Annual Financial Report

RNS Number : 9549H
New India Investment Trust PLC
07 June 2011
 



NEW INDIA INVESTMENT TRUST PLC

ANNUAL FINANCIAL REPORT

 

for the period ended 31 March 2011

 

1.     Chairman's Statement

 

Highlights

 

-         Share Price Total Return +11.1%

-         Net Asset Value Total Return  +12.3%

-         Benchmark Total Return  +3.6%

 

I am pleased to report that your Company performed very well in what was a challenging year for Indian equities. The Company's net asset value per Ordinary share rose by 12.3% to 268.9p, while the Ordinary share price gained 11.1% to end the period at 243.5p, reflecting a slight widening of the discount to net asset value from 8.4% to 9.4%. This performance compares favourably to that of the Company's benchmark, the MSCI India Index, which rose by 3.6%.

 

The last five years have been testing, both because of the financial and economic crisis and because the performance of your Company relative to its benchmark has at times seemed poor. Having written before about the conservative style of the Manager and how it can result in short-term underperformance, particularly in rising markets, it is now pleasing to report that over the five-year period ended 31 March 2011, on an annualised basis, the Company's portfolio returned 16.4% (before warrant dilution and costs) compared with a return of 14.0% in the benchmark. Your Board believes that your Manager's bottom-up stock picking approach, which focuses on balance sheet discipline, proven management and simple cash-generating businesses with identifiable competitive advantages, is a sound one, and likely to continue to reward shareholders over the longer term.

 

Indian equities advanced over the year under review, despite external headwinds including Europe's debt crisis and political upheaval across the Arab world. By and large, investor confidence was supported by steady economic and corporate performance at home. It was not, however, all good news on the domestic front. Uncomfortably high inflation, driven by rising energy and food prices, became increasingly worrisome; the Reserve Bank of India sensibly responded by raising its main lending and borrowing rates by a total of 175 and 225 basis points respectively.Corruption revelations also beset the government and spooked foreign investors. Sadly, graft is neither new - nor unique - to India, and it is to the government's credit that some action was taken. Apart from a Cabinet reshuffle, some high-profile individuals, including a former minister, were arrested. There is no denying that greater deterrents are needed, however.

 

On a more optimistic note, the new Budget contained agricultural investment incentives alongside higher infrastructure spending, which are welcome steps towards tackling India's key weaknesses. A renewed commitment to fiscal consolidation was another positive. The government plans to reduce the budget deficit to 4.6% of GDP; the sale of stakes in state-owned enterprises will help in this endeavour.

 

Against such a backdrop, the Company's holdings in Tata Consultancy Services and Godrej Consumer Products were among the period's top contributors to performance; both have been adroit at adapting to the changing environment. Not holding market heavyweight Reliance Industries also proved advantageous as margin pressures weighed on its share price. A detailed performance analysis is set out in the Manager's Report.

 

Share Capital

Your Board was pleased to report a 25.7% increase in the number of Ordinary shares in issue on 4 August 2010 following the final conversion of the remaining 12.1m warrants at 100p per share.

 

Continuation of Company and Manager

Under the terms of the Investment Management Agreement with the Company, the Manager's performance against the MSCI India Index is measured over each financial year ended 31 March 2011. For the year under review, the Manager has earned £1.2m which represents the first performance fee paid to the Manager since their appointment in December 2004.

 

Your Board has carefully considered the reappointment of your Manager in light of the performance of your Company, not only in the year under review, but also in previous periods. The Manager's recent performance, long-term track record and well-understood investment style make a good case for their continued appointment.

 

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

 

Annual General Meeting

The Annual General Meeting ("AGM") will be held at Bow Bells House, 1 Bread Street, London EC4M 9HH on Thursday, 22 September 2011 at 11.00 a.m.

 

As required by the Company's Articles of Association, both Sarah Bates and myself shall each retire and seek re-election at the AGM. Your Board, having reviewed the reasons for the re-election of Sarah Bates, strongly recommends shareholders to vote in favour of her reappointment. The non-retiring Directors, in my absence, have strongly recommended that shareholders support my own re-election.

 

In addition to the ordinary business of the meeting, shareholders will be asked to; authorise the Board to buy back up to 14.99% of the Company's issued share capital; authorise the issue of new shares representing 5% of the present issued share capital; authorise the issue of new shares representing 5% of the present issued share capital otherwise than by a pro rata issue to existing shareholders (i.e., pre-emption); approve the continuation of the Company as an investment trust; and to authorise the adoption of new Articles of Association. In respect of the issue of shares from treasury, the Board's policy is kept under review but remains broadly unchanged from last year. The Board would only expect to sell shares from treasury at a maximum discount of 3% to the prevailing diluted NAV at the time of issue. Your Board recommends that shareholders vote in favour of these resolutions, and intends to do so in respect of its own shareholdings.

 

As at previous AGMs, there will be a presentation by the Manager and an opportunity to meet the Directors over coffee following the meeting.

 

Outlook

The Indian stockmarket, like many others around the world, may struggle to make progress in the near term. Elevated oil prices have inflated energy costs and this is understandably concerning, given the country's reliance on oil imports. More monetary policy tightening is needed - and should come as no surprise. Indeed it ought to be welcomed as a sign that the central bank is prepared to address the medium-term problem of inflation in order to lay the foundation for healthy long-term economic development. Inflation can threaten corporate and economic well-being, and it would be unwise to make light of price concerns. That said, inflationary pressures are growing pains often encountered by fast-growing emerging countries.

 

In all, the occasional bumps in the short term do not detract from India's indisputable potential. Its large consumer market, relatively inexpensive yet skilled workforce and continuous socio-economic developments are big draws. But it is at the corporate level where India truly stands out. The country has a large pool of high-quality companies that thrive despite notorious bureaucratic hurdles and infrastructure shortcomings. The current headwinds suggest that picking the right stocks could prove even more vital. Your Board continues to believe that the portfolio, with its well-run and financially sound companies, is in good shape to weather future uncertainties as well as prosper in better times.

 

William Salomon

Chairman

 

6 June 2011

 

2.     Manager's Report

 

Overview

During the 12 months ended 31 March 2011, the portfolio's net asset value rose by 12.3% in sterling terms compared with a total return of the benchmark, the MSCI India Index, of 3.6%.

 

Among our holdings, Tata Consultancy Services and Godrej Consumer Products were noteworthy contributors to performance. Tata's earnings were lifted by the recovery in discretionary IT spending and the continuous trend towards IT outsourcing. Its geographic diversity has positioned it strongly in the current recovery. As for Godrej, robust demand from emerging markets boosted its sales. Its strong emerging markets presence allows it to cross sell its portfolio of brands and products across a number of markets. Our bank holdings, Housing Development Finance Corporation (HDFC) and ICICI Bank, whose growth has tended to outpace that of the overall economy, also contributed positively to relative return.

