,970		2.78
Total net assets of ICG Q Limited				143,131		100.14
Cash less other net current liabilities of the Company				(200)		(0.14)
Total net assets				142,931		100.00
Market capitalisation
L: Large Cap - companies with a market capitalisation above US$7bn						12.33
M: Mid Cap - companies with a market capitalisation between US$2bn and US$7bn						29.53
S: Small Cap - companies with a market capitalisation below US2$bn						55.50
						97.36

AUDITED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2017

				2017	2016
		Revenue £000	Capital £000	Total £000	Total £000
Income
Net gains on financial asset at fair value through profit or loss		-	43,257	43,257	17,385
Expenses
Operating expenses		(378)	-	(378)	(298)
LSE Main Board listing expense		(424)	-	(424)	(38)
Foreign exchange loss		-	-	-	(2)
Investment management fees		(2)	-	(2)	76
Total expenses		(804)	-	(804)	(262)
Profit for the year before taxation		(804)	43,257	42,453	17,123
Taxation		-	-	-	-
Profit for the year after taxation		(804)	43,257	42,453	17,123
Earnings per Ordinary Share (pence)				37.73	19.04
Fully diluted earnings per Ordinary Share (pence)				37.73	19.04

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.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2017

			2017		2016
			£000		£000
Non-current assets
Financial asset designated at fair value through profit or loss			143,131		100,374
Current assets
Cash and cash equivalents			76		144
Receivables			189		139
			265		283
Current liabilities
Payables			(465)		(179)
Net current assets/(liabilities)			(200)		104
Net assets			142,931		100,478
Equity
Ordinary share capital			1,125		1,125
Reserves			141,806		99,353
Total equity			142,931		100,478
Number of Ordinary Shares in issue			112,502,173		112,502,173
Net Asset Value per Ordinary Share (pence) - Undiluted			127.05		89.31
Net Asset Value per Ordinary Share (pence) - Diluted			127.05		89.31

AUDITED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2017

		Share Capital £000	Capital Reserve £000	Revenue Reserve £000	Other Distributable Reserve £000	Total   £000
Balance as at 1 January 2017		1,125	13,145	(9,142)	95,350	100,478
Gain on investments		-	43,257	-	-	43,257
Revenue loss for the year after taxation		-	-	(804)	-	(804)
Balance as at 31 December 2017		1,125	56,402	(9,946)	95,350	142,931

For the year ended 31 December 2016

		Share Capital £000	Capital Reserve £000	Revenue Reserve £000	Other Distributable Reserve £000		Total   £000
Balance as at 1 January 2016		750	(4,240)	(8,880)		72,850	60,480
Issue of shares		375	-	-		22,500	22,875
Gain on investments		-	17,385	-		-	17,385
Revenue loss for the year after taxation		-	-	(262)		-	(262)
Balance as at 31 December 2016		1,125	13,145	(9,142)		95,350	100,478

AUDITED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2017

	2017		2016
	£000		£000
Cash flows from operating activities
Operating profit	42,453		17,123
Adjustment for:
Net gain on financial asset at fair value through profit or loss	(43,257)		(17,385)
Foreign exchange losses	-		2
Increase in receivables	(50)		(118)
Increase in payables	286		33
Net cash flows from operating activities	(568)		(345)
Cash flows from financing activities
Proceeds from issue of shares	-		22,875
Cash flows from investing activities
Partial redemption of investment in ICG Q Limited	500		120
Investment in ICG Q Limited	-		(22,600)
Net cash flows from investing activities	500		(22,480)
Net increase in cash and cash equivalents during the year	(68)		50
Cash and cash equivalents at the start of the year	144		96
Foreign exchange losses	-		(2)
Cash and cash equivalents at the end of the year	76		144

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 2017 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 November 2014 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 comprehensive income between items of a revenue and capital nature has been presented alongside the statement of comprehensive income.

Going concern

The Board has 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.

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 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. ICG Q Limited's investments are designated at fair value through profit and loss.

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 bank current account balances. 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 consists of Ordinary Shares which have 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 authorisation of these financial statements, The Group has not applied the following new and revised IFRSs that have been issued but are not yet effective and in some cases had not yet been adopted by the EU:

IFRS 9	Financial Instruments*
IFRS 15	Revenue from Contracts with Customers (and the related Clarifications)
IFRS 16	Leases
IFRS 17	Insurance Contracts
IFRS 2 (amendments)	Classification and Measurement of Share-based Payment Transactions
IFRS 4 (amendments)	Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
IAS 40 (amendments)	Transfers of Investment Property
IFRS 10 and IAS 28 (amendments)	Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
Annual Improvements to IFRSs 2014-2016 Cycle	Amendments to IFRS 1 First-time Adoption of International Financial     Reporting Standards and IFRS 28 Investments in Associates and Joint Ventures

The directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods.

* IFRS 9: Financial Instruments

The Company will apply IFRS 9 from 1 January 2018. The Company has performed a preliminary assessment of potential impact of adopting IFRS 9 based on the financial instruments currently held. The Company does not expect a significant impact upon adoption of IFRS 9 due to the nature and classification of the financial instruments held. 

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. 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 which are all listed on stock exchanges in India and therefore are mostly regarded as highly liquid.

EARNINGS PER SHARE

Earnings per Ordinary Share and the fully diluted earnings per Ordinary Share are calculated on the profit for the year of £42,453,000 (2016 - £17,123,000) divided by the weighted average number of Ordinary Shares of 112,502,173 (2016 - 89,950,429).

This announcement was approved by the Board on 22 March 2018. 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 2017 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 by 29 March 2018 and a copy will be posted on the Company's website www.indiacapitalgrowth.com 

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

 

 

FR SEUFDSFASELD