LEI: 213800TPOS9AM7INH846
INDIA CAPITAL GROWTH FUND
LIMITED
Annual Results for the year ended 31
December 2023
28 March 2024, 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 2023.
Highlights
|
2023
|
2022
|
% change
|
Per Ordinary Share
|
|
|
|
Net Asset Value (NAV)
|
180.11p
|
140.06p
|
28.6%
|
Share price
|
173.00p
|
129.00p
|
34.1%
|
Share price discount to NAV
|
3.9%
|
7.9%
|
|
FX impact
|
|
|
|
Indian Rupee / Sterling
|
106.11
|
99.74
|
-6.4%
|
·
The Company NAV rose 28.6% whilst the share price improved
34.1% during the year.
·
The share price discount to NAV narrowed over the year to
just over 3.9% at the year end. The Board intends to continue to
repurchase shares when the discount is inappropriately wide, in
normal market conditions.
·
The second Redemption Point at 31 December 2023 for eligible
shareholders on the register at 30 September 2023 resulted in 15.7%
of the shares in issue at the time being redeemed at 172.807p per
share.
·
Since the year end, to satisfy demand in the market, the
Company has issued over 5.8m shares from Treasury at a premium to
NAV raising over £10.5m in new capital, and bought back 150,000
shares at a significant discount to NAV. As at 29 February 2024 the
Company's net asset value remains strong at £159.7m.
·
The economic growth in India which is powering improving
profitability of its corporates is expected to continue in 2024.
However volatility in the India Stock Market is expected in the
lead up to the General Election in April/May 2024. The impact of
geopolitical uncertainty and oil price increases also remain risks
for the Indian economy.
·
On 2 October 2023 AssetCo PLC and its River Global business
completed the acquisition of the Company's investment manager,
Ocean Dial Asset Management Limited, having received regulatory
approval from the FCA. The successful investment team in India, led
by Gaurav Narain, continues with the full support of the River
Global team in the UK.
Elisabeth
Scott, Chair of India Capital Growth Fund, said:
"While
overall performance was extremely positive, your Company did
underperform its reference benchmark index, the S&P BSE Midcap
Total Return Index. The Investment Adviser, Gaurav Narain,
explains this relative performance in more detail in his Investment
Manager's Report. My key takeaways from his report are that
the emphasis on quality companies remains in place, and as a result
he has avoided companies which are majority owned by the Indian
Government. These companies outperformed in the latter part
of the year.
The economic
growth that has powered the improving profitability of India's
corporate sector is expected to continue in 2024. The
building blocks of business friendly domestic policies and
international investment are firmly in place and will continue to
provide the foundations for growth."
ENQUIRIES
AssetCo & Ocean Dial Asset Management, Investment
Manager
Gary Marshall, Robin Sellers & Lucy Draper
|
+44 7702 799 117
+44 20
7068 9870
|
Shore Capital, Financial Adviser and
Broker
Rose Ramsden (Corporate Advisory)
Henry Willcocks, Fiona Conroy (Corporate Broking)
|
+44 20 7408 4090
|
Apex Fund and Corporate Services (Guernsey), Company
Secretary
Matt Lihou
|
+44 20 3530
3687 indiacapitalbox@apexgroup.com
|
About India
Capital Growth Fund
India Capital Growth Fund Limited 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 and private Indian companies where
the Fund Manager believes long-term capital appreciation will be
achieved. www.indiacapitalgrowth.com
CHAIR'S
STATEMENT
I am delighted to report that 2023 was a
strong year for your Company. The Company's share price rose by
34.1% (2022: 7.7%), while the underlying Net Asset Value (NAV)
increased by 28.6% (2022: 3.9%). There was a resurgence of investor
interest in India during the year. Expectations for economic growth
improved throughout the year, and it is almost certain that India
will report stronger growth than any other major economy in 2023
and quite probably in 2024 as well. Infrastructure investment
continues apace, and the diversification of global supply chains
ensures a flow of Foreign Direct Investment into the
country.
Performance
While overall performance was extremely
positive, your Company did underperform its reference benchmark
index, the S&P BSE Midcap Total Return Index. The Investment
Adviser, Gaurav Narain, explains this relative performance in more
detail in the Investment Manager's Report. My key takeaways from
this report are that the emphasis on quality companies remains in
place, and as a result he has avoided companies which are majority
owned by the Indian Government. These companies outperformed in the
latter part of the year.
Discount and
Redemption Facility
As shareholders will no doubt be aware, the
Company's second redemption facility took place on 31 December 2023
and was open to shareholders on the register at 30 September 2023.
In the lead-up to the facility, the Board took the unusual step of
announcing a discretionary share repurchase programme, managed by
Shore Capital, our broker, in order that the discount should not
widen out further than the Board felt was acceptable. Under that
programme almost 135,000 shares were repurchased. Disappointingly,
perhaps, one large investor chose to redeem its entire holding in
the Company's shares in the redemption facility. In total
15,159,876 shares were redeemed representing 15.7% of the Company's
market cap.
On a more positive note, the shareholder
register after the redemption is made up almost entirely of retail
shareholders, holding their shares via large platforms such as
Hargreaves Lansdown, Interactive Investor and AJ Bell (other
platforms are available), along with some wealth managers and
IFAs. This has allowed your Company's shares to trade more
closely to their Net Asset Value. The Board is conscious that
this is a very positive development and we will continue to monitor
the share price against the NAV to ensure that the range of
discount and premium is relatively contained. Since the year end,
to satisfy demand in the market, the Company has issued over 5.8m
shares from Treasury at a premium to NAV raising over £10.5m in new
capital, and bought back 150,000 shares at a significant discount
to NAV. As at 29 February 2024 the Company's net asset value
remains strong at £159.7m.
During the year, the Company's shares sold at
an average month end discount of 7.5%, with a range of 13.5% to
3.9% discount.
Investment
Team
I am pleased to report that the process of
integrating Ocean Dial's business in to that of River Global,
AssetCo's Fund Management division, is primarily complete. Gaurav
Narain, our Investment Advisor, and his team in Mumbai have moved
into new premises and are continuing their work of finding the
hidden gems in India's mid and small cap public markets. The
London based staff of Ocean Dial have moved into River Global's
office in London, from whence dealing in Indian equities takes
place.
Gaurav has taken the opportunity to spend some
time with the River Global investment team. It is clear that
there are benefits to both sides in terms of investment process,
access to technology and, in particular, developing and building
the approach and process for ESG.
Investor
Relations
As I have said in previous reports to
shareholders, the Board of your Company is very keen to ensure that
existing and prospective shareholders have access to the
information that they need about the Company. Throughout
2023, Gaurav and the investor relations team from Ocean Dial/River
Global have visited a wide range of professional and retail
investors across the UK. On a quarterly basis, the Company
has participated in webinars, accessible to all shareholders,
either hosted internally or via external providers. The most
high profile of these was the Citywire Big Broadcast, titled "Why
India is stacked with growth", which garnered considerable
interest. I encourage shareholders who have not yet taken
advantage of these webinars to sign up for updates on the India
Capital Growth website www.indiacapitalgrowth.com.
Throughout 2023 the press continued to show
considerable interest in India and the opportunities for investment
in its rapidly developing economy. The team at Ocean
Dial/River Global have worked with our PR agency to make sure that
we maximise opportunities to promote your Company in the press and
the Board is pleased with the results of this work to
date.
Environment,
Social and Governance (ESG)
As I have already mentioned, along with
colleagues at River Global, the investment team has continued to
refine its ESG methodology. This forms an integral part of the
Investment Manager's investment process, which, as shareholders
will be aware, is focussed on the long-term, with low turnover, and
with sound corporate governance and extensive engagement with
company management at the heart of investment decisions. We
hope that the section of this annual financial report covering the
Investment Manager's approach to ESG gives shareholders a good
insight into how the Company's portfolio benefits from this
emphasis, despite the fact that the systematic approach to ESG,
which is evident in in the UK and Europe, is not yet in place in
India.
Corporate
Governance
The Company is a member of the Association of
Investment Companies (AIC) and seeks to follow best practice
regarding appropriate disclosures and governance. The
governance principles that the Board has adopted are designed to
ensure that the Company delivers long-term value to its
shareholders and that it treats all shareholders equally. All
shareholders are encouraged to have an open dialogue with the Board
throughout the year, and the Board can be contacted via the
Company's website or the Company Secretary.
There have been no changes to the composition
of the Board during the year.
Outlook
After a strong year in 2023, a note of caution
about the returns that shareholders can expect in 2024 is
warranted. The economic growth that has powered the improving
profitability of India's corporate sector is expected to continue
in 2024. The building blocks of business friendly domestic
policies and international investment are firmly in place and will
continue to provide the foundations for growth. The question
that we all must grapple with is whether this positive environment
justifies the valuations on which companies in India now
trade.
It is quite likely that we will see some
volatility in the Indian stock market around the Indian General
Election, which is due to take place between April and June.
Nor is India exempt from the impacts of the geopolitical
uncertainty that is so widespread across the globe. The
Indian economy is vulnerable to oil price increases.
Nonetheless, as shareholders in the Company, we can take comfort
from the healthy earnings growth of the companies held in the
portfolio and the vigilance with which the investment team monitors
these holdings.
Thank you for your support for the Company.
The Board is confident that the Investment Manager's strategy for
the portfolio will continue to stand us in good stead in the coming
year.
INVESTMENT
MANAGER'S REPORT
2023 was a good year for the Indian economy
and equity market. In our 2022 investment report, we had
highlighted that the economy had demonstrated resilience in a
volatile geopolitical environment. 2023 can best be described as a
period of stability and continuity as the positive impact of
government policy initiatives began to take effect in true earnest.
In 2023 the Company's net asset value rose 28.6% (3.9% in 2022),
whilst the notional benchmark (the S&P BSE Midcap Total Return
Index) rose 38.4%, (3.2% in 2022).
Economy
2023 was a year where India overtook China to
become the most populous country, its economy overtook the UK to
become the fifth largest in terms of GDP, and the equity market
became the fourth largest globally by market capitalization. It was
also the eighth consecutive year of positive returns by the equity
market (Nifty 50 Index). The year ended on a positive note with
optimism that the economy was primed for a period of sustainable
high growth. Three things stood out:
Growth
momentum surprised positively: The highlight of
the year was the continuous upgrades in company earnings' estimates
and GDP growth numbers. India's GDP is estimated to expand by
7.0-7.2% for the financial year ended March 2024, far higher than
the 6.0-6.3% estimates forecast at the beginning of the year. This
is being driven by a strong investment cycle, initially led by
Government spending but now also visible with private sector capex
spends, credit growth trending at over 15%, buoyancy in tax
collections, expansion in Purchasing Managers Index (PMI) data and
record sales in the residential real estate sector. The only weak
link has been consumption, with rural consumers yet to fully
recover from the effects of high inflation.
Macro-Economic
parameters remained stable: The interest rate cycle peaked
in February 2023 with inflation brought under control. Forex
reserves remained steady at ~ US$600bn through the year ensuring a
stable currency with low volatility. Also, tax collections trended
above government estimates, ensuring government met fiscal deficit
targets despite aggressive capex spending. It was a period of
stability and continuity in policy with few surprises. The focus of
the government thus remained on its development agenda.
Political
stability: With national elections scheduled in mid-2024,
the run up to these is fraught with uncertainty and appeasement
politics. However, the popularity of the Modi led BJP government is
at a high. This was reinforced by the BJP's recent electoral wins
in some key state elections held in December 2023. With the
opposition parties in disarray and lacking a strong leader,
expectation of the BJP government remaining in power with a strong
majority has only increased. This has given confidence that there
will be policy continuity and the development agenda will
sustain.
Market
We had expected 2023 to be a year of modest returns
given the strong performance in 2021 and 2022 post covid. We were
thus surprised by the strong performance. While the BSE Sensex (top
30 companies) was up 19%, the BSE Mid-Cap Index was up 46% (both in
local currency), making it among the best performing Indices
globally. What was interesting was that every sector
showed positive returns reflecting the broad-based nature of the
performance.
Strong earnings growth with positive management
commentary on the future was one reason, but positive fund flows
was also a major factor driving the market. Unlike 2022, the year
saw positive inflows by both Domestic Institutional Investors
(DIIs) as well as Foreign Institutional Investors (FIIs). In the
case of DIIs, flows continue to be driven by Systematic Investment
Plans (SIP) from retail investors largely from tier 2, 3 and 4
towns in India. There are now over 73 million such SIP investors
investing about US$2bn per month into domestic mutual funds. This
number continues to increase month on month. DIIs have now recorded
net inflows of ~US$70bn over the last three years.
The FIIs flows however continue to be volatile.
While the months of January and February 2023 saw outflows of
US$4bn, this was more than offset in the subsequent months with net
inflows of US$21.4bn for the year. Over the last three years the
net inflow from FIIs has been only US$8bn, reflecting the volatile
nature of FIIs flows. A positive trend that we have observed is
that FIIs flows Into India in 2023 were predominantly through India
dedicated funds. This reflects the increased importance being given
to India by global investors as a standalone market as opposed to
investing through broader based emerging market funds. The share of
FIIs ownership of the Indian market has fallen to a low of ~ 18% in
2023 from about 20% in 2021. It has led to lower volatility in the
market as the domestic funds are steady buyers.
Strong flows have however led to elevated
valuations, particularly in the mid and small cap segment of the
market which are trading above historical levels, both on an
absolute and relative basis.
ESG
Considerations
We believe the integration of ESG factors in our
investment decision making helps to improve the Company's long-term
risk adjusted returns. Consequently, ESG measurement and risk
impact scoring have become an integral part of our investment
process facilitated by the ongoing development of our bespoke
internal ESG scoring model which compares and rates each company
within our portfolio. The best and worst scores are provided in the
ESG report which highlights our focus on the direction of travel,
rather than the absolute numbers in isolation, in reporting upon
and reducing the climate impact factors of companies in the
portfolio. In order to truly understand the direction of travel and
the actions being taken by portfolio investment companies in
respect of ESG and the sustainability of their business,
constructive engagement with management is at the core of our
investment process. Our investment advisers in India meet and
interact regularly with both investee companies and potential
portfolio holdings. They meet onsite where possible and will take
the opportunity of visiting manufacturing facilities as well as
corporate headquarters in order to build a clearer picture. In
addition, they also endeavour to meet employees outside of the
senior management team, as this also helps to strengthen the
overall understanding of the business and better establish if the
ESG and sustainability ethos projected by senior management filters
down through the business.
Outlook for
2024
Entering 2024 there is broad consensus that India's
growth story is structural and GDP growth should average ~6-7% p.a.
for the next few years. The foundation has already been set; a
favourable regulatory environment, improved infrastructure, healthy
corporate balance sheets and policies geared towards investment led
development. What has come as a bonus is geopolitics. The rush to
de-risk supply chains is accelerating investment by global firms
into India, many of whom are viewing India as an alternate to China
especially since demographics are extremely favourable. We thus
believe the momentum in the economy will remain strong.
We, however, see several trends which are different
from what we have seen in the past:
1.
India's growth until now has largely been consumption led, but this
phase is driven by investments. Even within investments, a
different set of sectors like Renewable Energy, Green Hydrogen,
Electronic manufacturing etc. are leading investments. Also, `Make
in India' is a big focus. Policies are geared towards encouraging
local manufacturing and the impact is visible in sectors like
Defence, Railways and Electronic manufacturing, which until now
have been import dependent. What is more exciting is the pace of
execution. Earlier, execution seldom matched targets, but this has
changed as bottlenecks and legal hurdles have been addressed
through policy changes.
2.
Consumption patterns are surprising. Premium products are doing
well while mass market products are struggling. This trend is
across categories ranging from automobiles, housing to consumer
electronics. Though it is being attributed to inflation, the
weakness has been prolonged. We do believe the trickle-down effect
will lead to consumption being broad based, but this is also
creating new opportunities.
3.
India's low-cost digital infrastructure is also impacting business
models and behavior patterns. Our own industry is a case in point,
with domestic mutual funds now being the driver of the equity
market as opposed to FIIs. The ease of online transactions is
leading to individuals from smaller towns channeling savings which
were traditionally deployed in bank fixed deposit, real estate, or
gold into equity markets through mutual funds. The rising domestic
flows into funds is influencing market behaviour, with funds
struggling to deploy the flows. Digitisation remains a big
disruptor and a great opportunity.
So, as we enter 2024, we are confident on the growth
of the economy, but at the same time conscious that generating
returns will require fresh thinking. A high base both on earnings
and valuations remain our biggest concern, significant growth is
already factored in numbers leaving little room for negative
surprises.
Portfolio
Attribution
Over the year, the net asset value of the portfolio
rose by 28.6% (30.8% before the effect of Indian Capital Gains Tax)
compared to the benchmark S&P BSE Midcap TR index returning
38.4% (both in sterling terms). While the absolute return was
strong, the portfolio underperformed its notional benchmark, most
of which happened toward the last quarter of the year as the
benchmark saw a sharp rally led by public sector companies in which
we do not invest.
Reflecting on
the performance during 2023
2023 was a year when every sector contributed
positively to the performance of the portfolio. This reflects the
broad-based nature of the economic recovery. For ICGF, the main
contributors to positive performance were healthcare (underweight),
IT (overweight), Consumer Staples (overweight), materials
(overweight) and Industrials (Underweight).
Even at the stock level, the performance was driven
by companies across different sectors. Neuland Labs (up 217%), a
pharmaceuticals company, Ramkrishna Forgings (up 176%), an auto
ancillary and IDFC First Bank (up 51%) were the top contributors.