 

Conversely, MphasiS was the key detractor. Its shares were pressured by a decline in quarterly revenue while margins contracted sharply on the back of lower billing rates, shadowing the weak results of parent and main client Hewlett Packard. Nevertheless, the company has a healthy balance sheet, continues to generate cash and should benefit further from its professional team of software engineers. Hero Honda was another laggard. Higher raw material costs weighed on its earnings while initial uncertainty surrounding the termination of its partnership with Japan's Honda Motor also depressed its share price.

 

At the sector level, the lack of exposure to energy, which underperformed the benchmark, served us well. In particular, not holding index heavyweight Reliance Industries contributed significantly. The integrated energy producer suffered from lower refining margins and delays in its exploration projects. These setbacks reinforce our view that the company's move into non-core areas may be diverting attention away from its core strengths.

 

Over the year, Indian equities posted positive absolute returns as investors took to heart the country's solid economic growth prospects. Sentiment was also lifted by upbeat earnings news as companies gained from recovering demand, both at home and abroad. This held true for many of our holdings. However, a bout of profit-taking amid persistent inflationary fears and interest rate hikes caused stock prices to fall sharply over January and February, paring the year's gains and relegating the local market to that of regional laggard.

 

Economic News

India's robust economic growth continued unabated during the review period, supported by credit expansion and consumer demand. In the quarter to December, GDP growth slowed to a still healthy 8.2% year-on-year. More recently, manufacturing output accelerated in January, as did services in February. A modest reliance on exports also continued to shield it from growth uncertainties overseas. The finance ministry expects GDP to reach 9.1% for the year ended March 2011 compared with 7.4% achieved in the previous year.

 

The strong growth was accompanied by inflation. Coupled with the effects of a weak monsoon, the benchmark wholesale-price index climbed to a 21-month high of 11% year-on-year in April. The central bank, the region's most proactive, raised interest rates six times during the review period, bringing its key bank lending and borrowing rates to 6.75% and 5.75% respectively. This helped to moderate goods price gains but while inflation cooled to 8.98% by the period-end, it remains higher than desired. A political bugbear was escalating food costs due to a combination of rising demand, poor harvests for some perishables and supply chain bottlenecks. Public protests compelled the government to control food exports and relax import curbs for some products. Compounding the situation was the rise in the oil price following the upheavals in the Arab world in February, which disrupted oil production. India imports three-quarters of its oil needs.

 

Not surprisingly, the Budget for the fiscal year to March 2012 chose to focus on spending to help citizens cope with rising prices. It includes cash subsidies for food, fuel and fertilisers, especially for those in low income groups, as well as incentives for investments in agriculture. Spending on infrastructure, healthcare and defence was also increased.

 

On the political front, the Congress party's prospects deteriorated despite receiving a strong mandate in the previous year. A chief grouse was high food costs but a string of corruption scandals also dented its popularity and hurt investor sentiment. The former telecom minister was accused of auctioning 2G licences at below-market rates in 2008. Meanwhile, several officials from Indian state-owned banks were arrested for allegedly accepting huge bribes to approve corporate loans. Prime Minister Manmohan Singh tried to restore confidence by reshuffling his Cabinet but the move was criticised for failing to remove controversial officials or promote new, untarnished ones.

 

After prior outperformance, the MSCI India Index rose 3.6% in sterling terms over the review period compared to a total return of around 12.0% in the MSCI AC Asia Pacific ex Japan Index.

On a separate note, authorities, in an attempt to increase liquidity, stipulated that public-listed companies, with the exception of state-owned enterprises, would be required to maintain a free float of at least 25%, up from 10% previously.

 

Sector Views

Information Technology

India has significant competitive advantage in software and IT services given its well educated, English-speaking, yet inexpensive workforce and a flourishing scientific community. Although sentiment remains cautious, main markets in North America are recovering, with more customers committing to job contracts again. This has driven an upward adjustment of wages and an acceleration in the recruitment of software engineers. In light of this, our holdings have delivered more positive earnings guidance.

 

We remain major investors in leading software outsourcing companies Infosys Technologies and Tata Consultancy Services. Both have a deep bench of software engineering teams located globally and continue to generate strong cash flow. Tata Consultancy Services reported solid March year-end results while Infosys' earnings were decent. We added to both holdings during the year.

 

Energy

The ongoing challenge of providing the Indian public with a reliable, reasonably priced energy supply remains incomplete, unpredictable and politicised. The government continued to increase prices for selected energy products and provide relief to oil marketing companies that have had to absorb the upsurge in energy prices. It remains uncommitted to any comprehensive, transparent regulatory framework.

 

In view of the industry challenges and a lack of transparency and predictability, we have chosen not to have an exposure to the sector. We reiterate our reservations about index heavyweight Reliance Industries because its aggressive expansion into untested oil and gas exploration as well as forays into retail and industrial park activities appear overly ambitious to us. These are areas that require extensive capital outlay and ones in which the company has neither a proven track record nor in our opinion a clear, competitive advantage.

 

Financials

We have a large exposure to the sector as we see the banks playing a central role in providing finance for consumer spending. Our core holdings are ICICI Bank, a leading lender whose strength is in the urban retail segment, and HDFC, the largest and most proficient domestic mortgage company. Overall, HDFC, as the more conservative of the two banks, has weathered the liquidity crunch better. As such, we maintain a larger weight in HDFC than in ICICI Bank.

 

HDFC's sound capital position has enabled it to manage growth across its many businesses. Both HDFC and its associate, HDFC Bank, continue to maintain healthy net interest margins while growing their loan portfolios despite higher interest rates. HDFC Bank posted loan growth of 27% year-on-year in the March quarter while maintaining good asset quality.

 

ICICI Bank has been strengthening its balance sheet, consolidating its capital and slowing the expansion of its loan book. The new CEO, Chanda Kochhar, is committed to bolstering its deposit base before pursuing further loan growth. Furthermore, it reined in risk by trimming its overseas exposure. The Bank also received regulatory approval to buy Bank of Rajasthan, which will enhance its branch network in northern and western India. For the December quarter, net profits rose over 30% year-on-year as provisions fell sharply. We topped up the holding during the year.

 

Conversely, we divested Bank of Baroda after a good run and in view of better opportunities elsewhere.

 

The bribery scandal, meanwhile, did not taint any of our bank holdings.

 

Consumer Discretionary

The consumer discretionary sector has huge growth potential in view of India's expanding middle class and rising disposable incomes. Despite a period of consolidation in the automotive sector that followed a spell of unprecedented expansion, the motorcycle segment remains resilient as the two-wheelers are relatively affordable and often seen as a necessity rather than a luxury.