Each company delivered robust earnings growth, which also drove a
rerating. Elsewhere, Jyothy Labs (up 134%) was amongst the best
performing consumer staples companies as it continued to deliver
double digit revenue growth in a weak consumer environment.
Persistent Systems (up 91%), an information technology company,
also outperformed the sector both on revenue growth and margin
improvement. In industrials, Skipper (up 81%) saw a rise in order
book as the capex cycle in power sector picked up pace and it also
won new business in developed economies. Finolex Cables (up 95%)
benefitted from the housing led demand for wires. Even in textiles,
Welspun India rose (up 87%) as it gained market share in the US
markets and also saw margins normalise with raw material prices
easing. Dixon Technologies (Consumer Discretionary) rose (up 68%)
and Sona BLW (Auto Ancillary) rose (up 54%), once again led by
strong performance and continued order wins.
Adverse stock performance was led by the consumer
discretionary companies, all of which were impacted due to a
slowdown in consumer demand because of high inflation. This was led
by Bajaj Electricals (down 9%) and Vedant Fashions (down 5%). In
Financials, City Union Bank declined (down 17%) due to weaker
credit growth compared to peers.
At an index level, the biggest detractor was our
absence in public sector companies (where the government is the
majority owner), specifically in financials and utilities. This
includes Power Finance Corporation (up 239%) and Rural
Electrification Corporation (up 254%,) both lenders to state
utilities. Also, Trent (Retail) which rose 126% detracted from our
performance.
The portfolio closed the year with 34 stocks. Aarti
Industries, Aarti Pharmalabs, Coforge and Jubilant Foodworks were
sold during the year. Two portfolio additions were made during the
year; RBL Bank (mid-size Bank) and VIP Industries (largest luggage
manufacturer). Portfolio turnover remained low at 14%. We have been
actively and consciously managing the individual stock weights and
have used the volatility to book gains or add weight to
several stocks within the portfolio.
Current
positioning and expectations thereof
As we enter 2024, our largest sector
exposure is in financials which has a long runway on growth, low
risk on credit quality for the next two years (at the very least),
and yet valuations are reasonable with most stock trading below
historical averages. Credit growth is trending in double digits and
banks are well capitalised. We see banks as the best play to the
overall growth of the economy and capex cycle.
Our second largest exposure is in consumer companies
which are our earnings compounders. We have a wide range of
consumer businesses from staples, building materials, garments and
even electronic manufacturing services. The consumer portfolio has
seen a decisive tilt towards more discretionary plays over staples.
We are playing the pick-up in domestic growth and real estate
revival through exposure in industrial (13%) and cement (6%)
stocks. At the same time, we are also well positioned to capitalise
on the gains India is likely to make as companies rebalance supply
chains out of China. There are several companies across sectors
which are already seeing a positive impact including Dixon and
Kajaria (consumer), Welspun (textiles) and Skipper
(industrial).
With respect to the benchmark, our overweight
positions are in materials, consumer staples, financials and IT
services. Our metals exposure is not through global commodities but
through cement and speciality chemicals companies. We are
underweight in healthcare, utilities and real estate.
We are entering FY25 with healthy aggregate earnings
growth for our portfolio. This growth is mainly driven by growth in
revenue, as opposed to margin improvement which was the case in
FY24. This does include above average numbers mainly from consumer
discretionary due to the expectation of revival in consumer demand
and low base effect. Though valuations are above historical
averages, the portfolio has higher growth and lower valuation than
the broader market. We believe this growth is sustainable for a few
years which gives us confidence going forward.
CORPORATE
GOVERNANCE REPORT
The Company is a member of the AIC and has
elected to follow the AIC Code, as revised in February 2019. The
AIC Code has been endorsed by the FRC as an alternative means for
their members to meet their obligations in relation to the UK
Corporate Governance Code, as published in July 2018. The AIC Code
addresses all the principles and recommendations on issues that are
of specific relevance to investment companies.
The UK Corporate Governance Code includes
provisions relating to: (i) the role of the chief executive; (ii)
executive directors' remuneration; (iii) a nomination committee;
and (iv) an internal audit function. For the reasons set out in the
AIC Corporate Governance Guide, the Board of Directors considers
these provisions are not relevant to the position of the Company,
due to the size of the Board and as an externally managed
investment company with no employees.
The Finance Sector Code of Corporate
Governance issued by the Guernsey Financial Services Commission
(the "GFSC Code") applies to the Company, Companies which report
against the UK Corporate Governance Code (the "UK Code") or the AIC
Code are deemed to meet the requirements of the GFSC
Code.
As stated above, the Board considers that it
has complied with the AIC Code, GFSC Code and UK Code during the
year ended 31 December 2023.
Composition
and independence of the Board
The Board currently consists of four
Non-Executive Directors, all of whom are independent. The Chair of
the Board is Elisabeth Scott.
Board
meetings
The Board generally meets on at least four
occasions each year, at which time the Directors review the
management of the Company's assets and all other significant
matters so as to ensure that the Directors maintain overall control
and supervision of the Company's affairs. The Board is responsible
for the appointment and monitoring of all service providers to the
Company. The Board believes all the Directors have sufficient time
to meet their Board responsibilities.
Performance
evaluation
On an annual basis the Board formally
considers the independence of its members, its effectiveness as a
Board, the balance of skills represented and the composition and
performance of its committees. The size of the Board and
independence of its members are such that the Board does not
consider the need for external evaluations. The performance and
contribution of the Chair is reviewed by the other Directors under
the leadership of the Chair of the Audit & Risk
Committee.
Nomination
Committee
The size of the Board and independence of its
members are such that the Board does not consider there is need for
a separate Nomination Committee. Any proposal for a new director is
discussed and approved by the Board, having considered the current
skills, experience and diversity of the Board.
Each Director stands for annual re-election at
the Company's Annual General Meeting.
Remuneration
Committee
The size of the Board and independence of its
members are such that the Board does not consider the need for a
separate Remuneration Committee. Remuneration is reviewed annually
and discussed by the Board as a whole with reference to the Trust
Associates Investment Company Non-Executive Directors' Fee
Review.
Audit &
Risk Committee
All members of the Board are also members of
the Audit & Risk Committee. The Chair of the Audit & Risk
Committee is Patrick Firth. The Chair of the Board is also a member
of the Audit & Risk Committee given her extensive experience
and knowledge, in particular given her appointment to the Board of
the Company for more than 5 years. The Audit & Risk Committee
conducts formal meetings throughout the year for the purpose,
amongst others, of considering the appointment, independence,
effectiveness of the audit and remuneration of the auditors and to
review and recommend the annual statutory accounts and interim
report to the Board for approval. Full details of its functions and
activities are set out in the Report of the Audit & Risk
Committee.
DIRECTORS
The Directors as at 31 December 2023, all of
whom are non-executive, are as follows:
Elisabeth
Scott (Chair)
Elisabeth was appointed to the
Board as Chair on 18 December 2017. She has over 30 years'
experience in the asset management industry. In 1992, she moved to
Hong Kong, where she remained until 2008, most recently in the role
of Managing Director and Country Head of Schroder Investment
Management (Hong Kong) Limited and Chairman of the Hong Kong
Investment Funds Association. She is Chair of JP Morgan Global
Emerging Markets Income Trust plc, Non-Executive Director of
Allianz Technology Trust PLC, and retired as the Chairman of the
Association of Investment Companies (AIC) in January 2024. She is
resident in the UK.
Patrick
Firth
Patrick was appointed to the Board
in September 2020. He qualified as a Chartered Accountant with KPMG
Guernsey in 1991 and is also a member of the Chartered Institute
for Securities and Investment. He worked in the fund industry in
Guernsey since joining Rothschild Asset Management C.I. Limited in
1992 before moving to become managing director at Butterfield Fund
Services (Guernsey) Limited (subsequently Butterfield Fulcrum Group
(Guernsey) Limited), a company providing third party fund
administration services, where he worked from April 2002 until June
2009. Patrick is a former Chairman of the Guernsey International
Business Association and of the Guernsey Investment Fund
Association. He is a Non-Executive Director of Riverstone Energy
Limited, NextEnergy Solar Fund Limited and CT UK Capital and Income
Investment Trust plc. He is resident in the UK.
Lynne
Duquemin
Lynne was appointed to the board
in May 2021. She has over 30 years' experience in financial
markets, initially in London in the late 1980's before being
seconded by Credit Suisse to Guernsey, Channel Islands in 1995,
where she is still based. Most recently she worked for twelve years
as an Investment Consultant for an Independent Investment
Consultancy Company. She is a Fellow of the Chartered Institute for
Securities and Investment and a Chartered Wealth Manager. She is
also an ASIP qualified member of the CFA Society of the UK, member
of the CFA Institute, as well as a Chartered Director and Fellow of
the Institute of Directors. Lynne is currently a non-executive
director and Chief Investment Officer for a Single Family Office
and has prior experience as a director of a listed Frontier
Equities Investment Company.
Nick
Timberlake
Nick was appointed to the Board in July 2022.
He has over 30 years' experience in the asset management industry
as a Portfolio Manager, he was with HSBC Global Asset Management
between 2005 and 2020, initially as Global Head of Emerging Markets
Equities and then Head of Equities. Previously he was a Director of
F&C Investment Management and has spent the last 20 years
investing in global emerging markets equities. He is a
non-executive director of abrdn Equity Income Trust, CT Automotive
plc and a partner in Panorama Property Investments LLP. Nick is a
member of the CFA Institute and CFA Society of the UK.
DISCLOSURE OF
DIRECTORSHIPS IN PUBLIC COMPANIES AND OTHER RELEVANT
ENTITIES
The following summarises the Directors'
directorships in public companies and other relevant
entities:
|
Company
Name
|
Stock
Exchange
|
|
|
|
Elisabeth
Scott
|
Allianz Technology Trust PLC
|
London
|
|
Association of Investment Companies
|
N/A
|
|
JP Morgan Global Emerging Markets Income Trust
plc
|
London
|
|
|
|
Patrick
Firth
|
NextEnergy Solar Fund Limited
Riverstone Energy Limited
|
London
London
|
|
CT UK Capital and Income Investment Trust
plc
|
London
|
|
|
|
Lynne
Duquemin
|
-
|
-
|
|
|
|
Nick
Timberlake
|
abrdn Equity Income Trust plc
CT Automotive plc
|
London
London
|
|
|
|
DIRECTORS'
REPORT
The Directors present their annual report and
the audited financial statements of the Company for the year ended
31 December 2023 which have been properly prepared in accordance
with The Companies (Guernsey) Law, 2008, as amended.
The
Company
India Capital Growth Fund Limited (the
"Company") was registered in Guernsey on 11 November 2005 and is a
closed-ended investment company with its shares admitted to trading
on the main market of the London Stock Exchange. The
Company's objective is to provide long-term capital appreciation by
investing in companies based in India. The Company's
registration number is 1030287. At 31 December 2023, the Company
has one wholly owned Mauritian subsidiary, ICGQ Limited ("ICGQ").
The Company has an unlimited life, although a redemption facility
has been put in place following the passing of a shareholders'
resolution at a General Meeting on 12 June 2020. The first date at
which shareholders were able to request the redemption of some or
all of their shares was 31 December 2021 when 15,408,872 net shares
were redeemed under the redemption facility. The second date was 31
December 2023 when 15,159,876 net shares were redeemed under the
redemption facility. Under this facility the next date at which
shareholders will be able to request the redemption of some or all
of the shares is scheduled to be 31 December 2025 for shareholders
on the register at 30 September 2025.
Group
structure
The Board of Directors continues to take steps
to close down and to liquidate its Mauritian subsidiary, ICGQ,
given it no longer serves a beneficial purpose for the Company's
shareholders. However, this process may take some considerable time
given the restrictions imposed by the Indian regulators on
transferring listed Indian equities from one entity to another
without incurring considerable costs and risk. The Board does not
believe this is in the interest of the shareholders. The Group's
custodian is actively engaging with the Indian regulator to help
facilitate this. In the meantime, the Investment Manager has moved
Indian Rupee ("INR") cash balances held by the Group's custodian
from ICGQ to the Company and has committed that all future
purchases for the investment portfolio will only be made by the
Company, unless it is in shareholders' interests to do
otherwise.
Investment
policy
The Company's investment objective is to
provide long-term capital appreciation by investing 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 current policy not to hedge the
exposure to the Indian Rupee.
The portfolio concentration ranges between 30
and 40 stocks; however, to the extent the Company grows, the number
of stocks held may increase over time. The Company is subject to
the following investment limitations:
·
No more than 10 per cent. of total assets of ICGQ and the
Company (measured at the time of investment) may be invested in the
securities of any one Issuer; and
·
No more than 10 per cent. of total assets of ICGQ and the
Company (measured at the time of investment) may be invested in
listed closed-ended funds.
The Board of Directors of the Company does not
intend to use derivatives for investment purposes. The Directors
confirm the investment policy of the Company has been complied with
throughout the year ended 31 December 2023.
Long-term
sustainable success
The long-term performance of the Company and
its reputation for transparency and good governance are paramount
to its long-term success for the benefit of all its
stakeholders.
In order to ensure good governance of the
Company, the Board has set various limits on the investments in the
portfolio, whether in the maximum size of individual holdings, the
total aggregate percentage of unlisted investments in the
portfolio, the use of derivatives, the level of gearing and others.
These limits and guidelines are regularly monitored.
The integration of ESG factors in investment
decision making will also help to improve the Company's long term
risk adjusted returns and thus its long term sustainable success.
ESG measurement and risk impact scoring have become an integral
part of the investment manager's investment process facilitated by
the ongoing development of their bespoke internal ESG scoring model
which compares and rates each company within the investment
portfolio. An illustration of this scoring model is provided in the
ESG report which highlights the focus on the long-term direction of
travel in reducing the climate impact factors of companies in the
portfolio.
The Company's mandate is to invest in India,
predominantly in listed mid cap and small cap companies where the
Investment Manager believes significant long-term investment
performance can be achieved. The Board considers this is best
achieved via the investment trust structure constructing a
portfolio of individually chosen shares in underlying companies
whose business is in India. Consequently, our Investment Manager,
advisers and analysts do considerable research in house to identify
suitable investments. The Board works with the Investment Manager
to ensure it has the necessary resources available and that those
resources are of the desired quality.
It is one of the Board's long-term objectives
that the share price should trade at a level close to the
underlying net asset value of the shares. Share price discounts and
premiums are determined by supply and demand. The Directors have
focused the marketing of the Company particularly on explaining,
through the press, the characteristics of investing in India,
largely to dispel sentiment-based negative misperceptions and to
inform the investing community of its long-term potential for
significant sustainable growth in India. As detailed more fully in
the Sustainability and ESG report the
Company and its Investment Manager believe that companies with
strong management focus on ESG have the potential to reduce risks
facing their business, thereby delivering sustainable performance
and enhanced returns over the longer term.
Results and
dividends
The Company's performance during the year is
discussed in the Investment Manager's report.
The results for the year are set out in the
audited statement of comprehensive income.
Consistent with the Company's investment
policy of providing long term capital appreciation, the Directors
do not recommend the payment of a dividend for the year ended 31
December 2023 (2022: £nil).
Substantial
interests
Shareholders who held an interest of 3% or
more of the Ordinary Share Capital of the Company at 29 February
2024, being the latest date such data is available, are stated in
the table below:
|
|
|
|
No. of Shares
|
|
% Holding
|
|
|
|
|
|
|
|
Hargreaves Lansdown
|
19,539,975
|
|
22.7
|
Interactive Investor
|
15,719,147
|
|
18.3
|
AJ Bell
|
6,034,440
|
|
7.0
|
West Yorkshire Pension Fund
|
4,677,028
|
|
5.4
|
JM Finn
|
3,645,724
|
|
4.2
|
Charles Stanley
|
3,121,456
|
|
3.6
|
In the opinion of the Directors, the Company
has no ultimate controlling party.
Directors'
interests
At 31 December 2023, Directors and their
immediate families held the following declarable interests in the
Company:
|
Ordinary shares
|
|
2023
2022
|
|
|
Elisabeth Scott
|
50,000
50,000
|
Patrick Firth
|
25,000
25,000
|
Lynne Duquemin
|
19,125
19,125
|
Nick Timberlake
|
50,000
20,000
|
Independent
Auditor
The Independent Auditor, Deloitte
LLP, has indicated their willingness to continue in
office. Accordingly, a resolution for their reappointment will be
proposed at the next Annual General Meeting.
Ongoing
charges
In accordance with the recommended methodology
set out by the Association of Investment Companies ("AIC"), the
ongoing charges ratio ("OCR") of the Company and its subsidiary for
the year ended 31 December 2023 was 1.57% based on an average AUM
of £148,384,000 (2022: 1.59% based on an average AUM of
£125,914,000).
Composition
and independence of the Board
The Board currently consists of four
Non-Executive Directors, all of whom are independent. The Chair of
the Board is Elisabeth Scott. In considering the independence of
the Chair, the Board has taken note of the provisions of the AIC
Code relating to independence and has determined that Elisabeth
Scott is an Independent Director. The Chair does not have, and has
not had, any relationships or circumstances that may create a
conflict of interest between her interests and those of
shareholders. As the Chair is an Independent Director, no
appointment of a Senior Independent Director has been made. The
Company has no employees and therefore there is no requirement for
a Chief Executive.
Board
meetings, Committee meetings and Directors'
attendance
During the year, the Directors in attendance
at meetings were as listed in the table below:
|
Board
Meetings
|
Audit & Risk Committee
Meetings
|
|
Regular
Board Meetings
|
Attended
|
Number
of meetings
|
Attended
|
Elisabeth Scott
|
4
|
4
|
3
|
3
|
Patrick Firth
|
4
|
4
|
3
|
3
|
Lynne Duquemin
|
4
|
4
|
3
|
3
|
Nick Timberlake
|
4
|
4
|
3
|
3
|
In addition, there were 5 ad-hoc board
meetings during the year.
Performance
evaluation
On an annual basis the Board formally
considers the independence of its members, its effectiveness as a
Board, the balance of skills represented and the composition and
performance of its committees. The size of the Board and
independence of its members are such that the Board does not
consider the need for external evaluations. The Board considers
that it has an appropriate balance of skills and experience in
relation to the activities of the Company and offers relevant
training where necessary. The Chair evaluates the performance of
each of the Directors on an annual basis, taking into account the
effectiveness of their contributions and their commitment to the
role. The performance and contribution of the Chair is reviewed by
the other Directors under the leadership of the Chair of the Audit
& Risk Committee. The conclusion of the 2023 review was that
the skill sets of the members of the Board were complementary, and
that the Board functioned effectively.
Even though the performance evaluation is
deemed effective, the Board may consider having an external
evaluation of the performance in the future.
Nomination
Committee, Remuneration Committee, and Audit & Risk
Committee
Details on the Nomination Committee,
Remuneration Committee, and Audit & Risk Committee can be found
in the Corporate Governance Report.
Sustainability and environmental, social
and governance ("ESG")
The Company's report on Sustainability and ESG
is provided separately.
Employees,
human rights and corporate social responsibility
The Company has no employees, all of its
Directors are non-executive and third party service providers carry
out its day-to-day activities. Therefore, there are no disclosures
to be made in respect of employees and the Company has not adopted
a policy on human rights as it has no employees and its operational
processes are delegated. As an investment company, the Company does
not provide goods and services in the normal course of business and
has no customers. Accordingly, the Board considers that the Company
is not within the scope of the Modern Slavery Act 2015. whilst the
Company is not obliged to comply with the Act, the Board is in
agreement with its aims and receives confirmation from those
third-party service providers which are in scope that they are in
compliance.
The Investment Manager's primary objective is
to produce superior financial returns for the Company's
shareholders. It believes that high standards of corporate social
responsibility ("CSR") make good business sense and have the
potential to protect and enhance investment returns. Consequently,
its investment process considers social, environmental and ethical
issues when, in the Manager's view, these have a material impact on
either investment risk or return.
Section 172
of the Companies Act 2006
Section 172 of the Companies Act 2006 applies
directly to UK domiciled companies. Nonetheless, the intention of
the AIC Code is that the matters set out in section 172 are
reported on by all companies, irrespective of domicile, provided
this does not conflict with local company law. Under section 172,
directors have a duty to promote the success of their company for
the benefit of its members as a whole, whilst having regard to
(amongst others) the likely consequences of their decisions in the
long-term and the interests of the company's wider stakeholders.
Information on how the Board have acted in accordance with the
requirements of section 172 Is included throughout the Directors'
report, and more specifically:
·
details on the Company's values and business model can be
found under the "Chair's Statement' and under the "Investment
Policy" respectively;
·
details of how the Company seeks to generate and preserve
value over the long-term can be found in the "Investment Manager's
Report";
·
information on the emerging and principal risks that could
disrupt the long-term success of the Company and how the Board
seeks to manage and mitigate them are considered under "Risk
Management and Internal Control" and "Principal Risks and
Uncertainties";
·
details of how the Board engages with all shareholders and
stakeholders and why they are important can be found under
"Shareholder communication";
·
in relation to the Company's portfolios, the Investment
Manager has day-to day responsibility for the Company's dealings
with suppliers, contractors, customers and others and information
of how they foster these relationships are included in the
"Investment Manager's Report";
·
information on sustainability and ESG adopted by the Company
can be found in the Report; and
·
details of how the Board works towards the long-term
sustainable success of the Company and ensures good governance can
be found under "Long-term sustainable success".
In making decisions, the objective of the
Board is always to ensure the long-term sustainable success of the
Company and, therefore, the likely long-term consequences of any
decision are a key consideration. In relation to the decisions
taken by the Board during the year under review, the Board acted in
good faith, and in a way that would most likely promote the
Company's long-term sustainable success and achieve its wider
objectives for the benefit of the shareholders as a whole, having
had regard to the wider stakeholders and the other matters set out
in section 172.
Board
leadership, effectiveness, diversity & succession
planning
The Board recognises that the Company will
take investment and other risks in order to achieve its objectives
but these risks are monitored and managed and the Company seeks to
avoid excessive risk-taking in pursuit of returns. A large
part of the Board's activities are centred upon what is necessarily
an open and respectful dialogue with the Investment
Manager. The Board believes that it has a very constructive
relationship with the Investment Manager whilst holding them to
account and questioning the choices and recommendations made by
them.
The Board supports the principle of diversity
and confirms that there will be no discrimination on the grounds of
gender, social and ethnic background, cognitive and personal
strengths. The Board's overriding intention is to ensure that it
has the best combination of people in order to achieve long-term
capital growth for the Company's shareholders from an actively
managed portfolio of investments. To this effect, the Board, as
part of its succession plan, will continue to appoint individuals
who, together as a Board, will aim to ensure the continued optimal
promotion of the Company. The Board has met its target on gender
diversity and will consider the target for ethnic diversity when
appointing new directors.
|
Number of Board
Members
|
Percentage of the
Board
|
Number of senior
positions on the board (SID, and Chair)
|
Men
|
2
|
50%
|
|
Women
|
2
|
50%
|
1 (Chair)
|
|
Number of Board
Members
|
Percentage of the
Board
|
Number of senior
positions on the board (SID and Chair)
|
White British or other white
|
4
|
100%
|
1 (Chair)
|
All directors are non-executive and the
Company does not have a Senior Independent Director.
Risk
management and internal control
The Board is responsible for establishing and
maintaining the Company's system of internal controls and for
maintaining and reviewing its effectiveness. The system of internal
controls is designed to manage rather than to eliminate the risk of
failure to achieve business objectives and as such can only provide
reasonable, but not absolute, assurance against material
misstatement or loss.
The Board also considers the process for
identifying, evaluating and managing any significant risks faced by
the Company. At each quarterly meeting of the Board a report on the
risk assessment and control environment and risk assessment is
presented by the Investment Manager and considered. Changes in the
risk environment are highlighted as are changes in the controls in
force to manage or mitigate those risks. The Board is satisfied
that appropriate controls are in place in relation to the key risks
faced by the business.
Following the acquisition of the Company's
Investment Manager by AssetCo/River Global, two of the directors
separately visited the offices of AssetCo/River Global to review
the systems in place, which were principally unchanged although
enhanced from those under previous ownership, meet with personnel
and establish that the controls were effective. A report was
subsequently circulated to the whole Board and discussed. The Board
concluded that the systems and controls were effective and risks
addressed with no significant weaknesses identified. The Board will
conduct future visits as required and particularly if there are
changes to systems. Also, the Board receives regular reports from
the Investment Manager for consideration. The other significant
third party provider where significant reliance is placed upon
effective controls is the Administrator. The Audit Committee Chair
reviewed the most recent type 2 ISAE3402 report on the
Administrator's control environment for the period ended 31
December 2023 and was satisfied that those controls which were
tested were deemed to be effective with no significant weaknesses
identified. The results of this review were shared with the Board
and it was agreed that this provided comfort that certain key risks
connected with those tasks for which the Administrator is
accountable are significantly mitigated. The Administrator also
provides a report at each quarterly Board meeting identifying any
breaches which have occurred during the period and any significant
changes.
Principal
risks and uncertainties
The Board confirms that they have carried out
a robust assessment of the principal risks facing the Company,
including those that would threaten its business model, future
performance, solvency or liquidity. The Board has drawn up a
Control Environment and Risk Assessment Matrix (the "Matrix"),
which identifies the key risks to the Company and considers the
impact and likelihood of each significant risk identified. The
Board reviews the Matrix at least quarterly to ensure, in
particular, that any emerging risks are identified, assessed and
documented at an early stage.
The Principal Risks fall into the following
broad categories:
·
Investment performance
risk: The Company's long-term growth is
dependent upon the performance of its investment portfolio.
Consequently, if the portfolio fails to perform in line with the
investment objectives and policy, has long-term negative ESG
impact, and if the companies in the portfolio perform poorly or
markets move adversely, especially over an extended period, it may
jeopardise the long-term future of the Company. The Board reviews
reports from the Investment Manager at each quarterly Board
meeting, paying particular attention to the constitution of the
portfolio, its liquidity and its attribution by sector and
weighting compared to the BSE Mid Cap Total Return Index and its
ESG ratings.
·
Environmental and Social
("E&S") impact risk: The potential loss or
harm directly or indirectly resulting from environmental and social
factors that impact the Company, its investors and its service
providers, and the consequential impact on the environment and
society. E&S impact risk is a transverse risk that
impacts our other risks: investment performance risk, currency and
emerging market risk, operational non-financial risk, legal and
regulatory risk and reputation risk. Our investment manager has
developed a qualitative scoring model which measures climate and
other environmental impacts and the reporting thereof by the
Company's investment portfolio companies. Further details are
included in the Company's report on Sustainability and ESG.
The Investment Manager has a team on the ground in India who keep
abreast of the latest political developments and economic forecasts
and regularly advise the Board thereof.
·
Operations and systems
risk: The Company is exposed to the risks
arising from any failure of systems and controls in the operations
of the Investment Manager, the Administrator, or the Company's
other service providers. Under normal circumstances members of the
Audit & Risk Committee visit the Investment Manager annually to
perform a due diligence review of its controls and the Board
receives reports annually from the Administrator on their internal
controls.
·
Accounting, legal and
regulatory risk: The Company is at risk if it
fails to comply with the laws and regulations applicable to a
company with a premium listing on the Main Market of the London
Stock Exchange and the Guernsey, Mauritian and Indian laws and
regulations or if it fails to maintain accurate accounting records.
The Investment Manager and Administrator provides the Board with
regular reports on changes in regulations and accounting
requirements.
·
Multi-jurisdictional
taxation risk: The Company is at risk of
additional taxation charges from several geographical jurisdictions
in which the Company, its service providers or companies in its
investment portfolio reside. The risk that appropriate tax
residency is not maintained may result from poor administration or
from changes in Government policy. The board receives quarterly
updates from the Investment Manager and the Administrator who is
responsible for tax residence administration. Note 10 to the
financial statements details key taxation risks and their impact
upon the Company.
·
Financial
risk: Significant market, foreign currency,
credit and liquidity risks faced by the Company are set out in note
10 to the financial statements. These risks and their mitigation
controls are reviewed at each quarterly Board meeting.
·
Redemption Facility and
associated risk: The third Redemption facility
where shareholders will be able to request the redemption of some
or all of the shares will be 31 December 2025. There is therefore a
possibility that redemptions requests may impair the future
viability of the Company. This creates material uncertainty which
may cast significant doubt on the Company's ability to continue as
a going concern. However, based upon the investment performance of
the Company to date, and that shares have been issued at a premium
to NAV to satisfy increased demand, the Board believes shareholder
redemptions at the next scheduled Redemption Facility on 31
December 2025 are likely to be at such a level not to impact the
going concern of the Company.
·
Emerging
risks: Risks that emerge unexpectedly, and in
some cases quite quickly, can have an economic impact upon the
Company. In particular significant geopolitical conflicts such as
the Russia/Ukraine conflict and Israel/Palestine conflict can
disrupt global supply chains and the Indian economy and listed
companies. The Board assesses and monitors these risks as and when
they develop so, if necessary, controls and procedures can be
implemented to mitigate against their economic impact upon the
Company. During the year, there were no changes to the emerging
risks identified, and no new procedures were
implemented.
·
Cybersecurity, data security
breach and related criminal activity risk: The
Company is exposed to the risk of criminal attacks on its data and
systems held and managed by its service providers. Cybersecurity
controls at all service providers are reviewed on a regular
basis.
The Company's risks are documented in a Risk
Register which is reviewed and updated by the Board at least
quarterly. The Principal Risks listed above have not materially
increased or decreased during the course of the
year.
Risk
appetite
The Board recognizes that prudent risk-taking
is essential to achieving the Company's strategic objectives and
maximizing shareholder value. They embrace a moderate risk
appetite, seeking opportunities for growth while prioritizing the
long-term appreciation of capital and the protection of Company
reputation. The Board is committed to maintaining robust risk
management practices to identify, assess and mitigate risks
effectively, ensuring alignment with given tolerance levels and
regulatory requirements. By striking a balance between investment
returns and risk mitigation, the Board aims to deliver sustainable
long-term value to the shareholders of the Company.
Supply of
information to the Board
Board meetings are the principal source of
regular information for the Board enabling it to determine policy
and to monitor performance and compliance. A representative of the
Investment Manager attends each Board meeting thus enabling the
Board to discuss fully and review the Company's operation and
performance. Each Director has direct access to the Company
Secretary, and may, at the expense of the Company, seek independent
professional advice on any matter that concerns them in the
furtherance of their duties.
Delegation of
functions
The Board has contractually delegated various
functions as listed below to external parties. Each of these
contracts have been entered into after full and proper
consideration by the Board, mindful of the quality and cost of
services offered, including the control systems in operation as far
as they relate to the affairs of the Company. The duties of
investment management, accounting and custody are
segregated.
·
Investment Management is provided by Ocean Dial Asset
Management Limited, a company authorised and regulated in the
United Kingdom by the Financial Conduct Authority (FCA) which is
owned by AssetCo PLC and its subsidiary River Global
LLP.
·
Administration and Company Secretarial duties for the Company
during the year were performed by Apex Fund and
Corporate Services (Guernsey) Limited, a company
licensed and regulated by the Guernsey Financial Services
Commission. Those for the subsidiary were performed by Apex Fund
Services (Mauritius) Limited, a company registered in Mauritius and
licensed by the Financial Services Commission in Mauritius. In
advance of Board meetings, the Administrator provides regular
reports, which include financial and other operational information,
details of any breaches or complaints and relevant legal,
regulatory, corporate governance and other technical updates. There
is also regular contact between the Directors and the Administrator
between Board and Committee meetings.
·
Custody of assets is undertaken by Kotak Mahindra Bank Ltd,
which is registered as a custodian with the Securities and Exchange
Board of India (SEBI).
The Board has established a Management
Engagement Committee to review the performance of all material
external service providers and the related contractual terms. The
Management Engagement Committee is constituted of the current four
Directors of the Company, with Elisabeth Scott acting as the Chair.
The last meeting of the Management Engagement Committee was held on
12 December 2023 and it meets at least annually. Performances of
all material external service providers are considered
satisfactory.
Investment
management
The investment management agreement will
continue unless and until terminated by either party giving to the
other not less than twelve months' notice in writing or six months'
notice by the Company if at any Redemption Point, redemption
requests exceed 50% of the issued share capital of the Company at
the date of the Redemption Point. The management agreement may also
be terminated forthwith as a result of a material breach of the
agreement or on the insolvency of the Investment Manager or the
Company and by the Investment Manager by notice within 30 days of
being notified by the Company of any material change to the
investment policy.
The Investment Manager is entitled to receive
a management fee payable jointly by the Company and the Mauritian
subsidiary, ICG Q Limited. The management fee is the lower of 1.25%
per annum of the Company's Total Assets or 1.25% per annum of the
average daily market capitalisation of the Company, calculated and
payable monthly in arrears. The Company's Total Assets consist of
the aggregate value of the assets of the Company less its current
liabilities before the deduction of management fees. For purposes
of the calculation of these fees current liabilities exclude any
proportion of principal amounts borrowed for investment. To date,
the Company has not borrowed for investment or any other
purpose.
The Board as a whole reviews the performance
of the Investment Manager at each quarterly Board Meeting and
considers whether the investment strategy utilised is likely to
achieve the Company's investment objective. Having considered the
portfolio performance and investment strategy, the Board has agreed
that the interests of the shareholders as a whole are best served
by the continuing appointment of the Investment Manager on the
terms agreed.
From time to time the extent of powers
delegated to the Investment Manager and matters upon which decision
making is reserved to the Board are reviewed and considered. In
particular, the approval of the Board (or a designated committee)
is required in relation to:
·
Borrowings (other than on a temporary basis);
·
Investment in unlisted securities (other than those arising
on a temporary basis from demergers from existing listed
holdings);
·
Exercise of the Company's share buy-back powers;
and
·
Policy on currency hedging.
The Investment Manager reports to the Board on
brokers used for executing trades and the commission paid to
brokers. The Investment Manager does not use commissions paid by
the Company to pay for services used by the Investment Manager
other than directly related research services provided by the
broker. There is a procedure in place whereby any prospective
conflict of interest is reported by the Investment Manager to the
Chair and a procedure to manage the prospective conflict agreed.
The Investment Manager's policy on conflicts is reviewed by the
Board annually.
The provisions of the UK Stewardship Code do
not apply to the Company as all investments are outside the United
Kingdom. The Board has delegated to the Investment Manager the
power to vote in relation to the Company's holdings in Indian
listed companies, whether held directly or via ICGQ, the Company's
wholly owned subsidiary.
Alternative
Investment Fund Managers Directive ("AIFMD")
The Board has appointed the Investment Manager
to act as its AIF Manager.
The Investment Manager, Ocean Dial Asset
Management Limited, is registered with the Financial Conduct
Authority in the UK as an Alternative Investment Manager ("AIFM")
and is authorised as a small Authorised UK AIFM. Consequently, AIFM
remuneration disclosures are not required.