 

We hold Hero Honda, the country's biggest two-wheeler manufacturer. Hero Honda has continued to grow, winning back market share from rival Bajaj Auto by capitalising on its superior rural distribution network and introducing a more attractive range of models. Major shareholders Honda Motor of Japan and the Munjal family agreed to an amicable split with Honda selling its stake in the company to the family. Honda will continue to operate independently in India through its wholly owned subsidiary and Hero Honda will be able to sell motorbikes in overseas markets that it had been barred from by the Japanese company previously.

 

Consumer Staples

We have four holdings in the fast-moving consumer goods sector, each with a core business that adds a unique facet to the portfolio. Hindustan Unilever is the locally listed subsidiary of Unilever, which makes and distributes brands in soaps, detergents and personal care. ITC, an associate of British American Tobacco, has a thriving core business in tobacco and a diversified range of businesses that includes packaged food and confectioneries as well as paper, packaging and hotels. We also hold Godrej Consumer Products, a leader in the personal, hair, household and fabric care segments in both India and selected emerging markets.

 

During the year, we also introduced Nestle India, which is experiencing fast growth given its leading positions in niche food, chocolate and milk products. Its strong brands and quality products allow it to maintain a healthy margin unlike its weaker competitors. 

 

These companies have strong brands that generate resilient cash flows and tap into India's growing middle class. Their most recent quarterly results attest to the profitability of these businesses. Hindustan Unilever, however, saw earnings fall marginally on the back of higher costs. Nonetheless, the company managed to boost sales growth. We further believe the impact of cost pressures should be temporary given its dominant position in the domestic market.

 

Materials

Grasim Industries, the flagship company of the Birla Group, remains our core holding in this sector. The leading cement group in India and the world's eighth largest in terms of capacity, Grasim is well positioned to benefit from firm housing demand and infrastructure spending. In the course of grouping its cement assets under one entity, the Birla group distributed shares in Ultratech Cement (through our holding in Grasim). As a result of this restructuring, we hold shares in both Grasim and Ultratech, which will remain our core investments in the building materials segment.

 

We complement the position in Grasim with Ambuja Cements. Owned and controlled by Swiss cement group Holcim, Ambuja Cements has a substantial network of production and distribution facilities. Holcim recently raised its stake in the company as a means to gain greater exposure to India's long-term demand for cement.

 

In portfolio activity, we sold paints and coatings company Akzo Nobel as we felt it lacked clear commitment to its Indian operations despite having acquired ICI India in 2008.

 

Healthcare

Despite the increasingly challenging regulatory environment in the US, a major export market, India has considerable competitive advantage in the pharmaceutical sector given its relatively low costs and access to a substantial talent pool.

 

Our holdings include a mix of multinational subsidiaries (GlaxoSmithKline Pharmaceuticals, Aventis Pharma) seeking to sell to the local market as well as domestic companies (Sun Pharmaceutical, Piramal Healthcare), which take advantage of their low-cost manufacturing base to penetrate overseas markets.

 

After a three-year legal tussle, Sun Pharmaceutical finally acquired a controlling stake in Israeli generic drugmaker Taro Pharmaceutical Industries; it will build on Taro's expertise in dermatology and paediatrics as well as its presence in North America and Israel. Separately, production was suspended at Caraco, Sun's US-listed subsidiary, because it failed to meet the prescribed manufacturing practices advocated by the US Food and Drug Administration. Subsequently, Sun supplanted Caraco's senior management and is working towards compliance. We are cautiously optimistic that the new team will succeed in achieving its goal. The impact on earnings is not expected to exceed 15% of Sun's consolidated after-tax profits.

 

Piramal Healthcare sold its non-core diagnostics business and used the proceeds to reward shareholders with a buyback of up to 20% of its shares. We participated in this buyback, which was priced at an attractive premium to the prevailing market price. The company retains a large net cash position following the sale of its domestic formulations business.

 

On the earnings front, GlaxoSmithKline Pharmaceuticals reported steady profit growth in the December quarter. Aventis Pharma posted a 40% year-on-year increase in net profits in the quarter to March; earlier it paid out special dividends, returning to shareholders cash from the sale of its stake in Chiron Behring Vaccines.

 

Industrials

We hold ABB India and Container Corporation in this sector. Electrical engineering group ABB is the listed subsidiary of Swiss group Asea Brown Boveri and a beneficiary of the government's infrastructure investments. Owned by Indian Rails, Container Corporation is a near-monopolistic provider of rail freight and logistics services.

 

ABB acquired Bangalore-based Metsys Engineering and Consultancy to augment its capabilities in the steel industry. Earnings wise, the company struggled during the year from intense competition and price erosion even though top line growth recovered across all segments. We tendered a portion of our shares in the company after its parent offered a significant premium to its trading price to enlarge its stake in the unit.

 

Improved trading volumes supported Container Corporation's decent full-year results while its net cash position continued to grow.

 

Utilities

We are investors in Gas Authority of India (GAIL), the country's largest gas distribution company. GAIL has a sound balance sheet and is poised to benefit from the country's growing industrialisation and rising consumption. The company aims to achieve Rs450 billion in revenue by 2011. GAIL won government approval to lay 5,000km of new pipeline and plans to invest Rs5 billion in its gas business. It will also partner Reliance Industries in overseas petrochemical projects. Additionally, its board approved more than Rs80 billion for the extension of the national gas pipeline network from Uttar Pradesh to West Bengal.

 

We also hold Tata Power, a power generator and distributor; and Gujarat Gas, a gas distributor in which British Gas holds a majority stake.

 

Telecommunication Services 

Despite their dominance, or perhaps because of it, large players such as Bharti Airtel, Reliance Communications, Vodafone and Idea continue to battle fiercely to maintain market share. Some regulatory developments have proven beneficial but newsflow is currently dominated by the 2G licensing scandal.

 

In the latest developments, both disgraced former telecom minister A Raja and Shahid Balwa, the promoter of DB Realty and Swan Telecom, were arrested for allegedly accepting kickbacks in 2008 for the sale of 2G licences at below-market rates, which may have resulted in the government losing US$39 billion in potential revenue.

 

We hold Bharti Airtel, a leading integrated telecom services provider with a nationwide presence that has benefited from its strategic tie-up with Singapore Telecommunications (now the largest shareholder). We are confident that the company's focus on the growing rural segment and competent leadership will help it maintain its dominance in the local cellular market. It also intends to grow in other emerging markets through acquisitions and is focused on turning around the selected African operations of Zain Telecommunications, which it had acquired earlier.

 

Bharti's revenue has improved but net profits were burdened by domestic competition and costs associated with the acquisition of Zain's African assets.

 

Strategy

Market volatility is likely to persist in the near term. Inflationary pressures, compounded by the still unfolding crisis in the Middle East, will continue to support the case for higher interest rates, particularly since real rates remain negative. This risks slowing economic growth and hurting corporate profits. The domestic market thus remains vulnerable to renewed profit-taking. At the macro level, there are doubts over the government's ability to pare the budget deficit given the higher spending planned for various sectors. Investor sentiment also hinges on how ongoing corruption cases play out. Despite these uncertainties, India's strengths are indisputable, particularly over the longer term. It has a favourable demographic profile, which will underpin consumption and industrial output for years to come. It is home to many dynamic companies that are shareholder-friendly and with proven track records while the deregulation of key industries will continue to attract foreign investments. On our part, we will not change our investment strategy, which has worked well for the portfolio. In other words, we will continue to seek out robust companies at attractive prices that will produce good results over the long term.