Foreign
Account Tax Compliance Act ("FATCA")
For purposes of the US Foreign Account Tax
Compliance Act, the Company registered with the US Internal Revenue
Services ("IRS") as a Guernsey reporting Foreign Financial
Institution ("FFI"), received a Global Intermediary Identification
Number and can be found on the IRS FFI list. The responsible
officer is Robin Sellers.
The Company is subject to Guernsey regulations
and guidance based on reciprocal information sharing
inter-governmental agreements which Guernsey has entered into with
the United Kingdom and the United States of America. The Board will
take the necessary actions to ensure that the Company is compliant
with Guernsey regulations and guidance in this regard.
Shareholder
communication
The Board considers a report on shareholder
communications at each quarterly Board Meeting and a monthly Fact
Sheet is published on the Company's website reporting the month-end
Net Asset Value with a commentary on performance. The Investment
Manager also reports via the Regulatory News Service (RNS) an
estimated, unaudited daily Net Asset Value. The Investment Manager
and the Corporate Broker maintain regular dialogue with
institutional shareholders, feedback from which is reported to the
Board. Additionally during the year the Investment Manager
conducted three well-attended webinars for shareholders which
received positive feedback from shareholders who attended. Board
members are available to answer shareholders' questions at any
time, and specifically at the Annual General Meeting. The Company
Secretary is also available to answer general shareholder queries
at any time during the year.
In order to ensure the Board members have an
understanding of the views of all shareholders about their Company,
the Investment Manager and the Corporate Broker, who regularly
engage with those shareholders, both report those views to the
Board Members at each board meeting. The Board monitors activity in
the Company's shares and the discount or premium to Net Asset Value
at which the shares trade both in absolute terms and relative to
the Company's peers. Shareholders and stakeholders are engaged with
via regular webinars and monthly factsheets.
The Company has the authority, subject to
various terms as set out in its Articles and in accordance with The
Companies (Guernsey) Law, 2008, as amended to buy-back in the
market, up to 14.99% of the shares in issue. The Company intends to
request renewal of this power from shareholders on an annual basis.
As of 31 December 2023, the Company had bought back a total of
762,645 (2022: 577,648) shares in the market excluding
those acquired via the redemption facility.
Going
concern
The Board made an assessment of the Company's
ability to continue as a going concern for the twelve months from
the date of approval of these financial statements taking into
account all available information about the future including the
liquidity of the investment portfolio held both by the Company and
its subsidiary, ICG Q Limited (80.3% of the portfolio can be
liquidated within 5 days); the performance of the investment
portfolio (the net asset value of the Company increased 28.6% in
the year); the overall size of the Company and its impact on the
Ongoing Charges of the Company (the net asset value of the Company
exceeded £100m throughout the year); the level of operating
expenses covered by highly liquid investments held in the portfolio
(operating expenses are more than 50 times covered by highly liquid
investments); and the length of time to remit funds from India to
Mauritius and Guernsey to settle ongoing expenses (no more than 10
working days to have investments liquidated and sterling funds in
Guernsey).
Given the Company's previous performance, the
Directors proposed a continuation ordinary resolution at the
Extraordinary General Meeting held on 12 June 2020, at which the
Shareholders approved that the Company continue as currently
constituted and introduce a redemption facility which gives the
ordinary shareholders the ability to redeem part or all of their
shareholding at a Redemption Point every two years. The first
Redemption Point was on 31 December 2021 when a net
15,408,872 shares (13.9% of the then issued share capital)
were redeemed under the redemption facility at a total cost of
£19.5m in accordance with the announced timetable.
The second redemption point was on 31 December
2023 when valid redemption requests were received in respect of
15,159,876 ordinary shares (15.7% of the then issued share capital)
which were subsequently redeemed under the redemption facility at a
total cost of £26.5m in accordance with the announced redemption
price on 8 January 2024. Since the year end, to
satisfy demand in the market, the Company has issued over 5.8m
shares from Treasury at a premium to NAV raising over £10.5m in new
capital, and bought back 150,000 shares at a significant discount
to NAV. As at 29 February 2024 the Company's net asset value
remains strong at £159.7m.
The next date at which shareholders will be
able to request the redemption of some or all of the shares is
scheduled to be 31 December 2025 for shareholders on the register
at 30 September 2025.
The Directors are satisfied that the Company
has sufficient liquid resources to continue in business for the
next twelve months from the date of approval of these financial
statements, therefore the financial statements have been prepared
on a going concern basis.
Longer-term
viability statement
The Directors have assessed the prospects of
the Company for a period of three years. The Board believes this
time period is appropriate having consideration for the
Company's;
·
Long-term capital appreciation investment
strategy;
·
portfolio of liquid listed equity investments and cash
balances;
·
level of operating expenses, both fixed and
variable;
·
principal risks and uncertainties; and
·
the Redemption Facility available to shareholders every two
years.
In making this assessment, the Directors have
considered the possible impact of the Redemption Facility and the
next scheduled Redemption Date on 31 December 2025. Whilst
redemption requests at the next Redemption Date could impact the
Company's longer-term viability the Board have considered the
performance of the Company up to the Second Redemption Point and
the proportion of shares (15.7%) redeemed at that time.
In making this assessment as to the Company's
longer-term viability, the Directors have considered detailed
information provided at Board meetings that include the Company's
balance sheet, investment portfolio liquidity, operating expenses,
market capitalisation, share price discount, shareholder register
analysis and investment performance to date, both actual and
against the BSE Mid Cap Total Return Index (the "Index") and the
Company's peers.
Approved by the Board of Directors and signed
on behalf of the Board on 27 March 2024.
Lynne
Duquemin
Patrick
Firth
SUSTAINABILITY AND ENVIRONMENTAL, SOCIAL
AND GOVERNANCE ("ESG") REPORT
The Board recognises its responsibilities for
reporting on ESG and regularly engages with the Investment Manager,
upon whom the Board is reliant to deliver this ESG reporting of the
Company and to implement its ESG
strategy.
In setting and reporting on our ESG policies,
we have considered the impacts of our activities and followed the
relevant regulatory guidance including the requirements of section
172(1) of the Companies Act 2006 and, in so far as they apply, the
non-financial reporting requirements in sections 414CA and 414CB of
the Companies Act 2006. Although India Capital Growth Fund does not
fall within the scope of these two sections, we believe that these
disclosures will provide shareholders and stakeholders with a
greater level of insight and transparency. We have also reported
under the UK Corporate Governance Code ("UK Code").
Consequently, we believe in engagement and
long-term ownership both in respect of our own shareholders and the
investment approach adopted by our Investment Manager, to drive
investment performance and to contribute to positive change to
build a sustainable future. We and our Investment Manager believe
that companies with strong management and a focus on ESG have the
potential to reduce risks facing their business, thereby delivering
sustainable performance and enhanced returns over the
longer-term.
Investment
management approach to sustainability & ESG
In October 2023 the Investment Manager was
acquired by AssetCo, as a consequence of which it now benefits from
the central infrastructure of AssetCo's River Global brand which
has strengthened the breadth and depth of resources available to
both the Investment Manager and the Company with ESG being a focal
point.
The management of sustainability risks forms
an important part of the investment portfolio due diligence process
implemented by the Investment Manager. When assessing the
sustainability risks associated with underlying investments, the
Investment Manager is assessing the risk that the value of such
underlying investments could be materially negatively impacted by
an environmental, social or governance event or condition.
Sustainability risks are generally incorporated into the Investment
Manager's evaluation of an issuer's investment risk or return,
across all asset classes, sectors, and markets in which the Company
invests. Although a systematic approach to ESG is lacking in India,
the Investment Manager has made ESG matters an integral part of its
due diligence process and positioned itself ahead of the learning
curve in India.
The Investment Manager believes that sound
governance is an essential element of a company's long-term
sustainability and growth, and that detailed analysis beyond
financial data is required to understand the true characteristics
of a potential underlying investment. This includes, but is not
limited to, conviction in the alignment of interest between the
owners, managers and minority shareholders of a business, the
nature and extent of the true independence of the Board and its
specialist sub-committees, capital allocation and dividend
policies, tax treatment, key man risk and succession planning.
Governance plays a central role in the investment philosophy of the
Investment Manager and it naturally veers away from certain
companies where practical issues of "getting business done" within
India can undermine good governance. These companies tend to be
capital intensive, rely on multiple bureaucratic approvals for
authorisation and are often cash flow negative. The Investment
Manager also will not consider investments in industries that are
considered harmful to the wellbeing of society not least because
they may not demonstrate adequate compliance with regulations and
tax considerations which may create unforeseen financial
uncertainty. These include tobacco, alcohol, gambling and defence
equipment manufacturers of all descriptions.
The Investment Manager gives equal importance
to the non-financial elements of environmental and social issues of
a business and financial modelling when considering a company for
an underlying investment. These include, but are not restricted to,
topics such as gender diversity, environmental impact on
production, carbon footprint, workplace health and local community
engagement. Where the sustainability risks associated with a
particular investment have increased beyond the ESG risk appetite
of the Company, the Investment Manager will consider selling or
reducing that exposure to the relevant investment, taking into
account the best interests of the shareholders of the
Company.
ESG
Scoring
The Investment Manager does not use third
party ESG ranking tools but has integrated the systematic and
explicit inclusion of material ESG factors into its investment
analysis process from which it has developed its own bespoke ESG
scoring model for all the portfolio companies. The scoring is based
primarily upon publically available data and output from company
meetings resulting in scores for three key areas;
·
Disclosure
·
Direction of Travel
·
Absolute comparison against companies in the
sector
ESG factors considered in the assessment and
scoring include:
Environment
·
GHG emissions
·
Planned carbon neutrality goals
·
Energy management
·
Water and wastewater management
· Waste
and hazardous materials management
·
Biodiversity & land use
Social
·
Fulfilment of responsibilities under Corporate Social
Responsibility requirements
·
Human capital: employee turnover, health & safety,
training & diversity, treatment of blue collar
workers
·
Human rights and community relations
·
Customer privacy and data security
·
Access and affordability
·
Product quality and safety
·
Supply chain management
·
Customer welfare
· Selling
practices and product labelling
Governance
·
Related party transactions
·
Promoter's behaviour: % holding, % shares pledged, exposure
to other business, unlisted entities in similar business,
remuneration, family run vs. independently & professionally
run
·
Board structure: diversity, independence and size
·
Board Committees and their independence: Audit, Nomination
and Remuneration
·
Capital allocation decisions
·
Management of legal & regulatory environment
·
Business ethics
·
Competitive behaviour
The aggregate score is then weighted based
upon its sector. An example of scoring is given below for a cement
company in the portfolio. The Investment Manager is not focused on
absolute and target scores but improvements year on year.
Consequently it will require several more years of data collection
before deciding that improvements are not being made.
The Investment Manager's overall ESG score for
the portfolio in FY23 is 5.1 out of 9, an improvement from 4.7 in
FY22 across all three scoring criteria of Disclosure, Direction of
Travel, and Absolute Comparison Against Companies in the Sector.
The Top 5 and Bottom 5 ESG scored portfolio companies were all from
different sectors so there appears to be no sector trend in the ESG
performance improvements in the portfolio. Additionally, the
Investment Manager reports that disclosures have substantially
improved in FY23 as the Security Exchange Board of India (SEBI)
mandated the top 1,000 listed companies to provide detailed
sustainability disclosures. ESG Scoring is providing the Investment
Manager with key insight into how portfolio companies are faring on
ESG and ongoing engagement enables the Investment Manager to obtain
incremental data which is not publicly disclosed. Below is a
summary of the ESG scoring for FY23:
Engagement
In order to truly understand the direction of
travel and the actions being taken by portfolio investment
companies in respect of ESG and the sustainability of their
business, constructive dialogue with management is at the core of
the investment process of the Investment Manager. The investment
advisers in India meet and interact regularly with both investee
companies and potential portfolio holdings. They meet onsite where
possible and will take the opportunity of visiting manufacturing
facilities as well a corporate headquarters in order to build a
clearer picture. In addition they also endeavour to meet employees
outside of the senior management team, as this also helps to
strengthen the overall understanding of the business and better
establish if the ESG and sustainability ethos projected by senior
management filters down through the business. Provided below are
examples of the engagement undertaken by the Investment Manager to
promote ESG in India:
Engagement
case study 1
Engaged with PwC who serve as the ESG advisor
to an auto ancillary manufacturing company to present a list of key
ESG variables the company should disclose. The variables were
carefully selected to ensure the company provides relevant and
meaningful information to all stakeholders. The company
acknowledged the importance of these variables and has implemented
them into their ESG disclosure, demonstrating its commitment to
transparency and sustainability which will not only benefit the
environment but also contribute to the long-term success of the
business.
Engagement
case study 2
Engaged with cement production company on
providing integrated ESG disclosure alongside their annual report.
Previously the company had disclosed data with a 1-year lag but
from FY23 onwards they have moved to annual integrated disclosure.
This move signifies a positive step towards increased transparency
and highlights the company's commitment to responsible business
practices.
Voting on
portfolio investments
The Investment Manager has been empowered to
exercise discretion in the use of its voting rights in respect of
portfolio investments. Where practicable, all shareholdings were
voted at all investment company meetings which backs up and
reinforces engagement and integrates sustainability issues into the
voting process.
Holdings in individual companies are not large
and our votes are not likely to carry weight. However as
responsible investors, and due to our remit to invest in small and
mid-cap Indian equities supported by a long-term investment
approach, management teams do look to us for guidance on aspects of
best practice. In turn we look to influence their thinking
positively in respect of ESG matters.
Modern
Slavery Statement
The Modern Slavery Statement is included under
'Employees, human rights and corporate social
responsibility'.
United
Nations-backed Principles of Responsible Investment Initiative
(PRI)
As part of its commitment to responsible
investing, the Investment Manager is a signatory to The United
Nations-backed Principles for Responsible Investment Initiative
(PRI).
Risk
Summary
There are ESG risks for the Company associated
with non-adherence to the principles highlighted above and inherent
in the principal and emerging risks described in more detail in
this Annual Report.
STATEMENT OF
DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing
the Directors' Report, Directors' Remuneration Report, Portfolio
Statement and the Audited Financial Statements in accordance with
applicable laws.
The Companies (Guernsey) Law, 2008 requires
the Directors to prepare audited financial statements for each
financial year. Under that law they have elected to prepare the
Audited Financial Statements in conformity with International
Financial Reporting Standards ("IFRS"), as adopted by the European
Union ("EU") and applicable law.
The Audited Financial Statements are required
by law to give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that
period.
In preparing these Audited Financial
Statements the Directors are required to: -
·
select suitable accounting policies and then apply them
consistently;
·
make judgements and accounting estimates that are reasonable
and prudent;
·
state whether applicable accounting standards have been
followed subject to any material departures disclosed and explained
in the Audited Financial Statements; and
·
prepare the Audited Financial Statements on a going concern
basis unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping
proper accounting records which disclose with reasonable accuracy
at any time the financial position of the Company and to enable
them to ensure that the Audited Financial Statements comply with
the Companies (Guernsey) Law, 2008, as amended. They have general
responsibility for taking such steps as are reasonably open to them
to safeguard the assets of the Company and to prevent and detect
fraud and other irregularities.
The Directors are also responsible for
ensuring the Company complies with the Listing Rules and Disclosure
Guidance and Transparency Rules (DTR) of the UK Listing Authority
which, with regard to corporate governance, requires the Company to
disclose how it has applied the principles, and complied with the
provisions, of the AIC Code and the UK Corporate Governance Code to
the Company. Except as disclosed within this Annual Report, the
Board is of the view that throughout the year ended 31 December
2023, the Company complied with the recommendations and provisions
of the AIC Code and the UK Corporate Governance Code.
We confirm to the best of our knowledge
that:
·
the audited financial statements, prepared in accordance with
the relevant financial reporting framework, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the company;
·
the annual report includes a fair review of the development
and performance of the business and the position of the company,
together with a description of the principal risks and
uncertainties that they face; and
·
the annual report and audited financial statements, taken as
a whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the company's
position, performance, business model and strategy.
Signed on behalf of the Board by:
Lynne
Duquemin
Patrick
Firth
27 March 2024
UNAUDITED
DIRECTORS' REMUNERATION REPORT
Introduction
An ordinary resolution for the approval of the
Directors' remuneration report will be put to the Shareholders at
the next Annual General Meeting.
Remuneration
Policy
Due to the size of the Board, the Directors
have not established a separate Remuneration Committee.
The Company's Articles of Incorporation state that unless
otherwise determined by ordinary resolution, the number of the
Directors shall not be less than two and the aggregate remuneration
of all Directors in any 12-month- period or pro rata for any lesser
period shall not exceed £200,000 or such higher amount as may be
approved by ordinary resolution. The level of Directors' fees is
determined by the whole Board on an annual basis, but no Director
is involved in setting his own remuneration. When considering the
level of Directors' remuneration, the Board considers the industry
standard and the level of work that is undertaken.
The Directors shall also be entitled to be
repaid all reasonable out of pocket expenses properly incurred by
them in or with a view to the performance of their duties or in
attending meetings of the Board or of committees or general
meetings.
The Board shall have the power at any time to
appoint any person to be a Director either to fill a casual vacancy
or as an addition to the existing Directors. Any Director so
appointed shall hold office only until the next following annual
general meeting and shall then be eligible for
re-election.