 

Aberdeen Asset Management Asia Limited

Manager

 

6 June 2011

3.     Business Review

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

 

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

 

The Board regularly reviews the major strategic risks that the Board and the Manager have identified, and against these the Board sets out the delegated controls designed to manage those risks. Aside from the risks associated with investment in Indian equities or those of companies that derive significant revenue or profit solely from India, the key risks related to investment strategy are managed through a defined investment policy, specific guidelines and restrictions, and by the process of oversight at each Board meeting, as outlined above. Operational disruption, accounting and legal risks are also covered annually, and regulatory compliance is reviewed at each Board meeting. The major risks associated with the Company are detailed in the Corporate Summary, and in note 17 to the Financial Statements.

 

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

 

4. Corporate Summary

 

The Company

New India Investment Trust PLC ("New India" or the "Company") is an investment trust and its Ordinary shares are listed on the London Stock Exchange. The Company is a member of the Association of Investment Companies.

 

Investment Manager

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

 

Investment Objective

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

 

Investment Policy

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

 

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

 

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

 

Currency and Hedging Policy

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

 

Borrowing Policy and Gearing

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

 

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

 

Investment Restrictions

It is the investment policy of the Group to invest no more than 15 per cent of its gross assets in other listed investment companies (including listed investment trusts). The Group does not have any investments in other listed investment companies at 31 March 2011.

 

Benchmark

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

 

Capital Structure

As at 31 March 2011 and the date of approval of this Report, the Company had a capital structure comprising 59,070,140 Ordinary shares of 25p with voting rights.

 

Net Asset Value

At 31 March 2011, the Company had total shareholders' funds of £158.8m and a net asset value of 268.9 pence per Ordinary share.

 

Websites

www.newindia-trust.co.uk

www.aberdeen-asset.com

 

Company Secretary

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

Email: company.secretary@invtrusts.co.uk

 

Customer Services

Freephone: 0500 00 00 40

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

Email: inv.trusts@aberdeen-asset.com

 

Principal Risks and Uncertainties

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

 

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

 

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

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

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

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

-       changes in or breaches of the complicated set of statutory, tax and regulatory rules within which the Company seeks to conduct its business; this includes the impact on the Company of the introduction of the European Commission's Directive on Alternative Investment Fund Managers; and

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

 

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

 

Duration

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

 

Capital Gains Tax

To assist those shareholders who invested in the Company at launch in the calculation of capital gains, the apportionment of cost between Ordinary shares and Warrants on 31 March 1994, the first day on which dealing in ordinary shares and warrants took place separately, was 91.2% and 8.8% respectively. The final exercise date for the Warrants was 2 August 2010.

 

Management Agreement

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

 

5. Results

 

Financial Highlights

 

31 March 2011

31 March 2010

% change

Total equity shareholders' funds (net assets)

£158,842,000

£129,320,000

+22.8

Share price (mid market)

243.50p

219.25p

+11.1

Net asset value per share{A}

268.90p

239.44p

+12.3

Discount to net asset value

9.4%

8.4%






Total return per share

31.71p

139.19p


Revenue return/(loss) per share

0.15p

(0.63p)


Revenue reserves per share

1.56p

1.79p


Prospective gross portfolio yield {B}

1.4%

1.1%


MSCI India portfolio yield {B}

1.0%

0.9%


Prospective portfolio P/E ratio {C}

22x

20x






Operating costs




Total expense ratio - excluding performance fee

1.53%

1.64%


Total expense ratio - including performance fee

2.36%

n/a



{A}      Due to all outstanding warrants being exercised in the latest period the basic net asset value disclosed at 31 March 2010 is the diluted net asset value. This has been done to ensure the true uplift in the period is reflected.

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

{C}       Consensus broker views.

 

Performance (total return)

1 year

3 year

5 year


% return

% return

% return

Share price

+11.1

+75.5

+75.2

Net asset value per Ordinary share

+12.3

+66.8

+84.0

MSCI India Index (sterling adjusted)

+3.6

+39.8

+92.0

 

6.     Statement of Directors' Responsibilities

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

 

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

 

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

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

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

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

-       make judgments and estimates that are reasonable and prudent.

 

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

 

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations. 

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

We confirm that to the best of our knowledge:

 

-           the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and Group; and

-           the Directors' Report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.

 

Sarah Bates

Chairman of the Audit Committee

 

6 June 2011

CONSOLIDATED AND STATEMENT OF COMPREHENSIVE INCOME

 

 

CONSOLIDATED AND COMPANYBALANCE SHEETS

 


Group

Company

Group

Company



As at

As at

As at

As at



31 March

31 March

31 March

31 March



2011

2011

2010

2010


Notes

£'000

£'000

£'000

£'000

Non-current assets






Investments held at fair value through profit or loss

9

157,540

158,307

129,110

129,269



__________

__________

__________

__________

Current assets






Cash at bank

10

2,923

652

289

82

Other receivables

11

600

48

220

40



__________

__________

__________

__________

Total current assets


3,523

700

509

122



__________

__________

__________

__________

Total assets


161,063

159,007

129,619

129,391



__________

__________

__________

__________

Current liabilities






Other payables

12

(2,221)

(165)

(299)

(71)



__________

__________

__________

__________

Total current liabilities


(2,221)

(165)

(299)

(71)



__________

__________

__________

__________

Net assets


158,842

158,842

129,320

129,320



__________

__________

__________

__________

Share capital and reserves






Ordinary share capital

13

14,768

14,768

11,739

11,739

Share premium account


25,406

25,406

12,290

12,290

Special reserve


15,778

15,778

15,778

15,778

Warrant reserve


 -

 -

3,801

3,801

Warrant exercise reserve


 -

 -

228

228

Capital redemption reserve


4,484

4,484

4,484

4,484

Capital reserve

14

97,483

97,789

80,160

80,182

Revenue reserve


923

617

840

818



__________

__________

__________

__________

Equity shareholders' funds


158,842

158,842

129,320

129,320



__________

__________

__________

__________

Net asset value per Ordinary share (pence):

15





Basic


268.90

268.90

275.42

275.42



__________

__________

__________

__________

Diluted


n/a

n/a

239.44

239.44



__________

__________

__________

__________


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

 

Year ended 31 March 2011












 Share 



 Warrant

 Capital





 Share

 premium

 Special

 Warrant

 exercise

 redemption

 Capital

 Revenue



 capital

 account

 reserve

 reserve

 reserve

 reserve

 reserve

 reserve

 Total


 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

Balance at 31 March 2010

11,739

12,290

15,778

3,801

228

4,484

 80,160

 840

129,320

Net gain on ordinary activities after taxation

-

-

-

-

-

-

17,323

 83

17,406

Issue of share capital upon exercise of Warrants

  3,029

9,087

-

 (3,801)

3,801

-

-

-

12,116

Transfer following final exercise of Warrants

-

 4,029

-

-

(4,029)

-

-

-

-


______

________

________

________

________

________

________

_______

_______

Balance at 31 March 2011

14,768

25,406

15,778

-

-

4,484

 97,483

 923

158,842


______

________

________

________

________

________

________

_______

_______











Year ended 31 March 2010












 Share 



 Warrant

 Capital





 Share

 premium

 Special

 Warrant

 exercise

 redemption

 Capital

 Revenue



 capital

 account

 reserve

 reserve

 reserve

 reserve

 reserve

 reserve

 Total


 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

Balance at 31 March 2009

11,577

11,807

15,778

 4,003

26

 4,484

14,844

 1,134

63,653

Net gain/(loss) on ordinary activities after taxation

-

-

-

-

-

-

 65,316

 (295)

65,021

Return of unclaimed dividends

-

-

-

-

-

-

-

 1

1

Issue of share capital upon exercise of Warrants

162

483

-

 (202)

 202

-

-

-

645


______

________

________

________

________

________

________

_______

_______

Balance at 31 March 2010

11,739

12,290

15,778

 3,801

228

4,484

 80,160

840

129,320


______

________

________

________

________

________

________

_______

_______


COMPANY STATEMENT OF CHANGES IN EQUITY

 

Year ended 31 March 2011












 Share 



 Warrant

 Capital





 Share

 premium

 Special

 Warrant

 exercise

 redemption

 Capital

Revenue



 capital

 account

 reserve

 reserve

 reserve

 reserve

 reserve

 reserve

 Total


 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

Balance at 31 March 2010

11,739

12,290

15,778

3,801

228

4,484

80,182

818

129,320

Net gain/(loss) on ordinary activities after taxation

-

-

-

-

-

-

17,607

(201)

17,406

Issue of share capital upon exercise of Warrants

3,029

9,087

-

 (3,801)

3,801

-

-

-

12,116

Transfer following final exercise of Warrants

-

4,029

-

-

(4,029)

-

-

-

-


______

________

________

________

________

________

________

_______

_______

Balance at 31 March 2011

14,768

25,406

15,778

-

-

4,484

97,789

 617

158,842


______

________

________

________

________

________

________

_______

_______











Year ended 31 March 2010












 Share 



 Warrant

 Capital





 Share

 premium

 Special

 Warrant

 exercise

 redemption

 Capital

Revenue



 capital

 account

 reserve

 reserve

 reserve

 reserve

 reserve

 reserve

 Total


 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

Balance at 31 March 2009

11,577

11,807

15,778

4,003

26

4,484

14,840

1,138

 63,653

Net gain/(loss) on ordinary activities after taxation

-

-

-

-

-

-

65,342

(321)

 65,021

Return of unclaimed dividends

-

-

-

-

-

-

-

1

1

Issue of share capital upon exercise of Warrants

162

483

-

(202)

202

-

-

-

645


______

________

________

________

________

________

________

_______

_______

Balance at 31 March 2010

11,739

12,290

15,778

3,801

228

4,484

80,182

818

129,320


______

________

________

________

________

________

________

_______

_______

 

 

CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS

 


Year ended

Year ended



31 March 2011

31 March 2010



Group

Company

Group

Company


Notes

£'000

£'000

£'000

£'000

Operating activities






Profit before tax


17,399

17,406

65,022

65,021

Gains on investments held at fair value through profit or loss


  (18,679)

  (17,730)

  (65,516)

(65,389)

Net losses on foreign exchange


131

34

200

47

Net purchases of investments held at fair value through profit or loss


  (9,751)

(11,308)

  (1,379)

 (1,006)

Increase in amounts due from brokers


  (266)

-

-

-

(Increase)/decrease in other receivables


(107)

(8)

(31)

2

Increase/(decrease) in amounts due to brokers


575

-

(11)

-

Increase in other payables


1,347

94

91

5



__________

__________

__________

__________

Net cash outflow from operating activities


 (9,351)

(11,512)

(1,624)

  (1,320)







Financing activities






Exercise of Warrants


12,116

12,116

645

645

Return of unclaimed dividends


-

-

1

  1



__________

__________

__________

__________

Net increase/(decrease) in cash and cash equivalents


2,765

604

  (978)

(674)







Cash and cash equivalents at the start of the year


289

82

1,467

803

Effect of foreign exchange rate changes


  (131)

 (34)

(200)

 (47)



__________

__________

__________

__________

Cash and cash equivalents at the end of the year

10

2,923

652

289

82



__________

__________

__________

__________


Notes to the Financial Statements:

 

1.

Principal activity


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




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

 

2.

Accounting policies


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




(a)

Basis of preparation



The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 31 March 2011. There are no differences between the accounting policies applied in the Group and the Company.






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






The Group and Company financial statements are presented in Sterling, which is the currency of the primary economic environment in which the Group operates. All values are rounded to the nearest thousand pounds (£'000) except when otherwise indicated.






Where presentational guidance set out in the Statement of Recommended Practice ("SORP"): 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued by the Association of Investment Companies ("AIC") in January 2009, is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.






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



-

IFRS 9 - Financial Instruments: Classification and Measurement (effective for annual periods beginning on or after 1 January 2013). This standard has not yet been adopted by the EU.



-

Amendments to IFRS 1 - First-time Adoption of IFRSs - Financial Instrument Disclosures (effective for annual periods beginning on or after 1 July 2010).



-

Amendments to IFRS 7 - Financial Instruments: Disclosures on Derecognition (effective for annual periods beginning on or after 1 July 2011).



-

Amendments to IAS 1 - First-time Adoption - Narrow scope on fixed dates and hyperinflation (effective for annual periods beginning on or after 1 July 2011)



-

Amendments to IAS 12 - Income taxes - deferred tax amendment (effective for annual periods beginning on or after 1 January 2012).



-

Amendments to IAS 24 - Related Party Disclosures (effective for annual periods beginning on or after 1 January 2011).



-

IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on or after 1 July 2010).



-

Amendments to IFRIC 14 - Prepayments of a Minimum Funding Requirement (effective for annual periods beginning on or after 1 January 2011).






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





(b)

Group accounts



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






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





(c)

Presentation of Group Statement of Comprehensive Income



In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Group Statement of Comprehensive Income between items of revenue and capital nature has been presented in the Group Statement of Comprehensive Income. In accordance with the Company's status as a UK investment company under Section 833 of the Companies Act 2006, net capital returns may not be distributed by way of dividend.