Remuneration
Annual Directors' fees for the years listed
are as follows:
|
Annual fee effective 01 Sept
2023
|
|
Annual fees paid to 31 Dec
2023
|
Annual fees paid to 31 Dec
2022
|
|
£
|
|
£
|
£
|
|
|
|
|
|
Elisabeth Scott (Chair)
|
42,000
|
|
38,500
|
35,000
|
Patrick Firth
|
34,000
|
|
31,000
|
28,000
|
Lynne Duquemin
|
28,000
|
|
26,500
|
25,000
|
Nick Timberlake
|
28,000
|
|
26,500
|
*11,277
|
*Nick Timberlake's annual equivalent Director
fee for 2022 was £25,000
No additional sums were paid in the year to
Directors for work on behalf of the Company outside their normal
duties. None of the Directors had a service contract with the
Company during the year and accordingly a Director is not entitled
to any minimum period of notice or to compensation in the event of
their removal as a Director.
AUDIT &
RISK COMMITTEE REPORT
Introduction
The Audit & Risk Committee (the
"Committee") report for 2023 is presented below. As in previous
years, the Committee has reviewed the Company's financial
reporting, the independence and effectiveness of the Independent
Auditor and the internal control and risk management systems of the
Company and its service providers.
Structure and
Composition
The Chair of the Committee is Patrick Firth.
The Chair of the Committee is appointed by the Board and the
members are appointed by the Board, in consultation with the Chair
of the Committee. The Committee shall have a minimum of two
members. All members of the Committee shall be independent
non-executive directors, at least one of whom has recent and
relevant financial experience. The Chair of the committee is a
qualified accountant and all members of the Board have recent and
relevant financial experience.
The Committee conducts formal meetings at
least twice a year, normally immediately preceding the Board
meetings at which the audited financial statements for the
half-year and year end are reviewed. Only members of the Committee
have the right to attend meetings although, with the consent of the
Chair of the Committee, other Directors may be in attendance. The
meetings attendance table in the Directors' Report sets out the
number of Committee meetings held during the year ended 31 December
2023 and the number of such meetings attended by each committee
member. The Independent Auditor is invited to attend those meetings
at which the annual and interim reports are considered. The
Independent Auditor and the Committee may meet together without
representatives of either the Administrator or Investment Manager
being present if either considers this to be necessary.
Principal
Duties of the Committee
The role of the Committee includes:
·
monitoring the integrity of the audited financial statements
and any formal announcements regarding financial performance of the
Company;
·
reviewing and reporting to the Board on the significant
issues and judgements made in the preparation of the Company's
published audited financial statements, (having regard to matters
communicated by the Independent Auditors) preliminary announcement
and other financial information;
·
reviewing the effectiveness of the external audit process and
the auditors' independence;
·
considering and making recommendations to the Board on the
appointment, reappointment, replacement and remuneration of the
Company's Independent Auditor;
·
reviewing arrangements by which persons associated with the
key service providers are able to, in confidence, raise concerns
about possible improprieties in matters of financial reporting or
other matters and to ensure that appropriate proportionate
independent investigation of such matters is undertaken;
and
·
assessing whether the Annual Report and Audited Financial
Statements taken as a whole, are fair, balanced and understandable
and provide the information necessary for the shareholders to
assess the Company's performance, business model and
strategy.
·
informing the administrative or supervisory body of the
issuer of the outcome of the statutory audit and explaining how the
statutory audit contributed to the integrity of financial reporting
and what the role of the relevant body was in that
process.
The complete details of the Committee's formal
duties and responsibilities are set out in the Committee's terms of
reference, which can be obtained from the Company's website
(https://www.indiacapitalgrowth.com).
Independent
Auditor
Deloitte LLP acted as the Independent Auditor
of the Company in respect of the year ended 31 December
2023.
The recent revisions to the UK Corporate
Governance Code introduced a recommendation that the independent
audit of FTSE 350 companies be put out to tender every 10 years.
Similarly, the EU and the Competition Markets Authority have also
issued requirements to tender every 10 years and extend for a
maximum of further 10 years before mandatory rotation.
Notwithstanding the Company does not fall within the FTSE350, the
Committee will follow the developments around the FRC, EU and
Competition Markets Authority guidance on tendering and consider
the impact for offshore entities.
Following the recommendation of the Committee,
Deloitte were appointed by the Board of Directors on 10 June 2015
to audit the financial statements for the year ending 31 December
2015 and subsequent financial periods. The period of total
uninterrupted engagement including previous renewals and
reappointments of the firm is 9 years, covering the years ending 31
December 2015 to 31 December 2023.
The independence and objectivity of the
Independent Auditor is reviewed by the Committee which also reviews
the terms under which the Independent Auditor is appointed to
perform non-audit services. Any non-audit service provided by the
Independent Auditor, other than reviewing interim financial
information, those services which are closely linked to the audit
itself or those services which are required by law or regulation to
be completed by the Auditor, requires prior Committee
approval where fees for the service are in excess of £10,000
cumulative over the financial year.
In accordance with the non-audit services
policy, Deloitte LLP will not be appointed to provide additional
services including the provision of accounting advice. The
exception is where Deloitte LLP is best placed to provide a service
as a result of its audit, including the interim review which is
permissible under the FRC independence rules.
Given the fees for non-audit services paid by
the Company are currently below the specified threshold, the
Independent Auditor can be deemed to be independent and
objective.
The committee also received assurance from
Deloitte LLP that no matters of concern were raised in external
evaluations of their performance that would impact upon their audit
of the Company.
Evaluations
during the year
The following assessments have been made by
the Committee during the year:
Significant
Financial Statement Issues
Liquidity and Valuation - The ongoing
liquidity of the Company's investment portfolio was evaluated,
which included a review of both financial and relative
non-financial information. Due to the liquid nature of the
Company's and ICGQ's holdings and the Company's ability to effect a
disposal of any investment in ICGQ's portfolio and any of its
direct investments at the prevailing market price and the
distribution of proceeds back to the Company should it so wish, it
was determined that no illiquidity discount would be applied in
determining the fair value of the Company's investment in ICGQ and
the Company's direct investments.
Going Concern and Longer-Term Viability - The
Committee assessed both the going concern of the Company for a
period of twelve months and its longer-term viability for a period
of three years, particularly in the light of the previous
Redemption Facility in December 2023. Given recent investment
performance, feedback from shareholders and the adequacy of the
Company's liquid resources it was determined the Company can
continue in business for the foreseeable future.
The foregoing matters were discussed during
the planning and final stage of the audit and there were no
disagreements between the Committee and the Independent
Auditor.
Effectiveness of the External Audit
Process
The Committee had formal meetings with
Deloitte LLP in attendance during the course of the year: 1) at the
review and approval of the year end accounts, and 2) for the
planning discussions for the year-end audit. The Committee
performed the following in relation to its review of the
effectiveness and independence of the Independent
Auditor:
·
Reviewed the audit plan presented to the Committee before the
start of the audit;
·
Challenged the post audit report;
·
Challenged the Auditor's own internal procedures to identify
threats to independence, which included obtaining confirmation from
the Independent Auditor of their independence;
·
Discussed with both the Manager and the Administrator any
feedback on the external audit process; and
·
Challenged and approved terms of the engagement of audit
services during the year, which included an evaluation of the
related fees.
In addition, the Committee performed specific
evaluation of the performance of the Independent Auditor which is
supported by the results of questionnaires completed by the
Committee. This questionnaire covered areas such as quality of
audit team, business understanding, audit approach and
management.
There were no significant findings from the
evaluation this year and the Committee is satisfied that the
external audit process is effective.
Audit fees
and Non-audit Services
The table below summarises the remuneration
paid by the Company to the Independent Auditor:
|
2023
|
2022
|
|
£
|
£
|
|
|
|
Annual Audit
|
52,000
|
42,000
|
Interim Review
|
-
|
15,000
|
Internal
Control
The Committee has considered the need for an
internal audit function. The Committee agreed that the systems,
controls and procedures employed by the Investment Manager and the
Administrator provided sufficient assurance that a sound system of
internal control, which safeguards the Company's assets, has been
maintained. An internal audit function specific to the Company is
therefore considered unnecessary.
The Committee examined and challenged
externally prepared assessments of the control environment in place
at the Administrator who provided an independent service auditor's
report in accordance with ISAE 3402 for the year ended 30 September
2023.
Conclusion
and Recommendation
After consultations with the Independent
Auditor as necessary and reviewing various reports from the
Investment Manager such as the quarterly performance reports and
portfolio attribution and portfolio turnover reporting and
assessing the significant financial statement issues, the Committee
is satisfied that the Audited Financial Statements appropriately
address the critical judgements and key estimates (both in respect
to the amounts reported and the disclosures). The Committee is also
satisfied that the significant assumptions used for determining the
value of assets and liabilities have been appropriately
scrutinised, challenged and are sufficiently robust. The Committee
further concludes that the Audited Financial Statements, taken as a
whole, are fair, balanced and understandable and provide the
information necessary for the shareholder to assess the Company's
performance, business model and strategy.
At the conclusion of the external audit
process, the Independent Auditor reported to the Committee that no
material misstatements were found in the course of its work.
Furthermore, both the Manager and the Administrator confirmed to
the Committee that they were not aware of any material
misstatements including matters relating to presentation. The
Committee confirms that it is satisfied that the Independent
Auditor has fulfilled its responsibilities with diligence and
professional scepticism.
Following the detailed review and evaluation
processes identified in this report, the Committee has concluded
that the auditors have acted independently in the work undertaken
on behalf of the Company and has recommended to the Board that
Deloitte LLP be reappointed as Independent Auditor of the Company
for the coming financial year.
For any questions on the activities of the
Committee not addressed in the foregoing, a member of the Committee
remains available to attend each Annual General Meeting to respond
to such questions.
Patrick Firth
Audit & Risk Committee Chair
27 March 2024
PRINCIPAL
INVESTMENTS OF THE GROUP
As at 31 December 2023
Holding
|
Market cap size
|
Sector
|
Value
£000
|
% of Company NAV
|
|
|
|
|
|
|
|
|
Federal Bank
|
M
|
Financials
|
10,610
|
5.8%
|
|
Indusind Bank
|
L
|
Financials
|
9,019
|
4.9%
|
|
IDFC Bank
|
M
|
Financials
|
8,743
|
4.8%
|
|
Emami
|
M
|
Consumer
Staples
|
8,157
|
4.5%
|
|
Dixon Technologies
|
M
|
Consumer
Discretionary
|
7,380
|
4.0%
|
|
Persistent Systems
|
M
|
Information
Technology
|
7,202
|
3.9%
|
|
RBL Bank
|
M
|
Financials
|
6,531
|
3.6%
|
|
PI Industries
|
M
|
Materials
|
6,394
|
3.5%
|
|
Ramkrishna Forgings
|
S
|
Materials
|
6,202
|
3.4%
|
|
Sona BLW Precision Forgings
|
M
|
Consumer
Discretionary
|
5,908
|
3.2%
|
|
Skipper
|
S
|
Industrials
|
5,852
|
3.2%
|
|
Neuland Laboratories
|
S
|
Health
Care
|
5,684
|
3.1%
|
|
JK Lakshmi Cement
|
S
|
Materials
|
5,652
|
3.1%
|
|
Welspun India
|
S
|
Consumer
Discretionary
|
5,496
|
3.0%
|
|
Affle India
|
M
|
Communication
Services
|
5,293
|
2.9%
|
|
Ashok Leyland
|
M
|
Industrials
|
4,911
|
2.7%
|
|
Jyothy Laboratories
|
M
|
Consumer
Staples
|
4,862
|
2.7%
|
|
Multi Commodity Exchange
|
S
|
Financials
|
4,771
|
2.6%
|
|
City Union Bank
|
S
|
Financials
|
4,584
|
2.5%
|
|
CCL Products India
|
S
|
Consumer
Staples
|
4,416
|
2.4%
|
|
|
|
|
|
|
|
Total top 20 portfolio investments
|
|
127,667
|
69.8%
|
|
|
|
|
|
|
|
Investments may be held by the Company and its
Mauritian subsidiary, ICG Q Limited.
PORTFOLIO
STATEMENT
As at 31 December 2023
HOLDING
|
Market cap
size
|
Nominal
|
Value
£000
|
% of
company
NAV
|
|
|
|
|
|
LISTED
SECURITIES
|
|
|
|
|
Communication
Services
|
|
|
|
|
Affle India
|
M
|
430,000
|
5,293
|
2.9%
|
|
|
|
5,293
|
2.9%
|
Consumer
Discretionary
|
|
|
|
|
Bajaj Electricals
|
S
|
312,734
|
2,912
|
1.6%
|
Balkrishna Industries
|
M
|
148,000
|
3,583
|
2.0%
|
Dixon Technologies
|
M
|
119,248
|
7,380
|
4.0%
|
Sona BLW Precision Forgings
|
M
|
972,714
|
5,908
|
3.2%
|
Vedant Fashions
|
M
|
116,638
|
1,394
|
0.8%
|
VIP Industries
|
S
|
678,853
|
3,824
|
2.1%
|
Welspun India
|
S
|
4,036,913
|
5,496
|
3.0%
|
|
|
|
30,497
|
16.7%
|
Consumer
Staples
|
|
|
|
|
CCL Products India
|
S
|
727,883
|
4,416
|
2.4%
|
Emami
|
M
|
1,535,182
|
8,157
|
4.5%
|
Jyothy Laboratories
|
M
|
1,077,326
|
4,862
|
2.7%
|
|
|
|
17,435
|
9.6%
|
Financials
|
|
|
|
|
Cholamandalam Investment and Finance
Company
|
L
|
175,000
|
2,077
|
1.1%
|
City Union Bank
|
S
|
3,264,000
|
4,584
|
2.5%
|
IDFC Bank
|
M
|
10,435,000
|
8,743
|
4.8%
|
Indusind Bank
|
L
|
598,500
|
9,019
|
4.9%
|
Multi Commodity Exchange
|
S
|
158,227
|
4,771
|
2.6%
|
RBL Bank
|
M
|
2,481,000
|
6,531
|
3.6%
|
Federal Bank
|
M
|
7,209,380
|
10,610
|
5.8%
|
|
|
|
46,335
|
25.3%
|
Healthcare
|
|
|
|
|
Neuland Laboratories
|
S
|
113,986
|
5,684
|
3.1%
|
|
|
|
5,684
|
3.1%
|
|
|
|
|
|
Industrials
|
|
|
|
|
Ashok Leyland
|
M
|
2,870,000
|
4,911
|
2.7%
|
Bajel Projects
|
S
|
312,734
|
390
|
0.2%
|
Finolex Cables
|
S
|
157,207
|
1,584
|
0.9%
|
Kajaria Ceramics
|
M
|
347,698
|
4,266
|
2.3%
|
PSP Projects
|
S
|
459,000
|
3,316
|
1.8%
|
Skipper
|
S
|
2,716,924
|
5,852
|
3.2%
|
Uniparts India
|
S
|
655,339
|
3,570
|
2.0%
|
|
|
|
23,889
|
13.1%
|
|
|
|
|
|
IT
|
|
|
|
|
Persistent Systems
|
M
|
103,408
|
7,202
|
3.9%
|
Tech Mahindra
|
L
|
279,719
|
3,356
|
1.9%
|
|
|
|
10,558
|
5.8%
|
Materials
|
|
|
|
|
Essel Propack
|
S
|
1,419,399
|
2,701
|
1.5%
|
JK Lakshmi Cement
|
S
|
666,826
|
5,652
|
3.1%
|
PI Industries
|
M
|
192,956
|
6,394
|
3.5%
|
Ramkrishna Forgings
|
S
|
906,794
|
6,202
|
3.4%
|
Sagar Cements
|
S
|
1,611,000
|
3,866
|
2.1%
|
The Ramco Cements
|
M
|
145,644
|
1,401
|
0.8%
|
|
|
|
26,216
|
14.4%
|
Total equity
investments (including those held by ICG Q
Limited)
|
165,907
|
90.90%
|
|
|
|
|
|
Cash less other net current
liabilities
|
|
16,521
|
9.1%
|
Total Net
Assets (before deferred taxation for Indian CGT)
|
182,428
|
100.0%
|
|
|
|
Deferred tax provision for Indian
CGT
|
|
(8,926)
|
|
Total Net
Assets (after deferred tax provision for India
CGT)
|
173,502
|
|
|
|
|
|
|
Notes:
|
|
|
|
|
L: Large cap - companies with a market
capitalisation above US$8bn
|
|
7.9%
|
M: Mid cap - companies with a market
capitalisation between US$2bn and US$8bn
|
47.5%
|
S: Small cap - companies with a market
capitalisation below US$2bn
|
35.5%
|
|
|
|
|
90.9%
|
|
|
|
|
|
Equity investments may be held by the Company
and its Mauritian subsidiary, ICG Q Limited
INDEPENDENT
AUDITOR'S REPORT TO THE MEMBERS OF INDIA CAPITAL GROWTH FUND
LIMITED
Report on the
audit of the financial statements
Opinion
In our opinion the financial statements of
India Capital Growth Fund Limited (the 'Company'):
·
give a true and fair view of the state of the Company's
affairs as at 31 December 2023 and of its profit for the year then
ended;
·
have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union; and
·
have been prepared in accordance with the requirements of the
Companies (Guernsey) Law, 2008.
We have audited the financial statements which
comprise:
·
the statement of comprehensive income;
·
the statement of financial position;
·
the statement of changes in equity;
·
the statement of cash flows; and;
·
the related notes 1 to 15.
The financial reporting framework that has
been applied in their preparation is applicable law and IFRSs as
adopted by European Union.
Basis for
opinion
We conducted our audit in accordance with
International Standards on Auditing (UK) (ISAs (UK)) and applicable
law. Our responsibilities under those standards are further
described in the auditor's responsibilities for the audit of the
financial statements section of our report.