(d)

Segmental reporting



The Directors are of the opinion that the Group is engaged in a single segment of business, being investment business.





(e)

Income



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





(f)

Expenses and interest payable



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



-

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



-

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





(g)

Taxation



The charge for taxation is based on the revenue return for the financial year.






Deferred tax



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





(h)

Investments



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






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






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





(i)

Cash and cash equivalents



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





(j)

Other receivables and payables



Other receivables do not carry any interest and are short-term in nature, and are, accordingly, stated at their nominal value. Other payables are non-interest bearing and are stated at their nominal value.





(k)

Dividends payable



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





(l)

Nature and purpose of reserves



Special reserve



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






Capital redemption reserve



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






Capital reserve



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






Revenue reserve



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





(m)

Foreign currency



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

 


Year ended

Year ended



31 March 2011

31 March 2010

3.

Income

£'000

£'000


Income from investments




Overseas dividends

2,333

1,330






Other operating income




Deposit interest

5

5



___________

___________


Total income

2,338

1,335



___________

___________

 


Year ended 31 March 2011

Year ended 31 March 2010



Revenue

Capital

Total

Revenue

Capital

Total

4.

Investment management fees

£'000

£'000

£'000

£'000

£'000

£'000


Investment management fees

1,487

 -

1,487

996

 -

996


Performance fee

 -

1,225

1,225

 -

 -

 -



_______

_______

_______

_______

_______

_______



1,487

1,225

2,712

996

 -

996



_______

_______

_______

_______

_______

_______










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




During the year, the management fee was payable monthly in arrears and was based on an annual amount of 1% of the net asset value of the Group, valued monthly. The agreement is terminable on one year's notice. The balance due to AAM Asia at the year end was £250,000 (2010 - £200,000). All investment management fees are charged 100% to the revenue column of the Group Statement of Comprehensive Income.




Additionally, the Manager is entitled to a performance-related investment management fee calculated in respect of each financial year to 31 March (the "measurement period") and payable in arrears. The fee is 10% of the amount by which the net asset value per share of the Company (adjusted to add back any performance fees paid or accrued during the measurement period, calculated on a consolidated basis for the Group, and diluted by the deemed exercise of all the Warrants), exceeds the Company's net asset value per share on either the first business day of the current measurement period or at the end of the most recent measurement period in respect of which a performance fee has been paid, whichever is higher, multiplied by the number of Ordinary shares in issue at the start of the measurement period.




At the year end there was a performance fee due to the Manager of £1,225,000 (2010 - £nil), charged 100% to the capital column of the Group Statement of Comprehensive Income.

 


Year ended

Year ended



31 March 2011

31 March 2010

5.

Other administrative expenses - revenue

£'000

£'000


Directors' fees

102

87


Marketing contribution

83

64


Auditors' remuneration




-

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

26

25


-

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

7

6


-

for other services relating to taxation provided to the Group

15

-


-

for other services relating to taxation provided to the subsidiary

6

-


Legal and advisory fees

48

53


Custodian and overseas agents' charges

328

220


Other

160

178



___________

___________



775

633



___________

___________






Directors' fees include £4,634 (2010 - £3,518) paid in respect of the Directors of New India Investment Company (Mauritius) Limited.




The Company has an agreement with Aberdeen Asset Management plc ('AAM plc') for the provision of marketing services in relation to the Company's participation in the Aberdeen Investment Trust Share Plan and ISA. The total fees paid and payable under the agreement during the year were £83,000 (2010 - £64,000) and no amount was due to AAM plc at the year end (2010 - £nil).

 



Year ended 31 March 2011

Year ended 31 March 2010




Revenue

Capital

Total

Revenue

Capital

Total

6.

(a)

Tax on ordinary activities

£'000

£'000

£'000

£'000

£'000

£'000



Current tax:









Overseas taxation

(7)

-

(7)

1

-

1




______

______

______

______

______

______


(b)

Factors affecting the tax charge for the year









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









Year ended 31 March 2011

Year ended 31 March 2010




Revenue

Capital

Total

Revenue

Capital

Total




£'000

£'000

£'000

£'000

£'000

£'000



Profit/(loss) before tax

76

17,323

17,399

(294)

65,316

65,022




______

______

______

______

______

______



Corporation tax on profit at the standard rate of 28% (2010 - 28%)

22

4,850

4,872

(82)

18,288

18,206



Effects of:









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

-

(5,230)

(5,230)

-

(18,344)

(18,344)



Currency losses not taxable

-

37

37

-

56

56



Movement in excess expenses

631

343

974

-

-

-



Non-taxable dividend income

(653)

-

(653)

83

-

83



Overseas tax

(7)

-

(7)

-

-

-




______

______

______

______

______

______



Total tax charge

(7)

-

(7)

1

-

1




______

______

______

______

______

______












The Company has excess expenses of £1,550,000 (2010 - £1,069,000) carried forward. It is considered too uncertain that there will be sufficient taxable profits against which these expenses can be offset and, therefore, in accordance with IAS 12, a deferred tax asset of £403,000 (2010 - £299,000) has not been recognised. Any excess management expenses will be utilised against any taxable income that may arise in the future.






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

 

7.

Dividends on equity shares


No final dividend is being proposed for the year ended 31 March 2011 (2010 - £nil).




During the year there were no amounts refunded in respect of unclaimed dividends from previous years (2010 - £1,000).




During the year, the subsidiary Company made a dividend payment of £150,000 (2010 - £nil) to the parent Company, and the net amount due to the parent Company at the year end was £nil (2010 - £nil).

 

8.

Return per Ordinary share


The basic earnings per Ordinary share is based on the net profit after taxation of £17,406,000 (2010 - £65,021,000) and on 54,882,122 (2010 - 46,713,932) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.




The calculation of the diluted returns per Ordinary share is carried out in accordance with IAS 33, "Earnings per Share". For the purposes of calculating diluted returns per Ordinary share, the number of Ordinary shares is the weighted average used in the basic calculation plus the number of Ordinary shares deemed to be issued for no consideration on exercise of all Warrants by reference to the average share price of the Ordinary shares during the year. As all Warrants were exercised in the year, there is no dilutive impact on the returns per Ordinary share for 2011. The calculations for the year ended 31 March 2010 indicated that the exercise of Warrants would result in an increase in the weighted average number of Ordinary shares of 5,099,802, to a total of 51,813,734 Ordinary shares.




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







Year ended

Year ended



31 March 2011

31 March 2010


Basic

Capital

Total

Revenue

Capital

Total


Net profit/(loss) (£'000)

17,323

17,406

(295)

65,316

65,021


Weighted average number of Ordinary shares in issue


54,882,122



46,713,932


Return per Ordinary share (pence)

31.56

31.71

(0.63)

139.82

139.19



________

__________

________

________

__________












Year ended




31 March 2010


Diluted

Revenue

Capital

Total


Net (loss)/profit (£'000)

(295)

65,316

65,021


Weighted average number of Ordinary shares in issue



51,813,734


Return per Ordinary share (pence) 

(0.57)

126.06

125.49



________

________

__________

 


Year ended

Year ended



31 March 2011

31 March 2010

9.