We are independent of the Company in
accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the
Financial Reporting Council's (the 'FRC's') Ethical Standard as
applied to listed public interest entities, and we have fulfilled
our other ethical responsibilities in accordance with these
requirements. We confirm we have not provided any non-audit
services prohibited by the FRC's Ethical Standard to the
Company.
We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
Summary of
our audit approach
Key audit matters
|
The key audit matter that we identified in the
current year was:
·
Valuation of the Company's investment in its subsidiary, and
the valuation of directly held investments
Within this report, key audit matters are
identified as follows:
|
Newly identified
|
|
Increased level of risk
|
|
Similar level of risk
|
|
Decreased level of risk
|
|
Materiality
|
The materiality that we used in the
current year was £1,735,053 which was determined on the basis of 1%
of Net Assets.
|
Scoping
|
The Company was audited as a single
component. Balances were scoped in for testing based on our
assessment of risk of material misstatement. As part of our risk
assessment process, we considered the impact of controls
implemented at service organisations of the Company.
|
Significant changes in our
approach
|
Following the outcome of the
shareholder redemptions at 31 December 2023, and the subsequent
reduced uncertainty, we did not identify going concern as a key
audit matter in the current year. Additionally, our key audit
matter relating to the Company's investments is focussed this year
on their valuation, instead of valuation and ownership.
|
Conclusions
relating to going concern
In auditing the financial statements, we have
concluded that the directors' use of the going concern basis of
accounting in the preparation of the financial statements is
appropriate.
In our assessment of the directors' use of the
going concern assessment, we performed the following
procedures:
· We reviewed the
minutes of the Extraordinary General Meeting held on 12 June 2020
which introduced a redemption facility which gives the ordinary
shareholders the ability to redeem part or all of their
shareholding at a redemption point every two years. The first
redemption event was on 31 December 2021, the second being 31
December 2023 and the next being 31 December 2025.
· We reviewed
redemption payments for the valid redemption requests received as
at 31 December 2023 and their impact on the going concern of the
Company;
· We assessed the
performance of the Company post redemptions, specifically reviewing
factsheets prepared by the investment manager.;
· We reviewed the
Company's share price movement on the London Stock Exchange after
the redemptions;
· We inspected the
Company's website for evidence of regular updates to shareholders
with particular focus on the going concern of the
Company;
· We reviewed
management's going concern assessment with particular attention to
liquidity of the investment portfolio; and
· We assessed the
relevant disclosures in the financial statements.
Based on the work we have performed, we have
not identified any material uncertainties relating to events or
conditions that, individually or collectively, may cast significant
doubt on the Company's ability to continue as a going concern for a
period of at least twelve months from when the financial statements
are authorised for issue.
In relation to the reporting on how the
company has applied the UK Corporate Governance Code, we have
nothing material to add or draw attention to in relation to the
directors' statement in the financial statements about whether the
directors considered it appropriate to adopt the going concern
basis of accounting.
Our responsibilities and the responsibilities
of the directors with respect to going concern are described in the
relevant sections of this report.
Key audit
matters
Key audit matters are those matters that, in
our professional judgement, were of most significance in our audit
of the financial statements of the current period and include the
most significant assessed risks of material misstatement (whether
or not due to fraud) that we identified. These matters included
those which had the greatest effect on: the overall audit strategy,
the allocation of resources in the audit; and directing the efforts
of the engagement team.
These matters were addressed in the context of
our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on
these matters. In addition to the matter described in the material
uncertainty related to going concern section, we have determined
the matter described below to be the key audit matters to be
communicated in our report.
Valuation of
the Company's investment in its subsidiary, and valuation of
directly held investments
Key audit
matter description
|
The fair value of investments the company holds in
its subsidiary, ICGQ is determined by its NAV at year end. The
majority of ICGQ's NAV comprises its investments and as a result
there is risk that if these are materially misstated, the
investment balance recorded in ICGF's financial statements will be
misstated.
Investments are the most significant balance
on the Statement of Financial Position, errors or deliberate
manipulation of valuationscould result in a material misstatement
to the financial statements.
Details of the investments are disclosed in
notes 5 and 9 and the accounting policies relating to them are
disclosed in note 1.
|
How the scope
of our audit responded to the key audit matter
|
In order to test the valuation of the
Company's investments as at 31 December 2023 we performed the
following procedures:
·
We obtained an understanding of the relevant controls
relating to the valuation of investments, including controls
adopted by the Company's administrators;
·
We assessed the adequacy of the ISAE 3402 controls report
prepared for the administrator by its service auditor to establish
whether the valuation controls included within the report covered
the NAV controls we were seeking to rely on and whether there were
any exceptions identified by the service auditor;
·
Agreed the unit prices of all investments in the Company and
ICG Q to independent pricing sources;
·
We examined trading volumes for all investments held by the
Company and ICG Q and for any investments that were not traded
daily and performed further analysis to assess whether these
investments were sufficiently liquid to be classified as a Level 1
investment;
·
Tested the initial cost of investment transactions by
agreeing the purchase and sale of a sample of the Company's equity
shares to independent evidence; and
·
Reconciled the net asset value of ICG Q to the investment value
recorded in ICG Q's trial balance.
|
Key
observations
|
We concluded that the valuation of investments
in the subsidiary, and valuation of directly held investments was
appropriate.
|
Our
application of materiality
Materiality
We define materiality as the magnitude of
misstatement in the financial statements that makes it probable
that the economic decisions of a reasonably knowledgeable person
would be changed or influenced. We use materiality both in planning
the scope of our audit work and in evaluating the results of our
work.
Based on our professional judgement, we
determined materiality for the financial statements as a whole as
follows:
Materiality
|
£1,735,000 (2022:
£1,351,700)
|
Basis for
determining materiality
|
1% of Net Assets, which is
consistent with the prior
year.
|
Rationale for
the benchmark applied
|
Net Assets is the key balance
considered by the users of the financial statements which is
consistent with the market approach for such entities.
|
Performance
materiality
We set performance materiality at a level
lower than materiality to reduce the probability that, in
aggregate, uncorrected and undetected misstatements exceed the
materiality for the financial statements as a whole. Performance
materiality was set at 70% of materiality for the 2023 audit (2022:
70%). In determining performance materiality, we considered the
following factors:
·
our risk assessment, including our assessment of the
Company's overall control environment;
·
our past experience of the audit, which has indicated a low
number of corrected and uncorrected misstatements identified in
prior periods; and
·
potential impact as result of the redemption facility that is
due within the next 12 months.
Error reporting threshold
We agreed with the Audit Committee that we
would report to the Committee all audit differences in excess of
£86,700 (2022: £67,500), as well as differences below that
threshold that, in our view, warranted reporting on qualitative
grounds. We also report to the Audit Committee on disclosure
matters that we identified when assessing the overall presentation
of the financial statements.
An overview
of the scope of our audit
Scoping
Our audit was scoped by obtaining an
understanding of the Company and its environment, including
internal controls, and assessing the risks of material
misstatement. The Company holds investments directly and also
through its wholly owned subsidiary ICG Q Limited. We audited the
Company which included testing the valuation of the Company's
investment in ICG Q Limited which involved testing the net assets
value of ICG Q Limited.
Audit work to respond to the risks of material
misstatement was performed directly by the audit engagement
team.
Our
consideration of the control environment
The Company is administered by a third-party
Guernsey regulated service provider. As part of our audit, we
obtained an understanding of relevant controls established at the
service provider. We obtained the independently audited ISAE 3402
report on the service provider's controls, which included financial
reporting controls as well as General IT Controls (GITCs). We also
obtained a bridging letter from the date of the ISAE 3402 report to
year end on the controls in place.
Our
consideration of climate-related risks
The Company, through its investment advisor,
has considered climate related risks from its operations. The
Company's climate related risks arise from companies it invests in.
As fully explained in the Sustainability and Environmental, Social
and Governance ("ESG") report and Note 10 of the financial
statements, the investment advisor has developed a scoring model in
which companies they invest in are tracked for their climate risk
processes and disclosures.
In our assessment of the Company's climate
related risks and disclosures, we performed the following
procedures:
·
We assessed the Company's climate related risks by obtaining
an understanding of management's process and controls in
considering the impact of climate risks and assessed whether the
risks identified are complete and consistent with our understanding
of the Company;
·
We performed peer reviews of similar companies with similar
exposure to the Indian equity market for their climate related
risks and disclosures and compared to the Company's climate related
risks and disclosures;
·
We reviewed the ESG factors considered by the Company in
their ESG report and compared these to broad industry specific
factors; and
We challenged the metrics considered in coming
up with the scoring model through review of source data of the
metrics and comparing to disclosures of similar
companies.
Other
information
The other information comprises the
information included in the annual report, other than the financial
statements and our auditor's report thereon. The directors are
responsible for the other information contained within the annual
report.
Our opinion on the financial statements does
not cover the other information and, we do not express any form of
assurance conclusion thereon.
Our responsibility is to read the other
information and, in doing so, consider whether the other
information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit, or
otherwise appears to be materially misstated.
If we identify such material inconsistencies
or apparent material misstatements, we are required to determine
whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this
regard.
Responsibilities of
directors
As explained more fully in the directors'
responsibilities statement, the directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view, and for such internal control
as the directors determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the
directors are responsible for assessing the Company's ability to
continue as a going concern, disclosing as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
Company or to cease operations, or have no realistic alternative
but to do so.
Auditor's
responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable
assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and
to issue an auditor's report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect
a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities
for the audit of the financial statements is located on the
FRC's website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor's report.
Extent to
which the audit was considered capable of detecting irregularities
including fraud
Irregularities, including fraud, are instances
of non-compliance with laws and regulations. We design procedures
in line with our responsibilities, outlined above, to detect
material misstatements in respect of irregularities, including
fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
Identifying and assessing potential risks related to
irregularities
In identifying and assessing risks of material
misstatement in respect of irregularities, including fraud and
non-compliance with laws and regulations, we considered the
following:
·
the nature of the industry and sector, control environment
and business performance including the design of the company's
remuneration policies, key drivers for directors' remuneration,
bonus levels and performance targets;
·
results of our enquiries of management, the directors and the
Audit Committee about their own identification and assessment of
the risks of irregularities, including those that are specific to
the Company's sector;
·
any matters we identified having obtained and reviewed the
Company's documentation of their policies and procedures relating
to:
o identifying,
evaluating and complying with laws and regulations and whether they
were aware of any instances of non-compliance;
o detecting and
responding to the risks of fraud and whether they have knowledge of
any actual, suspected or alleged fraud;
o the internal
controls established to mitigate risks of fraud or non-compliance
with laws and regulations;
·
the matters discussed among the audit engagement team
regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud.
As a result of these procedures, we considered
the opportunities and incentives that may exist within the
organisation for fraud and identified the greatest potential for
fraud in the following areas:
·
Valuation of the Company's investment in its subsidiary and
the valuation of the directly held investments.
In common with all audits under ISAs (UK), we
are also required to perform specific procedures to respond to the
risk of management override.
We also obtained an understanding of the legal
and regulatory framework that the Company operates in, focusing on
provisions of those laws and regulations that had a
direct effect on the determination of material amounts and
disclosures in the financial statements. The key laws and
regulations we considered in this context included the Companies
(Guernsey) Law, 2008; the Listing Rules and relevant
tax legislation.
In addition, we considered provisions of other
laws and regulations that do not have a direct effect
on the financial statements but compliance with which may be
fundamental to the Company's ability to operate or to avoid a
material penalty.
Audit response to risks identified
As a result of performing the above, we
identified valuation of the company's investment in its subsidiary
and the valuation of the directly held investments as a key audit
matter related to the potential risk of fraud. The key audit matter
section of our report explains the matter in more detail and also
describes the specific procedures we performed in response to that
key audit matter.
In addition to the above, our procedures to
respond to risks identified included the following:
·
reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect
on the financial statements;
·
enquiring of management and the Audit Committee concerning
actual and potential litigation and claims;
·
performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
·
reading minutes of meetings of the board and the Audit
Committee and reviewing correspondence with the Guernsey Financial
Services Commission; and
·
in addressing the risk of fraud through management override
of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made in making
accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions
that are unusual or outside the normal course of
business.
We also communicated relevant identified laws
and regulations and potential fraud risks to all engagement team
members and remained alert to any indications of fraud or
non-compliance with laws and regulations throughout the
audit.
Report on
other legal and regulatory requirements
Corporate
Governance Statement
The Listing Rules require us to review the
directors' statement in relation to going concern, longer-term
viability and that part of the Corporate Governance Statement
relating to the Company's compliance with the provisions of the UK
Corporate Governance Code specified for our review.
Based on the work undertaken as part of our
audit, we have concluded that each of the following elements of the
Corporate Governance Statement is materially consistent with the
financial statements and our knowledge obtained during the
audit:
·
the directors' statement with regards to the appropriateness
of adopting the going concern basis of accounting and any material
uncertainties identified;
·
the directors' explanation as to its assessment of the
Company's prospects, the period this assessment covers and why the
period is appropriate;
·
the directors' statement on fair, balanced and
understandable;
·
the board's confirmation that it has carried out a robust
assessment of the emerging and principal risks;
·
the section of the annual report that describes the review of
effectiveness of risk management and internal control systems;
and
·
the section describing the work of the Audit
Committee.
Matters on
which we are required to report by exception
Adequacy of explanations received and accounting
records
Under the Companies (Guernsey) Law, 2008 we
are required to report to you if, in our opinion:
·
we have not received all the information and explanations we
require for our audit; or
·
proper accounting records have not been kept by the Company;
or
·
the financial statements are not in agreement with the
accounting records.
We have nothing to report in respect of these
matters.
Use of our
report
This report is made solely to the Company's
members, as a body, in accordance with Section 262 of the Companies
(Guernsey) Law, 2008. Our audit work has been undertaken so that we
might state to the Company's members those matters we are required
to state to them in an auditor's report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Stuart Crowley FCA
For and on behalf of Deloitte LLP
Recognised Auditor
St Peter Port, Guernsey
27 March 2024
AUDITED
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2023
|
|
|
|
2023
|
2022
|
|
Notes
|
Revenue £000
|
Capital £000
|
Total
£000
|
Total
£000
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
Dividend income
|
|
144
|
-
|
144
|
113
|
Foreign exchange gain
|
|
(386)
|
-
|
(386)
|
65
|
Net gain on financial assets at fair value
through profit or loss
|
5
|
-
|
40,169
|
40,169
|
4,374
|
Total
income
|
|
(242)
|
40,169
|
39,927
|
4,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
Operating expenses
|
3
|
(538)
|
-
|
(538)
|
(534)
|
Transaction costs
|
|
(55)
|
-
|
(55)
|
(22)
|
Total
expenses
|
|
(593)
|
-
|
(593)
|
(556)
|
|
|
|
|
|
|
Profit for the year before taxation
|
|
(832)
|
40,169
|
39,334
|
3,996
|
|
|
|
|
|
|
Taxation
|
6
|
(30)
|
(696)
|
(726)
|
(223)
|
|
|
|
|
|
|
Total
comprehensive income for the year
|
|
(865)
|
39,473
|
38,608
|
3,773
|
|
|
|
|
|
|
Earnings per Ordinary Share (pence)
|
4
|
|
|
40.01
|
3.88
|
|
|
|
|
|
|
Diluted earnings per Ordinary Share
(pence)
|
4
|
|
|
40.01
|
3.88
|
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 in Note 1.
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.
AUDITED
STATEMENT OF FINANCIAL POSITION
As at 31 December 2023
|
|
|
2023
|
|
2022
|
|
Notes
|
|
£000
|
|
£000
|
|
|
|
|
|
|
Non-current
asset
|
|
|
|
|
|
Financial assets designated at fair value
through profit or loss
|
5
|
|
169,649
|
|
134,986
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
5,009
|
|
646
|
Other receivables and prepayments
|
|
|
191
|
|
158
|
|
|
|
5,200
|
|
804
|
|
|
|
|
|
|
Current
liability
|
|
|
|
|
|
Payables and accruals
|
|
|
(254)
|
|
(214)
|
|
|
|
|
|
|
Net current assets
|
|
|
4,946
|
|
590
|
|
|
|
|
|
|
Non-current
liability
|
|
|
|
|
|
Deferred Taxation
|
6
|
|
(1,093)
|
|
(397)
|
|
|
|
|
|
|
Net
assets
|
|
|
173,502
|
|
135,179
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
Share capital
|
8
|
|
963
|
|
965
|
Reserves
|
|
|
172,539
|
|
134,214
|
|
|
|
|
|
|
Total
equity
|
|
|
173,502
|
|
135,179
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Ordinary Shares in issue
|
8
|
|
96,330,656
|
|
96,515,653
|
|
|
|
|
|
|
Net Asset Value per Ordinary Share
(pence)
- Undiluted and diluted
|
|
180.11
|
|
140.06
|
|
|
|
|
|
|
The audited financial statements were approved
by the Board of Directors on 27 March 2024 and signed on its behalf
by:-
Lynne
Duquemin
Patrick Firth
AUDITED
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2023
|
Note
|
Share Capital £000
|
Capital Reserve £000
|
Revenue Reserve £000
|
Other Distributable Reserve
£000
|
Total £000
|
|
|
|
|
|
|
|
|
Balance as at 1 January 2023
|
|
|
965
|
71,583
|
(10,524)
|
73,155
|
135,179
|
|
|
|
|
|
|
|
|
Gain on investments
|
|
|
-
|
39,473
|
-
|
-
|
39,473
|
|
|
|
|
|
|
|
|
Share repurchase
|
|
8
|
(2)
|
-
|
-
|
(283)
|
(285)
|
|
|
|
|
|
|
|
|
Total comprehensive income for the
year
|
|
|
-
|
-
|
-
|
(865)
|
(865)
|
|
|
|
|
|
|
|
Balance as at
31 December 2023
|
|
|
963
|
111,056
|
(10,524)
|
72,007
|
173,502
|
For the year ended 31 December 2022
|
Note
|
Share Capital
£000
|
Capital Reserve
£000
|
Revenue Reserve
£000
|
Other Distributable
Reserve £000
|
Total
£000
|
|
|
|
|
|
|
|
|
Balance as at 1 January 2022
|
|
|
1,121
|
67,408
|
(10,524)
|
93,026
|
151,031
|
|
|
|
|
|
|
|
|
Gain on investments
|
|
|
-
|
4,175
|
-
|
-
|
4,175
|
|
|
|
|
|
|
|
|
Share repurchase
|
|
8
|
(156)
|
-
|
-
|
(19,469)
|
(19,625)
|
|
|
|
|
|
|
|
|
Total comprehensive income for the
year
|
|
|
-
|
-
|
-
|
(402)
|
(402)
|
|
|
|
|
|
|
|
Balance as at 31 December 2022
|
|
|
965
|
71,583
|
(10,524)
|
73,155
|
135,179
|
AUDITED
STATEMENT OF CASH FLOWS
For the year ended 31 December 2023
|
|
|
2023
|
|
2022
|
|
Notes
|
|
£000
|
|
£000
|
|
|
|
|
|
|
Cash flows
from operating activities
|
|
|
|
|
|
Operating profit
|
|
|
39,334
|
|
3,996
|
|
|
|
|
|
|
Adjustments
for:
|
|
|
|
|
|
Net gain on financial assets at fair value
through profit or loss
|
|
|
(40,169)
|
|
(4,374)
|
Foreign exchange loss/(gain)
|
|
|
386
|
|
(65)
|
Dividend income
|
|
|
(144)
|
|
(113)
|
(Increase)/decrease in other receivables and
prepayments
|
|
|
(33)
|
|
22
|
Increase/(decrease) in payables and
accruals
|
|
|
40
|
|
(33)
|
Cash used in
operations
|
|
|
(586)
|
|
(567)
|
Withholding tax deducted
|
|
|
(30)
|
|
(24)
|
Net cash
flows used in operating activities
|
|
|
(616)
|
|
(591)
|
|
|
|
|
|
|
Cash flows
from investing activities
|
|
|
|
|
|
Dividend income
|
|
|
144
|
|
113
|
Acquisition of investments
|
5
|
|
(19,471)
|
|
(5,441)
|
Disposal of investments
|
5
|
|
24,977
|
|
23,615
|
Net cash
flows from investing activities
|
|
|
5,650
|
|
18,287
|
|
|
|
|
|
|
Cash flows
from financing activity
|
|
|
|
|
|
Redemption of shares
|
|
|
(285)
|
|
(19,625)
|
Net cash used
in financing activity
|
|
|
(285)
|
|
(19,625)
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents during the
year
|
|
|
4,749
|
|
(1,929)
|
|
|
|
|
|
|
Cash and cash equivalents at the start of the
year
|
|
|
646
|
|
2,510
|
|
|
|
|
|
|
Foreign exchange (loss)/gain
|
|
|
(386)
|
|
65
|
Cash and cash
equivalents at the end of the year
|
|
|
5,009
|
|
646
|
NOTES TO THE
AUDITED FINANCIAL STATEMENTS
1. Material
accounting Policies
Basis of accounting
The audited
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"),and the Companies
(Guernsey) Law, 2008 (Amendment) Ordinance, 2023. With effect from
1 January 2024, the Company intends to adopt IASB as adopted by the
UK. The Company's Guernsey registration number is
1030287.
Basis of preparation
The audited
financial statements for the year ended 31
December 2023 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, and
subsequently revised in November 2019, is consistent with the
requirements of IFRS, the Directors have sought to prepare
the audited financial
statements on a basis compliant with the recommendations of the
SORP, as applicable for a Guernsey incorporated company. 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 made an assessment of the Company's
ability to continue as a going concern for the twelve months from
the date of approval of these audited financial statements taking
into account all available information about the future including
the liquidity of the investment portfolio held both by the Company
and its subsidiary, ICG Q Limited (80.3% of the portfolio can be
liquidated within 5 days); the performance of the investment
portfolio (the net asset value of the Company increased 28.6% in
the year); the overall size of the Company and its impact on the
Ongoing Charges of the Company (the net asset value of the Company
exceeded £100m throughout the year); the level of operating
expenses covered by highly liquid investments held in the portfolio
(operating expenses are 50 times covered by highly liquid
investments); and the length of time to remit funds from India to
Mauritius and Guernsey to settle ongoing expenses (no more than 10
working days to have investments liquidated and sterling funds in
Guernsey).
Given the Company's previous performance, the
Directors proposed a continuation ordinary resolution at the
Extraordinary General Meeting held on 12 June 2020, at which the
Shareholders approved that the Company continue as currently
constituted and introduce a redemption facility which gives the
ordinary shareholders the ability to redeem part or all of their
shareholding at a Redemption Point every two years. The first
Redemption Point was on 31 December 2021 when valid redemption
requests were received in respect of ordinary shares
which were subsequently redeemed under the redemption facility in
accordance with the announced timetable.
The second redemption point was on 31 December
2023 when valid redemption requests were received in respect of
15,159,876 ordinary shares (15.7% of the then issued share capital)
which were subsequently redeemed under the redemption facility at a
total cost of £26.5m in accordance with the announced redemption
price on 8 January 2024. Since the year end, to
satisfy demand in the market, the Company has issued over 5.8m
shares from Treasury at a premium to NAV raising over £10.5m in new
capital, and bought back 150,000 shares at a significant discount
to NAV. As at 29 February 2024 the Company's net asset value
remains strong at £159.7m.
The next date at which shareholders will be
able to request the redemption of some or all of the shares is
scheduled to be 31 December 2025 for shareholders on the register
at 30 September 2025.
The Directors are satisfied that the Company
has sufficient liquid resources to continue in business for the
foreseeable future therefore the financial statements have been
prepared on a going concern basis.
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 audited financial
statements represent the stand-alone figures of the
Company.
Dividend income
Dividend income is recognised when
the right to receive payment is established.
Expenses
Expenses are accounted for on an
accrual 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.
Deferred taxation
Deferred taxation is recognised in
respect of all temporary differences at the Statement of Financial
Position 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 Statement of Financial Position
date. This is subject to deferred taxation 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 taxation assets and
liabilities are measured at the rates applicable to the legal
jurisdictions in which they arise, using enacted taxation rates
that are expected to apply at the date the deferred taxation
position is unwound.
Financial instruments
The Company's investment in ICGQ
Limited is designated at fair value through profit or loss as the
Company meets the definition of an investment entity under IFRS 10.
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 and are presented in the Capital column
of the Statement of Comprehensive Income
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, fair value is determined by
reference to the mid-market price ruling at the balance sheet date,
or if this is not available, the latest mid-price from the
Investment Manager.
Financial assets
Portfolio investments held by the
Company are stated at the mid-market price quoted on the Indian
Stock Exchanges. Purchases and sales are recognised on the trade
date - the date on which the Company commits to purchase or sell
the investment. Realised gains and losses are calculated with
reference to book cost on a FIFO (First in First out)
basis.
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.
Impairment of financial assets
The Company holds only cash and
cash equivalents with reputable institutions at amortised cost and,
as such, has chosen to apply an approach similar to the simplified
approach for expected credit losses ("ECL") under IFRS 9.
Therefore, the Company does not track changes in credit risk, but
instead, recognises a loss allowance based on lifetime ECLs at each
reporting date. The Company's approach to ECLs reflects a
probability-weighted outcome, the time value of money and
reasonable and supportable information that is
available without undue cost or
effort at the reporting date about past events, current conditions
and forecasts of future economic conditions.
Receivables and Payables
Receivables are non-derivative
financial assets with fixed or determinable payments that are not
quoted on an active market. These are initially recognised at fair
value plus transaction costs that are directly attributable to the
acquisition. Such financial assets are subsequently measured at
amortised cost using the effective interest rate method ("EIR"),
less impairment, such impairment to be determined using the
simplified expected credit losses approach in accordance with IFRS
9. Amortised cost is calculated by taking into account any discount
or premium on acquisition and fees or costs that are an integral
part of the EIR. The EIR amortisation is included in profit or
loss. The losses arising from impairment are recognised in profit
or loss.
Other financial liabilities
include all financial liabilities, other than those classified as
at fair value through profit or loss ("FVPL"), are initially
measured at fair value plus transaction costs. The Company includes
in this category short-term payables.
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
presentational currency of the audited
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 consists 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
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 audited financial
statements.
Treasury shares are equity instruments which
are created when the Company reacquires its own ordinary shares.
Treasury shares are recognised at the consideration paid, including
any attributable transaction costs net of income taxes. Where such
shares are subsequently sold or reissued, any consideration
received, net of transaction costs, is included in the
shareholders' equity. No gain or loss is recognised on the
purchase, sale, issue or cancellation of the Company's own ordinary
shares.
Changes in material accounting policies
New and revised
standards
The following standards and
interpretations (some of which are amendments to existing
standards) are effective for the first time for the financial
period beginning on or after 1 January 2023:
·
Amendments to IAS 1 Presentation of Financial
Statements and IFRS Practice Statement 2: Disclosure of Accounting
Policies (applicable for annual periods beginning on or after 1
January 2023)
·
Amendments to IAS 8 Accounting policies, Changes
in Accounting Estimates and Errors: Definition of Accounting
Estimates (applicable for annual periods beginning on or after 1
January 2023)
·
Amendments to IAS 12 Income Taxes: Deferred Tax
related to Assets and Liabilities arising from a Single Transaction
(applicable for annual periods beginning on or after 1 January
2023, but not yet endorsed in the EU)
·
Amendments to IAS 12 Income Taxes: International Tax Reform -
Pillar Two Model Rules (applicable for annual periods beginning on
or after 1 January 2023)
·
Amendments to IFRS 17 Insurance Contracts:
Amendments regarding the principles for the recognition,
measurement, presentation and disclosure of Insurance contracts
(applicable for annual periods beginning on or after 1 January
2023)
Other changes to accounting standards in the current year had no
material impact.
Standards and interpretations published, but not yet applicable for the
annual period beginning on or after 1 January 2023:
·
Amendments to IAS 1 Presentation of Financial
Statements: Classification of Liabilities as Current or Non-current
(applicable for annual periods beginning after 1 January 2024, but
not yet endorsed in the EU)
In January
2020 and October 2022, the IASB issued amendments to
paragraphs 69 to 76 of IAS 1 to specify the requirements for
classifying liabilities as current or non-current. The amendments
clarify:
a. What is meant by a right
to defer settlement;
b. That a right to defer
must exist at the end of the reporting period;
c. That classification
is unaffected by the likelihood that an entity will exercise its
deferral right; and
d. That only if an embedded
derivative in a convertible liability is itself an equity
instrument would the terms of a liability not impact its
classification.
In addition, a requirement has been introduced
to require disclosure when a liability arising from a loan
agreement is classified as
non-current and the entity's right to defer settlement is
contingent on compliance with future covenants within twelve
months.
The amendments are effective for annual
reporting periods beginning after 1 January 2024 and must be
applied retrospectively. The
Company is currently assessing the impact the amendments will have
on current practice.
·
Amendments to IFRS 16: Lease Liability in a Sale
and Leaseback
In September
2022, the IASB issued amendments to IFRS 16 to specify the
requirements that a seller-lessee uses in measuring the lease
liability arising in a sale and leaseback transaction, to ensure
the seller-lessee does not recognise any amount of the gain or loss
that relates to the right of use it retains.
The amendments are effective for annual
reporting periods beginning after 1 January 2024 and must be
applied retrospectively to
sale and leaseback transactions entered into after the date of
initial application of IFRS 16. Earlier application is permitted,
and that fact must be disclosed.
The amendments
are not expected to have a material impact on the Company's
audited financial statements.
Other changes to accounting standards in the current year had no
material impact.
·
Amendments to IAS7 and IFRS 7: Supplier Finance
Arrangements
In May 2023, the IASB issued amendments to IAS
7 Statement of Cash Flows and IFRS 7 Financial
Instruments:
Disclosures to clarify the characteristics of
supplier finance arrangements and require additional disclosure of
such arrangements. The disclosure requirements in the amendments
are intended to assist users of financial statements in
understanding the effects of supplier finance arrangements on an
entity's liabilities, cash flows and exposure to liquidity
risk.
The amendments will be effective for annual
reporting periods beginning after 1 January 2024. Early adoption is
permitted but will need to be disclosed.
The amendments are not expected to have a
material impact on the Company's audited financial
statements.
The Directors anticipate that the adoption of
the above Standards in future years will have no material impact on
the audited financial statements of the Company in the year of
initial application.
2. Critical
accounting judgements and key sources of estimation
uncertainty
Directors make judgements, estimates and
assumptions that affect 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 judgements 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.
Critical
accounting judgements
IFRS 10 defines an investment entity and
requires a reporting entity that meets the definition of an
investment entity not to consolidate its subsidiaries, but instead
to measure its subsidiaries at fair value through profit or loss in
its audited financial statements.
An investment entity is defined as an entity
that:
·
Obtains funds from one or more investors for the purpose of
providing them with professional investment
management services.
·
Commits to its investor(s) that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income, or both.
·
Measures and evaluates performance of substantially all of
its investments on a fair value basis.
The board has concluded that the Company is an
investment entity as it satisfies more than one of the typical
characteristics of an investment entity as noted above.
Key sources
of estimation uncertainty
The Company invests in listed shares to which
no estimation is required to determine the closing values. The
underlying investments in ICG Q are all listed
securities.
3. Operating
expenses
|
|
|
2023
|
|
2022
|
|
|
|
£000
|
|
£000
|
|
|
|
|
|
|
Administration and secretarial fees
|
|
|
84
|
|
77
|
Audit fees
|
|
|
52
|
|
66
|
Broker fee
|
|
|
23
|
|
31
|
D&O insurance
|
|
|
8
|
|
10
|
Directors' fees and expenses
|
|
|
126
|
|
120
|
General expenses
|
|
|
60
|
|
63
|
Marketing expenses
|
|
|
88
|
|
94
|
Other professional fees
|
|
|
45
|
|
36
|
Registrar fee
|
|
|
7
|
|
12
|
Regulatory fees
|
|
|
45
|
|
25
|
|
|
|
538
|
|
534
|
4. Earnings
per share
Earnings per Ordinary Share and the fully
diluted earnings per share are calculated on the profit for the
year of £38,608,000 (2022 - profit of £3,773,000) divided by the
weighted average number of Ordinary Shares of 96,487,421 (2022
- 97,279,178).
5. Financial
assets at fair value through profit or loss
Financial assets at fair value through profit
or loss consists of investments in securities listed on Indian
Stock Exchanges, namely the National Stock Exchange or the Bombay
Stock Exchange, as well as investment in the wholly owned
subsidiary, ICG Q Limited. A summary of movements is as
follows:
|
|
|
|
2023
|
|
2022
|
|
|
|
|
£000
|
|
£000
|
|
|
|
|
|
|
|
Fair value at beginning of year
|
|
|
|
134,986
|
|
148,786
|
Disposal of investments
|
|
|
|
(24,977)
|
|
(23,615)
|
Acquisition of investments
|
|
|
|
19,471
|
|
5,441
|
Realised gains on disposal of
investments
|
|
|
17,181
|
|
15,787
|
Unrealised gains/(losses) on
revaluation
|
|
|
|
22,988
|
|
(11,413)
|
|
|
|
|
|
|
|
Fair value at
end of year
|
|
|
|
169,649
|
|
134,986
|
The net realised and unrealised gains above
totalling £40,169,000 (2022: £4,374,000) on financial assets at
fair value through profit and loss comprise gains on the
Company's holding in ICG Q Limited of £35,412,000 (2022:
gains of £2,554,000) and gains of £4,757,000 (2022: gains of
£1,820,000) arising from investments in securities listed on Indian
stock markets. The movement arising from the Company's holding in
ICG Q Limited is driven by the following amounts within the
audited financial statements of ICG Q
Limited.
|
2023
|
|
2022
|
|
£000
|
|
£000
|
|
|
|
|
Dividend income
|
959
|
|
950
|
Unrealised gain/(loss) on financial assets at
fair value through profit and loss
|
24,310
|
|
(14,289)
|
Foreign exchange loss
|
(2,612)
|
|
(442)
|
Realised gain on disposal of
investments
|
19,035
|
|
17,935
|
Investment management fees
|
(1,702)
|
|
(1,370)
|
Other operating expenses
|
(91)
|
|
(79)
|
Withholding tax on dividend income
|
(197)
|
|
(199)
|
Deferred taxation for Indian Capital Gains
Tax
|
-
|
|
201
|
Other Taxes
|
(4,208)
|
|
(55)
|
Transaction costs
|
(82)
|
|
(98)
|
Net profit of
ICG Q Limited
|
35,412
|
|
2,554
|
The equity investment represents ICG Q
Limited, the Company's wholly owned subsidiary. ICG Q Limited is
incorporated and has its principal place of business in the
Republic of Mauritius. The Company holds Participating Shares in
ICG Q Limited, which confer voting rights to the Company, hence
controlling interests.
6.