Investments held at fair value through profit or loss

£'000

£'000


(a)

Group





Opening book cost

57,747

50,515



Opening investment holdings fair value gains

71,363

11,700




__________

__________



Opening valuation

129,110

62,215



Movements in the year:





Purchases at cost (see section (c) below)

23,580

11,513



Sales -          proceeds

(13,829)

(10,134)



           -          realised net gains

8,254

5,853



Increase in investment holdings gains

10,425

59,663




__________

__________



Closing valuation

157,540

129,110




__________

__________









£'000

£'000



Closing book cost

75,752

57,747



Closing investment holdings fair value gains

81,788

71,363




__________

__________



Closing valuation

157,540

129,110




__________

__________








Gains on investments

£'000

£'000



Realised gains on sales of investments

8,254

5,853



Increase in investment holdings gains

10,425

59,663




__________

__________




18,679

65,516




__________

__________







Year ended 31 March 2011

Year ended 31 March 2010




Investments

Investments




In subsidiary

Overseas

Total

In subsidiary

Overseas

Total


(b)

Company

£'000

£'000

£'000

£'000

£'000

£'000



Opening book cost

41,150

3,689

44,839

41,150

2,169

43,319



Opening investment holdings fair value gains

80,913

3,517

84,430

18,583

972

19,555




_________

_______

_______

_________

_________

________



Opening valuation

122,063

7,206

129,269

59,733

3,141

62,874



Movements in the year:









Purchases

9,000

3,448

12,448

-

1,853

1,853



Sales -      proceeds

-

(1,140)

(1,140)

-

(847)

(847)



          -     realised net gains

-

410

410

-

514

514



Increase in investment holdings fair value gains

16,414

906

17,320

62,330

2,545

64,875




_________

_______

________

_________

_________

________



Closing valuation

147,477

10,830

158,307

122,063

7,206

129,269




_________

______

_______

_________

________

_______













Year ended 31 March 2011

Year ended 31 March 2010




Investments

Investments




In subsidiary

Overseas

Total

In subsidiary

Overseas

Total




£'000

£'000

£'000

£'000

£'000

£'000



Closing book cost

50,150

6,407

56,557

41,150

3,689

44,839



Closing investment holdings fair value gains

97,327

4,423

101,750

80,913

3,517

84,430




_________

_________

_______

_________

________

______



Closing valuation

147,477

10,830

158,307

122,063

7,206

129,269




_________

_________

_______

_________

_________

_______







As at

As at




31 March 2011

31 March 2010



Gains on investments

£'000

£'000



Realised gains on sales of investments

410

514



Increase in investment holdings gains

17,320

64,875




___________

___________




17,730

65,389




___________

___________








The overseas investments held are in listed stocks with the exception of a holding in Ultratech Cement GDR which is currently unlisted. The value of this holding at the year end was £223,000 (2010 - all listed).






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






The investment in the subsidiary is valued at fair value, which is deemed to be its underlying net asset value.






All investments are categorised at held at fair value through profit or loss, and were designated as such upon initial recognition.





(c)

Transaction costs



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







Year ended

Year ended




31 March 2011

31 March 2010




Group

Company

Group

Company




£'000

£'000

£'000

£'000



Purchases

85

2

39

-



Sales

38

-

40

-




________

________

________

________




123

2

79

-




________

________

________

________

 


Group

Company

Group

Company



2011

2011

2010

2010

10.

Cash and cash equivalents

£'000

£'000

£'000

£'000


Cash at bank

2,923

652

289

82



________

________

________

________

 


Group

Company

Group

Company



2011

2011

2010

2010

11.

Other receivables

£'000

£'000

£'000

£'000


Due from brokers

266

-

-

-


Prepayments and accrued income

316

48

209

40


Current tax recoverable

18

-

11

-



________

________

________

________



600

48

220

40



________

________

________

________


None of the above amounts are past their due date or impaired.

 


Group

Company

Group

Company



2011

2011

2010

2010

12.

Other payables

£'000

£'000

£'000

£'000


Amounts due to brokers

575

-

-

-


Other payables

1,646

165

299

71



________

________

________

________



2,221

165

299

71



________

________

________

________

 


2011

2010

13.

Ordinary share capital

Number

£'000

Number

£'000


Authorised






Ordinary shares of 25p each

200,000,000

50,000

200,000,000

50,000



________

________

________

________


Issued and fully paid






Ordinary shares of 25p each :






Balance brought forward

46,954,143

11,739

46,309,458

11,577


Warrants exercised during the year

12,115,997

3,029

644,685

162



________

________

________

________


Balance carried forward

59,070,140

14,768

46,954,143

11,739



________

________

________

________








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




As at 31 March 2011, there were no Warrants in issue (31 March 2010 - 12,115,997).




During the year, and following the final exercise date, the remaining 12,115,997 (2010 - 644,685) Warrants were exercised at a price of 100p each, creating 12,115,997 (2010 - 644,685) new Ordinary shares which were issued for a total consideration of £12,115,997 (2010 - £644,685). As a result of this, £3,801,033 (2010 - £202,251) was transferred from the Warrant Reserve to the Warrant Exercise Reserve.




Ownership of Subsidiary


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




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




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




The subsidiary also has the right to repurchase both Warrants in part or in whole.




Partial repurchase of Subsidiary Warrant


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




As at 31 March 2011, there are two Warrants in issue (2010 - one) carrying the right for the Company to subscribe for 37,945,000 and 1,321,417 (2010 - 37,945,000, and nil) new Preference shares of 10p in the Subsidiary at £20 and £40 per share respectively.




Capital management


The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders.




The capital structure of the Company consists of cash, cash equivalents and equity, comprising issued capital, reserves and retained earnings.




The Group's overall strategy remains unchanged from 2010.

 


2011

2010

14.

Capital reserves

£'000

£'000


Group




At 1 April 2010

80,160

14,844


Currency losses

(131)

(200)


Movement in investment holdings fair value gains

10,425

59,663


Gain on sales of investments

8,254

5,853


Capitalised expenses

(1,225)

-



________

________


At  31 March 2011

97,483

80,160



________

________






The capital reserve includes gains of £81,788,000 (2010 - £71,363,000) which relate to the revaluation of investments held at the reporting date.







2011

2010


Company

£'000

£'000


At 1 April 2010

80,182

14,840


Currency losses

(34)

(47)


Movement in investment holdings fair value gains

17,320

64,875


Gain on sales of investments

410

514


Capitalised expenses

(89)

-



________

________


At 31 March 2011

97,789

80,182



________

________






The capital reserve includes gains of £101,750,000 (2010 - £84,430,000) which relate to the revaluation of investments held at the reporting date.