Taxation
Guernsey
India Capital Growth Fund Limited is exempt
from taxation in Guernsey on non-Guernsey sourced income. The
Company is exempt under The Income Tax (Exempt Bodies) (Guernsey)
Ordinance 1989 (as amended) and paid the annual exemption fee of
£1,200. For the year ended 31 December 2023, the Company had a tax
liability of £Nil (2022: £Nil).
India
Capital gains arising from equity investments
in Indian companies are subject to Indian Capital Gains Tax
Regulations. Consequently, with effect from April 2020, the Company
and its subsidiary, ICGQ Limited, have been subject to both short
and long-term capital gains tax in India on the growth in value of
their investment portfolios at the rate of 15% and 10%
respectively. Although this additional tax only becomes payable at
the point at which the underlying investments are sold and profits
crystallised, the Company and its subsidiary must accrue for this
additional cost as a deferred taxation liability, notwithstanding
that they seek to minimise the impact of these taxation rates
applicable to capital gains by maintaining its investment strategy
of investing in a concentrated portfolio for long-term capital
appreciation. The deferred taxation liability relating to Indian
capital gains tax for the Company was £1,093,000 at 31 December
2023 (2022: £397,000) and for its subsidiary was £7,833,000 at 31
December 2023 (2022: £4,187,000).
Dividend
withholding tax
The Company and its subsidiary are also
subject to withholding tax on their dividend income in India. The
withholding tax charge for the Company for the year ended 31
December 2023 was £30,000 (2022: £24,000) and for its subsidiary
was £197,000 (2022: £199,000).
Minimum
top-up tax
The Company has adopted mandatory
exception to the International Tax Reform - Pillar Two Model Rules
(Amendments to IAS 12) upon their release on 23 May 2023. The
amendments provide a temporary mandatory exception from deferred
tax accounting for the top‑up tax, which is effective immediately,
and require new disclosures about the Pillar Two exposure. However,
because no new legislation to implement the top‑up tax was enacted
or substantively enacted in India hence no related deferred tax was
recognised at that date, the retrospective application has no
impact on the Company's financial statements.
7. Segmental
information
The Board has considered the provisions of
IFRS 8 in relation to segmental reporting and concluded that the
Company's activities are from a single segment under the standard.
From a geographical perspective, the Company's activities are
focused in a single area - India. The subsidiary, ICG Q Limited,
focuses its investment activities in listed securities in India.
Additional disclosures have been provided in this Annual Report as
elaborated in the Directors' Report to disclose the underlying
information.
8. Share
capital
Authorised
Share Capital
Unlimited number of Ordinary Shares of £0.01
each
Issued and
Paid Share Capital
|
Number of
shares
|
Share
Capital
|
|
|
£000
|
Ordinary shares of £0.01 each:
|
|
|
At 31 December 2022
|
96,515,653
|
965
|
Shares transferred to treasury
|
(184,997)
|
(2)
|
At 31
December 2023
|
96,330,656
|
963
|
The Ordinary Shares of the Company carry the
following rights:
(i) The holders of Ordinary
Shares have the right to receive in proportion to their holdings
all the revenue profits of the Company (including accumulated
revenue reserves) attributable to the Ordinary Shares as a class
available for distribution and determined to be distributed by way
of interim and/or final dividend at such times as the Directors may
determine.
(ii) On a winding-up of the
Company, after paying all the debts attributable to and satisfying
all the liabilities of the Company, holders of the Ordinary Shares
shall be entitled to receive by way of capital any surplus assets
of the Company attributable to the Ordinary Shares as a class in
proportion to their holdings.
(iii) Subject to any special rights or
restrictions for the time being attached to any class of shares, on
a show of hands every member present in person has one vote. Upon a
poll every member present in person or by proxy has one vote for
each share held by him.
Treasury
shares
There was a total buy back of 184,997 ordinary
shares during the year ended 31 December 2023. These shares were
transferred from Issued Share Capital Account to Treasury Shares
Account and were purchased at a discount to the Net Asset Value per
share, as per below:
Date
|
Number of shares
|
Par Value (£)
|
Buy Back Price
(£)
|
Value of Buy back
(£)
|
27 October 2023
|
50,000
|
0.01
|
1.425
|
71,250
|
8 November 2023
|
34,997
|
0.01
|
1.575
|
55,120
|
9 November 2023
|
100,000
|
0.01
|
1.590
|
159,000
|
Total
|
184,997
|
|
|
285,370
|
Other
distributable reserves
Other distributable reserves includes all
other gains and losses during the year except for the realised and
unrealised gains and losses on the investments measured at FVTPL.
Other distributable reserves includes foreign exchange gains and
losses made on ordinary transactions, dividend income and general
expenses, as well as taxation.
9. Fair value
of financial instruments
The following tables show financial
instruments recognised at fair value, analysed between those whose
fair value is based on:
·
Quoted prices in active markets for identical assets or
liabilities (Level 1);
·
Those involving inputs other than quoted prices included in
Level 1 that are observable for the asset or liability, either
directly (as prices) or indirectly (derived from prices) (Level 2);
and
·
Those with inputs for the asset or liability that are not
based on observable market data (unobservable inputs) (Level
3).
The analysis as at 31 December 2023 is as
follows:
|
LEVEL 1
|
|
LEVEL 2
|
|
LEVEL 3
|
|
TOTAL
|
|
£000
|
|
£000
|
|
£000
|
|
£000
|
|
|
|
|
|
|
|
|
Listed securities
|
34,948
|
|
-
|
|
-
|
|
34,948
|
Unlisted securities
|
-
|
|
134,701
|
|
-
|
|
134,701
|
Total
|
34,948
|
|
134,701
|
|
-
|
|
169,649
|
The analysis as at 31 December 2022 is as
follows:
|
LEVEL 1
|
|
LEVEL 2
|
|
LEVEL 3
|
|
TOTAL
|
|
£000
|
|
£000
|
|
£000
|
|
£000
|
|
|
|
|
|
|
|
|
Listed securities
|
14,038
|
|
-
|
|
-
|
|
14,038
|
Unlisted securities
|
-
|
|
120,948
|
|
-
|
|
120,948
|
Total
|
14,038
|
|
120,948
|
|
-
|
|
134,986
|
The Company's investment in ICG Q Limited, the
Company's wholly owned subsidiary is priced based on the
subsidiary's net asset value as calculated as at the reporting
date. The Company has the ability to redeem its investment in ICG Q
Limited at the net asset value at the measurement date therefore
this is categorised as level 2. The classification within the
hierarchy does not necessarily correspond to the Investment
Manager's perceived risk of the investment, nor the level of the
investments held within the subsidiary. All the underlying
investments of ICG Q Limited are categorised as level 1 at 31
December 2023 and 2022. The year-end fair value of those
investments, together with cash held in ICG Q Limited, comprise all
but an insignificant proportion of the net asset value of the
subsidiary.
There has been no movement between levels for
the year ended 31 December 2023. There were no changes in valuation
techniques during the year ended 31 December 2023.
10. Financial
instruments and risk profile
The primary objective of the Company is to
provide long-term capital appreciation by investing predominantly
in companies based in India. The investment policy permits making
investments in a range of equity and equity linked securities of
such companies. The portfolio of investments comprises of listed
Indian companies, predominantly mid cap and small cap. The specific
risks arising from exposure to these instruments and the Investment
Manager's policies for managing these risks, which have been
applied throughout the period, are summarised below:
Capital
management
The Company is a closed-ended investment
company and thus has fixed capital for investment. It has no legal
capital regulatory requirement. The Board has the power to purchase
shares for cancellation thus reducing capital and the Board
considers on a regular basis whether it is appropriate to exercise
such powers. In the year ended 31 December 2023, the Board
determined that it was inappropriate to exercise such powers,
although continuation of these powers will be sought at the Annual
General Meeting.
The Board also considers from time to time
whether it may be appropriate to raise new capital by a further
issue of shares. The raising of new capital would, however, be
dependent on there being genuine market demand.
Environmental
and social ("E&S") impact risk
E&S impact risk is a transverse risk that
impacts most of our other risks: market risk, foreign currency
risk, credit risk, liquidity risk, operational non-financial risk,
legal and regulatory risk, and reputation risk. Our Investment
Manager has developed a qualitative scoring model which measures
climate and other environmental impacts and the reporting thereof
by the Company's investment portfolio companies.
The Investment Manager considers all factors that
may have a financial material impact on returns. Climate change is
a key factor. The related physical and transition risks are vast
and are becoming increasingly financially material for many
investments. Not only in the obvious high-emitting sectors, such as
energy, utilities and transportation, but also along the supply
chain, providers of finance and in those reliant on agricultural
outputs and water. It is important that the financial implications
of material climate-change risks are assessed across all asset
classes, including real assets, and make portfolios more resilient
to climate risk. Comparable climate-related data is necessary to
enable effective decision making, and is something the Investment
Manager actively sources and incorporates into its process and
scoring model. Regular engagement with all investee companies
allows the Investment Manager to better understand their exposure
and management of climate change risks and influence corporate
behaviour positively in relation to climate risk management.
Market
risk
Market price risk arises mainly from the
uncertainty about future price of the financial instrument held by
the Company and its subsidiary, ICG Q Limited ("the Group"). It
represents the potential loss the Group may suffer through holding
market positions in the face of price movements.
The Group's investment portfolio is exposed to
market price fluctuations, including the impact of inflation, which
are monitored by the Investment Manager in pursuit of the
investment objectives and policies and in adherence to the
investment guidelines and the investment and borrowing powers set
out in the Admission Document. The Group's investment
portfolio is concentrated and, as at 31 December 2023, comprised
investment in less than 35 companies. Thus, the Group has higher
exposure to market risk in relation to individual stocks than more
broadly spread portfolios.
The Investment Manager has a team on the
ground in India who keep abreast of the latest political
developments and economic forecasts that may impact the listed
equities market in India and regularly advise the Board
thereof.
The Group's investment portfolio consists
predominantly of mid cap and small cap listed Indian securities,
and thus the effect of market movements is not closely correlated
with the principal market index, the BSE Sensex. The BSE Mid Cap
Total Return Index provides a better (but not ideal) indicator of
the effect of market price risk on the portfolio. Assuming perfect
correlation, the sensitivity of the Group's investment portfolio to
market price risk can be approximated by applying the percentage of
funds invested (2023: 90.90%; 2022: 97.3%) to any movement in the
BSE Mid Cap Total Return Index.
At 31 December 2023, with all other variables
held constant, this approximation would produce a movement in the
net assets of the Group's investment portfolio of £16,590,731
(2022: £13,423,000) for a 10% (2022: 10%) movement in the index
which would impact the Company via a fair value movement of the
same magnitude in its holding in ICG Q Limited and its
investments.
Foreign
currency risk
Foreign currency risk arises mainly from the
fair value or future cash flows of the financial instruments held
by the Group fluctuating because of changes in foreign exchange
rates. The Group's investment portfolio consists of predominantly
Rupee denominated investments but reporting, and in particular the
reported Net Asset Value, is denominated in Sterling. Any
appreciation or depreciation in the Rupee would have an impact on
the performance of the Company. The underlying currency risk in
relation to the Group's investment portfolio is the Rupee. The
Group's policy is not to hedge the Rupee exposure. The Group may
enter into currency hedging transactions but appropriate mechanisms
on acceptable terms are not expected to be readily
available.
At 31 December 2023, if the Indian Rupee had
strengthened or weakened by 10% (2022: 10%) against Sterling with
all other variables held constant, pre-tax profit for the period
would have been £20,910,238 (2022: £13,913,000) higher or lower,
respectively, mainly as a result of foreign exchange gains or
losses on translation of Indian Rupee denominated financial assets
designated at fair value through profit or loss in ICG Q Limited,
the consequent impact on the fair value of the Company's investment
in ICG Q Limited and in the Company's investment
portfolio.
Credit
risk
Credit risk arises mainly from an issuer or
counterparty being unable to meet a commitment that it has entered
into with the Group. Credit risk in relation to securities
transactions awaiting settlement is managed through the rules and
procedures of the relevant stock exchanges. In particular
settlements for transactions in listed securities are affected by
the custodian on a delivery against payment or receipt against
payment basis. Transactions in unlisted securities are affected
against binding subscription agreements.
The principal credit risks are in relation to
cash held by the custodian. Kotak Mahindra Bank Limited ("Kotak")
acts as the custodian to the Group. The aggregate exposure to Kotak
at 31 December 2023 was £65,379 (2022: £4,897,000).
Kotak acted as custodian of the Group's assets
during the period. The securities held by Kotak as custodian are
held in trust and are registered in the name of the Group. Kotak
has a long-term credit rating of AAA (CRISIL Ratings - a S&P
company).
Interest rate
risk
Interest rate risk represents the uncertainty
of investment return due to changes in the market rates of
interest. The direct effect of movements in interest rates is not
material as any surplus cash is predominantly in Indian Rupees, and
foreign investors are not permitted to earn interest on Rupee
balances.
Liquidity
risk
Liquidity risk arises mainly from the Group
encountering difficulty in realising assets or otherwise raising
funds to meet financial commitments. As the trading volume on the
Indian stock markets is lower than that of more developed stock
exchanges the Group may be invested in relatively illiquid
securities. The Group has no unlisted securities, and its focus is
to invest predominantly in mid and small cap listed stocks.
However, there remain holdings where there is relatively little
market liquidity, which may take time to realise. The Directors do
not believe that the market is inactive enough to warrant a
discount for liquidity risk on the Group's investment portfolio.
ICG Q Limited seeks to maintain sufficient cash to meet its working
capital requirements. The Directors do not believe it to be
appropriate to adjust the fair value of the Company's investment in
ICG Q Limited for liquidity risk, as it has the ability to affect a
disposal of any investment in ICG Q Limited's investment portfolio
at the prevailing market price and the distribution of proceeds
back to the Company should it so wish.
All liabilities are current and due on
demand.
Taxation
risk
Taxation risk arises mainly from the taxation
of income and capital gains of ICG Q Limited and the Company
increasing as a result of changes in the tax regulations and
practice in Guernsey, Mauritius and India. The Company and ICG Q
Limited are registered with the Securities and Exchange Board of
India ("SEBI") as a foreign portfolio investor ("FPI") with a
Category I licence, and ICG Q Limited holds a Global Business
Licence in Mauritius and has obtained a Mauritian Tax Residence
Certificate ("TRC") which have been factors in determining its
resident status under the India-Mauritius Double Taxation Avoidance
Agreement ("DTAA") and General Anti Avoidance Rules ("GAAR") under
the Income Tax Act 1961 ("ITA").
However, with effect from April 2017, the DTAA
was amended such that the advantages of investing in India via
Mauritius were removed and capital gains arising from investments
in Indian companies are subject to Indian Capital Gains Tax
regulations. Consequently, tax on short-term capital gains (for
investments held less than 12 months) of 15% and long-term capital
gains (for investments held for 12 months or longer) of 10% apply
to the investment portfolio.
The Group seeks to minimise the impact of
these changes in the taxation rates applicable to its capital gains
by maintaining its investment strategy of investing in a
concentrated portfolio for long-term capital
appreciation.
11. Related
party transactions and material contracts
Parties are considered to be related if one
party has the ability to control the other party or exercise
significant influence over the other party in making financial or
operational decisions. The Directors are responsible for the
determination of the investment policy and have overall
responsibility for the Company's activities. Directors' fees are
disclosed in the unaudited Directors' remuneration
report.
During the year 2023, the investment
management fee was equivalent to 1.25 per cent per annum of the
aggregate value of its assets less current liabilities, calculated
and payable monthly in arrears. The Investment Manager earned
£1,702,000 in management fees during the year ended 31 December
2023 (2022: £1,370,000) of which £162,000 was outstanding at 31
December 2023 (2022: £125,000).
Under the terms of the Administration
Agreement, Apex Fund and Corporate Services (Guernsey)
Limited is entitled to a minimum annual fee of
US$41,000 or a fee of 5 basis points of the NAV of the Company,
whichever is greater. The Administrator is also entitled to
reimbursement of all out-of-pocket expenses recoverable by way of a
fixed disbursement charge of US$50 per month excluding all
international calls and courier. The Administrator earned £84,000
for administration and secretarial services during the year ended
31 December 2023 (2022: £77,000) of which £23,000 was outstanding
at 31 December 2023 (2022: £19,000).
12.
Contingent liabilities
The Directors are not aware of any contingent
liabilities as at 31 December 2023 and at the date of approving
these audited financial statements.
13.
Significant events
On 6 March 2023, AssetCo PLC founded and
chaired by Martin Gilbert, acquired the Company's investment
manager, Ocean Dial Asset Management Limited. The successful
investment team in India, led by Gaurav Narain, continues
unchanged.
14. Ultimate
controlling party
In the opinion of the Directors of the
Company, the Company has no ultimate controlling party
15.
Subsequent events
During the month of January 2024, 15,159,876
ordinary shares, equivalent to 15.7% of the shares in issue as at
31 December 2023 (excluding treasury shares), were redeemed at
174.08p per Redemption Share. These Redemption Shares were held in
treasury following the redemption of shares paid in January 2024,
which resulted in a £26.2m reduction in the net asset value of the
Company.
During the period from 31 December 2023 to the
date of signing of these Financial Statements, 5,828,500 shares
have been issued from Treasury and 150,000 shares bought back into
Treasury.
Following the transactions, the Company's
issued share capital comprises:
- 87,274,156 Ordinary Shares (excluding
treasury shares)
- 25,228,017 Ordinary Shares held in
treasury
- 112,502,173 Ordinary Shares (including
treasury and redemption shares)
There are no other material events since the
end of the reporting period which would require disclosure or
adjustment to the audited financial statements for the year ended
31 December 2023.