 

15.

Net asset value per Ordinary share


The basic net asset value per Ordinary share is based on a net asset value of £158,842,000 (2010 - £129,320,000) and on 59,070,140 (2010 - 46,954,143) Ordinary shares, being the number of Ordinary shares in issue at the year end.




The diluted net asset value per Ordinary share is calculated by reference to the total number of Ordinary shares in issue at the year end and on the assumption that those Warrants which are not exercised at the year end were exercised on the first day of the financial year at 100p per share. There is no diluted calculation for 2011 due to the final exercise of all remaining Warrants during the year. In 2010 the diluted calculation assumed 12,115,997 Warrants were exercised on the first day of the financial year at 100p per share, giving a total of 59,070,140 Ordinary shares.

 

16.

Financial instruments


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




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




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




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




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




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




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




(i)

Market price risk



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






Interest rate risk



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






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






Financial assets



The interest rate risk profile of the Group's financial assets, excluding equity shares which are non-interest bearing and short-term debtors, as at 31 March 2011 and 31 March 2010 was as follows:




Total





(per  Balance Sheet)

Floating rate




2011

2010

2011

2010



Type

£'000

£'000

£'000

£'000



Cash at bank - Sterling

1,212

288

1,212

288



Cash at bank - US Dollar

-

1

-

1



Cash at bank - Indian Rupee

1,711

-

1,711

-




________

________

________

________



Total

2,923

289

2,923

289




________

________

________

________










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






Financial liabilities



Excluding short term creditors, the Group had no financial liabilities as at 31 March 2011 and 31 March 2010 which had interest rate risk.






Interest rate sensitivity



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






Foreign currency risk



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






Foreign currency exposure by currency of denomination:







31 March 2011

31 March 2010





Net

Total


Net

Total




Overseas

monetary

currency

Overseas

monetary

currency




investments

assets

exposure

investments

assets

exposure




£'000

£'000

£'000

£'000

£'000

£'000



US Dollar

10,830

-

10,830

7,206

1

7,207



Indian Rupee

146,710

1,711

148,421

121,904

-

121,904




________

________

________

________

________

________




157,540

1,711

159,251

129,110

1

129,111




________

________

________

________

________

________






At 31 March 2011, the exchange rate of the Indian Rupee against the reporting currency Sterling was £1: INR 71.484 compared with an exchange rate of £1: INR 68.101 at 31 March 2010. Based on continuing to hold the same investments in the same quantities from 1 April 2010 to 31 March 2011, all other things being equal, the impact of the exchange rate movement over the year would be to decrease the value of the investments by £5,769,000 (2010 - £4,007,000).






Foreign currency sensitivity



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






Other price risk



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






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






Other price risk sensitivity



If market prices at the Balance Sheet date had been 25% higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 March 2011 would have increased /(decreased) by £39,385,000 (2010 - increased/(decreased) by £32,278,000) and equity reserves would have increased /(decreased) by the same amount.





(ii)

Liquidity risk



This is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is not considered to be significant, as the Group's assets mainly comprise readily realisable securities which can be sold to meet funding requirements, if necessary.





(iii)

Credit risk



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






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



-

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



-

the risk of counterparty exposure due to failed trades causing a loss to the Group is mitigated by the review of failed trade reports on a monthly basis. In addition, the Custodian carries out a stock reconciliation to the Administrators' records on a monthly basis to ensure discrepancies are picked up on a timely basis. The Manager's Compliance department carries out periodic reviews of the Custodian's operations and reports its findings to the Manager's Risk Management Committee. This review will also include checks on the maintenance and security of investments held; and



-

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






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






Fair values of financial assets and financial liabilities



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

 

17.

Capital management policies and procedures


The Company's capital management objectives are:


-

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


-

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








2011

2010



£'000

£'000


Debt

-

-



_________

_________


Equity




Equity share capital

14,768

11,739


Retained earnings and other reserves

144,074

117,581



_________

_________



158,842

129,320



_________

_________


Debt as a % of net assets

0.0%

0.0%



_________

_________




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


-

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


-

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


-

the need for new issues of equity shares; and


-

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





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




The Company had no loan gearing at the year end (2010 - nil).

 

18.

Fair value hierarchy


The Company adopted the amendments to IFRS 7 'Financial Instruments: Disclosures' effective from 1 January 2009. These amendments require an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following levels:




-

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


-

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


-

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





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






Level 1

Level 2

Level 3

Total


Group

Note

£'000

£'000

£'000

£'000


As at 31 March 2011







Financial assets at fair value through profit or loss







Quoted equities

a)

157,317

-

-

157,317


Unlisted GDR

b)

-

223

-

223




_______

______

______

_______


Net fair value


157,317

223

-

157,540




_______

______

______

_______


As at 31 March 2010







Financial assets at fair value through profit or loss







Quoted equities

a)

129,110

-

-

129,110




_______

______

______

_______


Net fair value


129,110

-

-

129,110




_______

______

______

_______











Level 1

Level 2

Level 3

Total


Company

Note

£'000

£'000

£'000

£'000


As at 31 March 2011







Financial assets at fair value through profit or loss







Quoted equities

a)

10,830

-

-

10,830


Investment in Subsidiary

c)

-

147,477

-

147,477




_______

______

______

_______


Net fair value


10,830

147,477

-

158,307




_______

______

______

_______


As at 31 March 2010







Financial assets at fair value through profit or loss







Quoted equities

a)

7,206

-

-

7,206


Investment in Subsidiary

c)

-

122,063

-

122,063




_______

______

______

_______


Net fair value


7,206

122,063

-

129,269





_______

______

______

_______


a)

Quoted equities








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


b)

Unlisted GDR



The fair value of the Group's investment in an unlisted GDR has been determined using observable market inputs other than quoted prices included within Level 1.


c)

Investment in Subsidiary



The fair value of the Company's investment in its Subsidiary has been determined by reference to the Subsidiary company's net asset value at the reporting date and hence is categorised in Fair Value Level 2.





This Annual Financial Report announcement is not the Company's statutory accounts. The above results for the year ended 31 March 2011 are an abridged version of the Company's full accounts. The 2011 and 2010 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying the reports, and did not contain a statement under s.498 of the Companies Act 2006. The financial information for 2010 is derived from the statutory accounts for 2010 which have been delivered to the Registrar of Companies. The 2011 statutory accounts will be filed with the Registrar of Companies in due course.


The Annual Report will be posted to shareholders in June 2011. Further copies may be obtained from the registered office, Bow Bells House, 1 Bread Street, London EC4M 9HH or from the Company's website, www.newindia-trust.co.uk.


The Annual General Meeting will be held at Bow Bells House, 1 Bread Street, London EC4M 9HH at 11.00 a.m. on 22 September 2011.


By Order of the Board

Aberdeen Asset Management PLC

Secretaries

 

6 June 2011

 


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